Allied keeps close eye on cash position

Despite record gold and silver production for 2013, Allied Nevada Gold Corp of Reno continues to be plagued by liquidity problems.

The company headquartered in South Meadows sold 181,941 ounces of gold and 858,073 ounces of silver last year from its flagship Hycroft mine 54 miles west of Winnemucca, which is 33 and 41 percent more precious metals sold than the previous year, respectively. However, the company ended the year with just $1.4 million in profit after recording profit of $47.7 million in 2012.

Allied Nevada reported total revenue for the quarter ended Dec. 31 of $82.9 million and a net loss of $16.6 million. The company, which began production at Hycroft in 2009, ended the year with $81.5 million in cash on its books and expects to need at least $100 million in 2014 to cover all its cash commitments for the year, said Stephen Jones, the company’s chief financial officer and executive vice president, in a conference call with investors and analysts last week.

In order for that to happen, Jones said, the price of gold per ounce must remain between $1,250 and $1,300 an ounce. Last week it traded about $1,340 an ounce.

Its cash on had will provide enough working capital for the next 12 months, the company reported in its annual filings with the Securities and Exchange Commission. In its annual filing with the SEC, Allied Nevada reported total debt of $599.2 million.

The company enacting sweeping cash reduction efforts throughout 2013, including slashing capital spending efforts on its housing project in Winnemucca and delaying development of infrastructure and equipment for the Hycroft mine.

The firm laid off nearly 25 percent of its workforce at Hycroft mine and trimmed its corporate workforce by 40 percent in the third quarter. Separation and severance costs totaled nearly $6 million. At year’s end, Allied Nevada had 404 people employed at Hycroft and an additional 24 employees in its South Reno offices.

Allied Nevada is banking on sale of previously purchased mining equipment to provide additional liquidity — as much as $47.4 million of the assets on its balance sheet represents items that are on the block for sale. Among items the company seeks to divest are a $24 million new shovel, $9.2 million in older mining equipment and $7.6 million in townhomes and single-family home sites it developed in Winnemucca with homebuilder Homecrafters of Reno.

Allied Nevada wrote down about $11.7 million against those assets in 2013, Jones said.

As liquidity problems began surfacing, mainly as a result of its massive debt and unsustainable capital expenditure in 2013, Allied Nevada’s stock began a long and painful fall. It started 2013 at a high of $31.31 and bottomed out at $3.01 in the fourth quarter. Capital expenditure for 2013 at the Hycroft Mine for expansion was about $327.6 million, and Allied Nevada has an additional $73.8 million of outstanding purchase obligations for expansion expenditures it expects to make this year. It ended 2012 with $347 million in cash on its balance sheet.

A boost in production can only help the beleaguered company. With its new crusher in place, Allied Nevada expects to produce between 230,000 and 250,000 ounces of gold and 1.7 to 2 million ounces of silver at Hycroft in 2014.

The falling price of gold led the company to shelve its plans to build a mill, but the addition of a gyratory crusher allows it to recover more gold from ore placed on the heap leach pads.

“We currently believe our annual sales projections are attainable as we sold 60,460 ounces of gold and 352,922 ounces of silver during the the fourth quarter of 2013 when our Hycroft Mine began to operate near its steady-state, heap leach capacity,” company executives reported in their SEC filing.