Allied Nevada Gold: Turning Around or Falling Down?

Jianyu Zhao  |

On July 1 shares of Allied Nevada Gold Corp. (ANV) , a gold producer, decreased slightly 1.06% to $3.72 per share. With an average trading volume of 3,377,780, the stock has a 52-week range of $2.61 to $7.50. After the high hit in March 2014, the stock plunged until a sign of rebound at the start of June.

Allied Nevada's stock has been quite volatile as of late, and has split the investment community. Given some recent good news from the company, can Allied Nevada Gold keep the rebound going?

Debts and Lawsuits Causing Troubles: The Bear’s Case

Allied Nevada Gold is engaged in the mining, development, and exploration of properties in Nevada, which is a fantastic place to mine as its stable geographic situation and friendly policies for mining. The company’s principal products include unrefined gold and silver bars. However, in the past six months, the company’s stock did not seem to be a golden one to invest in. 

The company has a high load of debts. The stock currently has a debt-to-equity of 0.73, much lower than the industry average of 35.3, causing Allied Nevada Gold to currently lack enough cash flow for expansion projects.

The company released its financial reports for Q1 of fiscal 2014 on May 5. According to the report, the debt in Q1 increased from $76.78 million to $77.305 million, while gold and silver ounces sold in Q1 of fiscal 2014 were more than double that of the same period of fiscal 2013, up 118 % and 132%, respectively. With the widening debt, Allied Nevada Gold is unlikely to expand its Hycroft mine. The Hycroft is the company’s only mine that currently operates, but it still produced 60,114 ounces of gold and 412,506 ounces of silver in Q1 of fiscal 2014.

In addition, a class action lawsuit has caused Allied Nevada Gold headaches. On April 4, purchasers of Allied Nevada Gold alleged that the company violated the federal securities laws by disseminating false and misleading statements to the investing public between January 15, 2013 and August 5, 2013, according to PR Newswire. The investigation is still on going, but no matter Allied Nevada Gold will win the case, it has already affected the company’s reputation.

Furthermore, there was a rumor early 2014 that Allied Nevada Gold would be taken over by a company called China Gold Stone Mining Development with a bid of $7.50 per share. The company responded that it would refuse the alleged proposal as two major concerns. The first one was that Allied Nevada Gold could not find any “substantive published information on China Gold Stone and cannot substantiate the credibility of the Proposal.” The other concern was that China Gold Stone seemed like a fake company, which did not have the “financial resources to complete the proposed transaction.” Even though the bid story proved to be false, it somewhat made Allied Nevada Gold to look like a cheap, potential takeover target.

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Golden Chances To Rebound: The Bull’s Case

The Hycroft mill might be the company’s only operational mining site but the company has taken several actions to keep it functioning. On April 22, Allied Nevada Gold released a summary of the prefeasibility study results for the Hycroft mill expansion, which was suspended early 2014 as the lack of money and technological issues including broken crushers. According to the study, Allied Nevada Gold expects a two-phase construction plan for the 20-year mill expansion, including operating cost estimates, financial model, mineral reserves and mine plan. The study also demonstrates that through the expansion, the annual income of gold and silver from 2018 to 2022 will be approximately $585 million for gold and $455.07 million for silver, based on a $1,300 per ounce of gold price and a $21.67 per ounce of silver price, respectively.

“I have stated repeatedly since joining Allied Nevada that I believe that the Hycroft mill expansion is a project that needs to be built,” said CEO Randy Buffington. “There aren’t many large projects today located in politically stable jurisdictions with complimentary infrastructure like this one. I believe this prefeasibility study addresses many of the risks associated with the previous plans, while maintaining robust financial returns.”

To achieve the goal, the company began with cutting its massive load of debts. On January 27, 2014, Allied Nevada Gold signed a Letter Agreement with West Kirkland Mining Inc. ($WKM) to divest its non-core Hasbrouck and Three Hills Properties for a total purchase price of $30 million. According to the agreement, Allied Nevada Gold would be partially relieved from the high debt. In addition, the company announced on May 9 that it signed a Third Amended and Restated Credit Agreement with The Bank of Nova Scotia and Wells Fargo Bank, which would increase the available borrowing capacity of the facility from $40 million to $75 million. With the bank’s help that has a maturity date of April 30, 2016, Allied Nevada Gold will gain additional cash flow in building the mill at Hycroft. In the meantime, the company holds $51.5 million on the balance sheet classified as assets for sale. Considering the factors above, Allied Nevada Gold may take a breath and assume no any serious liquidity problems in the near future.

Furthermore, the company has solved another technologic issue, stating that the “temporary repairs to the secondary and tertiary crushers have been completed and the crushing system is back in operation.” The completion of repairs is a crucial step to ensure the company’s full year production.

Overall, Allied Nevada Gold has to make sure that the Hycroft mill expansion operates very well so that its stock may rebound like it did near the end of 2013. Though there’re acquisition rumors, the company’s stock might have bottomed out. With additional financial resources from banks and other companies’ partnership, Allied Nevada Gold’s stock could have growth potential.


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