McEwen Inc (MUX) 2017 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the McEwen mining 2017 Second Quarter Financial Results Conference Call.

Thank you, operator. Good morning, fellow shareholders, ladies and gentlemen. Welcome. Our second quarter can be characterized as one of increasing investment in key assets, essentially building our future. We have been moving aggressively on four fronts. At our Gold Bar project in Nevada, we are completing the engineering design, signing up contractors and securing longer lead time capitalized assets in anticipation of receiving our permits in Q4. Once received, this will enable us to build and operate the mine and which we expect will take about a year to do.

In Mexico, the good news is, we have reconfigured our El Gallo Silver project such that it will now meet our investment criteria thresholds using current silver prices. A new feasibility study will be released in early 2018. Also, in Mexico, exploration will be focused on several key areas to expand the known mineralization and extend the operations of El Gallo Gold.

On our newly acquired properties in Timmins, we're quite excited about them. They hold interesting promise. We are assessing the best sequence for mining of the open-pit and underground resources, and at the same time, we're testing for extensions of the known, high-grade mineralization.

Our large Los Azules copper project has advanced significantly and we will be releasing in September a new preliminary economic assessment, and it will show that we have significantly lowered the CapEx and improved the economics. While we are intensely focused on being a precious metal company, I strongly believe that the Los Azules represents the single biggest value creator currently in our portfolio.

At this time, I'd like to ask Andrew to tell you about our financial performance and liquidity.

Thank you, Rob. Good morning, everyone. Thank you again for joining us. I'm able to report that the company had a reasonable second quarter with consolidated production of just over 32,000 gold-equivalent ounces. This was in line with our expectations and we are on track to meet our full year guidance for 2017.

However, despite the solid production levels and reasonable operating costs, the company reported a net loss of $1.7 million, or $0.0 1 per share. This was due to the combination of decreased profits at the San Jose mine in Argentina and increased levels of exploration and development at other projects that Rob just mentioned.

This spending increase was also reflected in our cash balance, which saw a reduction of $4.1 million, or $0.0 1 per share, during the quarter. And combining this cash spend with the reduced market value of our equity investments and reduced buoy on inventory, this meant that our liquid asset balance decreased by $11 million during the quarter.

Moving the conversation to site results, in Mexico, as mentioned, our production was in line with expectations. However, cash costs and all-in sustaining costs were significantly lower than our full year guidance. This was similar to our first quarter, where we saw the effects of a carryover of lower cost heap leach inventory from 2016.

Obviously, the mine is constantly working to reduce their costs and we'll try to lock in as much of these savings as possible. However, at this point of the year, we still expect our per-ounce cost to trend in line with our full year guidance as we progress into the second half of 2017.

The anticipated benefit of an increasing grade profile for the second half of 2017 should allow us to meet our full year guidance and increase our operating cash flows.

Profitability in Mexico is being challenged by the appreciation of the Mexican peso versus the dollar, which has increased in value by over 13% since the start of the year.

Regarding our capital investment plans, in order to extend the mine life beyond 2018, we are continuing with our exploration program while also furthering our studies and evaluations of the significant resources in the area. Overall, we anticipate that El Gallo will still remain a strong contributor of free cash flows for the year.

At the San Jose mine in Argentina, we saw an improvement in production in the quarter despite unusually harsh winter conditions. As a result of increased snow falls in the area, cash cost per ounce continued to be higher than full year guidance, but with the recent depreciation of the Argentinean peso versus the dollar and the planned increase in production for the fourth quarter of 2017, full year cost should meet our stated guidance.

These higher cash costs combined with a continued increase in capital investments and exploration result in a decrease in our share of the income from the mine when compared to the prior year. Despite this decrease in profitability, the joint venture continued with its issuance of dividends and we received $2.4 million during the quarter. We expect that dividend should continue to be paid during the year despite the increased costs and capital investment levels.

Before handing over to Xavier, I would like to briefly discuss our projects. As Rob mentioned, at our Timmins projects, we closed the Lexam VG during the quarter. We immediately commenced with our planned expenditures in Timmins with the initiation of resource evaluations and trade-off studies and we have a full-year budget for that of $3 million.

Secondly, at our Los Azules copper project in Argentina, we are in the process of completing the updated PEA and the results should be announced later in the third quarter. And with the completion of the seasonal drill campaign, we have seen a drastic reduction in our expenditures there.

And finally at Gold Bar, Nevada, as Rob mentioned, we continue with our advancement of critical path items including the key vendor engagements as well as the building and team development with a planned permit approval coming later this year.

And at this point, I would like to thank you again for taking the time to join us, and I will now turn the presentation over to our President and COO, Xavier Ochoa.

Thank you, Andrew. Good morning. Our operations and projects, I'd like to start with El Gallo. I had mentioned in our last call, we are now in the final stages of mining in the current pits. Mining reached the final bottom ventures at one pit and all mining activities are now concentrated into the two other known pits. These pits are oxides and that is a focal point for us.

This shows in a quarter-on-quarter production a decrease of 49% at El Gallo when compared to the same quarter of last year. They produced in the past quarter 9,780 gold equivalent ounces which reflects prior lower grades that were processed. The average grade mined, however, climbed to 2.5 grams per ton gold which will be largely processed during the third quarter.

On July 30, we had a piece of tempered steel go through the primary crusher with substantial mechanical damages resulting from it. At this time, we expect quick remedial actions to minimize the effect to the crushing downtime which will mitigate the negative estimated impact of 1,500 ounces this may have. We will further update what the actual impact on the total annual production and cost will be, as we think this could be minimal.

At El Gallo Gold, total cash costs and all-in sustaining cash costs were 706 and 843 gold equivalent ounce, respectively. As the year advances, we expect our costs to trend towards our guidance numbers for the entire year. We will see an impact on our costs from harder ore and the transition to sulfide materials at the bottom of the pits. On completion of mining in the pits, ore leaching and processing at the heap will continue for three years.

At the El Gallo Silver project, also in Mexico, during the quarter, we continued to advance our work on the project with positive advances. Work aims to reduce initial capital investment and the lower operating cost. We remain on track to complete this work during the second half of the year.

At the San Jose mine in Argentina, where we hold a 49% interest, during the second quarter, we saw our share of attributable production at 22,804 gold equivalent ounces. This was quarter-on-quarter production decrease of 5% vis-a-vis the same quarter last year.

During the quarter, in the month of June, heavy winter weather in the Patagonia resulted in unusual snow storms that affected delivery of ore mined for processing.

At the Los Azules project, also in Argentina, during the second quarter, we dedicated ourselves to complete up work to the field campaign completed during the first quarter of the year and it -- which focused on supergene, high-grade enrichment definition and improving its (inaudible). The results obtained from drilling are now being used to refine our understanding of the deposit.

Engineering work continued to define the project configuration, mine plans and infrastructure, which will be reflected in the new preliminary economic assessment on track to be finalized in the third quarter of this year.

At our Gold Bar project in Nevada in the United States, which we look forward to being our newest mine, we focused our efforts on advancing the permitting. Our team was successful in completing the mandatory 45-day common period, updating the environmental impact study and having the required notice of availability issued and now the permitting process is in its final stage.

As of today, we believe that permitting remains on schedule to receive a positive Record of Decision from the U.S. Bureau of Land Management in the third quarter of the year as planned. In parallel, detailed engineering work was nearly completed with supplier evaluations finalized for the execution of the project.

As Rob indicated, at our properties in the Timmins Camp, we're now in the process of advancing studies in the four projects towards defining a development program. At El Gallo, brownfield exploration is now looking at the deeper portions of our existing pits to determine what the potential for new resources is in the zones containing transition and sulfidic mineralization.

At the district level, the presence of this transition and sulfide zones represent an opportunity for our exploration efforts. We're now looking into deeper less oxidized mineralization which become another chapter in the story of our prolific El Gallo district in Mexico. Nonetheless, oxide exploration is still being soft.

At San Jose, a surface exploration program is now ready to start as springtime comes in to export targets defined last fall. Thank you very much. Back to you, Rob.

Thank you, Xavier. I'd just like to close before opening the session up for questions with a few comments on gold. I see two positives for gold and silver . First is, just where we are in the year, we are entering a period where gold has frequently exhibited seasonal highs running from late August through October. This seasonality is a well-known pattern and so there is optimism there.

And the other watching the Dow and other broad market indices hitting new highs, it's interesting to note that gold's been holding its own, gold and silver, and actually showing signs of positive moves forward. And I think that's just reflecting, while we have these highs in the broad market, some people there are starting to look at neglected areas and the precious metal space is one of those that features very prominently. So, I think going forward, it's still looking quite good for gold.

So, operator, I'd like to open up the session for questions please.

(Operator Instructions) Our first question comes from the line of Heiko Ihle with Rodman & Renshaw. Your line is open.

For the Timmins project, you said you're spending $3 million for the new resource estimate in the initial trade-off analysis. Let's assume this all goes well, can you walk us through potential news flow for the site for the remainder of this year and for next year, please?

Sure, Xavier would you like to handle that?

Heiko, could you please clarify the question?

Sure. So, you said that you're spending $3 million at Timmins for the new resource estimate in the initial trade-off analysis. Let's assume the resource estimate goes well, just sort of walk us through timing for news flow both for the rest of this year, I mean it's already August, for next year as well, please?

Yeah. Thanks for clarifying. What we are doing is the combination of updating the resource estimates as well as conducting the detailed level trade-offs that are necessary to determine how we want to proceed with the project. And so this year, what we want to do is we want to complete those studies, define which of the four projects goes first and then that puts us into next year to complete the required permitting depending on whether it's an open-pit or underground option. And then we can actually go into development.

So, we are actually going to be in a position probably coming into the end of the quarter or the following quarter to have more news on to what is going to be the first part of the projects coming off of gates into 2018.

So, you mentioned that the crusher at El Gallo went out of service. Can you just walk us through what exactly broke? I mean it sounds like you are on a (inaudible) since there is lowest to almost no expenditures, but -- and you have a lot of contingency plans in place, but just what broke and the timeline of getting it fixed, please?

What happens -- we had a drill hammer come in, it jammed into the jaw and the vibration pour into the bushings, where the jaw sits. And to do that work, you actually have to remove it and re-machine the seats. So, what our plan for that is, bring a temporary crusher in replacement of that, while we do a proper repair on that and then reset it. In between, there is tiny lost crush.

Thank you. (Operator Instructions) And I'm showing no further questions at this time. I'd like to turn the call back to Mr. McEwen for closing comments.

Ladies and gentlemen, thank you for participating on today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.