McEwen Mining Inc. (NYSE:MUX) Q2 2023 Earnings Call Transcript

McEwen Mining Inc. (NYSE:MUX) Q2 2023 Earnings Call Transcript August 10, 2023

McEwen Mining Inc. beats earnings expectations. Reported EPS is $-0.46, expectations were $-0.74.

Operator: Hello, ladies and gentlemen. Welcome to McEwen Mining’s Q2 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; Carmen Diges, General Counsel and Secretary; Jeff Chan, Vice President of Finance. After the speaker’s 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 and welcome, ladies and gentlemen. Today, I will be discussing the highlights of our operating and financial results in Q2 and the first half of this year as well as our expectations for the balance of the year. Our press release of this morning discusses these matters in greater detail, and members of senior management are on the line to answer your questions. As many of you are aware, our gold and silver assets had a weak start for the year. While activities at McEwan Copper’s Los Azules project we’re running at a rapid pace. I’m pleased to say that our mines delivered better results in Q2 than Q1 and the outlook for the second half of the year is significantly better. But I’d like to share with you the highlights of the first quarter – this quarter that’s passed second quarter.

One, the Fox Complex generated gross profits of $6 million and is expected to deliver on our guidance. The San Jose performance was much stronger in Q2 than in Q1, and it too is expected to deliver on its production guidance, but costs will be 10% to 20% higher on a cost per ounce basis. At Gold Bar, the outlook, again, is looking significantly better as a result, and we are increasing the mining rate we’ll be mining with a lower strip ratio and processing a higher grade of ore. McEwen Copper released in June, its updated preliminary economic assessment. It displays a project with robust economics, a long life, low production costs and based on an environmentally sensitive approach to mining. Safety at all of our sites was the way we like it.

No lost times at Fox and Gold Bar. We improved our balance sheet by reducing our debt by 39% to $40 million. And financially, we consolidate the financials of our 52% owned subsidiary, McEwen Copper. And as I said, we’ve invested heavily in exploration and other work in order to complete the updated PEA. So our quarter end, our consolidated liquid assets were $85 million, with an additional $29 million in investments. Our working capital was $92 million, and our consolidated net loss in the quarter was $22 million and in the first half, $65 million, again, reflecting the very heavy investment in moving the Los Azules project forward. And we’ve increased the value of Los Azules significantly during this period, it now has a value of about $555 million implied based on the last financing we did.

Our investment in exploration at Fox has given us a resource base and confidence to see a mine life being extended by 9 years. And in Mexico, construction of the Phoenix project is expected to start later this year and provide a 9 year mine life. In terms of our share performance since the beginning of the year to present day, we’re up just under 18% in U.S. dollars. And that compares against the GDX, which is down 1.8%, the GDXJ, down 5.2%. Gold’s up 4%, the Dow’s up 6%. And the NASDAQ is the early one of those that has outperformed. It’s up 32%, largely driven appears by generative AI development. And I have to say that the mining world will be embracing generative AI as we go forward like many other industries I’d now like to open the conference call for questions.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Jake Selesky with Alliance Global. Your line is open.

Jake Sekelsky: Hi Rob, thanks for taking my question.

Rob McEwen: Thanks Jake.

Jake Sekelsky: So just starting off at the Fox Complex. You mentioned grades should tick a bit higher in the second half of this year. Are you able to quantify that at all? I’m just trying to get a handle on how that might impact costs for Q3 and Q4 heading into next year.

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

William Shaver: Yes, sure. Yes, Jake, we expect that the grade in the second half of the year is going to be closer to 4 grams per tonne. The second quarter, the grade was closer to 3 grams per tonne. And that goes back to our original budget and mine plan for this year. So it – the original plan had us with a lower grade in the first half of the year and a little bit higher grade. And we’re now into the higher grade to the stock we’re in, right this week is the grade is more like 5 grams per tonne. So we’ll see the grade increase, and so that will move our costs down by a significant amount. And so we’ll finish the year following our guidance almost exactly right. The upside, I would say, is the fact that the mill has run significantly better in the second quarter.

We had some more or less record months of around 1,250 tonnes per day for the quarter. May and June was actually closer to 1,320 tonnes per day. So if there’s upside, it’s in the fact that we’re – we’ve been able to increase the tonnage through the mill. And if the grade stays where we think it will, and there’s no reason to think it won’t be predictable, then we’ll have a slightly better second half.

Jake Sekelsky: Okay. That’s helpful. And good to see there. And just switching over to Los Azules. Any color on the work that’s left for the feasibility study, the timing of the report and maybe the specifics that are milestones that need to be hit just to switch over from expensing investments there to capitalizing them.

Rob McEwen: Michael?

Michael Meding: Sure. So we slate the delivery of the feasibility study to the end of 2024, beginning of 2025. We have confirmed the main consultants that are working with us to the delivery, mainly the most important one I would say, is [Semel engineering] and [indiscernible]. Semel has helped us in the PEA and as well as [indiscernible] was also delivering our environmental impact assessment report. So that is well under the way. We need to drill about 45,000 meters. We have secured already 16 drills to be able to do that. We own 4 drill rigs and bought another two and import permits. We’re looking to get another two to ensure that we can get through the drilling program to be able to get all the information required to feasibility level of detail.

So I think we are very optimistic going forward. Now with regards to the capitalization criteria, especially the environmental permanent issues plus the feasibility study. Perry, I’m not sure whether you would like to give additional insights?

Perry Ing: Yes. Now, I think that’s an accurate statement, Michael. And just for context, I mean, that’s a result of us obviously being a U.S. GAAP reporter. And assuming if we IPO McEwen copper at some point, we could have a situation where if McEwen to report under IFRS, it would actually capitalize those costs. The criteria under IFRS are a lot looser, whereas McEwen Mining would still have to continue expensing those costs. So that’s just a unique feature of the differences in accounting policies.