Silver Lake Ontario Inc.

In Q1 2021, Harte Gold reported revenue of $27.4 million, up 75% versus the comparable period in 2020, driven by a 62% increase in ounces sold and a 15% increase in realized gold prices. Cash costs were $1,183 per ounce sold, in line with Q1 2020, and all-in sustaining costs were $1,861 per ounce, improving 17% year over year. The company generated $9.2 million in mine operating cash flow versus $3.9 million in Q1 2020, EBITDA of $1.6 million versus $300,000, and net income of $5.8 million versus a net loss of $16.1 million, helped by a $17.3 million reduction in the fair value of the gold hedge derivative liability. Q1 production was nearly 12,000 ounces, up 9% sequentially and 37% year over year, while average grade was 6.1 grams per tonne and mill throughput averaged 716 tonnes per day. For 2021, guidance was cut to 50,000-55,000 ounces from 60,000-65,000 ounces; cash costs were raised to $1,100-$1,250 per ounce and AISC to $1,800-$2,200 per ounce. Management said the 800 tonnes per day ramp-up is now expected late this year, with more clarity on life-of-mine costs to come in the Q2 release.

Frazer Bourchier said the quarter showed continued operational improvement, but not fast enough to meet internal plans, especially around development rates, workforce stability, throughput, and mine flexibility. He emphasized that the company is being more transparent about the root causes and is acting to accelerate drilling, development, staffing, and equipment availability to support the eventual 800 tonnes per day and 1,200 tonnes per day targets. His tone was candid and cautious, stressing that the long-term asset value remains intact but that a stronger balance sheet is needed to unlock it.

Graham du Preez highlighted the quarter’s financial improvement, including $27.4 million of revenue, $9.2 million of mine operating cash flow, $1.6 million of EBITDA, and $5.8 million of net income, with the net income driven by a $17.3 million reduction in the fair value of the hedge derivative liability. He said the company ended Q1 with $21.1 million in cash and cash equivalents, up from $8.2 million at December 31, 2020, helped by New Gold’s $24.8 million strategic investment for a 14.9% stake. He also warned that the company does not expect to generate enough cash from operations to fully fund planned investments and debt service, including the $3.3 million BNP principal payment due June 30, and said additional funding will be needed within the next few months.

Analysts focused on capital needs, reserve/grade implications from the infill drilling, exploration spending, and the hedge book. Management said the funding requirement is tied both to the roughly $22 million revenue shortfall from lower guidance and to accelerated drilling and development, but did not give a single financing answer, instead pointing to the strategic review and possible debt, equity, or strategic solutions. On reserves and grade, Bourchier said the infill drilling does not question the validity of the resource, but it does show the need for tighter spacing to improve stope design and mine planning. On hedges, management said the hedges are fixed at roughly 20,000-21,000 ounces per year, run through June 2024, and have a ceiling price of about $1,400.