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ARG: Solid Q2 Financials; Paid Off $4M of Debt

What you need to know:
• Amerigo reported strong Q2 financial results, generating revenue of $50.8M (-1% YoY) vs. our expectation of $52.6M.
• EBITDA was $17.8M vs. $20.0M expected, while OCF was $11.9M vs. $15.5M expected. ARG paid off $4.0M of debt during the quarter, ending the period with net cash of $17.2M.
• Management stated that ARG remains on track for its annual guidance and to pay off its debt by year-end, freeing up additional cashflow which can be returned to shareholders.

This morning, Amerigo Resources (ARG:TSX, ARREF:OTC) reported its Q2 financial results, which missed our expectations but were solid nonetheless. The quarter was driven by sustained high copper prices as well as continued operational improvements by the ARG team, leading to declining cash costs. ARG pre-released its Q2 production, click here to read our note on the announcement. We are maintaining our BUY rating and our C$3.00/share target price on ARG.

Q2 Financial Highlights
• Copper produced came in at 15.5Mlbs (+11% YoY), which was reported on July 9th. This was lower than our expectations due to inclement weather issues and slightly lower copper grade than expected for the fresh tailings portion. Please refer to our note on the production results for a deeper dive.
• Revenue was $50.8M compared to our expectation of $52.6M, representing a 1% YoY decrease. The delta was due to increased royalty payments and lower than modelled moly revenue. The realized copper price for the quarter was $4.42/lb vs. $4.39/lb in Q1/24.
• Gross margin came in at 24%, compared to our estimate of 27% and the 32% margin reported in Q2/24.
• EBITDA of $17.8M (35% margin) compared to our estimate of $20.0M and $22.3M in Q2/24. Cash costs came in at $1.82/lb, and AISC came in at $3.69/lb, declining YoY due to reduced smelting and refining charges.
• OCF (before working capital) came in at $11.9M (23% of revenue) compared to our estimate of $15.5M (29% of revenue) and $14.3M in Q2/24 (28% of revenue). Notably, current tax liabilities declined by $9.5M.
• Capex was just $1.4M (vs. $3.0M expected), leading to FCFF of $10.5M. ARG paid down $4.0M of debt in the quarter, resulting in FCFE of $6.5M.
• Amerigo returned $7.6M to shareholders in Q2, including $3.5M from the dividend and $4.0M from share buybacks. This resulted in ARG’s shares outstanding declining from 164.1M to 161.5M QoQ.
• ARG ended the quarter with $24.1M in cash and $7.0M in debt.