Due to a lag in gold production, Patagonia has closed two of its mines. Shares of the company crashed almost 50 percent on the news.
Shares of Patagonia Gold (LSE:PGD,OTC Pink:PATAF) sunk close to 50 percent on Tuesday (February 19) after the company reported that it would be closing its Lomada de Leiva mine and idling the Cap Oeste operation.
The gold and silver miner claimed that lower-than-expected production volumes during 2018 was the reason behind the decisions.
“Current production is below management expectations and is not sufficient to cover operating costs. Given the nature of the project there are no options for scaling production and therefore the company has decided to cease production,” Patagonia stated in a press release.
The Lomada de Leiva mine, which has just been reopened in November, will be closed by end of February, as the miner was unable to deliver on the 10,000 ounces of gold it had hoped to recover over a 12-month period. Since the mine was unable to produce enough of the yellow metal, the mine’s operational costs were not covered.
As for the Cap Oeste asset, it was shut down in July of last year with operations consisting solely of reprocessing the ore previously placed on the heap leach for the remainder of the year.
The re-processing of ore was expected to come to a close in May of this year, following production of approximately 6,300 ounces of gold equivalent. Unfortunately for Patagonia, current monthly production is approximately 1,000 ounces and there are no expectations that this number will increase, leading the company to put the mine on care and maintenance.
Despite this, Patagonia noted, “the company is still evaluating the development of the high-grade underground resource which contains approximately 300,000 ounces of gold equivalent at 20 grams per tonne gold.”
The company also reported that it is in the process of discussing future financing alternatives with its major shareholders.
In January, the miner released its Q4 and FY 2018 results, noting that total production for the year was 42,906 ounces of gold equivalent (excluding production from Lomada de Leiva of 5,917 ounce of gold) at an average cost of US$507.
The company also reported that it was 5 percent below its total guidance of 45,000 ounces for the year.
“This lower-than-anticipated production during Q4, primarily during the month of December 2018, was the main reason for not achieving guidance,” Patagonia stated in a press release.
As of 11:28 a.m. EST on Tuesday, Patagonia was down 47.37 percent, trading at GBX 50.00.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.