McEwen Inc (MUX) 2018 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the McEwen Mining second quarter financial conference call. (Operator Instructions) As a reminder, this call is being recorded. (Operator Instructions) This presentation will also be uploaded on the McEwen Mining website after the call.

I would now like to hand the call over to Rob McEwen, Chief Owner. Please go ahead, sir.

Thank you, operator. Good morning, fellow shareowners and curious investors. Joining me on this call today are Andrew Elinesky, our CFO; and Sylvain Guérard, our Senior Vice President, Exploration. Today, we're going to talk about our second quarter and first half results for 2018, both financial and operational. In addition, we'll talk about our successful exploration program and our new incoming President and COO, Chris Stewart.

This year, we have held our -- for this quarter and half year, we've held our production costs from check but significantly increased our gold and silver production. In the quarter, all-in sustaining cost per ounce were down 2%, and production was up 45% over their comparable period in 2017. In the first half of this year, our all-in sustaining costs were up slightly by 1%, but production was up 46% compared to last year. We are making a big investment in exploration, and to date, the results have been very encouraging. Not only have we increased the size of our resource base, we have also established new compelling targets of both Gold Bar and the Black Fox Complex.

Last year at this time, we were waiting for a permit to start construction of our Gold Bar Project in Nevada. We had just made our first acquisition in the world class Timmins region of Canada, and we had just started our due diligence on what became our next strategic acquisition in the Timmins region, the Black Fox Complex, which we bought in early fourth quarter.

Today, we have a diversified production base of 3 mines, increasing to 4 by year-end. We have large landholdings and promising exploration potential in 2 of the best areas in the world for gold. We have a new development project in Mexico, the Phoenix project, which is progressing to a feasibility study early next year, and preliminary number show it to be a silver and gold mine that requires low CapEx and generates attractive returns over a 12-year mine life. Our San José joint venture [or] silver mine in Argentina continues to generate dividends.

At this time, I would like to pass the call over to Andrew to speak about our financial and operational results for the quarter and half year.

Thank you, Rob. Good morning, everyone. Thank you for taking the time out of the busy summers to join us here today. Further to Rob's opening remarks, the second quarter was a solid continuation of the steady production and cost at our operations. In addition to the stable performance, we have continued with the execution of a number of initiatives that the company had planned for this year, and that includes building the Gold Bar mine; turning around the Black Fox mine; adding Phoenix as the next operation in our development pipeline; and then of course raising the capital to achieve these goals this year.

From the perspective of operating performance, our production and cost per ounce metrics were slightly under planned levels, as Rob mentioned. And from a financial perspective, the net loss we reported was also in line with expectations as our income statement and treasury balance continue to reflect the sizable investments being made at the Gold Bar Project, our continued work at Los Azules as well as the exploration across our properties.

Regarding our overall operating result, the company had consolidated production of just over 47,000 gold equivalent ounces for the quarter, which brings our year-to-date production to over 91,000 ounces and as is tracking above our full-year guidance of 171,000 ounces. The increase in production is primarily a result of the addition of Black Fox in Timmins as well as slight increases at our El Gallo mine in Mexico and San José mine in Argentina. And as Rob mentioned earlier, the lower-than-expected consolidated costs, resulted in earnings from mining operations coming in at $15 million or $0.04 per share. This contribution from operations helped offset the significant investments being made at the Gold Bar Project, the evaluation work at Los Azules and the significant exploration program at Black Fox and our other properties in the Timmins area.

These investments resulted in a decrease of our liquid assets by just over $21 million when compared to the end of the first quarter. The other major item to note is the increase in the loss reported from our investment in San José. Similar to the first quarter of the year, the joint venture reported an increase in nonoperating expenses, which was driven by the continued devaluation of the Argentine peso and the resulting noncash revaluation expense of the joint venture's net assets as well as an increase in tax expenses and accruals. Ultimately, the combination of our project investment costs and the increased loss on our investment in San José meant the company reported a net loss of $5.4 million or $0.02 per share.

Moving on to the outlook for the rest of 2018. Firstly, with Mexico, we expect our cost to decline from the second quarter due to the completion of all mining crushing and processing activities, all of which ended in the second quarter. Despite El Gallo no longer being in operation after June 30, we will continue to produce gold on a declining basis, as residual leaching activities will occur for the next 2-plus years or as long as it remains economic to do so. This will allow us to maintain an established presence in the area as we continue with our studies for the development of the Phoenix project or previously called El Gallo 2, for which we published the results of our initial study in early July. This study showed the potential for robust operation and as an average annual production of just over 47,000 gold equivalent ounces for 12 years and has a 28% post-tax IRR.

Moving over to Black Fox. Production was ahead of plan due to an increase in tonnage, with cost per ounce trending lower than our guidance, which was partly due to the increase in ounces but also due to cost reduction efforts. These efforts included crushing at more opportunistic times to avoid peak electricity cost as well as other initiatives. We also continued with the evaluation of our project and exploration opportunities in the region, and we feel that we are on our way to creating a sustainable cash-generating operation.

Thirdly, at San Jose, production levels will stay consistent in the next quarter, with the highest production occurring in the fourth quarter, which is in line with our historical production profile that has occurred there over the last decade. Accordingly, we would expect costs at San José to stay in line with guidance on a per-ounce basis as production increases over the year.

In addition, we expect dividends to continue at a similar level for the foreseeable future as the cash generation abilities of the mine continue, despite the increase in the nonoperating expenses as a good portion of these are noncash expenses.

Finally, at Gold Bar. We are still on schedule for commissioning of the mine in the fourth quarter of this year, and it is our objective to declare commercial production in the first quarter of 2019. The project is currently on schedule and on budget, with approximately 65% of activities completed, and 50% of the costs incurred as of the end of July.

Some of you may have received our e-mail blast yesterday, with an update on Gold Bar and from slides 12 and 18 on our presentation online in this call, that we've included the photos that were emailed to everybody as part of that blast. This shows the progress that we have made and the current status of the construction activities there.

In addition, we have locked in prices for approximately 85% of the overall costs on long lead items and other price-sensitive construction materials. This removes a significant portion of the project's price risk and puts us in an excellent position to meet the $81 million capital budget for the project.

Before I hand the call over to Sylvain, I would like to provide a quick update on our previously announced debt financing to let everyone know that this is proceeding as expected. The majority of the documentation has been finalized, and we anticipate closing on this deal in short order, which as I mentioned earlier, will allow us to finish the execution of our initiatives for the year.

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

Thank you, Andrew. We had another highly active and productive quarter focusing our exploration [at first] at the Black Fox Complex in Timmins and at the Gold Bar Project in Nevada. At the Black Fox Complex, we continue our major exploration program, a total of 39,000 meter of surface exploration drilling was completed during Q2 for year-to-date total of 67,000 meter. Our drilling continues to deliver very encouraging results and is reinforcing our view about the strong exploration potential of both the Black Fox and Stock Properties. I will now discuss the results from our Stock property first and then the Black Fox surface and underground drill results highlights.

At Stock, drilling have been initially focused on the east zone, and the program has now extended along with 2-kilometer trend that cover the old Stock Mine to the West, the Stock East zone to the east as well as the sector between these 2 mineralized zone where limited drilling has been executed so far. The Stock East target as a strike length of about 500 meter and vertical extension from near surface to a depth of at least 450 meter. The zone remained open at depth and along strike. We are highly excited by the potential of the Stock Properties. The presence of the old Stock Mine, that remained untested below 500 meter, the positive drill results at the Stock East target, and very importantly, the proximity to our mill facility make the stock priority a compelling exploration project with both open pit and underground potential. Treasure rigs are currently active over the property, and the first resource estimation of the Stock East Zone is planned for later this year.

Moving now to the Black Fox property. Positive drill results have been generated from multiple targets, with main highlights from the Froome deposit area, which is 700 meter west of the mine and from the Gibson target area in the Southeast property sector. At Froome, drill intersection suggests group potential beyond the current indicated resources of 159,000 ounces at a grade of 5.26 gram per tonne gold. Drilling to the north or Froome is defining 3 new mineralized zone along a strike line of approximately 750 meter. The details of the drill results have been presented in our July 25 press release. We have 2 rigs operating at Froome. In addition, in the Southeast property area, one drill rig is focusing on the Gibson target area to follow up on an impressive Q2 intersection of 3.11 gram per tonne gold over 34 meter, including 10.8 gram per tonne over 6 meter. This very significant intersection extend the depth of the normalization at the Gibson target by approximately 100 meter and suggest the potential for extension of the mineralization to about 500 meter depth below surface. Other high potential targets will be drilled during Q3 in the surrounding area, including the Gibson Southwest target, where 639 gram per tonne gold over 0.7 meter was intersected earlier this year.

At the Black Fox mine, a significant portion of the second quarter on the ground drilling was dedicated to confirming and expanding non-mineralized trend that are located close to current working, and that could be brought into production quickly. Definition drilling to the east of the 560 Central zone has extended the east zone by approximately 30 meter. In-filled drilling targeting the 780 to 820 meter level of the deep central zone have design to aid in future development and production planning as a return high-grade intercept, showing an impressive natural (inaudible) at depth. Deep central zone drilling highlight from 4 intercept created between 44 to [141] gram per tonne gold over with ranging from 2.4 to 7.5 meter. Underground mining and exploration debt forwards in Q3 will be dedicated to conversion of ounces from resource to reserve category in the upper part of the mine and development of the next version drift to provide additional drilling platform for testing the mine-depth extension that remain open.

And now moving to Nevada. Another focus of our exploration is our development stage Gold Bar Projects, and we are very pleased with our recent progress and new target defined. Gold Bar is located 25 miles southeast of Barrick's mine and recently announced Barrick Fort mile discovery. This new significant hybrid discovery by Barrick reinforce the high upside potential over this portion, the [Bella Morton Cortez] trend that also cluster a large deposit at Barrick and along the Southeast extension, McEwen mining, Tonkin and Gold Bar properties.

In addition, favorable original setting type of old stocks, presence of mineralization across number of tri-graphic horizon, type of alteration mineralization are all similar characteristics between Gold Bar and some of the large calling gold deposit. Exploration at Gold Bar was only reactivated in Q4 2017, following a 5-year break that occurred during the mine permitting period. Since then, McEwen initiated a resource expansion and pit delineations with program with the objective of extending the mine life.

Moreover, the first half of 2018, geo's call mapping, geophysics, geochemistry and spectral data been compiled and new survey executed. As a result, we have defined new high-quality drill target in the immediate area around the Gold Bar pit. Drilling is planned during the third quarter to test additional shallow oxide deposit as well as higher grades of hard mineralization.

To summarize, our exploration program are advancing very well at midyear, and the results received so far are highly encouraging and reinforce our view about the high exploration potential of our properties in the prolific Timmins mining region and along the Cortez gold trend in Nevada. Drilling will continue at Stock, Black Fox and Gold Bar during Q3, and we'll keep you posted with new results.

Thank you.

Thank you, Sylvain. I just like to follow up with some comments on the market, and I'd also like to say for those online that we do have a number of charts and diagrams attached to the link on the refresher screen, and I'm going to refer to those later, there's also a short video.

But I'd like to start by saying, I view gold to be an asset where big surprises will be on the upside, not on the other way around. We need to appreciate the price of gold and the price of gold to equities are cyclical. And that both are trading at historic lows relative to the broad market. As successful investors, you know that the largest gains are made when you have bought near the bottom. Many market indicators are signaling that now is the time to seriously consider building your portfolio of gold equities. Investor sentiment towards gold is scraping along the floor, trading volumes are microscopic in the gold equities, there's large, short positions, the precious funds, managers are experiencing continuing redemptions, and the only press the gold industry receives seems to be negative. It's a perfect environment for the contrary of the investor.

What do I recommend you consider? It will be the explorers, the junior and intermediate producers that should deliver the largest gains in this cycle. Why? Because they're making discoveries, and they're growing their production, while the seniors are shrinking their production. The seniors continue to work on bolstering their balance sheets by selling production and in essence, selling their future production pipeline. To raise funds, to reach, however, their large debt loads.

As you know, we have 337 million shares outstanding. I own 79 million shares, representing 24% of the company. And what you may not know is this: one, the cost to my investment is a big number, it's $133 million; two, my personal financial commitment ranks as one of the largest personal investments of any CEO in the precious metal industry and among the top 1% to 2% of all public companies traded in the world; three, I'm a big believer in the bright golden future of our company. Therefore, I am increasing my investment in the company by $25 million, providing half of the $50 million debt financing that Andrew spoke of earlier. These funds will be used to complete financing and construction of our Gold Bar mine. I did not -- when we chose depth, the reason was we didn't want to issue additional shares at the current share price because we believe the growth we're going through and what we're seeing in exploration will drive a higher share price in the future. I'm a big believer in exploration, and as Sylvain said, we have a lot of exploration going on at our properties. And just stopping for a moment, and just saying, Gold Bar is in a really good area of the world for gold. It's -- just 25 miles north of Gold Bar is Barrick's collection of properties: Cortez Hills, Gold Rush, 4-mile canyon or 4-mile discovery is over 50 million ounces, 25 miles away uptrend from us in the same rocks, in the same trend, and it appears that we have some of the stratigraphy. Is it a guarantee we'll have anything close to that? Absolutely not. But it is very [perspective], we -- when we looked at Gold Bar, initially, it was viewed as shallow, open tips, mining oxide ore, and any time we hit sulfide, we stop looking at it.

We did have a few hits, and one of our targets besides expanding our oxide ore resources and extending the life of Gold Bar is looking deeper into these sulfide target, getting into the lower plate, and we've seen some shallow windows of lower plate, which would allow us to test this hypothesis that there is good geology sitting below [us]. At Black Fox, we have a couple of slides I wanted to share with you, and they're sitting online in the refresh button.

Slide 14. Sorry, I just need an assist there. And what you're looking at there are a pass of -- looking at the Black Fox mine and the distribution of grades using a color scheme in showing grams per tonne, the distribution of it through the mines. So you're looking at a cross-section of the mine from the surface, there's a line, a straight line, showing surface and then indented green line that shows where the material was mined by open pit, and below that, it looks like a patchwork of colors. So the first slide is showing gold, where it occurs in greater than 1 gram. The second slide is greater than 3 grams, there's also a darker red in there. The 3 grams is pink, 3 to 5, and red is 5 grams. Anything greater -- the next slide is greater than 10 grams, which is quite a respectable grade in the Timmins district. And you can see it's quite broad. And then the next slide shows us greater than 30 grams. And I want to emphasize that this deposit seems to be open at depth. Certainly, we're testing that, and when you look at the mines, the majority of the mines within the Timmins, Matheson area, the area, the average depth is around 1,500 meters, and we're down to 800 meters at the moment. And the last one, you don't see a lot of dots, but you see little red dots, and that's greater than 50 grams per tonne.

So exploration-wise, I think that these facts give me a lot of encouragement. I would also say that in the gold market, there are number of people coming out and saying we are at or near a bottom. And I just want to reference you to Jim Cramer, there's a little 1-minute video where this person who hasn't been very bullish on gold for quite some time is turning that way, and there are number of other people, including myself that feel that we are at the -- either at the bottom or very near the bottom, and it is an opportune time to be thinking about gold, gold shares and McEwen Mining. We have a large data, our balance sheet's relatively clean and diversified, production-based, and we're growing.

Ladies and gentlemen, thank you for joining us. I'd like to now open the session for questions. We have some that came in online, which Andrew already addressed in his presentation. So we welcome any questions at this point.

(Operator Instructions) And our first question comes in from Jake Sekelsky with Roth Capital Partners.

Starting at Black Fox, I mean, it looks like cost has come down since the acquisition. Are Q2 levels something you guys think are achievable going forward? On a cash cost basis, we're below current 2018 guidance at 920 per ounce. So just a little color on that will be helpful.

Jake, it's Andrew speaking. Q2, as I mentioned, is a little bit lower just due to the increased ounces. I would expect cost to be at a similar level but perhaps a little bit higher. Maybe not in Q3, but Q4, where we do have a lower-than-planned activity level, just the seasonal order of things and the mine plan. Q4 will be our lowest amount of production for the year. So on a per ounce basis, we'd see cost increase slightly in Q4 compared to Q2. But generally speaking, you know this is where we anticipate costs, generally being, depends on some of the initiatives on the capital front. But Black Fox, in our mind, that's a fairly steady state, which obviously, we're looking to improve upon anyways.

Got it. And on the exploration side there, can you just quantify how much of the $15 million program has been spent to date and maybe just give us an idea of what the areas of focus are now that the portions been completed?

Yes. So your -- for the first question on what was -- what has been spent so far? As of the end of July, roughly speaking, out of the $16 million budget or $15 million budget, we spent about $10 million in total. And sorry, I just missed your second question there, it was about meters?

No, the second question was just related to the areas of focus. I mean, now that a portion has been complete. Has any of the focus shifted to any particular areas than you guys had originally planned?

Yes, Jake. Sylvain, speaking. Currently 3 rigs drilling at that Stock property, we like what we see at Stock since we started exploration there. As I mentioned, there is a 2-kilometer trend that owes the old mine and the depth extension that we started to test. And this extent to the east, over what we call the East zone, where we've got very, very significant results from the surface to a depth of close to 500 meter, extending -- we're 500 meters [right plan]. So this entire trend at Stock is a focus of the exploration. And in addition, 3 rigs are turning up the Black Fox. We are back on Froome, we want to grow the resource at Froome, and we also find additional mineralization proximal in the footwall zone to the Froome deposit. And we see this as a extra potential ounces that could be mined, eventually at Froome. A third rig is in the southeast portion of the property around the Grey Fox, Gibson area. We've got highly encouraging results of 3.1 gram per tonne intersection at Gibsons over 30 meters, that's include high grade, and we also had surrounding targets in this sector that we will be following up. So to summarize, 3 rigs at Stock over the 2 kilometer trend, 2 rigs at the Froome to increase the resource there, and the rig in the Southeast property area.

That's helpful. And just lastly, at project Phoenix, what are the next steps in the permitting process, you think -- can move forward there just from a high level over the next, call it, 2 or 3 quarters?

Yes, Jake, it's Andrew, again. So we're working on making our submission in the third quarter to amend the permits. We obviously have permits already in place, we have for El Gallo 2 as well as for El Gallo 1 operation. So the permit application, we anticipate making this quarter, so Q3, and then hopefully walking through the government with that because it is an amendment, and it is a change that is new to Mexico, and we will take them through that and hopefully have a result in the first quarter of next year.

And our next question comes from Bhakti Pavani with (inaudible) Global Partners.

Just a quick question on the grades at Black Fox. I notice that the grades have slightly come down from below 6, while modeling the production going forward, how should we consider about the grades at Black Fox?

Bhakti, it's Andrew, again. I would continue to model the Black Fox grades at similar levels, maybe a touch higher, but I think what we're finding is higher tonnage, and it's in a touch lower grades. However, the mining methodologies and plans there, obviously, we have a new President and COO joining us in short order, so I'm sure that will be one of the first thing he reviews. But the plans that we have now for the rest of the year, I would continue to model probably just a little bit higher but not as high at 6, I think is what you talked about before. So the grades in tonnage that we had in Q2. Going forward, you see the tonnage go down a little bit, but the grade come up slightly, but not that much higher than the 5.6, 5.7 we had in the quarter.

Got it. Okay. But with regards to the updated mineral resources that you put out at Black Fox. I'm just kind of wondering, with the exploration program or the drilling you are doing at Black Fox. Do you see the mine life extending from the current results going forward before you guys bring the other project areas into the mine plan?

Yes, the short answer to that is, yes. So our efforts right now aren't focusing on not just resource additions but resource conversion and to reserves. And the engineering department there as well as the corporate office have been focused on that, and when we do an updated Black Fox resource at the end of the year, we'll have an updated reserve estimate as well. And we would anticipate that we should see additions to that to accommodate the consumption that we've had from production since the last update.

Got it. Okay. And the last question is, you have drill results from Stock, and you have drill results from Froome. Stock has been an historical mine so when it comes to bringing that online, would it -- if you have encouraging results going forward as well. Would it take precedence over developing Froome going forward?

No, it would not. If we are successful at Stock, the potential there is a large open pits, deposits if we're able to ever join those 2 potential deposits together. And that would be quite a significant project on its own, and we're looking at moving Froome to bring that development of that into 2019 and bring production out of Froome starting at the end of 2019 or 2020. Stock, if we're able to make -- continue with the development of that deposit, we will likely spend at least another year drilling the heck out of it. So I would think it will definitely be second on the list compared to Froome. Froome is much more closer to being intangible production in the short order.

And our next question comes from John Tumazos with Very Independent Research.

In terms of sulfides at Gold Bar -- congratulations, Chris, on the new job. How big would a sulfide deposit have to be to justify around metallurgical complex to 4 million, 6 million ounces? And do you think the strategy would be to cooperate with one of the bigger neighbors with a -- with -- around metallurgical complex. I know I'm putting the cart before the horse, you have to find the gold first, but I was just thinking ahead.

We're still trying to find the horse, John. We've -- that's an interesting question, which I loved we'd have to deal with when we find more gold there. I think it's all going to depend on the type of results if -- right now, we have some sulfides that were drilled, assay results that we had from earlier drilling but were ignored, and they didn't stretch, well, they stretched over 16 meters. We haven't got anything close to approaching resource, we just have a few sulfide wholes at this point. I'd have to say if it wasn't a large resource that ultimately was found, but it could be mined. It would seem quite logical approach the seniors that are nearby and see if they have excess capacity. If we're lucky enough to see a large deposit there, there's a major intrusive that our gravity survey has shown sitting right underneath the property. So the potential for something like what's up the road exists, then we'd have to evaluate the economics. But definitely, it's -- [would] you like to add to that, Sylvain?

Yes, sure. John, we -- as Rob mentioned earlier, and as you know, Patrick's version have been focused on the upside portion of the deposit. And most if not all of the mineralization is open and [extend] down deep and [add] depth into sulfide, that's the case -- that gold dig does the case of [Kevin Creek]. We now have a new geophysical survey including CSAMT, a survey that we just complete recently, that suggest that there is significant sulfide mineralization at depth of those deposits or those pits, and we will certainly drill and evaluate the situation there. We have some historical drill intersection in sulfides and at significantly higher grade, which is encouraging because in sulfide, we want to see higher grade. And interestingly, we did follow up on Kevin Creek down the extension, where we have sulfide and oxide mineralization [there] surface and deeper down dip, we intersected oxide mineralization again. So indication of a complex structure offsetting, also a characteristic of the -- some of the large deposit -- carbon deposit you see in Nevada, a mixed up sulfide and oxide when you go at depth of those deposits. So oxide remain our first priority. But certainly we'll be assessing the sulfide potential as well.

If I can ask a second question. So that at Stock, you're looking at something totally different than 100,000 ounce, underground, historic production. Could you tell us a little bit about the 2 open pits, your targets you're trying to connect, if the grades are like 1 gram, if they're better than 1 gram? Something about the size of the target or the dream.

Yes, sure, we started our exploration at the Stock East target, which is 700 meter from our mill. It's along the fall, the Destor-Porcupine east of the old stock mine. We had historical results there but quite limited in formation. We were positively surprised with our first phase of drilling. We intersected grades ranging from 1 to 3 gram per tonne starting at surface, extending at least up to 450 meter over a strike length of 500 meter. So that gives you a size. The grade is, as I said, from 1 to 3 over tens of meter, 10, 20, sometimes 30 meter intersections. And what we like, it also include narrow high-grade mineralization. So we believe the high-grade portion is a component of this mineralized system. On the geological front, we see what we want to see, what we like to see are for this type of deposit. Major structure, mineralization all stood in mafic, [ultramafic] and [sulfic] (inaudible), typical Archaean gold deposit. If we extend to the west over the stock mine, stock have been drilled to a depth of 500 meter, so there is still a significant upside potential to drill deeper and extend mineralization for underground potential at the old stock mine. As you know, 500 meters is quite -- is relatively shallow for this type of Archaean gold deposit. So we see high upside potential there. And part of this drilling is also intersecting large QFP dikes that are mineralized, we saw that in the historical drilling, and we are currently having one rig turning on the down depth extension. And we are confident we should be able to intersect additional lower grade and wider zones. So there's a mix of high grade and lower grade, and the potential is there at Stock for both open pit, but also, we keep underground as a possibility.

So if you did a Stock open pit, is the existing mill big enough, or would you be so active and just take -- keep the best grades of the open pit?

That's a good question. We still have to advance with our evaluation. Keep in mind that Stock East could be a mix of a open pit mining and underground. So we could be starting, for example, the Stock East mining with open pit and extended as an underground [due] to catch the high grade. This is still early stage, as you know, we started stock exploration less than 6 months ago, and progress have been excellent, and results are above expectation, I would say.

Operator, are there any other questions?

Yes, our next question comes from Howard Flinker with Flinker & Co.

I didn't hear something clearly. Did you say that, at Black Fox, you're drilled down to 800 meters, and other people's finds in the neighborhood are at 1,500 meters?

That's correct.

Oh, I just wanted to clarify that. That's it.

I should mention to everyone on the call that on September 6, we're scheduling a major presentation on all of our exploration results on all of our properties, and you're all invited to join the conference, but there will be physical presentation as well in our office. But just want to give you a heads up to that upcoming event.

(Operator Instructions) And our next question comes from Heiko Ihle with H.C. Wainwright.

This is Matt Barry calling on behalf of Heiko today. With the appointment of Chris Stewart today and his experience in M&A, coupled with the fact that your goal remains to be included in the SPG 500. Should we expect to see more M&A? And if so, we wouldn't be surprised if you're not looking -- I mean, we would be surprised if you're not looking at assets across the globe. So where are you guys currently looking, North America, South America? And our second question, the $15 million exploration program at Black Fox is pretty impressive. I think you guys made a touchdown a bit earlier, but can you just walk us through expenditures quarter-by-quarter over the remainder of the year? We're just trying to get some sort of sense of cash flow over the remainder of the year.

Certainly. In terms of looking for opportunities to build production in our resource base, we're looking through the Americas and through Europe at the moment. We are -- I would describe ourselves as opportunistic and looking for acquisitions where we can build value under each one of our shares rather than just growing for the sake of growth. We needed to be growth for a bit higher share price. And yes, Chris has demonstrated background of turnaround -- successful turnarounds. So with a very strong operational bias. In terms of exploration, I'll just ask Sylvain to talk about his budget or Andrew?

I'll answer the question, Rob. Matt, basically, the budget is geared towards the front half of the year, especially doing a sizable portion of that and flow-through financing, we want to ensure that we get through the $10 million of flow-through funds in a timely fashion on qualified expenses. So we saw those $6 million cash expenditures in Q1, $5 million in Q2, and you will see about $3.5 million in Q3 and just over $1 million in Q4. What will remain to be seen is, what next steps we want to take or what Sylvain -- what programs Sylvain wants to come up with and whether we do more flow-through programs or how we choose to handle that depending on the success of the programs that are currently under execution. So Q4 may increase, [but] right now, we're just scheduled to spend just under $2 million in Q4.

I can add [to it]. We continue to get the exploration results we're getting, that will encourage us to keep an aggressive exploration program in front.

And our next question comes from [Bill Powers], private investor.

It sounds like you're off to an excellent start as far as exploration goes. But just a -- 2 quick questions. Firstly, I know, to move forward on M&A, a lot of it is going to depend on accretive acquisitions and part of this is the stock price as far as -- it seems as though McEwen shares are the most shorted precious metal stock in the world right now and one of the most shorted stock in North America, from what my research indicates. And with about 38 days to cover 19% of the (inaudible) short, I mean, have you guys spoken to the OSC about this, about whether there's been actual failure to borrow correctly or saying that -- or any plans to, I guess, reduce the short position outside of just continued operational results because it seems as though nobody cares right now, from what I could see.

No, we have not spoken to the Ontario Securities Commission or the SEC about that. I've looked at the short and in a positive light and that we continue delivering good exploration results and improving operational results, we're going to make those shorts run to cover. And that'll be great fuel for the fire to drive the price. But I take your suggestion, and we'll follow-up on that.

And then the second one is, just as far as Tonkin goes, I mean, given its proximity between Gold Bar and the Cortez projects. Has there been any thoughts given to reviewing or reestablishing exploration there, given what you're seeing elsewhere in Nevada?

We are exploring -- well, not exploring, but well, we're exploring recovery method because in between Gold Bar and Cortez is our Tonkin property, where there's better than 1.6 million, 1.7 million ounces of gold. It's locked -- it's largely locked up in a silica compound, and we've been looking for ways to be able to break that bond and recover the gold. But it's a large resource sitting there. There's a large -- we always thought there was a large stratigraphic unit called the Lone Mountain, that it was barren, and you had to go through about 3,000 feet to get down to the lower plate. But given what Barrick has found down around 2,200 feet. We're looking and seeing if there any spots on the property where there might be shallower windows to the lower plate. And definitely, what Barrick has shown is that there is still a lot more gold to be found in that area. Just a short distance north of our properties. So we have a large land package there, very favorable land package, and I'll just ask Sylvain to elaborate on that.

Yes, if I can add that to this, and I think we have a slide that is available that's shown our land position at Tonkin and Gold Bar in relation to the Barrick cluster of deposit to the Northwest. And this is a big cluster of deposit. As Rob mentioned, there's like 50 million ounces gold cluster around pipeline Cortez build, Gold Rush and a new 4-mile discoveries. We are strategically located along the trend on the Southeast extension. As you know, the large deposit in Nevada sits along those trends, and we do have mineralization at both properties. Tonkin has a large low-grade deposit in what we call the upper plate, which is not the best poster, so we will keep looking and developing the model there to keep chasing what would be extension of the mineralization within the most favorable lower plate rocks at Tonkin. At Gold Bar, we have the system well developed on the upside and the depth extension remain untested. We've been adding quality new layers of information that allow us, for the very first time, developing a good understanding of this property. As mentioned, we were not active there for 5 years. We have now all the key layers of information. In addition, we are reinforcing the team, we are assigning a new exploration manager, a former, highly-experienced Barrick geologists that work at gold strike, so all this together make our Nevada exploration highly exciting. And again, it's all about being at the right place, and I strongly believe that those properties are extremely well located along the trend in a country where elephant deposit procure close by.

And we have a follow-up question with Howard Flinker with Flinker & Co.

I'll add to your comment about the short sales. Every one of those shares has to be bought back, and it is really deferred purchases. So like you, I contrarily view it as a positive phenomenon. [That's it].

Yes, thank you. That's great.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Rob McEwen, Chief Owner for any further remarks.

Thank you, operator. Thank you, everyone, for joining us today. May you continue to have profitable investments in the gold sector, and look forward to giving you further exploration news as the year goes on. Thank you. Gold is money.

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