McEwen Mining Inc. (MUX) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello, ladies and gentlemen. Welcome to McEwen Mining's Q1 2021 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Anna Ladd-Kruger, Chief Financial Officer; Peter Mah, Chief Operating Officer; Steve McGibbon, Executive Vice President of Exploration. . I will now turn the call over to Mr. Rob McEwen, Chief Owner.
Robert McEwen: Thank you, operator. Good morning, everyone, and welcome. I'm certain everyone will agree with me that 2020 was a brutal year for us. But 2021 has started off with great momentum. One, our treasury is full; two, the going concern qualification is gone from our financials; three, our exploration program is generating strong results as evidenced by today's press release; four, our mine lives and pinenes in Nevada have been extended and operations are now hitting our targets in terms of gold production, but we have much work still to do to bring our cost per ounce down; five, with the much improved copper and silver price over the last 12 months, better than the doubling in both cases. We have -- inside of the McEwen Mining, we have a silver company, QSource and Production, and we also have a very large copper deposit Los Azules, which we're looking aggressively for ways to best advance at projects.
Anna Ladd-Kruger: Thank you, Rob, and good morning, everyone. Just going to give a brief overview of our Q1 results. Our revenue in Q1 from gold and silver sales from our 100% operated properties was just under $24 million. Average realized prices of $17.63 as compared to Q1 2020 of $31 million revenues at average realized prices of $15.91. Production in Q1 was 30,600 gold equivalent ounces. Predominant factors were reduced production from our 100% owned lines of which Peter Mah, our COO, will review in more detail shortly. We reported a net loss of $12.5 million or $0.03 per share. This compares to a net loss of $99.2 million or $0.25 per share in Q1 of last year. The decrease in our net loss relates to an $84 million impairment charge recorded at Gold Bar in the comparative quarter last year. We've also had improved performance from our investment in the MSC San Jose mine in Q1 2021. During the quarter, as Rob alluded to, our treasury is full, we completed 2 equity financings. The first one was specific raise of $12.7 million in Canadian development expenses. And the funds were specifically raised for the development of our new Froome deposit, was part of our Fox Complex in Timmins, Ontario. The second was an equity financing for gross proceeds of $31.5 million. With the completion of these raises, all of our programs are now fully funded for 2021. In addition to this, we received $5 million in dividends in Q1 from our interest in the San Jose mine. We ended the quarter with $52.5 million in liquid assets, $81 million in current assets and a positive working capital of over $35 million. We've been very busy with our exploration program, invested $5 million in Q1. The primary focus was on growing the Fox Complex resource base. We also invested $1.8 million on the Fox Complex expansion PEA and as well as on our Fenix Project in Mexico. Steve McGibbon, our new Executive Vice President of Exploration, joined us during Q1, and he will be providing more details on our exploration program shortly. We continue to manage our operating margins by controlling our capital expenditures and explorer contracts as well as looking to reduce our G&A cost this year. We also began implementing management systems to streamline processes and to gain further efficiency. We expect our financial performance and more specifically cost to continue to improve throughout 2021 as we ramp up our free deposit towards commercial pricing in Q4.
Peter Mah: Thank you, Anna, and good morning all. The turnaround of our operations continues to show positive signs to improve delivery, cost, and growing production from a strong pipeline of resources and discoveries sourced organically from our strategically located assets. During Q1, we met important milestones such as the feasibility studies for the Fenix Project in Mexico and the update at the Gold Bar Mine in Nevada. We also reached an important milestone at the Froome deposit, where first ore was mined in Q1, and currently, mining is progressing as planned. All operations delivered production in line with the results and our expectations. Production is expected to increase through 2021 and achieve 20% to 40% higher than 2020. At the San José mine in Argentina, our attributable production from the mine was 9,500 gold ounces and 492,300 silver ounces for a total of 16,700 gold equivalent ounces. Total cash costs and all-in sustaining costs were $10.88 and $13.28 per GEO, respectively, all of which compared favorably to the same period last year. Moving on to Gold Bar in the U.S. The mine produced 7,400 gold equivalent ounces in Q1 at a total cash cost and all-in sustaining cost of $18.65 and $19.34 per GEO, respectively. Production reflects a 19% decrease from the 9,100 GEOs produced in Q1 2020. Production was impacted by decreased mining and pressure availability due to COVID quarantines, limiting available operators and winter weather hampering mining all resulted in lower gold production. We continue to execute improvement initiatives at the Gold Bar Mine, which include improving contractor mining efficiencies while adding more equipment to accelerate production, potentially stacking more raw to reduce costs and improve throughput; and finally, adding ounces to plan with exploration drilling at Ridge, Pick and Old Gold Bar mine deposits. Production in Q2 is expected to be higher than Q1 and correspondingly cost per ounce are expected to decrease.
Steve McGibbon: Thank you, Peter. During Q1, we raised $5 million on exploration drill, we invested $5 million on exploration drilling and other exploration work. With the primary focus on growing the Fox Complex resource base. And we remain focused on our principal exploration goal of cost effectively discovering and extending gold deposits adjacent to our existing operations to contribute to near-term gold production. At San José, the 2021 exploration budget is $10 million on a 100% basis, with 3 -- $2.3 million being spent in Q1. Recent exploration results generated by our partner and mine operator, have been encouraging, including an outstanding result from the Escondida vein of 62.5 grams per tonne gold at 5,571 grams per tonne silver over 2 meters. Some 1,400 meters of drilling were completed at Escondida and telcon targets in Q1. Escondida, we'll see a further 1,000 meters of drilling in Q2.
Robert McEwen: . But before I just want to thank Steve and Peter for their statements and assessment of where we are we've -- we can expect for the balance of this year to get more exploration results throughout the year. We have large land packages in major gold districts of Timmins and Nevada. And we're also winning an emerging gold silver district in Southern Argentina, where San José mine. The expansion plans for our Timmins operations, where we have 3 million ounces in the indicated category where it'd be released at the end of Q2. And with the doubling of the silver and copper prices in the last 12 months, when you look at the silver mining, we have a silver company inside of through operations delivering silver. With San José mine and the Fenix Project in Mexico. And our large Los Azules copper project, we are progressively pursuing 2 alternatives right now to advance that project. It's very sensitive to the price of copper, and we're looking to monetize that value in any possible way we can. So -- and I would expect the decision there in the next few months. So now I'd like to entertain your questions, please. Operator, please open up Q&A.
Operator: . Your first question comes from the line of Heiko Ihle from H.C.W.
Heiko Ihle: Two quick ones for you. In regards to the strong drilling results today at the Stock West, I mean, it looks like you have several asset results for holes, in your words not mine, some of which contain visible goal that are still pending. Any idea how long it will take for these results? And more importantly, have you encountered any results of Stock West or anywhere else for that matter, that have changed your focus of drilling for that respective site over the remainder of the year? It looks like some more assays at Gold Bar pending as well.
Robert McEwen: Peter and Steve, would you care to answer Heiko's question?
Steve McGibbon: Yes, I can chime in first on that. With respect to drill results pending, we expect to be getting a steady stream of results over time. And we are seeing that there is constraints at assay labs right now that are making that turnaround time, not as quick as we would like it to be, and we're working on opportunities to try to mitigate that somewhat.
Peter Mah: Yes. I would concur with Steve, Heiko. That's Fox Complex. We're drilling Stock West, Stock Main, Whiskey Jack, 147, Contact Zones and Gibson. Gibson has an existing decline which we would probably use to access the Whiskey Jack and the north end their Contact and 147. So those were all in the plan. Very promising, encouraging results, confirming the geologic interpretations and our business cases for the PEA. Over at Gold Bar, Ridge was our #1 target. So we have got some great results there, continued drilling there. The next one we're going to be targeting after that is the Old Gold Bar mine. And targeting analysis of underway there and then talk and will follow, and then we'll also do some follow-up drilling and Pick. So continuing to follow the plan and really encouraging results.
Heiko Ihle: And just a quick clarification with Azules. Obviously, you're saying that cash costs and all-in sustaining are no longer key metrics that you're using, which makes sense. So you're no longer relying on disclosing cash costs, all-in sustaining costs or really anything else. Is there another metric that you would be willing to disclose? Or any more guidance you can give to us in regards to helping us estimate the cash flow from the site for the rest of the year? And any idea with a duration of how long this to come to disclosable assets? Or how to phase this disclosable asset better.
Anna Ladd-Kruger: So Heiko, this is Anna. Thanks for the question. We do provide some costs with respect to El Gallo and , I'm certainly happy to take this off-line to you as well. The cost to keep El Gallo is important as we look to kind of strategically decide what to do with that asset. That will come in probably the next couple of months. We continue to have a workforce there that we're keeping. We are permitted there to start our operations. So in terms of cash flow, I would say we're pretty much breakeven in terms of the care and maintenance. But we do continue to sort of invest in seeking El Gallo along until a formal decision is made by the company on being strategic with the asset?
Operator: Your next question comes from the line of Jake Sekelsky from Alliance Global Partners.
Jacob Sekelsky: Just staying in Mexico, a quick question on Fenix. I'm just curious where it stands from a capital allocation standpoint. And if you guys have any plans to move forward with the development decision there? Or just sort of your thoughts around that?
Anna Ladd-Kruger: Jake, it's Anna.
Robert McEwen: Jake...
Anna Ladd-Kruger: Go ahead, Rob.
Robert McEwen: Go ahead.
Anna Ladd-Kruger: Okay. So at the moment, we are, again, just evaluating strategic options. We will probably come to a decision on that asset in terms of how we will fund it and what the next steps are in the next couple of months, if not sooner. Rob, I didn't know if you add anything further to add on that?
Robert McEwen: No, that's covered, Anna. You covered it well.
Jacob Sekelsky: So that's probably a midyear type event that we'll see something other than that.
Anna Ladd-Kruger: That's correct, Jake.
Jacob Sekelsky: And then just switching over to Black Fox and the Timmins region in general, the hub-and-spoke strategy seems like it's coming together, with Froome coming online. But do you think there's additional M&A opportunity in the region? Or are you guys sort of comfortable with the assets in the land that you have there now?
Robert McEwen: Jake, until our currency is stronger, we're looking at building our base on a -- looking solid before we think it's stepping out.
Operator: Your next question comes from the line of Joseph Reagor from ROTH Capital Partners.
Joseph Reagor: So first thing, the dividend from MSC was pretty significant this quarter. Was that solely from this quarter? Or was there some kind of extra cash in there from previous quarters during the pandemic when maybe the -- guys over m Minera Santa being a little more conservative in holding back the cash?
Anna Ladd-Kruger: I can answer that question. Thanks for the question. So the cash received, it is a bit of both, you are right. So they held that cash for most of 2020 in light of COVID. There is a surplus there and -- so it's about a mix of both. We are certainly happy to have received the $5 million dividend. And there is a signal that there will be potentially more dividend this coming year, but it is really quite dependent on the situation in Argentina with respect to COVID. Certain things right now in terms of their operations, look like they're all back in order. But we sort of remain on hold there with respect to further dividends for the rest of 2021.
Joseph Reagor: Okay. Fair enough. And then switching gears to Gold Bar. Obviously, the cash costs were quite elevated in the quarter. I assume the plan is that as grades tick up and stacking rates tick up over the remainder of the year, we should see cash costs come down. I know you're not giving specific guidance, but is it best for us from a modeling standpoint to assume a gradual decline?
Peter Mah: Yes Joe, this is Peter. Yes, you're exactly right there. Hello? Yes. You're exactly right there. We are working to work through that strip. We talked about last year. We're getting through that releasing ore and looking at opportunity ore and including that the exploration stuff you heard earlier. So we're working towards the feasibility and beating the feasibility.
Joseph Reagor: Okay. And then one final one, if I could, on Gold Bar. From what we've been hearing, there's a lot of people looking to buy operating assets in Nevada. Is that something you would consider selling? Or do you guys consider it kind of like a flagship of the company?
Robert McEwen: Every asset has price. So as -- we're always open to suggestions, but we think our property in Nevada is large. It's on a trend where there's some major mines just above us. And we don't think there is a loss in a exploration potential there. We think there is room to grow that deposits and our Falcon projects significantly. So they have to put a sleep number in front of that.
Operator: . Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research.
John Tumazos: Rob, congratulations on the life extensions at Gold Bar. Concerning the PEA for Black Fox, I'm directing the question to Peter and Steve, I don't understand why it's the PEA when the mill entails and processing is very well defined. How much money would you have to spend to upgrade the gold resources, to determine the precise size and shape of stopes, the mine development layout resolve any uncertainties about top cuts or drill density for it to be a feasibility study, how many holes, how many dollars would that be to have a more certain mine plan?
Peter Mah: I'll start, Steve. John, it sounds like you're on the team already, in the room talking. Yes, those are all big questions. And I think that the reason why we're a PEA and combining the 3 really good project areas in the district. It was quite a challenge to assess the trade-offs and what order we could bring things in and what permitting, and we did a big gap analysis to identify all that. So we're right in the middle of running the cash flows now and answering all those questions. So I can't really report there that will come out, obviously, with the PEA, but we plan to fast track rate to an FS and potentially, in some cases, if we can see a clear enough line of sight right towards project development and early production. And that if you recall in the past calls was our objective to see if we did identify a pathway there. And then we like the Stock West deposit, and we like accessing the Grey Fox area through the Gibson decline, and that's what we're trying to respond to an answer. At Grey box, there's a lot of drilling has been done, but again, up above 400, 500-meter level. So there's a lot more to do. And that will be one of the outputs from the PEA.
John Tumazos: Peter, let me try another way since I'm an honorary member of the team. The year-end reserve for Black Fox was 14,000 ounces. We all know there's more gold there. Since McEwen has bought the project, there's been innumerable over 1-ounce assays often 0.5 meter or a meter narrow. How much money do you think the property merits to drill tightly, so a QP calls it reserves.
Peter Mah: Yes, I'll pass that to Steve, I can add to that, too.
Steve McGibbon: Yes. I guess, specific to Black Fox, what I would say is that as you'd be aware, we do get some very high-grade drill results. But the ore at the same time, is very, very nuggety. And we expect that in order to really be able to identify and seize on that potential that we need to undertake a significant program that probably gets our drilling centers somewhere between 5 and 8 meters to try to overcome that nuggety nature of the ore. And we can kind of confirm what that drilling is from more immediate access points, but the longer-term potential of the property will require a significant amount of drilling, of which we haven't put a final number on at this point. We're really just initially trying to target accessible areas and drill him with a density that satisfies us, but that we would reliably converting them into reserves.
John Tumazos: It's 5 to 8 meters is an impressive goal. That would certainly define the size and the shape of stopes.
Robert McEwen: Correct. I concur with Steve, and we've moved -- we're in the process of moving the production team to Froome, and that way exploration can go about carrying out the drilling and work needed without the pressure of production on their backs. And we like the west flank, we like the deeps and is there potential connection to Froome. So we're still going to be advancing that Stack project, and hopefully, coming forward with a better understanding that's minable shapes and higher grades achievable.
Operator: There are no further questions at this time. Mr. Rob McEwen, and I turn the call back over to you.
Robert McEwen: Thank you, operator. Thank you, everyone, for joining the call, and taking it forward to further exploration news and our PEA coming out of Timmins, and our movement on loss of business. All The best. And a very successful day. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
