McEwen Inc (MUX) 2015 Q4 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the McEwen Mining 2015 Q4 and year-end financial results conference call. I would now like to turn the meeting over to Mr. Rob McEwen, Chief Owner. Please go ahead, Mr. McEwen.

Thank you, operator. Good morning, fellow shareowners. Ladies and gentlemen, thank you for joining us today. With me on the call are Colin Sutherland, our President, and Andrew Elinsky, our Senior Vice President, CFO.

We're going to cover off the highlights of 2015 and then go into what we're forecasting for this year, after which we'll open the lines for Q&A.

I'd like to say -- start off by saying that 2015 was a very good year for us from an operational standpoint. And near the end of the year, our share price started improving, and it's continued on into this year.

And I'd like, at this point, to turn the call over to Andrew to talk about the highlights of 2015.

Thank you, Rob. Good morning, everyone. Overall, we had another excellent quarter with which to end our fiscal year. This was primarily driven by the continued strong production in Mexico at both the low-cash and all-in sustaining cost, which allowed us to maintain a solid working capital in treasury balances.

Our consolidated gold equivalent production for the year was up 22% to a record 154,000 ounces compared to just over -- just under 127,000 ounces for 2014. As a result, our earnings from mine operations increased significant to $53 million compared to $25.5 million for 2014.

A strong performance, despite a weaker metal environment during the year, is reflected in our improved treasury as we ended the year with cash, cash equivalents, and gold of $32 million compared to $36 million at the end of the third quarter, but compared to $18 million at the beginning of 2015.

From a cost perspective, our performance was -- continued to be strong. We reported a consolidated gold equivalent cash cost of just under $685 an ounce, which is $200 less than the prior year, and all-in sustaining cost of $962 an ounce, which is $340 less than the prior year.

This was driven by the exceptional performance at our El Gallo 1, where we produced over 63,000 ounces of gold at cash cost of $440 an ounce and all-in sustaining cost of $580 an ounce.

In 2014, the mine production at El Gallo 1 was 38,000 ounces at cash cost of $876 and all-in cost of $1,196. That was the fourth quarter -- the consecutive quarter of strong production and significantly low cost as a result of the operating improvements, the increased grade profile, combined with some cost and input savings as well as a weaker Mexican peso compared to the US dollar.

In Argentina, at the San Jose mine, despite difficult operating conditions, our partners have been able to reduce the cash cost to $865 per ounce when compared to 2014. They were also able to decrease the all-in sustaining cost by just over $100 to $1,111 per ounce versus 2014.

Moving to our financial statements, we reported a net loss of $20.5 million or $0.07 per share. The loss for 2015 was primarily driven by $48.4 million in noncash asset impairment charges, which were net of tax. These more than offset the strong operating results for the year.

These impairment charges related to a reduction in carrying values of our investment in MSC and San Jose Mine as well as our Los Azules project and exploration properties in both Mexico and Nevada.

Our adjusted net loss for the year, which removes the effects of these impairments, as well as the effects of foreign currency, was $8.6 million or $0.03 per share compared to an adjusted net loss of $33 million or $0.11 per share in 2014.

As per our announcement on October 1st, 2015, the Company initiated a stock repurchase program. And during 2015, we repurchased just under 1.9 million shares of our common stock at a total cost of $1.8 million for an average purchase price of $0.94 per share.

On August 17th, the Company also paid its first semiannual return of capital installment. And we've since made our second installment on February 12th, 2016. We would like to remind shareholders that the distribution would generally be considered a return of capital. Unless you are a 5% shareholder, you should not be subject to withholding tax.

Please note that owners of the exchangeable shares of our publicly traded Canadian subsidiary McEwen Mining - Minera Andes Acquisition Corp. received an eligible dividend of $0.005 per share with a payment -- with those payment dates. We encourage you to consult your tax professional on this matter.

With regards to our VAT balance, our VAT balance was significantly reduced currently to about $3 million due to much improved collections in the first quarter of 2016. This allowed us to retire the credit facility, which we had obtained in 2015, and the Company is now debt free.

Regarding our outlook for 2016, we initially forecasted production guidance of 141,000 gold equivalent ounces at cash cost and all-in sustaining cost ranging from $760 to $800 and $915 to $955 per ounce, respectively. However, in reviewing our production plans from Mexico, we are revising our guidance upwards to 55,000 gold equivalent ounces, which should result in slightly reduced per-ounce cost ranging between $15 to $20 per ounce.

Similar to 2015, we should continue to see our operations add to our working capital and treasury positions in the year. In addition to the operational cash flows coming from Mexico, we are also anticipating receiving dividends from the San Jose Mine in Argentina. And it is our objective to increase our cash, cash equivalents, and gold to over $45 million by the end of 2016. This assumes that gold and silver prices stay at their current values.

This also takes into account the internal exploration costs of approximately $7 million and the recent purchase of the Afgan-Kobeh property in Nevada, but does not take into account any further acquisitions for which we continue to look for.

I will now turn the presentation back over to Rob.

Thank you, Andrew. So, from an operational standpoint, we did well in 2015. Our share price was improving through the end of the year, and besides working on building and improving our operation, we had to deal with the threat of delisting from the New York Stock Exchange. And that was a big focus of our efforts during the year. We felt that, if we could improve our operations, that would enhance our position in the market.

As Andrew mentioned, we initiated a capital distribution program starting in August of last year, again, paid again this February and again coming up in August this year.

Share repurchase program, I myself bought about 1 million shares in the market as well. Our new President Colin Sutherland purchased 460,000 shares just before joining us. So, we're invested in the future of the Company.

So, looking into 2016, there are a couple of areas where we're focusing. First, it's exploration and property acquisitions around our existing mines with the objective of extending the life of these operations.

The second is looking at -- we're quite excited about the prospect of building Gold Bar. And we expect to have a permit in hand by January -- the end of January next year 2017. And thereafter, it'll take about 12 months to build that operation and expecting to be up and running in 2018. And on an annualized basis, we'd be doing about 200,000 ounces of gold.

So, that's part of the excitement. The next is, as we watch the silver price edge up, we do have a fully permitted project in Mexico which we call El Gallo Silver. It's located a short distance away from our El Gallo Gold Mine. So, it shares some of the infrastructure and also common knowledge and cost working in that area.

As I said, it's fully permitted, ready to build. We have a mill in storage at the moment, a ball mill in storage. And at around $18 silver, this mine -- this deposit could become a mine. And so, we're working on seeing if we've been able to improve the economics of this project and hope to have some results out for your review by the end of the first half of this year.

The other area that I find quite intriguing is our Los Azules copper project. It's a very sizable deposit in all resource categories. It's about 20 billion pounds of copper. It's -- the grade of the deposit is good. It's 0.5% copper. And the exploration potential on it seems good as well.

The copper price has been improving. It's up to about $2.25. We had a preliminary economic assessment on that property several years back. It had contemplated a $3 copper price. But, it envisioned a large CapEx. And we're -- we've been hammering away at the CapEx, seeing if we can improve that. But, we have a couple of good leads on that. And again, we'll be sharing our progress in the second half of this year.

There have been a couple of people -- firms looking at it, but nothing serious at the moment. But, it was a -- it is a large asset base. With our PEA, it envisioned 35 years of production and at a better than 400,000 -- 400 million pounds of copper a year, so -- but very large CapEx at this point. Our hope was to monetize this and cover off our development capital requirements.

As Andrew said, we're in a good position cash wise. We're building our cash since year end and will continue through the year. It may be -- while we're looking at about 45 million at the end of the year on our current rate, there may be some acquisitions along the way, whether they be property of adjacent properties or looking at opportunities to build our production of gold and silver and our resource base through M&A activity.

At this point, I'd like to, again, thank you for joining us and open the session for questions. Thank you, operator.

(Operator Instructions). Heiko Ihle, HCW.

Hey, good morning, guys. Just a quick one. You mentioned a $3.5 million budget for Gold Bar this year. You want to just break this down for us into drilling and other expenses, just so we can sort of see where the money is going, please?

You're looking for the development costs at Gold Bar or --?

-- No. No. So, there's a $3.5 million budget for Gold Bar this year. What's that $3.5 million spend on? Just break it down a little, if you could, please, Rob.

The $3.5 million is for Mexico. And about $1.5 million will be spent on exploration in Nevada.

Someone had the wrong number there. Fair enough. And then the -- you mentioned, at El Gallo, you currently have enough resources to keep going until 2018. And it also says that, at the current -- that's at the current gold price. At what gold price do you think would it make sense to maybe look a little bit at the mine plan and see if you can get more ounces out of this without further exploration drilling? And at what price do you think more drilling will be added this year, please?

In terms of El Gallo, we look at our mine plan monthly. And with the gold market moving, it's opening some other areas for production. We have a couple of targets. One, we're looking at, there's some underground potential. And we feel that could add possibly another year or more of production and then if some reprocessing of the heaps, which could add about half a year, and those are preliminary numbers, so preliminary estimates.

And we do feel there are a couple of areas on the property that hold good exploration potential. And I'd be hesitant to refrain from exploring there. So --

-- Fair enough --

-- Our belief is that we could extend the life of the mine.

Fair enough. Thank you, guys, so much.

You're welcome. Thank you.

(Operator Instructions). We'll now turn to our Web questions. Our first question comes from the line of [Jack Forbes]. Congratulations on a great year. The team at MUX has really come through. A question please. Do you have specific plans for expanding the resource base, knowing that you value -- are you looking at Argentina, or is Canada/US the preferred venue? And are you optimistic about expansion of the resource at El Gallo Phase 1. Thank you, and special thanks to Mihaela for answering my many e-mail questions.

Thank you. There are a lot of questions in there. We think there's room for expanding El Gallo. But, that's -- we'll be spending $3.4 million, $3.5 million there.

In terms of M&A activity or acquisitions, our target has been through the Americas, North, Central, and South America, and some areas of Europe. So, there are a number of opportunities out there. I think some of the areas where the exchange rate has fallen relative to the dollar have become a little more expensive as a result of just the improvement in their operations due to exchange rates. I think the -- America represents a good area to be looking right now. Thank you.

Thank you. And your next question is a statement from [Gesupina Sumirel]. It's a great company, great management, great projects, and thank you.

That's very kind. Thank you. I have a question here that came in from a [Craig Garrison]. And he had two questions. One, if capital flow regulations in Argentina are normalizing, at the current gold/silver prices and exchange rates, are you projecting the receipt of any dividends from the Minera joint venture in 2016?

And I'll just -- and the second question -- so, are we going to have an improvement in Argentina? And the second question deals with our treasury and projected cash flows. Do we expect the development of Gold Bar to be financed internally?

Andrew, could you answer the first question?

Sure. The reference to Argentina's obviously the improvements from exchange rate perspective. Export taxes as well have been eliminated as well as the reinstitution of the poor credit scheme for Patagonia Imports within Argentina.

All of those have combined to increase and improve significantly the cash flows anticipated from San Jose. And we do anticipate receiving dividends from the San Jose Mine in 2016 compared to the 2015 balance received of only $0.5 million. We're anticipating receive between $5 million and $10 million this year.

It's worthwhile noting that, back in 2012, when we realized an average price of just over $30 for silver, that the dividends were -- to us were $20 million. So, there's a lot of leverage to the San Jose Mine to the price of silver in addition to an improving gold price.

The second question had to do with Gold Bar. Could we internally finance it? At this juncture, we're looking that we would have to do some external financing and probably through a combination of debt and equity. But, it would be a small issuance, given our current treasury, and quite manageable.

Thank you. Next question?

Your next question comes from [Michael Riley]. At 55,000 shares, I'm assuming that, when silver goes up $1, that drops right to the bottom line. Is that correct?

Not on 100% basis, but it primarily does go straight to the bottom line before taxes. Currently, Mexico is not in an income tax paying position, due to loss carryforwards. However, in Argentina, the joint venture has paid income taxes before. We anticipate them being minimal this year due to losses of prior years -- sorry, current prior years, 2015, specifically referring to there.

So, 2016, you should see a significant improvement in the bottom line if silver prices were to increase. However, that would continue -- would not continue into 2017 as taxes became payable again. So, you would see a net benefit net of income taxes.

Okay. Our next question comes from the line of [Stewart Bailey]. I have been comparing McEwen Mining average realized prices to the average closing prices on COMEX as reported on stock of gold and silver. You did not break out the fourth quarter results.

Every quarter and annual result was below, except the first quarter, for silver at $17.02 versus $16.72. The loss of gold revenue was 1.12%, and the loss of silver revenue was 3.38% for the year. This amounts to a net loss of $1.3 million, 96,500 ounces at 1,200 per ounce, and a net loss of $1.8 million on 3,337,000 ounces at $16. These are your projected 2016 mining goals. Total projected loss of income, 3,000 -- or sorry, $3 million.

Since you were able to sell yourself for more -- that COMEX prices in a single quarter, why can't you improve your dollars for ounce for the entire year? This amounts to the dividend for the year, end of question.

I will gladly answer that question, Rob. I can't say I can verify the numbers in such short time, but I understand the concern and where the question comes from. This is a direct reflection of the conditional pricing that is done with the sale of concentrate from the San Jose Mine. It takes approximately 80 to 100 days to settle the pricing on that. When the shipment is made, you get some conditional pricing based on forward rates. And then once the processing and refining is complete, the prices are trued up to the current spot rates.

In a declining-price environment, you, generally, are going to lag the average prices because you are catching it on the way down. However, the inverse is -- also applies. In times of rising prices, you should be exceeding the average price.

2015 was a declining price environment, hence the reason the concentrate sales dragged our averages below the COMEX average.

And 60% of our revenue or our production comes from San Jose.

That's correct. And half of that is attributable to concentrate production.

We'll work harder.

We do have a couple of audio questions coming through. Did we want to transition to those?

Please.

[Show Wang], Lotus Prime Capital Partners.

Good morning or good day. Two questions. One, I believe you made the comment that you are now debt free. And then you later talked about potentially financing --looking for external financing for Gold Bar.

I'm wondering if you have a sort of a target capital structure you might be looking for in terms of debt to total cap or what might be a high-end range and so where you think the debt level might go that you would view to be, quote-unquote, intolerable?

Totally separate, regarding your dividend, I'm wondering if there's any thought or any comment you might have about issuing a dividend. It might be payable in gold or in precious metals or, at least providing shareholders, that option? Thank you.

Thank you for the questions. In terms of debt, probably no more than a 10%, 15% leverage on our -- but Gold Bar would be a small -- is a small level of debt. I don't think we'd have to raise more than $40 million to deal with that. So --

-- Okay --

-- Maybe a third of that would be debt, balance equity.

In terms of a dividend payable on gold, I've always thought that's a great idea. Executing it is a little harder. The dividend is $0.01 a share. There's just a lot of processing fees in there that might consume part of that dividend for the shareholders. So, I'd like to work towards that end at some point. But, at the moment, it doesn't seem feasible for us.

Understood. All right. Thank you.

You're welcome.

[Robert Schwering], [Rosgog].

Hi, Rob. This is Bob Schwering. How are you?

I am very well. Thank you, Bob.

Listen, Rob, in a previous call you alluded to not being able to conduct acquisitions because of some problem with the SEC, which I was kind of unclear about. All I want to know is that the problem's been dealt with, and you've got kind of a clear path ahead if you choose to do something.

Yes, just for clarification purposes, there was an open file at the SEC looking at the valuation of Los Azules. Back in 2012, we wrote down the value of our gold assets, but didn't write down the value of Los Azules, the copper project we have in Argentina.

And about six, eight months after we filed our statement, the SEC came back and said they disagreed. We followed all the rules. Our auditors, our independent valuers followed the rules, but last October, September, we received a letter from the SEC and said they closed the file, and the matter had been resolved. So, that was off the table.

The other issue that would've held us back from doing some M&A last year, or at least in the second half of the year, had to do with our share price being below $1 and having received notice from the New York Stock Exchange that we ran the risk of being delisted if our share price didn't get back above $1.

And so, there was a hesitation to do any M&A that might keep our share price below $1 during that period. We don't want to be back in that position. So, that's why there was some restraint exercised last year.

All right. Well, that's all to the good. Do you have any feeling yourself about existing operations in Nevada that need to be consolidated because they're all too small to get the -- they don't have the capitalization they need in this market.

We've looked at several situations in Nevada and continue to look at them. I think there is opportunity there. It's just finding the one that fits us in the right manner. So, we're continuing to look. And you're right. There are spots in America that opportunity still exists.

Okay. And thank you very much for your stewardship of the Company. And thank you for diligently pursuing all of our interests. I am an appreciative shareholder.

Thank you very much, Bob. Appreciate you being a shareholder.

[Marc Leitner], Shareholder.

Good morning. I first want to congratulate you, Rob, and the management team of McEwen Mining on a nice quarter and also for being a man of your word. I believe, in your last conference call, you talked about there were plans in year 2016 to get the price of the stock above $1, and you came through. So, congratulations.

Thank you.

My question is regarding -- and I don't know if you spoke about it earlier. I might have missed it -- but about share buybacks. Do you have any plans for that, or do you still have money left, if you wanted to, for share buybacks that was authorized I believe last year?

Yes, Marc, we -- the share buyback plan is still open. We've purchased about 1.8 million shares at an average cost of $0.94. And we thought that represented very good value. And we -- that plan is still open. So, it -- for the year, we said we have more room to exercise there.

Okay. Thank you.

You're welcome.

And your next question comes from the line of [Bob Polis]. When you might reopen your, quote-unquote, stores, we might be able to buy gold coins or bars from or through you. And how much over spot do you charge, including delivery?

That's a good question. We haven't looked at that for a while. Now that we're producing more gold, we will have to revisit that. I'm sorry we don't have immediate plans for it. But, we'll look at it again in the future and hopefully give you some of that good coinage again.

Okay. And your next question comes from -- or comment actually comes from [Mike May]. It's no question. I appreciate your work of the MUX team this past year, and thank you.

Thank you, Mike.

Okay. And we have [Joshua Fritz]. Assuming an eventual recovery in commodity prices, what are your long-term expectations from the capital return plan?

If prices go higher, then I would -- I expect that the distribution will increase. I can't give you a number of how high it would go. I can speak to when I was running Goldcorp, and we started paying a dividend on an annual basis, then the next year on a semiannual basis, and then the next year on a quarterly basis. And we ultimately ended up paying on a monthly basis. If we get into a position where our projection was higher and we got our cost down, I would like to see that happen again. Next question?

There are no more questions at the time. (Operator Instructions). I have no further questions either on the Web or the audio. So, I turn the call back over to the presenters for the closing remarks.

Thank you very much, operator. Thank you, everyone, for joining us on the call. We're looking forward to better gold and silver markets and even copper prices. We had a good foundation year last year. And we're going to build on that and looking forward to giving you more positive announcements as we go forward. Successful investing.

And this concludes today's conference call. You may now disconnect.