McEwen Mining Inc. (NYSE:MUX) Q3 2023 Earnings Call Transcript

McEwen Mining Inc. (NYSE:MUX) Q3 2023 Earnings Call Transcript November 9, 2023

Operator: Hello ladies and gentlemen. Welcome to McEwen Mining’s Q3 2023 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Perry Ing, Chief Financial Officer; William Shaver, Chief Operating Officer; Michael Meding, Vice President and General Manager of McEwen Copper; Jeff Chan, Vice President, Finance; Carmen Diges, General Counsel and Secretary; Stefan Spears, Vice President, Corporate Development. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]. I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.

Rob McEwen : Thank you, operator. Good morning fellow shareholders and guests. Welcome to our Q3, 2023 conference call. The individuals you all heard on the call with me will be participating in our question-and-answer period. I’m going to start by highlighting our share performance over the past 13 months, from September 1, 2022 to present. I picked that date because that is when the market began to see the value of our strategy to finance our McEwen Copper assets separately. Since that time, our share price has increased 133% and has far outperformed the performance of the Dow Jones Industrial Average, NASDAQ, the price of gold, price of copper, and the ETFs of GDX and GDXJ, representing the gold sector. I believe our superior share performance has been driven by the success we have achieved financing our subsidiary, McEwen Copper, where we have raised privately equity of close to US$400 million during this period.

An aerial view of a mining site, with workers extracting gold from the deposit.

Recognizing the impressive size and value of McEwen Copper’s Los Azules project are two global giants, who have provided three quarters of these funds. Stellantis, the world’s fourth largest car manufacturer, and Rio Tinto, the world’s second largest mining company, through its Nuton Venture arm. With the end of winter in the southern hemisphere, we are back up at Los Azules and moving aggressively to complete all the activities necessary to deliver a feasibility study in the first quarter of 2025. As a result of the latest financing, the implied value of McEwen Copper has increased to $800 million, which gives McEwen’s 47.7% ownership interest a value of $382 million, which translates into a value of $7.48 per fully diluted share of McEwen Mining.

I expect our investment in McEwen Mining will continue to grow in value as we advance our large Los Azules project and the demand for copper increases. McEwen Copper is one of our assets. The others are gold and silver mines and a portfolio of five royalties. I believe these assets represent considerable underlying value. The range of our estimated value per share is from $9.32 a share to $29.17 a share, and our share price is currently trading around $7.20 a share. Details of these calculations can be found on our website under our latest corporate presentation. I believe our next performance driver will be our gold and silver mines. After enduring a very challenging three years, we are seeing very encouraging signs that the fortunes of these operations are finally turning around.

Production is increasing at all three of our mines, and it appears that we could achieve the low end of the range of guidance we gave for production this year of just over 150,000 ounces of gold equivalent. Regarding cost per ounce, we expect the Fox Mine Complex should deliver within our guidance range, while Gold Bar and San Jose are likely to come in 10% to 15% over the cost guidance we’ve given. Gold Bar had a particularly difficult nine months. However, this quarter we are putting on a big push to drive up production, and that would result in lower cost per ounce. You might ask, what are these encouraging signs? At the Fox Mine, annual gold production in 2020 had fallen to 24,400 ounces. Since then, it has increased steadily, and we are expecting to reach 45,500 ounces by year end, an improvement of 86%.

At the Gold Bar Mine, daily gold production was a meager 50 ounces at the start of the year. But as the year progressed, the daily gold recovery increased and has averaged year-to-date 92 ounces. And in late October, it really began to accelerate, and by month end it was over 210 ounces, and has continued to climb higher since then. These improvements are a very welcome change, but our share price still has a long way to climb before many of you and myself get back to our cost. I believe the combination of the advancement of Las Azulas, the improving operating performances of our mines, and our continuing exploration efforts will continue to lift our share price, hopefully to the levels we were all expecting when we invested. Many of you have asked the very important question, when will we make a profit?

I’m sorry to say, I’m unable to give an exact date, but this might surprise you. It could be as early as year-end. Our Fox and San Jose mines are now generating positive cash flow, and Gold Bar is expected to generate positive cash flow this quarter. Our expenses have been large for two principal reasons. One, we’ve been consolidating the financials of McEwen Copper and its Las Azulas project, where exploration and development expenses are high. In addition, we have invested heavily in exploration at Fox and at Gold Bar, a major leach pad expansion and exploration expenses represented more than $200 an ounce just in the third quarter. Starting this quarter, our financial statements are likely to change significantly. We expect to be no longer consolidating McEwen Copper’s financials due to our ownership interest dropping below 50% as a result of the recent McEwen Copper financing.

The impact will significantly lower our cash balance, our total expenses, and produce a large unrealized capital gain that will be reflected in both our income statement and balance sheet. Recently, we put out a press release that we filed a new base shelf prospectus, and we’ve had some calls this morning and yesterday. Are we going to do an issue? I want to emphasize that this is not an offering prospectus. We, like most other companies, routinely file these base prospectus just to provide updated information, to put us into a position where we could react if we saw an opportunity, and we’ve done this in the past every few years with a similar base shelf prospectus. I think the market right now is a very attractive market to be looking for opportunity, and we will continue to do so.

The price is right. We were established to grow, but the prior year’s challenges effectively put any consideration of that on hold. Today, the timing is right, and we want to be positioned to act defensively. Operator, I’d like to open the Q&A.

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Q&A Session

Operator: [Operator Instructions]. The first question comes from the line of Heiko Ihle with H.C. Wainright. Please go ahead.

Marcus Giannini: Hi, Rob and team. This is Marcus Giannini calling in for Heiko. Thanks for taking our questions.

Rob McEwen: Happy to.

Marcus Giannini: So, at Gold Bar, you stated in your release that costs increased due to delays from extreme weather and labor constraints during 2023, and then you expect the average cost for the year to be 10% to 15% higher than your guidance. Given these projections, how much of these increases do you view as, say, transitory, and how much of this should we model into 2024? And can you provide any color on the different factors contributing to these expected increases?

Rob McEwen: Bill, would you like to handle that?

Bill Shaver: Yeah, sure. Thanks very much for the question. Yeah, we expect going into 2024 that we will be at or below the guidance that we gave for this year for the following reasons. This year we have spent about $5 million on exploration drilling, and that will continue into next year, probably at about that same value. But this year we also built a new leach pad, which was completed about two or three weeks ago, at a cost of about $7 million. And so that has – those two things have plus or minus $200 impact on our cost per ounce. So, the pad is finished. It was finished basically in the scheduled amount of time and was completed on budget. And as well, if you remember, we changed contractors at the end of 2022. And so the ramp up early in the year was challenging, in part because of the weather and so on.

But now our contractor is doing very well. Their production numbers are higher than required. And the amount of material that we’re putting onto the old leach pad is now approximately 6,000 tons per day. And we’re also putting 4,000 tons a day onto the new leach pad, where we have permission at this point to put material on the pad, but we still don’t have permission to put cyanide onto that pad. But we anticipate getting that permit this week or next week. And basically, so we see the production of gold going to increase for sure for the next two months and hopefully carry on into the New Year. As Rob mentioned earlier, we’re basically at something like plus 200 ounces per day right now. So we’re looking for, in the range of 6,000 ounces per day or per month for the next couple of months.

And I guess we anticipated that that would have started earlier, but we started the construction on a new leach pad late, because of the winter weather from last winter. And we finished it in exactly the amount of time that we said we would, but it was a month late. So rather than the gold production popping up in October, it hasn’t happened until while the last couple of days of October and now November and December. So that kind of explains what the situation is going to look like going forward. Production of funds in good shape, and so we should have a reasonable start to the year next year.

Rob McEwen: Thanks Marcus.

Marcus Giannini: Okay. Yeah, no awesome, that was great. And then just one quick follow-up regarding Los Azules, given that $18.5 million spent this quarter, can you maybe provide some color on where you see this figure trending over the next few quarters? Are there any additional, big ticket items, apart from the feasibility work and drilling?

Rob McEwen: Mike, would you like to answer that?

Michael Meding : Yeah, sure. So the majority of the cost will be mainly on drilling. We have a very comprehensive campaign. We aim to drill more than 48,000 meters. We already have 14 rigs mobilized and will scale up to more than 18. So that is the driver of investment in Los Azules.

Marcus Giannini: Okay, perfect. Yeah, that’s it for me. Thanks a lot, guys.

Rob McEwen: Thank you.

Michael Meding : Thanks Marcus.

Operator: Your next question will come from the line of Jake Sekelsky with Alliance Global Partners. Please go ahead.

Jake Sekelsky : Hey, Rob and team. Thanks for taking my questions.

Rob McEwen: Good morning, Jake.

Jake Sekelsky : So it looks like costs at Fox were lower in the quarter as the turnaround’s taking hold. I’m just curious, is this related mainly to the grade profile or do you think this $1,300 an ounce level is something you can expect going forward?

Rob McEwen: Bill?

Bill Shaver: So yeah, I mean, as you probably know, we’ve increased the production at the Fox Complex from something like 950 tons a day up to now closer to say 1,275. And maybe even a little bit more than that right now. We’re up closer to 1,400 tons a day. And I guess we did have a few issues with some stoke sequencing where the grade wasn’t quite behaving itself, nothing extreme. But – so as we, we expect the grade to be in the back up into the four gram range as we move forward here. So the production for the last quarter – well, as we’ve gone through the whole year, every quarter we improved the production. So we’re in a position now where we think the production going into next year will look pretty much like the last quarter.

Jake Sekelsky : Okay, that’s helpful. And then, Rob, you touched on the M&A landscape a bit towards the end of your remarks. Obviously, valuations have come down across the board, whereas you’ve held up pretty well in a difficult market. I’m just curious, if you expect to take a proactive approach here, if the right opportunity pops up or if you feel that you have your plate full right now? Any thoughts there would be helpful.

Rob McEwen: I’d like to see our currency value a little better and share price before acting. But in terms of the market environment, I think it’s offering terrific value, particularly in the junior and in the explorer space. It’s just, we’ve seen these cycles before, and this just looks like we’re getting ready for a big run up in the price of gold, and it’s good to be looking for opportunity to get a larger mass.

Jake Sekelsky : Makes sense, and I couldn’t agree more there. Thanks again, guys.

Rob McEwen: Thank you.

Operator: [Operator Instructions]. And your next question will come from the line of Joseph Reagor with Roth MKM. Please go ahead.

Joseph Reagor: Hey, Rob and team. Thanks for taking my questions.

A – Rob McEwen: Hey Joe.

Joseph Reagor: So, kind of following on what Jake just asked, should we look at it like, you guys would be looking for a certain type of asset, whether it be early stage exploration that’s highly promising or something that’s late stage that’s in permitting. Where is your thoughts there?

Rob McEwen: That’s a good question. Well, one, we’re contemplating and looking, because we feel our assets are starting – they’ve turned around, and we have a more stable, solid base to push off from. I think if one’s looking, we could use more cash flow, probably a producer or someone who’s, I think, more attractive space would be someone who’s got a permit, so you don’t have to worry about the time delays. It isn’t going to cost a lot of money to put into production, and has some good exploration potential.

Joseph Reagor: Okay, fair enough. And then… [Multiple Speakers]

Rob McEwen: Probably within the Americas.

Joseph Reagor: Yeah, fair thing to add there. And then looking at the balance sheet, so if we ex out the cash that’s in McEwen Copper, you got $6 million in to start the quarter. Do you feel comfortable with that, call it $7 million to $8 million level of cash moving forward? Is there like a certain minimum you guys would like to maintain? Or is there room there to add, say, flow through or something like that in the future to keep advancing projects like stock?

Rob McEwen: We expect our cash balance to grow during the quarter considerably. Flow through, in that we always have exploration. That might be a consideration going forward, just as a way of – an inexpensive way of exploring.

Joseph Reagor: Okay, and if the cash balance does grow a bit for the McEwen parent company, like is there a certain level you’d like to maintain once you get above it, going forward to just provide the proper financial flexibility quarter-to-quarter?

Rob McEwen: That will be very dependent on the market, our share price? We think it’s undervalued at the moment, so not keen to release many shares into an environment like this.

Joseph Reagor: Fair enough. All right, thanks for the color, Rob. I’ll turn it over.

Rob McEwen: Thank you, Joe.

Operator: Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please go ahead.

John Tumazos : Congratulations on all the different progress, especially in Argentina. Rob, how do you think Los Azulis is going to transition from the equity placement stage with a consortium of shareholders and McEwen Mining running the exploration project to one of those great big company mine operators? You know how they like to get presents from their suppliers and act like they are in command. How long do you expect that McEwen will continue to run the exploration project? And when is the right time to let one of those great big beasts tell you what to do?

Rob McEwen: Good question, John. We’ve just raised some money, so that allows us to weather some of the turbulent markets that are around us. We’d like to get to a feasibility or close to a feasibility. We do have conversations with those big companies when they certainly have the expertise to build. But we’re on our way. We’re trying to build a new model here for mining that could make mining more attractive to the general population and more supportive. I think I’d like to see a stronger market for copper before we get into serious discussions with the big ones. And at the same time, our next steps will be talking to some of the large providers of capital, that – so we get a sense of we’d be in a better bargaining position with the majors, knowing what the costs of capital are. So I don’t have a date for you, John, but we’re moving in that direction to get…

John Tumazos : So we’re probably still running the ship for a couple more years.

Rob McEwen: Yes. Yes.

John Tumazos : Thank you. Congratulations on so much progress so quickly now.

Rob McEwen: Thanks, John. I appreciate it.

Operator: There are no further questions at this time. Mr. Rob McEwen, I will turn the call back over to you.

Rob McEwen : Thank you, operator. Thank you fellow shareholders, ladies and gentlemen. The best is yet to come. Thank you.

Operator: That does conclude today’s meeting. We thank you all for joining. You may now disconnect.