Allied Nevada Gold Corp. (OTCMKTS:ANVGQ)’s Minimal Progress In Addressing Massive Debt Load

Allied Nevada Gold Corp. (OTCMKTS:ANVGQ) reported minimal progress in reducing its massive debt load as it struggles to find liquidity to carry on its operations. There seems to be no royalty streaming deal or JV agreement that would de-risk Allied Nevada’s stocks and send prices soaring. The management failed to address the most pressing concerns as the situations becomes dire.

The problems

Allied Nevada owns the Hycroft Mine in region Nevada. It is a huge project with almost 250,000 oz. of annual gold production. In developing Hycroft Mine, the company opted for a substantial amount of debt. Also, it ramp-up program coincided with a sharp drop in the gold price, leaving the company in a dismal situation.

The production costs

Allied Nevada Gold Corp. (OTCMKTS:ANVGQ) production costs in 2013 didn’t accounted the financial obligations, indicating that the Hycroft mine was barely reporting a profit. It implies it didn’t consider the impact of slump in the gold prices which would turn down its cash flow negative. Given, the debt load of Allied Nevada, It was a bad situation for the company. On the other hand, rising gold prices would have helped it to mitigate its financing expenses relative to its cash-flow.

The reality check

The gold prices remained weak, and Allied Nevada debt proved to be a burden in FY2014. The production costs surged, and the thin margins failed to compensate for increased operating costs. The market conditions became unfavorable for the company. The market expected that dire financial performance would force Allied Nevada to opt for a JV or a royalty and streaming deal. As of now, it has not materialized. Even if the company managed to get a conservative deal, the stocks would rally as they have tremendous upside. Last month, the company reported its 4Q results which reflected an increase in silver and gold production to almost 250,000 gold equivalent ounces.

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