McEwen Inc (MUX) 2014 Q2 法說會逐字稿

Welcome to the McEwen Mining second-quarter 2014 financial results conference call. (Operator Instructions) Please note that this call is being recorded today, Friday, August 8, 2014, at 11 AM Eastern Time.

I would now like to turn the meeting over to your host for today's call, Mr. Rob McEwen, Chief Owner. Please go ahead, Mr. McEwen.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to our Q2 2014 conference call. Presenting with me today are Perry Ing, our Chief Financial Officer; and our newly appointed Managing Director, Nathan Stubina.

I am pleased to report that despite lower metal prices, we have good news. Our mines are still generating mine profits. Argentina is providing us with dividends. Our balance sheet liquidity is good, and we are eagerly anticipating increased gold production and lower cost per ounce in Q4 when the benefits of the expansion of our Mexican gold mine, El Gallo 1, will be evident.

I would like to give you a few words on Nathan. He joined us earlier this year as VP, Technology, with a mandate to drive McEwen Mining to the forefront of innovation in the industry. Prior to joining us, he held senior technical roles at Barrick Gold, Noranda, and Falconbridge. Given his strong focus on operational improvement, he was an obvious choice to succeed Ian Ball.

I would now like to turn the meeting over to Perry, who will give you an overview of our financials. He will be followed by Nathan, who will provide a summary of our operations.

Thanks, Rob. In terms of a brief financial overview, for the second quarter of 2013 the Company reported a net loss of $104 million or $0.35 per share compared to a loss of $129 million or $0.43 a share in the same quarter in 2013.

The net loss for the period is primarily due to an impairment charge of $120 million related to our Los Azules copper project in Argentina, whereas the loss for the comparable period in 2013 was primarily due to impairments on our investment in our San Jose mine and to our exploration properties. If you remove the impact of these impairments for both periods, our adjusted net loss for the quarter was $8.6 million or $0.03 a share compared to $11.7 million or $0.04 a share in 2013. This year-over-year improvement is primarily due to a reduction in G&A expenses of $1 million and a reduction in exploration expenses of $2 million as we continue to focus on efficiencies across the Company.

Our earnings from mine operations for the quarter were $6.6 million compared to $7.8 million for 2013. To give you a little bit of color in terms of the impairments of the Los Azules project, the trigger event for us was really the announcement of First Quantum's acquisition of Lumina Copper Corporation for their Taca Taca project. We have always viewed Taca Taca as the best -- as what we felt was the best comparison of value for Los Azules in terms of large, undeveloped copper projects in the high Andes.

Based on the announcement-day value of the Lumina transaction of approximately $430 million or CAD470 million, it implied a copper equivalent value of between $0.012 and $0.013 a pound for the resources at Taca Taca. If you applied this benchmark along with certain adjustments, recognizing they are not identical projects, even though they share a lot of similarities, we arrive at a new carrying value of Los Azules of $310 million after the impairment.

We believe that the Lumina transaction is important in highlighting the significant potential in developing large copper projects in Argentina. And with Taca Taca off the table, it moves Los Azules to the forefront in terms of large, undeveloped copper projects not already owned by a major.

Moving on to the Company's liquidity profile, we ended the quarter with $16.6 million in cash and precious metals. And moving forward to today's date, on the same basis our cash and gold balance is slightly higher than that at just over $17 million.

We are pleased to report that the San Jose mine delivered $3 million in dividends to us during the second quarter. And in July we received an additional $1 million in dividends and expect an additional $1 million dividend for August as well.

Moving on to a brief interview of our cost, cash cost per gold equivalent ounce for the quarter was $840 per ounce, which was approximately 6% higher than the year-over-year quarter and versus the first quarter of this year. On an all-in sustaining cost basis, our costs were $1,269 an ounce, which was 17% higher than the first quarter and 9% higher than 2013.

The increase in costs is a result of lower grades at both San Jose and El Gallo 1; fewer ounces sold compared to the second quarter of last year; an increase in ground support costs and mine development costs at San Jose; and for El Gallo 1, higher strip ratios, haulage costs, and one-time expenditures to repair and improve our pond liners and ADR plant. We also experienced downtime at El Gallo 1 associated with the commissioning of our expansions.

Looking ahead, however, we expect costs to decline in the second half at both San Jose and El Gallo 1, with increased production, especially at El Gallo 1, as we enter the higher-grade zones towards the end of this quarter going into the fourth quarter. On a full-year basis we expect cash costs at El Gallo 1 to be approximately $775 an ounce and at San Jose to be approximately $800 an ounce. On an all-in sustaining-cost basis, we expect both mines to be at approximately $1,100 an ounce.

So now that summarizes the financial overview. I will turn the presentation over to Nathan Stubina.

Thank you, Perry, and good morning, ladies and gentlemen. On July 15 I took over the helm of McEwen Mining from Ian Ball. I have 30 years of global industrial experience, having worked at such majors at Barrick Gold, Noranda, and Falconbridge. I have worked in a variety of roles, from plant management to continuous improvement, technical services, flowsheet development, financial analyses, to managing capital projects. I strongly believe that the skills that I gained working at these bigger companies can be directly applied to a smaller but ambitious company like McEwen.

At McEwen Mining our goal is not only to profitably produce gold, but to create great value for our shareholders. Firstly, I would like to stress that our full-year guidance remains unchanged at between 135,000 to 140,000 gold equivalent ounces. Production is expected to increase in Q4 of this year due to two main factors: first of all, a 50% more processing capacity at El Gallo 1; and, secondly, higher-grade material at both El Gallo and San Jose.

At El Gallo 1, commissioning of the processing circuit has already commenced, and our expansion is expected to be fully operational during Q4 of this year. Throughput to the crushing circuit and processing plant has been increased from 3,000 to 4,500 tonnes per day. This will allow us to increase production from 37,500 to 75,000 ounces in 2015 and to lower costs.

I am pleased to report a very positive development with respect to ore grades. Midway through this quarter we expect to be mining a significantly higher gold grade at El Gallo 1. The grade is expected to increase from 1.1 grams per tonne in Q2 to an average of 1.9 grams per tonne during the second half of this year. Due to both the improvements in tonnage and grades, during 2015 we are projecting that our all-in sustaining costs at El Gallo 1 will fall from approximately $1,100 an ounce to $850 per ounce.

At the mine site we have a clear focus on safety, protecting the environment, continuously improving the process, and on improving operating margins. I fully expect that these programs will have a direct impact on our costs in the upcoming months.

Production in Q3 will be similar to Q2, but once we hit the high-grade ore zone, we expect gold production to increase significantly. We at McEwen Mining look forward to this exciting transition period.

Let's now turn our attention to our El Gallo 2 silver project, which is in close proximity to the existing El Gallo 1 mine site. A final decision to proceed with this project has not been made. However, in order to prepare for a possible construction decision, the Company has been evaluating possible financing alternatives. We currently believe that the silver price needs to be in the range of $23 to $25 per ounce in order to lower our cost of capital and to provide a superior rate of return.

We're advancing the construction of the ball mill, which is the longest lead-time item for the project. We expect the ball mill to be completed in Q4 of this year.

Based on internal cost saving studies, we believe that it will now take approximately $150 million to complete the project. We have recently undertaken some metallurgical studies that are focused on improving the silver recovery while at the same time reducing both capital and operating expenditures. We firmly believe that by focusing on the key cost drivers, we can make significant improvements to the project.

Now let's take a look at our Gold Bar project in Nevada, which we continue to advance through the permitting process. This project is forecasted to produce 50,000 ounces of gold per year for eight years at a cash cost of $700 and an all-in sustaining cost of $850 per ounce.

We recently received sufficient underground water rights from the Nevada Division of Water Resources to perform mining related activities. This permit approval is a very significant development for the project.

We submitted a Plan of Operations during the fourth quarter of 2013. Our next milestone is to produce an environmental impact statement as required under the National Environmental Policy Act, NEPA. The next expected date of approval is Q1 of 2016.

Turning to Argentina, at the San Jose mine our share of metal produced during Q2 totaled 23,033 gold equivalent ounces. Production was slightly lower due to a planned decrease in silver grades. Q3 production at San Jose will be at a similar level to Q2. The mine remains on track to meet production guide for 2014 due to anticipated higher grades during Q4.

I would like to take this opportunity to congratulate our joint venture partners, Hochschild Mining, for going the entire quarter without a lost time accident at the San Jose mine. To wrap up, this is a very exciting time for the Company. Rob and I are strong believers in innovation, and we are currently looking at several technologies that would allow us to further improve the performance of our assets.

Thank you for the opportunity to review some of these exciting activities. And I now pass the microphone back to Rob.

Thank you, Nathan. During Q2 our progress was significant. Our San Jose mine in Argentina is performing well despite a difficult economic environment; and most importantly, it is providing us with positive cash flow and mine operating earnings. The recent sale of Lumina Copper for $430 million was very encouraging, because it not only signals that big projects in Argentina are again becoming attractive, but it also provides a measure of the value of Los Azules. This sale and other sales suggest Los Azules has a value of approximately $300 million and represents a source of future liquidity.

In Mexico the expansion of El Gallo 1 was completed, and the benefits will be evident in Q4 as result of our increased production rate and grade. In addition, our El Gallo 2 project is now fully permitted and ready to build, pending an improved silver price or a better financing environment. In Nevada, we are also making progress with our permits, having recently received the all important water use approval.

We are on track to meet our guidance given at the beginning of the year, producing 135,000 to 140,000 gold equivalent ounces and in 2015 producing 170,000 gold equivalent ounces. Gold and silver shares have been performing better than bullion this year, and I expect that to continue going forward. By many measures the prices of gold and silver shares look quite attractive, and I recommend you take a closer look at those many shares and ourselves.

Thank you, operator. That concludes our presentation. We are ready for the Q&A.

(Operator Instructions) Adam Graf, Cowen and Company.

Just one quick question -- or maybe if you guys could just expand a bit on the permitting for Gold Bar. What have you guys been doing over the last two years and will be doing over the next two years before the permits are expected to be received in first quarter of 2016?

Good morning, Adam. Thank you for your question. I will turn you over to Adam Quick, who is in charge of Nevada. And he will speak about that permitting process.

Hi, Adam, it's Simon. The last two years have been doing all the baseline collection for the rights of way in all the mine-impacted areas. That's now complete, and we received acceptance from the BLM.

So going forward, we have begun the EIS interview process, selecting that contractor. And for the next 18 months we will work, then, to author that EIS document and receive hopeful approval from the NEPA process.

So where -- I apologize -- where are you guys now? Have you already selected the consultant to construct the EIS?

No, we have interviewed five potential EIS consultants. And then we will present the top two candidates to BLM, and they will select it for us. We expect that to be complete by August 15.

And then when do you plan to submit the EIS?

It's going to be permitted and approved in Q1, but in the end of the day it will hopefully be submitted by October.

So October 14 submittal for Q1 2016 approval?

Correct. No, submittal 2015.

And are there any -- and maybe you could talk about briefly any recent models, other operations that lead you to believe this time schedule?

Midway Gold just received approval for the Pan project, and that was -- between submission and final approval was 18 months, which follows our exact timeline.

I apologize. You guys are -- are you guys in the same county as Pan?

No, we are not. We're in Eureka County, but we have no reason to believe why it will be a different time frame.

And then perhaps you could briefly talk about the time from receiving the EIS to construction and first production?

Pardon me?

Perhaps you could just give us a schedule expected from when you receive the full EIS approval to when you're able to break ground and for construction, and then from there, when you expect first production?

We expect to receive in the first quarter 2016 -- construction will be between 8 and 10 months, with first bore being three months after that.

Great. Thank you very much.

Gerald Chase, Arrowsmith.

This question please is directed to Rob McEwen.

Go ahead.

Okay. We here in New York City believe in gold, and we believe in silver, and we also even more of a belief in Rob McEwen as a manager of a company going forward. Now, one of the reasons I am calling is because there is a cap on McEwen's stock because of their Argentina connection.

My question to you is this, Rob: is there any status on the current President of Argentina, Ms. de Kirchner? Is she still in power, or will she be replaced? Because if she is, with a more friendly administration, this might remove the uncertainty of the Argentina connection on McEwen stock.

Thank you for that question. The President is in until October of 2015, so a little more than a year from now there is an election. She has finished her term and cannot be reelected. And the Argentinian government is showing signs of encouraging, trying to encourage investment to come back into the country.

I think the recent sale or purchase by First Quantum of Lumina Copper for in excess of $430 million is a positive sign, and that is on the back of Chevron agreeing to invest more than $1 billion in oil and gas exploration down there less than a year ago -- are both positive signs that Argentina recognizes it has to change its ways to attract capital. And that should come with the change of government, but it's also -- it's changing in advance of that change of government.

Great. Rob, what are the -- I have been following your career since Gold Corp, and we believe here you are an acquisition expert. Do you have any plans for any acquisitions going forward?

We are continuously looking for opportunity to grow the Company on a profitable basis. So it is an ongoing process. There isn't one single situation in mind. We keep monitoring that and happen to believe that now would be a very opportune time to be doing that, anticipating higher gold and silver prices.

I agree. Lastly, Rob, do you have many plans going forward to be involved in this lucrative Timmins area in Canada, where the majors have major holdings by Gold Corp and others? Do you have any plans for that area?

Not immediate plans. It is in our field of vision, and an affiliated company called Lexam has some interest there, some property in Timmins. But you are absolutely correct; that's a very important mining camp in North America -- in the world.

Right. Just one final question, please, on Los Azules. I know it is up for sale for the right price. Do you have any kind of potential purchases for Los Azules going forward in the near future?

We would welcome them, but we don't have any at the moment.

Not at the moment, okay. Thank you very much, sir.

Thank you so much, Merrell. Kind words.

(Operator Instructions) Chris Allen, Private Investor.

I have a two-part question, I guess. The first part is: was there anything interesting on the exploration front in the quarter? And is there a timeline on receiving the Mexican tax rebate?

Okay. On exploration I will ask Simon to speak. We were exploring in Nevada.

We drilled four holes in the South Roberts property that we have a joint venture with Gold. All four holes encountered pathfinder elements, both gold and other ones associated with Carlin-style mineralization. We found that very intriguing, and we're going to follow up with four additional holes this quarter.

Excellent.

And in Mexico we continued to have dialogue with the tax authorities on resolution to collecting the outstanding balance, which is currently about $14.5 million. We're hopeful to receive a portion of that this quarter, but obviously there is no guarantees. But the dialogue has been positive, and we are looking forward to a resolution on that.

Excellent. Thank you, and keep up the good work.

We have no further questions at this time. I will turn the call back to our presenters.

Thank you very much, operator. Thank you, everyone, for joining the call, and best wishes for higher metal prices and share prices to follow. Thank you.

Ladies and gentlemen, this concludes today's conference call, and you may now disconnect.