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Alio to miss 2018 guidance as grades disappoint

The Toronto-quoted equity of precious metals miner Alio Gold (TSX, NYSE:ALO) fell more than 23% on Friday following a disappointing second-quarter financial report.
Alio to miss 2018 guidance as grades disappoint Alio to miss 2018 guidance as grades disappoint Alio to miss 2018 guidance as grades disappoint Alio to miss 2018 guidance as grades disappoint Alio to miss 2018 guidance as grades disappoint

Complicated geology at Alio Gold's San Francisco mine, in Mexico, resulted in lower revenue and higher costs

Vancouver-based Alio reported higher production costs and lower metal revenues, mainly the result of complicated geology at its flagship San Francisco mine, in Mexico, and the recently acquired Florida Canyon gold mine, in Nevada, which is still ramping up.

Alio said revenues fell slightly to C$26.2 million, compared with the $27.1 million reported in the comparable quarter of 2017, while the company flagged 28.6% higher year-on-year production costs at $20.7 million. All-in sustaining costs per ounce rose 38% from $954 to $1,314, and cash flow from operations fell from a $2.7 million gain to an $8.2 million loss, the company reported Friday.

Earnings were $3.3 million, or C5c per share, compared to $3.5 million, or C10c per share during the comparable second quarter a year earlier. The decrease was mainly attributed to lower earnings from operations.

San Francisco produced 14,466oz of gold and 7,661oz of silver, which were significantly lower than the 22,011oz gold and 10,332oz silver it produced in the corresponding quarter last year. This prompted a warning that Alio would probably not meet its 2018 production guidance of between 90,000oz and 100,000oz gold.

Alio said a dual cutoff strategy deployed in January had been unsuccessful to lift the crusher feed grade, and the result, in fact, lowered the feed grade to 0.46 gram per tonne gold compared with the planned 0.59g/t gold feed grade. The company fingered increased blast movement due to finer blasting as what might have caused the diluted grade.

In May, the company updated its resource model and ore control model for San Francisco, and in June and July the crusher feed grade more closely linked with the new model's grade assumption. Alio has developed an interim mine plan for the operation that aims to reduce capital stripping and focuses mining on more profitable ounces, to maintain cash neutral operations. It will publish an updated technical report on the mine by the end of the year.

At the Florida Canyon operation, Alio reported increased cyanide consumption and other costs resulted in higher costs.

Alio did not issue updated guidance for the remainder of the year, since it was working on a new technical report and revised mine plan for the Florida Canyon mine, slated for publication by year-end.

It has also temporarily suspended development work at the Ana Paula project, also in Mexico, to focus capital expenditures on its operating mines.

Alio shares closed 18.5%, or C32c lower on Friday, at C$1.41 apiece, giving the company a market valuation of $118.14 million.