Argonaut Gold Inc

TSX:AR

Earnings Call Transcript 2021-Q2

[Operator]

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Argonaut Gold 2021 Q2 Financial Results Conference Call and Webcast [Operator Instructions]. Thank you. Mr. Dougherty, you may begin your conference.

[Peter C. Dougherty, President, CEO & Director]

Thank you, Michelle, and welcome, everybody, to Argonaut's Q2 Financial and Operating Results Conference Call and Webcast. Today, we are joining you from Northern Ontario near our Magino property. We just had the opportunity to complete the belated sod-turning ceremony with Minister Rickford, some of our First Nation partners and local surrounding mayors. It was a great pleasure to host them now that the burdens of COVID are beginning to lift. I have with me today Dan Symons, Vice President of Investor Relations and Corporate Development; and Dave Ponczoch, our CFO. I want to excuse other members of the Board and members of management as they are at Magino again today doing further follow-up visits. I want to thank everyone for taking the time to join the call today. It's a great time to be in Argonaut. We had a fantastic quarter, both financially and operationally. Today, we're going to walk through the Q2 results, which yielded record quarterly production and revenue, very strong cash flow and earnings. Additionally, we are going to spend time providing you with an update on the Magino construction and the ongoing exploration probes at Magino and La Colorada coupled with the improvements being made at our Florida Canyon operation. The picture you see here is the new crushing and conveying system that we recently completed installing at our Florida Canyon project, we'll talk a bit about that later. If you could please turn to Slide #2, forward-looking information. During this presentation, we will be making forward-looking statements based upon our best knowledge as of today. Please note that we cannot predict the future with 100% accuracy, but we will do our best based upon the information we have today. Please turn to the next slide, Slide #3, Q2 2021 and recent highlights. What makes Argonaut unique is that we really check all the boxes. Whether you are looking for operations that provide cash flow or you are seeking a growth story through development or you're focused on the exploration sizzle, Argonaut provides all of the above in one package. You might say, we are a one-stop shop for the investor. Today, Argonaut is in a good position on all fronts, record quarterly production for the third quarter in a row, record quarterly revenue for the second quarter in a row, a strong cash flow of nearly $40 million, solid earnings of $0.07 were on an adjusted basis, $0.08 per share. We continue to have exciting exploration success at depth at both the Magino and La Colorada projects and we are tracking on schedule with construction at the Magino project. And recently, we have completed the Florida Canyon convey and stack project and an additional leach pad expansion at our San Agustin mine. As I said earlier, it is extremely satisfying when we are firing on all cylinders, and this is due to the amazing men and women that we have working for us. Please turn to the next slide. Slide #4, Q2 2021 and recent highlights. It was really an outstanding second quarter for the company. We delivered, as I said before, record quarterly revenue on the back of record quarterly production and earnings of $0.07 or $0.08 per share on an adjusted basis. We began the year guiding to approximately $100 million in free cash flow from the operations to come in 2021 and with approximately $70 million banked at this point in time. We are well on our way towards achieving and likely exceeding that target. It was also a terrific quarter for the company in delivering on our short-term and long-term initiatives. The Magino construction project, which we will discuss in more detail later on, currently tracking on schedule for a Q1 '23 gold pour. I would encourage everyone who hasn't already done so to sign up for our website -- through our website to receive our monthly newsletters so you'll get regular updates on the construction of the project. We received permits for and completed the construction and installation of a new convey and stack system at Florida Canyon, which I'll also discuss in a bit more detail later on. Looking at our long-term initiatives, we continue to have success targeting high-grade gold mineralization at depth at both Magino where we find very exciting results from Noble and South Zone that we discussed in the quarter. We also drilled some of the best holes industry-wide at our La Colorada project below the El Crestón pit where we saw 12 meters at nearly 100 grams gold and 30 grams silver, 21 meters at 45-gram gold and $275 gram per ton of silver. These are amazing results, and I'll discuss this at a point later on in our presentation. But first, I'd like to pass the call on to Dave Ponczoch, our CFO, and have you walk through our Q2 financial performance.

[David A. Ponczoch, CFO & Corporate Secretary]

Thanks, Pete. I'm on Slide 5 entitled Financial Performance. During Q2, we had sales of 65,650 gold equivalent ounces. This led to record quarterly revenue of $120 million for the company. We reported net income of $21.8 million or $0.07 per share and $24.4 million or $0.08 per share on an adjusted basis. We saw strong cash flow of $39.3 million before noncash changes in working capital. This means that during the first half of 2021, we delivered nearly $70 million in cash flow. Please turn to the next slide, Q2 2021 capital spending and cash flow. Looking at our cash flow reconciliation capital spend for the quarter, as discussed, we generated $39 million cash flow before changes in working capital and invested nearly $58 million in capital programs. You can see that the bulk of this, nearly $44 million was invested in the Magino construction project. I'd like to note that we have $64 million accrued this quarter and $103 million through the first half of the year towards the Magino construction project. As expected, there's a timing difference between incurring the expense and making the cash payment, which is why you see an increase in accounts payables and accrued liabilities for Q2. We ended the quarter with a solid cash position of $216 million. I'll now turn the call back over to Pete so he can walk through the operation highlights. Pete?

[Peter C. Dougherty, President, CEO & Director]

Thank you, Dave. Can we all turn to Slide #7, operations overview? It was another record quarter for the company, the third in a row with nearly 64,000 ounces produced. All 3 mines in Mexico are meeting or exceeding our expectations to start the year. At Florida Canyon, we saw vast improvements quarter-over-quarter and are slowly moving in the right direction since acquiring this project last year. When we compare the previous quarter at Florida Canyon, production was up 15% and its cash costs were down nearly 24%. We have recently completed the convey and stack system, which we anticipate will reduce cost at this project and streamline the operation further. We will start to see the benefits of this investment in Q4 of this year as we ramp up to design capacity during Q3. I'll talk a little bit more about this a little bit later on, but truly an outstanding quarter for the operations. Please turn to Slide #8. Recent quarterly production and cash flow. I wanted to take a moment and put this in context to show you what has been happening at Argonaut and why I'm so excited to see where we are and what we can do for the future. This slide depicts not only the production profile, but also cash flow profile coming out of those operations. Outside of COVID-19 temporary suspension impact during Q2 of 2020, we have been building an amazing story of solid operational consistency. We are coming off our third quarter of record production with the higher gold price also accompanying us creating amazing cash flow of nearly $40 million for the quarter. This should only continue to improve in the future as we begin to transform from a relatively high-cost operating company to a lower cost operating company with our development pipeline highlighted by the Magino Gold project, which should come online at the beginning of 2023. Please turn to the next slide. Slide #9, 2021 guidance. It is clear to say that we are well on our way towards achieving the 2021 production and cost guidance as we have produced some 124,000 gold equivalent ounces out of the 200,000 to 250,000 that we had outlined at the beginning of the year and done so at sub $950 per ounce. While we are not changing our capital guidance for 2021, we are moving things around a bit by decreasing our spend at La Colorada by $10 million, primarily due to deferring stripping at our Veta Madre pit and increasing the spending at our Magino project by $10 million. Hence, the overall annual capital spend on a consolidated basis remains the same. We believe deferring the stripping at our La Colorada project until the fourth quarter of this year is the right thing to as we begin to unpack what these higher-grade drill results underneath the El Créston mean to us and we follow through having that additional cash flow at this time. It doesn't hurt to have that additional cash flow during Magino's heavy construction CapEx years. Now to Magino, our initial capital outlay was projected between CAD 480 million CAD 500 million. We anticipate that we felt this could be in jeopardy this year due to impacts of COVID, foreign currency exchange rates, contingencies and potential adjustments to the development plans and cost inflations that hit us just like everybody else in this sector. We now believe we are likely to exceed the 15% overage that we disclosed during our Q1 press release on May 4. I wish I had a crystal ball and could tell you all what is going to happen 2 years from now, but I don't. We are just not in a position to provide an update estimate right now. The team is working through that, and I can let you know things are advancing rapidly, which is beneficial to any build project. In advance things rapidly, we can take risk off the table and reduce that potential overage and they are working to find ways to offset the impact spoken of earlier. However, knowing what others are experiencing in their build costs right now, I believe, our 15% overrun is in jeopardy, would go higher. As many of you know, how we operate at Argonaut as referenced by our San Agustin bill that came in under $30 million, you know if there's a way to get things done within the limits that we have defined before, we will try our hardest to find a way, and I am confident in the team's ability to find opportunities to try and hold cost in check. When we have a solid update on CapEx, we will let you know. Please turn to Slide #10, Argonaut's commitment to sustainability. I want to take a moment and recognize the work our team has done and continues to do with respect to our environmental and social responsibility initiatives. On this slide, you can see examples of some of the initiatives, whether it be the new solar farm at La Colorada or some of the other community initiatives. During Q2, we published our annual sustainability report. This is available on our website, and I encourage all of you to take a moment and read through this document and learn more about some of the exciting and positive steps we continue to take with respect to our employees, health and safety in our communities and the environment. We are quite proud of the efforts that our people have made in this arena. Please turn to the next slide, Slide #11. Conceptual Magino project time line. And now as I promised, I'll give you a brief update on the Magino construction. Most importantly, construction is tracking on schedule and has been advancing well. As I said earlier, we invited several key members to the site here this week and the success of the project and the site on Monday, as we see it, looks fantastic. A virtual beehive, you might say, of work with equipment and people on several fronts are working steadily to advance the project. We've completed 7 months of a 24-month schedule and these next 17 months are going to flyby. As you can see from the schedule that Q2 was primarily devoted towards earthworks, get the process plant site ready for concrete pouring and for the mill foundations. I'm happy to report to all of you that we have already begun pouring concrete. Once we have the concrete for the foundation set, we will begin erecting steel and then covering the working area before the winter. Then everything gets bolted together before dry commissioning followed by wet commissioning near the end of the year. This puts us on target for the first gold port during Q1 of '23, followed by a ramp-up period to commercial production. I encourage all of you to submit to our monthly newsletter or download it from our website, get some additional pictures as to what's happening on a more frequent basis.Please turn to the next slide, Slide #12. Magino, construction update. I think the pictures can say more than I can. So I won't spend much time here, but as you can see from these pictures that construction is progressing well. Open pit has started as well as concrete being poured for the project and the process plant today. Please turn to the next slide, Magino Construction, Slide #13. We also received our occupancy permit this quarter for what we call the main Magino Lodge. This represents a 458-person camp located on the site at the old sawmill out of Dubreuilville. Just this week, as we held the ground breaking ceremony, I was speaking with Minister Rickford and also the local mayors of the local communities, they were quite excited about what's starting to happen in the area, along with our indigenous partners as we did this ground breaking ceremony and a ceremony to turn the project over for construction. Turn to the next slide. Slide #14, Magino Plan View. This slide depicts the project from an aerial view and see from the hash lines, the project boundary between ourselves and Alamos' iron and gold project. They truly are brother and sister projects. With how quickly the Magino construction project is ramping up and evolving, construction project often dominates our conversations with investors. However, let's not forget about the exciting potential for high-grade gold below and adjacent to the open pit.It is no longer just at the border between Magino and Island where we are encountering high-grade mineralization at depth. Our geological team has outlined other structures that they wanted to test that depth to the West and below in the middle of the pit and towards the western edge of the pit. And our team has the geology correct. I can't remember a time in my career when a geological team did mineralization with every drill hole that they plant. It's been amazing to watch these men and women do their jobs, exactness as we have hit high-grade mineralization in all of our drill holes off to the west in these new zones. Last fall, we announced the discovery of the Scotland, #42, Sandy and South zones. This year earlier, we announced the extension of this South zone for a strike length of nearly 1.5 kilometers from the Island Gold property boundary. This is important because as we think about the Island Gold property, their strike length on their reserve and resource looks to be also about 1.5 kilometer. So in total, this region has about 3 kilometers mineralization that has been identified. And it's refreshing to see that all this area is open, not only at depth, but also along strike. This is a great camp and one that is going to come to light as time takes off. This could be one of the largest mineral systems that we might see. That's what our geologists believe. That's what we are investing to unlock of Magino. Please turn to the next slide, Slide #15, Magino high-grade drill results at depth and below the pit. When we look at this from an underground perspective in this long section, you're looking north, and you can clearly see the potential here. When you contrast the open pit mineralization serve grade of roughly 1.1 grams. To these grades, you can see why we are excited. The widths and grades of high-grade mineralization being discovered below and adjacent to the open pit made way to a potential for a new future for Magino. Needless to say, we are very excited by what we've seen. We believe the potential at Magino is tremendous as this continues to expand. Please turn to the next slide, Slide #16. I want to briefly touch on our plan for the deep drilling at Magino for the balance of the year. Our main focus is early-stage resource definition drilling below that of the Elbow and Central Zones. In this line section, you can see starts which represent previously reported drill intercepts of significant grade greater than 4.5 grams. The green dots in the upper portion of the Elbow Zone are where we intend to drill at a spacing of approximately 40 meters while the blue dots, the lower portion of the zone represents about an 80-meter spacing. We expect to finish this early resource drilling definition program on the Elbow and Central Zones before the end of the year. Please turn to Slide #17. High-grade results at La Colorada. Not to be forgotten in all this exploration success that we're talking about at Magino, we are having an amazing year at La Colorada below our El Créston pit where we are actively mining today. During Q2, we announced some of the best drill results we've seen from the entire precious metal sector in recent memory. Here, you see a planned view of the El Créston pit at our La Colorada mine. In April, we announced results from our Phase I drill program to test the down dip extension of things that we see within the pit where we think we could find higher grade that might support potential for an underground mine once the open pit has been exhausted and find grade pit.Please turn to the next slide. Slide #18, high-grade results at La Colorada. Here are 2 cross-sections taken from the El Créston deposit where we are actively mining today. Now this is a little difficult to see, but I'd like to draw your eye to the dark gray line, which represents the current topography of the pit. The blue line shows the ultimate pit as we have defined it to be mining on for the next couple of years. The red line represents what the pit could potentially look like if we used a $1,600 gold price environment. You can see that there is a considerable amount of mineralization that could be encompassed through that. Now as you follow beneath that, you'll see 2 funging same type structures below not only the blue ultimate pit, but also below the red $1,600 come. As we mine down at the El Créston pit, it is not uncommon for us to come across old historical workings from the miners who were mining at El Créston 1800s and early 1900s before the Mexican revolution. Today, we are essentially mining the lower grade halo via the open pit method and processing this via heap leach where the historical miners have previously worked out most of the higher grade core that came from these things. But as you can see here, we seem to have discovered what the old historical miners didn't get to or perhaps maybe because of depth or maybe because of water, we're not quite sure why they couldn't get to it. But mineralization did.Now take a moment and look at these drill results. These are impressive grades, some of the best we've ever seen in this sector. But even more exciting to me is the true width of these intercepts. Look at some of these widths and now that's impressive. These are extremely encouraging results for the first holes that were drilled below the pit. 21 meters at 45 grams gold and 275 grams silver and 12 meters at 99 grams gold and 30 grams silver are some of the best intercepts I've seen in my career. We didn't know what the grades that the historical miners were mining back in the 1800s because it just wasn't available from that period. But what we have just discovered exceeded all expectations. Today, we're actively drilling a follow-up program from these impressive results with 2 RC rigs and 1 core rig. While we prefer the core rigs to better collect sample and structural information, since we're actively mining the RC rigs, really will help us get a better definition and a much quicker [Technical Difficulty]. Needless to say, this time, we are excited about having a new discovery here and hope to know much more about what this could mean for La Colorada future. Stay tuned as we are expecting to finish the Phase 2 drilling here in the latter part of Q3, early Q4 and come up with additional drill results from this area. Please turn to the next slide, Slide #19, optimizing Florida Canyon. Some other very good news during Q2 was that we received the permits necessary to install and operate a convey and stack system at the Florida Canyon project. When we acquired Florida Canyon last summer, we saw an opportunity to eliminate this multiple rehandling of ore and reduce operating costs. As we have now put in the dropbox and the convey and stack system, we now have an opportunity to streamline this project and lower our operating costs by eliminating rehandle. We just recently completed this construction and installed the convey and stack system. This is going to be a huge advantage for this project as we ramp up over the third quarter should start to see the benefits of this investment start to take place in Q4 of the year. Please turn to the next slide. Slide #20, optimizing Florida Canyon. Again, here are some pictures of the overlying convey and stacking system. I'm not going to spend much time on it. But this is a sort of system that we run and is a major point to our success in Mexico. Now we're bringing this here to Nevada, bringing that recipe for success to Florida Canyon. Please turn to the next slide. Slide #21, potential near-term catalysts. And just before we open up the call for Q&A, I wanted to outline some of the upcoming catalysts for Argonaut. Things are happening very quickly at Magino. The first 7 months have flown by or we know it, we will be commissioning Canada's next gold mine. At Magino, we will be pouring gold in early 2023. This will become Argonaut's future flagship operation. Construction updates, coupled with exploration results from both Magino and La Colorada prove positive catalyst in the near-term future. So stay tuned. We are starting to see improvements at the Florida Canyon operation, production ramping up quarter-over-quarter and costs starting to drop. The newly commissioned convey and stack systems should help continue this trend once fully ramped up during Q3. This concludes our presentation today. And now I'd like to pass the call back to our operator, Michelle, and open up the lines for a brief Q&A portion of this call. Michelle?

[Operator]

[Operator Instructions] Your first question comes from Gabriel Gonzalez, Echelon Capital Markets.

[Gabriel E. Gonzalez, Analyst]

Congratulations to you and your team for another fine operating quarter and really what continues to be a very exciting story. Focusing on Magino, I would like to ask if any part of the increased CapEx that you're seeing is any type of change in the scope of the project development? Or does it continue to be primarily a result of supply tightness and just cost inflation due to the post-COVID supply situation?

[Peter C. Dougherty, President, CEO & Director]

Okay. Great question, Gabriel. Thank you for joining us this morning. Yes, as we look at Magino, here's what we see. I don't think we're immune to anything else, anybody else isn't seen out there in the world today and I think they are a bit choppy in this supply chain as we know. And also that we're seeing pressures for fuel and other things right now. So those are the kind of things that we're experiencing. But as I said before, we've got a great team assembled. And if you follow the history of this company, we will do everything we can to keep this within that 15% overrun we had talked about at the end of Q1. So I think we've got the right team to do this, to look for the areas and things are advancing nicely. It's just -- it's the nature of where we are right now.

[Gabriel E. Gonzalez, Analyst]

Okay. So you would say that there hasn't been necessarily any type of changes to the -- I should say the scope of the CapEx spend, as you've indicated, is this just regular inflation that essentially the industry has seen?

[Peter C. Dougherty, President, CEO & Director]

It is. There are some minor changes in quantities that always happen as you get into these projects. But it's more around the inflationary things that we're seeing.

[Gabriel E. Gonzalez, Analyst]

Okay. And just wondering, do you have any flexibility to continue negotiating with some of these contractors on pricing? Is there a large enough pool of contractors available that you can negotiate with? Is that something that you can comment on? Or does it look as though for the time being you're mostly price-takers on these increased costs?

[Peter C. Dougherty, President, CEO & Director]

What I would tell you, Gabriel, is that, as I said before, I think we've got the right team in place. And that team is not only just the Argonaut groups, it's also the Ausenco group and also our Segerson and the other people who are helping us achieve the results up there. If you saw this project last January to today, you would be amazed at how much work has been completed. And the teams are actively at it and so I think that we have the right groups in place. You'll always try and see what you can do to improve and see how those can come to the bottom line. But we're working through that, everybody is working together in joint harmony on this, so.

[Gabriel E. Gonzalez, Analyst]

Okay. And just one last question before I turn it over to somebody else. Just wondering if there's any potential to go back and drill below the Colorada and the Gran Central pits for any potential additional high grade that you're seeing, for example, at the El Créston pit? Or really, is it at this point that potential for high-grade just limited to the El Créston pit as far as the geology is concerned?

[Peter C. Dougherty, President, CEO & Director]

So right now, Gabriel, we're focused right now today at El Créston because we're following up on that. Now if you know much about the history of La Colorada project and you follow it back to the 1800s, early 1900s, you are correct that the Gran Central pit did have some underground and the La Colorada pit, both had some underground and you could see it in the high walls. So there is that potential to go back into those areas. And I'm not going to play my cards on when we're going to do that, but there is potential to go and look definitely at Gran Central, it was a pretty extensive working areas that they had gone into in the high wall as you walk it down.

[Gabriel E. Gonzalez, Analyst]

Congratulations again on another quarter.

[Peter C. Dougherty, President, CEO & Director]

Okay. Thank you. And thank you for the support. It's just been, as I said, when things are firing on all sellers, it makes all of our jobs much easier and it's a great time to be in Argonaut.

[Operator]

Your next question comes from John Sclodnick of Desjardins.

[John Sclodnick, Analyst]

Congrats on the great quarter, Pete and Dan, it was pretty phenomenal. Just not to dwell on Magino too much, but curious if you can get into any specifics on where you're seeing the cost inflation and particularly curious on labor if you're seeing wage inflation?

[Peter C. Dougherty, President, CEO & Director]

John, I don't think we're immune from anything that anybody else has seen. So diesel is a big impact or whenever you're starting the earthworks, and that's what we're experiencing right now, that's hitting us today, right? I think we're all experiencing that and every operation throughout Canada is experiencing that. As far as wage inflation against the 2017 feasibility study, yes, there has been inflation from that. But what we locked in with the teams and where we're at with the labor today, I don't think we've seen a dramatic cost hit there, as far as the contractors are concerned, yes, there has been some higher costs there. But it's not been the dramatic driver. I think the bigger driver has been the inputs on the front end, not only to Segerson but also to ourselves as we're both running fleets. We're in mining down the open pit there and opening up and placing material on the TMF, right, so -- the other small dams as you saw. So both of us are getting hit in that arena as we go forward. [Technical Difficulty] completed this year, right? So a lot of that work is well underway, right?

[John Sclodnick, Analyst]

Yes, absolutely. And good to hear you have the plant covered by winter, I know that was kind of a critical item.

[Peter C. Dougherty, President, CEO & Director]

Well, I'll be happier when I start to see the steel up. All I've seen is the concrete for the floor and for the foundations are going right now, but I'll be happier when I start to see that steel, but that's -- I think we're about a month or so out on that, right, before any of that starts going up. So I mean, it's good to see all the concrete down for the footings and all that, right? But it will be nice when I start to see that steel go up, it will make me sleep a little better.

[John Sclodnick, Analyst]

Absolutely, yes. Yes. No, fair enough. That's a big relief to get that covered. I guess last question from me. Just curious on rains in Mexico through Q3 so far and if you expect any production impact?

[Peter C. Dougherty, President, CEO & Director]

So yes, it's been an interesting year in Mexico. So here's -- so we run in Sonora, right? And in Sonora, if you take a look at what the annual rainfall is, you're looking around 350 to 400 millimeters a year of rain, and we've only got 150 millimeters. So a little bit dry. But most of your rain usually comes in September -- August, September, right? So there's still a chance for Sonora to catch back up. Then we rotate down to Durango, so kind of a little bit south but still north of Mexico City. And they are normally getting around 400 millimeters to 450 millimeters a year. So last month, it was 250 millimeters, and last week it was 60 millimeters in a week. So a lot of rain down there, which is great because you are going to get -- in that first blush, you get some extra ounces, but then you start getting that dilution issue. So you have to watch your heat, you have to watch your PHs, you have to watch your cyanide at the bottom and make adjustments accordingly. So yes, it's been a bit challenging. But so far, I mean, we're only 1 month into this thing. So we're tracking like we should. Now I can tell you, we got 2 of the most -- usually the most wettest months ahead of us yet. But so far, we're tracking like we thought we would.

[John Sclodnick, Analyst]

Yes. I know you guys definitely have some experience managing that.

[Peter C. Dougherty, President, CEO & Director]

Yes, but a lot of water this year, which is going to be great. That's going to be awesome to help out the operations and the communities, too. That's very rural in a lot of subsistence type farming going on.

[Operator]

Your next question comes from [Alan Array,] Private Investor.

[Unknown Attendee]

Yes. I spent a lot of years in the mining industry and a longtime Argonaut shareholder. My question is on the short sitting on the share price. It looks like they drove it down substantially over 20% over the past week. Can you comment on the shorts?

[Peter C. Dougherty, President, CEO & Director]

Yes. What I would tell you on this, Alan, is that it's interesting because we're a company that has tremendous leverage to the gold price. When the gold price rises, you're going to see we're going to be the fastest rocket, right, in the race. And when the gold price falls, we also have that because we have this tremendous leverage, right, through our development projects and also our production and our cost profiles. So I think that drives quite a bit of it. As far as the overall short position, I'm going to let -- Dan Symons is with us, and he tracks and monitors that short position. And we watch it on a weekly basis. And you can see what's driving that. But I would say, on a whole, we're sitting in this...

[Daniel A. Symons]

Yes, we're up about 13 million shares or so short, Alan. And I think a big part of that is we've been -- if you follow the company, we've been 1 of the better performers this year. And there are some that use Argonaut for leverage play to bet against the gold price. And when we've seen -- what we've seen this last week with the gold price coming down, we saw $100 drop. I haven't seen the new data yet, but I would imagine some of those shorts are starting to cover now because that's what certain investors will bet for. As Pete said, because we're high leverage both with our current operating cost profile and then with the cash flow that we're needing for Magino, it creates a situation where some investors will -- they're not playing Argonaut or betting against Argonaut necessarily, but they're looking for a way to have a leverage bet against gold. I know our view fundamentally speaks to a stronger gold price over the mid- to long term. We're going to -- nothing goes up in a straight line. So we're going to get these short-term periods of volatility. But I do think that's what we see sometimes with Argonaut. Now as we continue to develop and advance Magino and we lower our operating cost profile, that should relieve itself because we're not -- we don't have such high leverage then to the gold price. But our margin can expand very quickly in a rising gold price environment or shrink very quickly in a falling gold price environment, so people will play that.

[Unknown Attendee]

Yes, I understand that. And you just have to look back at, say, 2011 to see where AR was sitting at that time, $11, I think we're going to get there and beyond again. And I look forward to a major pain for the shorts.

[Peter C. Dougherty, President, CEO & Director]

Thanks, Alan.

[Operator]

There are no further questions at this time. So I'll turn the conference back over to Mr. Dougherty. Please go ahead.

[Peter C. Dougherty, President, CEO & Director]

Thank you, Michelle, and thank you all of you for joining with us this morning as we take this journey towards building out Canada's next gold mine in Magino, and the exciting drill results that we have. I again, ask you an employee to go to the website and please sign up for the monthly newsletter and stay tuned as we're going to be releasing additional results from both those exciting exploration programs as we roll here through the September -- into the September and early fourth quarter time frame. Once again, thank you, and we'll see you in November when we have our next conference call. Bye now.

[Operator]

Ladies and gentlemen, this concludes the conference. Thank you for participating. You may now disconnect your lines.