McEwen Inc (MUX) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the McEwen's Fourth Quarter and Year-end Financial Results Conference Call. (Operator Instructions) And as a reminder, this conference may be recorded.

I would now like to turn the conference over to Mr. Rob McEwen, Chairman and Chief Owner. Sir, you may begin.

Thank you very much, operator. Good morning, fellow shareowners and investors. Today, we'll be discussing our 2017 year-end results, financial and operational, and we'll also be sharing our plans for 2018. During 2017, we invested in our future growth. As part of our strategy for growth, we focused on advancing in 2 of the most prolific gold neighborhoods in the world. These advancements will not only shaped 2018 but bring us closer to qualifying for inclusion in the S&P 500 Index. We did this on a number of fronts. First, we acquired a significant presence in one of the world's premier gold districts, Timmins, Canada, at a very attractive price. Second, after 3 years of perseverance, we secured our permits to build and operate our gold mine -- Gold Bar mine in Nevada in November. Site preparation and construction activity started immediately thereafter, and production is scheduled to start in 2019. Third, our large copper project, Los Azules, displayed its robust economics in the new Preliminary Economic Assessment released in September. It's a long-life, short-payback, low-cost project. Fourth, our high-grade silver and gold joint venture in Argentina or San José mine has completed its 10th-year production, which I think is quite remarkable, and it's showing every indication that it will be going strong for at least another 10 years. We have stepped up our exploration, advanced our growth pipeline and funded the push of long lead time capital assets to ready ourselves for a timely startup production at Gold Bar. As a result of these developments, we are reporting a loss for the year.

Entering 2018, we remain debt free, and we have steadfastly resisted utilizing the sale of royalties, metal streams or putting hedges in place on our future production. All of this has been done in order to maximize our future revenue. Financing growth with these financial instruments that many companies have done can seriously impair our company's performance, and I don't believe it's worth the risk. For 2018, we remain focused on building our pipeline of future growth by expanding both production and our resources which we believe will ultimately create value for shareholders.

I will now ask Andrew Elinesky, our Chief Financial Officer, to discuss our financial results for 2017 and our planned expenditures for 2018.

Thank you, Rob. Good morning, everyone. Thank you for taking the time to join us today. It's busy earnings season, so we appreciate everyone joining us. Further to Rob's opening remarks, the fourth quarter was a strong finish for what ended up being a very busy year for the company. From an operating perspective, our performance came in just under our budget for the year. While from a financial perspective, we did expect to report a loss for the year consistent with the first 3 quarters of the year. However, the net loss that we reported was larger than planned in the quarter due to a much lower level of profits at our San José mine in Argentina. In addition, the fourth quarter was the first one that included production from our newly acquired Black Fox mine, and it also included a financing of flow-through shares, which we did to fund the expanded exploration activities at that complex. In November, we received the required permits, as Rob said, for the construction of the Gold Bar mine in Nevada. And within 24 hours of the receipt of these permits, site works commenced.

Regarding our overall operating results, the company had consolidated production of just under 61,000 gold equivalent ounces for the quarter. That brought our full year production to just over 152,000 ounces for the full year. This record quarter was due to the El Gallo mine in Mexico recovering from its earlier weaker performance in the year and producing almost 20,000 ounces on its own, San José having its usual strong fourth quarter and the addition of the ounces from the Black Fox mine. While we continue to report solid operating margins in Mexico and Argentina, both the cash costs and all-in sustaining costs were not as close to the budget as we are aiming for. In addition to lower-than-planned operating margins, there also was a loss of the provincial export credit scheme in Argentina as well as increased tax charges recorded at San José. This meant that we reported no income on our investment for the full year there. When you combine these factors with the higher exploration and development expenses across the company as well as increase in expenses for our corporate activities that we had for the first 3 quarters of the year, the company reported a net loss before tax of $26 million or $0.08 per share. This loss was partially offset by a sizable tax recovery of $15 million for the year, leaving the company with a final net loss of $10.6 million or $0.03 per share. And while I won't dwell too long on the tax items, I do feel that the sizable amount is worth touching on just a bit as this tax recovery was due to reduction in U.S. tax rates introduced as part of the new U.S. tax legislation towards the end of 2017. We also saw a sizable reduction in our deferred tax liabilities for our assets, both in the U.S. and in Argentina. And while I am on the topic of the U.S. tax legislation, I would like to highlight once again that these changes meant that our 2 returns of capital made in 2017 will now be considered dividends. As a result, shareholders who received a return of capital during the year should receive new tax slips from their broker or our transfer agent, which will indicate that these distributions were dividends.

Moving on to the outlook for 2018. As Rob mentioned earlier, we're entering a time of growth for McEwen. We will be commissioning our first mine in Nevada. We're also going to be increasing our production profile with having Black Fox be under our control and ownership for a full year. However, in Mexico, we will see a decline in mining activities as we deplete the remaining oxide material. We do plan on seeing our production increase by just over 12% and reach 171,000 gold equivalent ounces for the year. This strong production base is going to allow us to continue to invest in all of our assets with a particular emphasis on commissioning Gold Bar and improving the Black Fox Complex. And as Rob mentioned earlier, we're talking about 2 of the premier mining jurisdictions in the world. However, we will need to raise additional capital to complete our objectives for the year. And as Rob and we have said before, we will be opportunistic in this area as we have started the year with just over $68 million in liquid assets. And as of yesterday, we still have just over $60 million. The remaining spend at Gold Bar is in the region of $67 million to $68 million, and we will look to fund this with a mix of our operating cash flows, equipment financing, equity and debt.

As Rob stated at the start of the call, 2017 was a very busy year for us. We continue to invest in all our assets as well as adding a producing mine and a number of development projects in Canada's prolific Timmins region. 2018 will be no less busy for us as we continue with our work to increase our production profile to over 200,000 ounces of gold per year starting in 2019. And obviously, we always aim to get our costs as low as possible as our ultimate goal is to increase our shareholder returns as well as we can do.

At this point, I'd like to thank you again for taking the time to join us today, and I'll hand the call over to our VP of Exploration, Sylvain Guérard.

Thank you, Andrew. 2017 key exploration highlights include the acquisition of Black Fox and the reactivation of exploration at Gold Bar in Nevada. Both the Black Fox and Gold Bar properties are located in some of the best mining regions in North America. The acquisition of Black Fox gave us over 1 million ounces in mineral resources. It also simultaneously upgraded our exploration portfolio. Black Fox hosts multiple positive exploration criteria, a reason why we like the property. The property is located on a regional flexure along the Destor-Porcupine Fault, which hosts multiple gold mine deposit in Canada. The property has a high gold endowment and include multiple high-grade mineralization, and the deposits are located also not just on one prospective trend but parallel structure. In addition, the style of mineralization, we have at least 3 style of mineralization at Black Fox and various types of host rock. All of those are important criteria that make us believe that the upside potential is very good.

A key criteria is also the level of maturity. We believe that Black Fox remain under-explore, and there is room for additional discoveries. The 2018 exploration goal of Black Fox are to extend existing resources as well as known zones of mineralization. In addition, we are going to drill test multiple target based on geology and geophysics for new discoveries. We have currently 10-drill rigs at site of Black Fox, and our exploration budget is over $10 million.

In Nevada, similar situation. Our properties are very well located along the break -- along the trend, sorry, at the southeast of Barrick large gold deposits. Drilling resumed at Gold Bar in Q4 '17 after obtaining the permits to advance the Gold Bar mine development. Our prime exploration goal at Gold Bar is to extend existing resources around our pits. We have 2 drill rigs currently drilling and intersecting significant utilization proximal to the existing pit, and we also are going to complete the 60-hole drill program. In addition, at larger scale on our large land position and most specifically around Gold Bar, we are developing new exploration targets for drilling in the second half of 2018.

Back to Rob.

Thank you, Sylvain. Thank you, Andrew. Last year was a year of building as will 2018 and I suspect 2019 as we move forward towards our goal of qualifying for inclusion in the S&P 500.

I'd now like to talk about gold for a moment. And as many of you know, I've been optimistic about gold for quite a while, and there are several reasons why I think now is a very opportune time to be either establishing a position if you don't have one or adding to one. First of all, as an asset class, gold is extremely under-owned. Let me illustrate for a moment. If we look at the public markets in America and add up the market capitalizations of all the publicly listed equities in America, we get a total of $31 trillion. Now the S&P 500 represents 85% of that $31 trillion, which works out to just under $25 trillion. It's important to understand that there is only one gold producer in the S&P 500, and that is Newmont, and its market capitalization is $21 billion. So if you take the $21 billion and divide it by just the S&P 500 total cap, that equals 0.08%. Now if you said you wanted a 1% weighting in your portfolio or say of the S&P 500, you would need 11 additional Newmonts in order to get to 1%. There is a gentleman out there that stands very well in the market, Ray Dalio, who runs Bridgewater Associates. And last August, he felt, because of the geopolitical issues and economic issues around the world, it would be prudent to add some gold to your portfolio. And he used a number of 5% to 10% of your portfolio allocated to gold, and that would probably be mixed between gold bullion, gold coins and gold equity. So should we see a movement even to 1% weighting in gold, there would be a tsunami coming at the market. So why might people want to do that? I mean, gold doesn't seem that exciting right now. It is up in some currencies. If you're in America, it's down 30% from a tie since September 2011. But you know if you go to another part of the world, say you go to Tokyo and bought gold in yen back in 2011 at the high, you'd only be down 2% rather than 30% here if you're sitting anywhere in America. So part of the world is saying, "Gold isn't performing badly against the market." And we saw something like this back in 2000 -- between 2001 and 2005, gold was moving higher in dollar terms but not in most of the other major currencies. And after 2005, it started moving in the other major currencies in the world. And when all those currencies -- gold was moving up in all those currencies, the gold market became alive and the gold share started running quite strongly. And I think we're going to see that again.

Now -- so it's under-owned. It's also very cheap relative to equities today. In fact, it's at a 45-year low is a ratio if you take the Goldman Sachs Commodity Index and divide it by the S&P 500 Index. This is the lowest point it's been in 46 years. So we are -- for some people, we might be at near or just pass the bottom of the gold mark, but I'd say the downside risk is small. Collaborating that statement is -- in the past 75 years, there have been 8 bear markets in the gold share market as measured by the Barron Gold Mining Index. And the last one was the longest that we've seen and one of the deepest, and it ended on January 2016. Now during that period, there have been also 7 bull markets in gold. And you might argue you don't feel we're in a bull market, but this new one started back in January 2016. And there were 6 of them before. They went from -- 75% of those or 3/4 of them went up 600% from the low to the high. They are currently -- the one we're in right now is a little less than a double. So if you say there's a 75% probability that we could have a threefold move from where we are today. And just looking at if you wanted a move like that and you felt you wanted exposure to gold, you might want to consider McEwen Mining as in a very advantageous position. According to Bloomberg, we have a beta of 2.7. So that meaning that our shares should move at 2.7x more than gold. And if you had a 3x move on that, you could see an eightfold increase in our share price in that type of market scenario.

Something else I want you to think about when we had the crash about 2 weeks ago, it wasn't really a crash, it was a 5% correction in the market. But a lot of people got excited about that, but we seem to continue on. But there were a few derivatives out there that I think you should take note of. One was run by Credit Suisse. It was an exchange-traded note. The other was by -- run by Nomura. Both of those funds -- the sponsors have said they're closing those funds. The Credit Suisse situation lost 95% of its value in that 1 day. It lost $1.5 billion, and that was on a 5% move in the market. It was a low volatility instrument. And I think we looked at the market and we don't consider the risk that's sitting out there in the derivatives side, and I think it behooves everyone to be looking at that and taking some protection. It may be the start of something. It may be just an event that's not important, but it's certainly something to look at because the derivatives are huge multiples above the size of the stock market than any other asset class in the world.

So with that said, I'd like to move now to question-and-answers session, and we have a couple of questions that have come in online, and we'd like to start with those and we'll alternate between the questions online and the questions on the phone. So Andrew, would you like to deal with the first question?

Sure. Thank you, Rob. The first question came from [Jason Cooper]. The question was for the 9 months ended September 30, 2017 to the year ended December 31, line under cash flows from operating activities entitled cash paid to suppliers and employees went from $59.9 million to $95.9 million. This represents $36 million increase in cash spent for the quarter, which is offset by an increase in cash generated from gold and silver sales, coupled with an increase in inventory. And the question is can we provide some insight as to why cash paid to suppliers and employees increased so much quarter-on-quarter and year-on-year basis?

Jason, thank you for the question. Firstly, the biggest movement was due to the addition of Black Fox. So it was the first quarter including their costs for the year, and obviously it was only for the first quarters -- or for the first quarter of the year as well. So you see a sizable increase when you compare quarter-on-quarter and a not so sizable increase year-on-year. So that was an addition of about $15 million in payments made to suppliers and employees. We also have the year-to-date spend at Los Azules earlier on in the year, which was about $8 million. And then we had our increase in Mexican costs for the full year of about $7 million and same with Gold Bar for about $3 million and corporate also for another $3 million. And that adds up to the difference of the $36 million difference year-on-year. You also asked about -- there's additional question about viewing in our inventory management versus our cash burn. As Jason said he believe you have a history of accumulating inventory when you believe the price is too low. And Jason, you are correct with our excess cash balance. Particularly in December, we saw that the price of gold dropped, and it got below the level that we were comfortable selling at. So we held off on our sales, as you can see in our sales numbers, and that's particularly with minimal or 0 activity in December. And what you're going to see in the first quarter for this year is as the gold price did shoot up over $1,300 as it's been up to $1,350, we have been getting caught up on those sales. So you're going to see an increased level of sales versus production in Q1 of 2018 as we do that catch-up. Second question from Jason is about what does the initial CapEx plan for 2018 look like? Gold Bar, obviously, is the largest amount of CapEx that we have planned for the year, which is about $71 million for the full year. Black Fox in Timmins, we are budgeting currently $5 million for our development and projects there. We also have additional projects that we're continuing to evaluate, and that's not included in that $5 million. And then Mexico, our capital is dropping to under $1 million for the year as we wind down our activities there. There is a third question from Jason, which is, "What was your impression of the initial Black Fox exploration project? And when might we get an update on additional exploration?" Probably perhaps I may pass that one over to Rob to give you his initial thoughts on it and answer about our potential for updates during the year.

Thanks, Andrew. Black Fox, the exploration, it's a very interesting exploration target. It's at a juncture in the major Destor-Porcupine Fault that one would expect to find considerable gold. If you look at the history of the Black Fox mine, there were many, many intercepts of multi-ounce, good intercept length grades. And they mined it down -- and they have been mining it down to 800 meters. The drilling is confirming that mineralization is there. So far, we've been going laterally. We have had some difficulty drilling deeper because the ground is broken, but we're continuing to do that. As Sylvain said, we have 10 rigs on the property. We're going to be hitting the property hard this year. There is multiple geophysical targets that we want to follow up on, in addition to the resources we already have there that we believe we'll be able to extend. So first impressions, very favorable.

And then updates?

Updates, we -- you should expect to see quarterly updates coming out through the year, not only on Black Fox, but coming out of Nevada as well. Less so to San José. That's more determined by our partner, but they have a good exploration program going on the San José property.

Probably take the first question.

Can we take the first question, operator?

(Operator Instructions) And the first question will come from the line of Mike Koazk (sic) [Kozak] with Cantor Fitzgerald.

Mike Kozak here. Few questions for me. Could you just give me a little bit more detail on how construction is going at Gold Bar? Like how many people are on site, what the critical path items might be and if you're still kind of targeting Q1 next year for first gold pour?

Thanks, Mike. I'd like to turn that question over to Simon Quick, who is our Project Manager, to answer your question on Gold Bar.

Thank you for the question. So at site, currently, there's 50 individuals from Highmark Construction kickstarting the heap leach pad. As far as critical path elements, that will be the completion and commissioning of the ADR plant in Q4 of this year, which will allow us to have gold pour and production in Q1 of 2019.

Okay, good stuff. And then I just wanted to confirm also. I think you reported $27 million cash outflow in Q4 at Black Fox. I'm just wondering, is that -- just to clarify, that's related to that environmental -- the environmental closure bond, I guess, you guys inherited. Is that right?

Oh, sorry. You're referring to the acquisition of $27.5 million?

Yes, yes.

So that's the net purchase price that we agreed upon with Primero. So the agreed price was $35 million, and then there was closing adjustments of $7.5 million, which took the net cash outflow payment to Primero to $27.5 million.

Okay, got you. Okay. And then a couple of mine have already been answered, but this last one. At Black Fox, maybe you could go over in a little bit more detail kind of some -- ex the exploration efforts, maybe some of the operational improvements you're trying to undertake there in 2018. As I understand, this year is kind of an operational turnaround kind of phase for Black Fox.

Right. Right now, what we've been looking at primarily is trying to ease up having to go to such great depths and effectively, as Rob likes to describe it, "A dog chasing its own tail." So what we've been focusing on is obviously the exploration at -- for lateral extensions, plus the reevaluation of the resource, which is in process now. And we will have an updated tech report about a month's time. And we're also looking at, in terms of projects, what we're looking at primarily is obviously Froome and Tamarack as they're a near mine, and we can be driving off the existing Black Fox infrastructure. And then obviously continue on with their evaluations of the Lexam projects in Grey Fox, but they would be coming likely after our evaluations of Tamarack and Froome.

The Black Fox mine, to us, is more an exploration project than a production project. Most of the development done on the property was following the high-grade depth, and there wasn't much lateral development. As a result, you have a ramp that goes down to about 800 meters. And the time to travel, either down or up, is an hour each way. There is congestion underground. There's a lot of -- there hadn't been a lot of development work done, so alternative working phases. So what we're doing is trying to get rid of the congestion, find ways that we can shorten those transit times, so focusing more on the upper levels of the mine right now while drilling throughout the mine so we can gain a much better understanding of the geology, which would permit us to put a mine plan on that would give us at least 4, 5 years of lookahead on that production. So this year is a lot -- and I almost like -- could look at this very much like when I was running Goldcorp and the Red Lake Mine that you had a mine that was high cost. It didn't have a long mine life saying what it needed was exploration first and then putting on an efficient mine plan. We are looking at some technologies that might allow us to get it -- get the ore to surface faster and cheaper, but we're blessed the mine has a fiber optic in it, but it doesn't have many devices that it's using to gather data, so that's high on our list of priorities this year.

The next question that was sent in was from [Hal Mehlenbacher], and he was talking -- first, he made comment about copper that it was the #1 commodity so far. And since we have a copper deposit, how might we capitalize on this upbeat market. He further went on to say that he thought the gold market wasn't going to do much for the next 12 to 18 months. And that we had an opportunity, possibly, to capitalize on our copper deposit and use the cash to advance our silver and gold properties. We have been -- I just want to say about Los Azules, we've been pushing it forward to try to increase its value. We've been looking at different access routes, one from Chile in, which is less snow covered. We think we have an alternative route that may come in that might avoid the snow altogether from Argentina. We have been in discussions with 1 or 2 groups about an interest in the property pursuing a joint venture. And in our joint venture discussions, it's always included upfront cash payments each year and our residual interest in the property. Nothing -- obviously, nothing has been consummated. And so we're still -- we believe copper is going to continue to increase in price, and this is an extremely valuable asset that will only increase in time as the price of copper goes up. But we are looking at opportunities to find some funds.

Next question on the phone, operator?

And the next question will come from the line of Heiko Ihle with H.C. Wainwright.

So for Gold Bar and this is a bit related to the first phone question that you fielded here. The feasibility study was quite a positive, and you expect to start commercial production here in early 2019. Just in a roundabout way, just approximately, can you just walk us through the capital spend on the project quarter-by-quarter, just so we can model out cash flow, please?

Right. So you're -- what you're seeing, Heiko, is not a lot of cash flow in the first quarter of this year because it's obviously still the winter season. There was still site clearance and just long lead items. So then what you have is the capital being focused, ramping up in the second quarter and then peaking in the third quarter and then obviously, declining hopefully to a minimal level in Q4 as we're commissioning. So what that looks like in the total breakdown is about $12 million in Q1, $26 million in Q2 and $27 million in Q3 with the remaining balance of $4 million during commissioning.

Got it, got it. Okay, perfect. Okay. At El Gallo, Mexico, good guidance obviously for 2018. You're looking at 32,000 gold equivalent ounces here and the $650 to $715 cash cost estimates. So you were at $791 for 2017, but that includes the crusher failure. So just hyperbole-ing, take out the crusher failure and assuming that never happened, can you just give us an estimate of where you think cash costs would have been for 2017 excluding that? I'm just trying to see the year-over-year changes there.

Yes. And I can understand where you're coming from, trying to do a like-for-like comparison. I'll introduce another wrinkle to that, but I'll answer your question first. And first and foremost, if we didn't have the crusher failure, we would have probably just been under guidance probably by about 3%. The only thing now is when you're going to compare to our guidance for 2018, 2018 is going to be a more profitable year as there is a reduction in mining cost when we get into residual leaching for the second half of the year. So you start getting more profitable ounces as you're coming out because we have that major cost center being removed. But 2017, you're correct. We saw a bit of increase in costs from a peso perspective. But a lot of our cost are already denominated in U.S. dollars, so it doesn't have as big of an impact. And it really was down to that crusher failure and decreased recovery rates as a result.

Our next question is from -- came in online was from [Tim Harry], and he was asking about, "How do you see 2018 financing programs for Gold Bar, exploration and other potential M&As? Is there a limit to the level of anticipated share dilution?" I'd like to start by saying having a 24% interest in the company is somewhat of a limiter on it. Having a 24% interest and receiving a salary of $1 a year makes -- the only way I'm going to make any money in the future is not through a higher salary but through a higher share price, and I'm very cognizant of dilution. There are some projects that are important to our future cash flow, and getting those up and going and cash flowing are priorities. We do have a goal to get into the S&P 500, so we're going to try to do that. We tend to look at distressed assets rather than fully priced assets, and we're looking for a higher share price. It's not going to come any other way, but I think there's real advantage to being in the S&P 500. And if you look at the only gold stock there in Newmont, it has a very stable shareholder base. It is trading -- it has one of the lowest cost of capital in the industry, so it has a high multiple on it, net asset value. And there is only -- after Newmont, there is Coeur, Hecla and ourselves are the 3 largest American producers. And you have to be an American producer, an American company to get into the S&P 500. So 99% of all of the precious metal producers in the world can't get into the S&P 500 because they're Canadian, Australian, South African, British and other. But dilution is right at the top of my list, as I said. Given I'm the largest shareholder in the company, I feel the largest pain every time we issue a share.

Okay. Operator, next question, please?

And the next question will come from the line of Jake Sekelsky with Roth Capital Partners.

With the oxides running out at El Gallo right now, can you just kind of walk us through where the evaluation of a new facility there stands on the priority list? I mean, obviously you guys have a lot on your plate right now. I'm just trying to get a sense is this something that's purely exploration dependent? Or how should we be looking at that?

Jake, we had a silver project at El Gallo that was permitted in 2015. And since 2015, we've been looking at alternative ways to bring that on. We're now looking at it and saying, "Can we combine that with El Gallo?" Even though it's 5 miles away, it was viewed as a separate development. And right now, we're going through the exercise of can we combine the 2 sites. We'll have something out to our shareowners in the second quarter based on those studies. When we look at any project, we're looking at a certain investment criteria it has to satisfy before we want to put a shovel in the ground, and that is looking for an after-tax return of greater than 20% and a payback period of less than 3 years and a relatively low upfront capital requirement. So depending on the rate of return and the capital required, that will move priorities. Right now, our priority is getting Gold Bar up and running. If the next project in Mexico can be done with a small amount of capital, we'll possibly finance through our cash flow from Gold Bar, then we'll be looking at that. But it's -- we don't have something to put in front, so it's something to watch, but it's not a priority yet.

Perfect, Perfect. And then just one more thing in that vein. I mean, again, you guys obviously have a lot on your plate right now. I'm just trying to gauge the growth trajectory beyond Gold Bar and Black Fox. I mean, are you guys still out there evaluating assets? Or is that kind of on pause right now given that you just took on Black Fox and you're building out Gold Bar?

We're very opportunistic. So if a situation were to rise that fits our criteria, we would jump at that. It's just -- there's a belief that the gold market is going -- the gold price is going to go up, and the gold share market is going to improve that there is going to be a lot more people looking for gold and holding in their portfolio than there are -- there is today. And therefore, there's an imperative to move as fast as we can but as prudently as possible to get to our goal of getting into the S&P 500 or qualifying for getting into it. If you have a project that you think would be very complementary to it, we'd be happy to hear about it. Next question. Andrew will...

I'll take that. Thank you, Rob. This question was a write-in question from a Mr. [Bob Paulus]. I'll read it verbatim. "For a company which professes to be transparent, why is it that you calculate reserves in accordance with Canadian standards and not pursuant to Industry Guide 7 standards?" Thank you for the question, Mr. [Paulus]. I'd just like to clarify we do have Guide 7 reserves for the Gold Bar project, the Black Fox mine and the San José mine. They're also obviously in compliance with Canadian 43-101 standards, but we have reached -- we do feel we have reached the criteria to have them be compliant with Guide 7 as well. We do have some projects that don't need the Guide 7 criteria. El Gallo was a mine that was restarted from a brownfield site and as such never had a feasibility study done on it. So that excludes it from -- precludes it from being Guide 7 compliant. El Gallo, too, did have a feasibility study, but it was done at much higher prices. So that feasibility study is now outdated so makes it noncompliant. And Los Azules, being a large copper pour-free project, it will not be at a reserve stage until the feasibility study could be completed and a permit is either in hand or the process well underway. So that explains the reasons for the 3 projects that are non-Guide 7 compliant. But our 2 main operating mines, being Black Fox and San José, and our upcoming next mine for 2019 are all Guide 7 compliant. So hopefully that answers the question from Mr. Paulus .

Operator, if we can take the next call over the phone, please?

And the next question will come from the line of [Bill Powers].

I have actually 2 questions. I guess the first one would be are there any plans to move the Black Fox mill up to closer to its capacity? Because my understanding it's about a 200,000 ounce per year capacity and that you're producing at about a little over 1/4 of it for next year or at least for 2018? I guess I know you've -- in the past there has been talk about potential doing tolling arrangements. Or can you just expand on what your thought process is as far as getting more out of that asset at this point?

Right. Thank you, [Bill], for the question. Yes, obviously we would love to see the mill at full capacity. I don't think there's any mine that doesn't want more ore. However, we are running at less than 50% or just under 50% capacity. And as we were talking about earlier in terms of how the Black Fox mine is operating, chasing its own tail and not having enough phases to operate, we are looking at all the ways that we can increase those. We have -- we do have one toll milling agreement in place and are running that on a semi-regular basis, and we will look to see if there are other toll milling opportunities for us in the area. But the biggest priority for us is to increase the amount of tonnage coming from Black Fox and/or our other projects in the area.

Okay. And the second question, I guess, could be more directed towards Rob, would be, as far as the dividend goes, I know there has been a change in tax structure or the way the -- excuse me, the dividends are being considered under the new law. I guess would there -- at the same time, it sounds like McEwen is going out to potentially the equity markets later this year and that really has not been that favorable to the share price, at least the most recent past. Would there be consideration of at least temporary suspending the dividend given that you will be in need of financing later this year and potentially resuming it at a later point?

There is consideration of that.

The next question is from Mr. [Wang]. He's saying gold prices have been stable to up slightly. Even his expectations of interest rate hike loomed, the reaction is against past precedent. I wonder if Rob might have a comment on this issue. There's no real correlation between -- positive correlation between gold and interest rates. We've seen -- back in the late 70s, we had gold prices going up quite strongly and so were interest rates. They peaked at close to 20% before stopping the gold price from going any further. Right now, we have interest rates moving up. I think interest rates could have a short-term negative rate, but higher interest rates are suggesting something is going on in the economy, either more inflation or greater concern about the viability of certain institutions that are borrowing money. I would say I wouldn't be too concerned about interest rates and the price of gold right now. There's also a question on digital currencies. There's been a lot of discussion about digital or cryptocurrencies replacing gold in the market as a speculative vehicle. I'd say the digital currencies, they've grown very quickly. They're in an unregulated market. They're nontransparent, and they're serving -- they're collecting a lot of the speculative money that's out there attracting it. I think cryptocurrencies and their price movements are reflecting the enormous amount of money that's in the system. And if you look across -- there's just -- there's a bubble there as there is a bubble in the stock market, the housing market, collectible items, contemporary art, cars. You look at all sorts of areas where people have been putting money with the expectations going higher. I do not see a link between digital currencies and gold.

Operator, next question, please?

And the next question will come from the line of John Tumazos with John Tumazos Very Independent Research.

The Primero acquisition is a big addition with the mill that even can process the VG -- former VG gold assets. Do you think there are other projects like that to be acquired? And do you think that $130 million due is just too good to duplicate?

That's a good point, John. It is a tough deal to duplicate, but we're obviously looking at how we can achieve that because we do think there are a number of opportunities in the region. We feel fortunate that we have a number of opportunities with the Lexam VG properties as you pointed out, but we're obviously we're always looking to see what we can do to add, particularly in closer proximity to the mill or the infrastructure at Black Fox. But it's a tough price to be replicating, particularly when you take the mill into account as well in terms of replacement value for that alone. One way that we're actually looking at it as well is the -- maybe not acquiring something but investing at exploration of the stock mine, which is where the mill is located, the site of a previously operating underground mine. And we're commencing with exploration work there in the next week or so.

There is a question online from a [Roland Stearns]. It's a very long statement. His first question was dealing with shares outstanding, which we've already covered off. One of the control mechanisms is my 24% interest, which I should just highlight my cost base on that is $133 million. And I really don't have any intention of seeing that value drop. I want it to go up.

Mr. [Stearns] was also asking about the dividend, which we addressed in the earlier question from [Bill Powers]. And obviously, the suspension of that is up for evaluation, but it is a small token as Rob described it as a rental payment to the shareholders.

People are sending questions in online, if they could rather than putting an editorial before, just make it a simple question. Just reading it's complex, but it had to do with issuance of shares. We've covered that. Andrew said dividends. And I hope I'm not cutting this off, but the bigger picture is to qualify for that select group in the S&P 500. We are going to be opportunistic in our growth. We are going to be very aware of our shares outstanding and try to minimize the number we have to issue, keeping in mind that the market doesn't always do what you want it to do when you want it to do it. So there are some times when you have to finance. I can say, by way of example, our El Gallo silver project, which received government approval to start construction back in 2015, we opted not to do that. We felt it was better to leave the silver in the ground. It was a large capital requirement. It came when silver was well below our threshold for generating an adequate return, and our share price was quite low. And the thought of raising a lot of capital when the share price is very low and incurring excessive pollution was unpalatable, and we said just leave the silver in the ground. We're comfortable that the price is going up in the future, and the cost of holding isn't that large. And I throw that out as an illustration of how we approach the market. I can say that sometimes we like items that maybe not everyone agrees has a lot of value. In the case of Black Fox, it's a project with a history of significant high-grade occurrences, variable production that needs exploration. It looks a lot like Red Lake in my mind, my former Goldcorp days. So we're going to put money into exploration there. We're going to try to maximize the revenue. We're going to look at ways of increasing that revenue, looking for areas on the Black Fox property that are not subject to the stream that came with the property and emphasizing those over where there is a stream and looking for ways to reduce our costs, increase our treasury and extend the -- or reduce the amount of capital that were needed to build our projects on. I hope, [Mr. Stearns], that covers up most of your question.

Operator, can we have our next question?

Your next question comes from the line of [David Wright].

I'm a long-time investor, going 7 years. I have 3 questions. My first question. In the retail gold bug investment community, there's a ubiquitous belief that gold price is manipulated heavily on a daily basis through naked shorting on the COMEX exchange. I'm wondering if you could share your thoughts on whether that is seemly accurate. And if so, why don't mining executives do something more publicly vocal to end this kind of manipulative price movement that these banks and other capital formations that don't want gold to go higher. My second question is can you be any more specific on this time frame of the interest you mentioned, Los Azules JV partners? My third question is in that Black Fox area -- well, this is 3 1/2 questions. The Inventus company with Stefan Spears onboard, who's also a part of your company, they've been trucking some material to the Black Fox for their bulk sampling. How feasible is that in the future or possibly we can have more interest in that property and use the Black Fox mill? And the half question that was, in the summary, you went a great length for a while discussing Rubicon's share performance, et cetera. I consider you a founder of that company in a lot of ways. They have attractive properties in Nevada, Colorado, in addition to what they have now. They have 2 deposits. Seems like the mineralization is getting figured out there. Is that a distressed asset you might revisit at some point?

Thanks, [David]. Dealing with your first question, manipulation. That's -- there's a lot of paper gold out there. The derivative market is very large, much larger than the real market, and that's where prices can move around. The industry -- the gold industry can't control the securities industry. It's much larger than it. And one can protest, but it doesn't have much impact on people trading paper and derivatives. What does control it is the failure of these instruments, and I spoke earlier on the Credit Suisse volatility exchange-traded note and Nomura's that blew up recently. I believe in the not-too-distant future, we're going to see similar situations happening elsewhere in the derivative market, and the gold market could be just that. I suppose the gold industry can hold back all its gold. But in the last 4 years, the gold industry hasn't been healthy enough, hasn't had strong enough treasuries to even contemplate that. It's been getting rid of debt that is -- that accumulated in the boom years and selling off assets to try lower its cost of production. I don't think the industry -- we can protest it and highlight it, but it's more going to come from failure of the derivative market that's going to drive that manipulation away. On your second question about time frame, when are we going to have a joint venture tied up in a bow on Los Azules. I don't know. That's depending on...

No. My question was about you've mentioned there was interest, you had discussions with possible suitors. I was wondering what the timeframe was on those discussions when you had those.

Oh, it's been ongoing, let's say, in the last 6 months when copper price started coming alive. Regarding Black Fox, Inventus, yes, there's been some bulk samples done at the mill. It's about 100 kilometers away -- 150.

350.

Oh, 350 kilometers away. So it's not within easy trucking distance. It might be easier to put it on a train. At that distance, it probably warrants its own mill or processing plants and reducing whatever mineral gets out of the ground into a smaller quantity that can be shipped economically. It's still looking to determine what it has on the property. It's worth watching. And on Rubicon, it has been a distressed asset. It disappointed the market. There are a number of distressed assets in the market, and they present opportunity to investors who are patient and can see a turnaround. Thank you, David.

The next question comes online from a Mr. [Ernesto Varquez-Chuki]. Apologies if I've mispronounced your last name. Question related to the government approved, just auctioned off a copper property for $400 million and 3% of royalties. This is a $2 billion project of 200,000 tons per year and 0.63% copper grade with a life of 25 years. How does this compare to the Los Azules project? And what is a fair price for the property? This news just came out this morning, these newswire items that are reporting on it, so we haven't had a chance to really dive into it too much. But at first flush, it seems to be a reasonable valuation and a fair price for the project, previously owned by Anglo but given back to the government of Peru I think back in 2014 or 2015. It was an exploration-stage project at that point, so I'm not entirely certain if the government of Peru advanced it in the intervening years. But at first flush, as I said, it compares favorably to the project, and I believe it is a fair price for the property.

Just on valuation, we have someone on the phone perhaps still, John Tumazos. John, are you still on the line? Okay. Anyhow, he had a comment on it, and it was $400,000 -- $400 million plus a 3% royalty, so you have to come up with what's the value on that. Maybe it's $800 million to $900 million gross value. It's a higher grade than ours. It's about 50% higher. We're 0.45. It's 0.63. It's close to that. Not quite 50%, but 1/3 higher. Its reserve -- resource life is shorter. It was drilled off. It had already community involvement. It was further advanced, but it takes one big copper project off the table. Los Azules is considered one of the largest, undeveloped, higher-grade deposits out there not owned by a major. So anyone who's getting excited about copper, there is fewer viable copper projects out there. And we happen to own one of them. So is it a fair price? Not sure. But is it good for Los Azules? I'd say yes.

Operator, next question, please?

And the next question comes from the line of Patrick Retzer with Retzer Capital.

I had a question. You've mentioned on the call and in the past several times, the goal of being -- of qualifying for inclusion in the S&P 500. It seems to me that would be several years and several acquisitions off in the future. Do you have any idea of a time line for that?

I think your summation is right on the mark. It's several acquisitions and several years away.

The last written question?

Yes.

We'll take the last written question that we have currently from a Mr. [Mike Midlatch]. With the cash flow from El Gallo Gold coming to an end soon, the overall all-in sustaining costs may be going higher. There's a second question there, too. Rob, where do you think the price of gold needs to be to get us into the S&P 500 as our minimum price that we're looking for? So with regards to the cash flow from El Gallo Gold, indeed the weighting of those lower-cost ounces could cause our all-in sustaining costs on an overall basis to drift higher. That will be partially compensated by the commencement of Minera Gold Bar, which while it may have higher all-in sustaining costs versus the mine in Mexico, it compares favorably to the Black Fox mine and the San José mine. I believe Rob has already talked about the S&P 500. Any thoughts on the price of gold, Rob?

Well, this ties into the question that was just asked previously by Patrick. To get to the S&P 500, it's not only the price of gold because I don't think our assets are -- we don't have a large enough base to get us up to the point where we get into the S&P 500 just on the price of gold. Mind you, if it went to $2,500 an ounce, we'd be getting a lot closer. At $5,000 where I think gold is going, we'd be through this threshold. But that might take a little while. I believe the -- we're going to have to build our production base to at least 600,000 ounces and have some good exploration news on a pipeline that would allow us to be looking at 800,000, 900,000 ounces of annual production to be firmly qualifying for the S&P 500. In terms of the price of gold, I think the direction is going high. It's heading higher. We seem to have passed the bottom and in an uptrend right now. It won't be straight up. It's going to have corrections along the way, but there's enough to carry it well pass $2,000 and ultimately pass $5,000.

Operator, any other questions on the phone?

Thank you, and I'm showing no further question at this time. I'd like to turn the conference back over to Mr. Rob McEwen for closing remarks.

Thank you, operator. Ladies and gentlemen, thank you very much for your share ownership, your interest, and best wishes for a stronger gold market and great success in seeing human mining and other mining stocks go higher. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.