McEwen Inc (MUX) 2021 Q1 法說會逐字稿

Hello, ladies and gentlemen. Welcome to McEwen Mining's Q1 2021 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Anna Ladd-Kruger, Chief Financial Officer; Peter Mah, Chief Operating Officer; Steve McGibbon, Executive Vice President of Exploration.

(Operator Instructions) I will now turn the call over to Mr. Rob McEwen, Chief Owner.

Thank you, operator. Good morning, everyone, and welcome. I'm certain everyone will agree with me that 2020 was a brutal year for us. But 2021 has started off with great momentum. One, our treasury is full; two, the going concern qualification is gone from our financials; three, our exploration program is generating strong results as evidenced by today's press release; four, our mine lives and [pinions] in Nevada have been extended and operations are now hitting our targets in terms of gold production, but we have much work still to do to bring our cost per ounce down; five, with the much improved copper and silver price over the last 12 months, better than the doubling in both cases, we have -- inside of the McEwen Mining, we have a silver company, QSource and Production, and we also have a very large copper deposit Los Azules, which we're looking aggressively for ways to best advance that project.

At this point, I'd like to turn the session over to Anna to talk about our financial operations, and she'll be followed by Peter, and he'll be followed by Steve. Anna, all yours.

Thank you, Rob, and good morning, everyone. Just going to give a brief overview of our Q1 results. Our revenue in Q1 from gold and silver sales from our 100% operated properties was just under $24 million. Average realized prices of $17.63 as compared to Q1 2020 of $31 million revenues at average realized prices of $15.91.

Production in Q1 was 30,600 gold equivalent ounces. Predominant factors were reduced production from our 100% owned lines of which Peter Mah, our COO, will review in more detail shortly. We reported a net loss of $12.5 million or $0.03 per share. This compares to a net loss of $99.2 million or $0.25 per share in Q1 of last year.

The decrease in our net loss relates to an $84 million impairment charge recorded at Gold Bar in the comparative quarter last year. We've also had improved performance from our investment in the MSC San José mine in Q1 2021.

During the quarter, as Rob alluded to, our treasury is full, we completed 2 equity financings. The first one was specific raise of $12.7 million in Canadian development expenses. And the funds were specifically raised for the development of our new Froome deposit, was part of our Fox Complex in Timmins, Ontario. The second was an equity financing for gross proceeds of $31.5 million. With the completion of these raises, all of our programs are now fully funded for 2021.

In addition to this, we received $5 million in dividends in Q1 from our interest in the San José mine. We ended the quarter with $52.5 million in liquid assets, $81 million in current assets and a positive working capital of over $35 million. We've been very busy with our exploration program, invested $5 million in Q1. The primary focus was on growing the Fox Complex resource base. We also invested $1.8 million on the Fox Complex expansion PEA and as well as on our Fenix Project in Mexico. Steve McGibbon, our new Executive Vice President of Exploration, joined us during Q1, and he will be providing more details on our exploration program shortly.

We continue to manage our operating margins by controlling our capital expenditures and [material] contracts as well as looking to reduce our G&A cost this year. We also began implementing management systems to streamline processes and to gain further efficiency. We expect our financial performance and more specifically cost to continue to improve throughout 2021 as we ramp up our free deposit towards commercial pricing in Q4.

Given this ramp-up and the ongoing PEA study, which will have further production and cross details, we're still not in a position to provide firm cost guidance. Further, the ongoing variable restrictions in response to recent outbreaks of the new COVID-19 strains continue to create uncertainty for the mining industry. The company will provide an update on costs as soon as possible and in any event, no sooner than the release of our PEA study in late Q2.

I will now turn the call over to Peter Mah, our Chief Operating Officer. Thank you.

Thank you, Anna, and good morning all. The turnaround of our operations continues to show positive signs to improve delivery, cost, and growing production from a strong pipeline of resources and discoveries sourced organically from our strategically located assets.

During Q1, we met important milestones such as the feasibility studies for the Fenix Project in Mexico and the update at the Gold Bar Mine in Nevada. We also reached an important milestone at the Froome deposit, where first ore was mined in Q1, and currently, mining is progressing as planned. All operations delivered production in line with the results and our expectations. Production is expected to increase through 2021 and achieve 20% to 40% higher than 2020.

At the San José mine in Argentina, our attributable production from the mine was 9,500 gold ounces and 492,300 silver ounces for a total of 16,700 gold equivalent ounces. Total cash costs and all-in sustaining costs were $10.88 and $13.28 per GEO, respectively, all of which compared favorably to the same period last year.

Moving on to Gold Bar in the U.S. The mine produced 7,400 gold equivalent ounces in Q1 at a total cash cost and all-in sustaining cost of $18.65 and $19.34 per GEO, respectively. Production reflects a 19% decrease from the 9,100 GEOs produced in Q1 2020. Production was impacted by decreased mining and pressure availability due to COVID quarantines, limiting available operators and winter weather hampering mining all resulted in lower gold production.

We continue to execute improvement initiatives at the Gold Bar Mine, which include improving contractor mining efficiencies while adding more equipment to accelerate production, potentially stacking more raw to reduce costs and improve throughput; and finally, adding ounces to plan with exploration drilling at Ridge, Pick and Old Gold Bar mine deposits. Production in Q2 is expected to be higher than Q1 and correspondingly cost per ounce are expected to decrease.

At the Fox Complex in Canada, we produced 5,200 GEOs in Q1 at a total cash cost and all-in sustaining of $12.62 and $15.60 per GEO, respectively. Mining at Black Fox has begun transitioning to the Froome deposit, where progressive ramp-up is planned and commercial production is expected in Q4. Cost per ounce are expected to decrease as we ramp up. There are an estimated 111,000 gold ounces in the life-of-mine plan at Froome with more underground exploration drilling planned aiming to extend the deposit near existing and plan mining.

In Q1, work progressed on the expansion PEA for the Fox Complex. We are targeting improved production and cost profiles, leveraging the potential for operational synergies through shared resources and infrastructure. Results of the PEA are expected to be released towards the end of Q2. At El Gallo in Mexico, we produced 1,300 gold equivalent ounces from residual leaching. Operations were disrupted in March by a demonstration at the mine entrance by some of the local community members. There was overwhelming support for the company shown by the majority of the community, which helped resolve the situation and a new 10-year agreement was reached with the communities.

At Los Azules copper project in Argentina, Q1 work continued with preliminary engineering and developing of a cost estimate to advance the proposed low-altitude all-year access road. Throughout the remainder of the year, work will continue on baseline studies related to flora, fauna, surface water quality and archeology as required by the environmental and mining authorities. An estimate for a bankable feasibility study is being prepared and currently under review by the company. In addition, work will continue to identify opportunities to improve the economics of Los Azules with pulp or sorting technologies and other value-add alternatives.

I will now turn the call over to Steve McGibbon, the Executive Vice President of Exploration.

Thank you, Peter. During Q1, we raised $5 million on exploration drill, we invested $5 million on exploration drilling and other exploration work, with the primary focus on growing the Fox Complex and resource base. And we remain focused on our principal exploration goal of cost effectively discovering and extending gold deposits adjacent to our existing operations to contribute to near-term gold production.

At San José, the 2021 exploration budget is $10 million on a 100% basis, with 3 -- $2.3 million being spent in Q1. Recent exploration results generated by our partner and mine operator have been encouraging, including an outstanding result from the Escondida vein of 62.5 grams per tonne gold at 5,571 grams per tonne silver over 2 meters. Some 1,400 meters of drilling were completed at Escondida and [Tonkin] targets in Q1. Escondida will see a further 1,000 meters of drilling in Q2.

At Gold Bar in U.S.A., an updated resource and reserve estimate were completed. $0.9 million were spent from the $5 million exploration budget during the quarter, which is focusing on testing near-mine targets and further defining oxide resources on the neighboring Tonkin property. Drilling activities were focused primarily on the Ridge deposit in part to provide improved density and metallurgical data. Near-mine exploration during Q1 has delivered encouraging results from the North Ridge target.

The Ridge oriented drill core program successfully confirmed mineralization, locally increasing the average grade of existing resource model blocks and extending mineralization into new areas. Exploration initiatives are continuing at Ridge, where this phase of the 2021 program consists of 20 reverse circulation holes and 7 oriented core holes. Early stage geological evaluations are underway at the Old Gold Bar mine in Q2.

At the Fox Complex in Canada, exploration activities ramped up in Q1 following the funding received from our flow-through share programs, which are being used to expand high potential target areas eligible for Canadian exploration expenditures. Exploration work has been the primary focus on growing the Fox Complex resource base.

During Q1, drilling at the Black Fox Mine continued to return, encouraging high-grade intercepts at depth. Underground drilling is being completed to identify additional mineralization adjacent to the Black Fox ore body where mineralization remains unconstrained in multiple directions.

The Stock West mineralized body was discovered in mid-2019. In 2020, exploration activities were focused on follow-up drilling. As our press release outlined this morning, 57 holes have been completed since August 2020. A portion of these do have assays pending, including some that contain visible gold. Initial results suggest the potential to define an important new zone of mineralization 500 meters or about 0.5 mile from our Stock processing facility.

In Q1, we spent $3.4 million of a total $9 million exploration budget for the Timmins area. We contracted 4 drills at Stock to increase the density of our intercepts needed to develop a 3D model to generate an initial resource estimate for Stock West and to test and confirm historical drill results below 300 meters of Stock Main. A total of 58,000 feet or 17,700 meters of surface exploration drilling was completed at Stock West and Stock Main with the primary focus at the Stock West mineralized zone.

Together with the PEA for the expansion of the Fox Complex that will be released in Q2, we will update the resource of Stock East and will produce a maiden resource at Stock West. Service exploration is continuing at the Stock property with 4 drills at Stock West and 1 drill at the historic Stock Mine.

That concludes the exploration presentation, and we'll now open the call to questions.

(Operator Instructions) But before I ask you to ask questions, I just want to thank Anna and Steve and Peter for their statements and assessment of where we are. We go out and we can expect for the balance of this year to get more exploration results throughout the year. We have large land packages in major gold districts of Timmins and Nevada. And we're also winning an emerging gold/silver district in Southern Argentina in our San José mine. The expansion plans for our Timmins operations, where we have 3 million ounces in the indicated category where it'd be released at the end of Q2. And with the doubling of the silver and copper prices in the last 12 months, when you look at the silver mining, we have a silver company inside of 2 operations delivering silver, the san José mine and the Fenix Project in Mexico. And our large Los Azules copper project, we are progressively pursuing 2 alternatives right now to advance that project. It's very sensitive to the price of copper, and we're looking to monetize that value in any possible way we can. So -- and I would expect the decision there in the next few months.

So now I'd like to entertain your questions, please. Operator, please open up Q&A.

(Operator Instructions)

Your first question comes from the line of Heiko Ihle from HCW.

I've got two quick ones for you. In regards to the strong drilling results today at the Stock West, I mean, it looks like you have several asset results for holes, and in your words not mine, some of which contain visible gold that are still pending. Any idea how long it will take for these results? And more importantly, have you encountered any results of Stock West or anywhere else for that matter, that have changed your focus of drilling for that respective site over the remainder of the year? It looks like some more assays at Gold Bar pending as well.

Peter and Steve, would you care to answer Heiko's question?

Yes, I can chime in first on that. With respect to the drill results pending, we expect to be getting a steady stream of results over time. And we are seeing that there is constraints at assay labs right now that are making that turnaround time, not as quick as we would like it to be, and we're working on opportunities to try to mitigate that somewhat.

But in general, the results that we've brought haven't changed our focus or our priorities, which ultimately are being driven by the plan and the results that will be presented in the PEA. Peter, perhaps you want to chime in?

Yes. I would concur with Steve, Heiko. That's Fox Complex. We're drilling Stock West, Stock Main, Whiskey Jack, 147, Contact Zones and Gibson. Gibson has an existing decline which we would probably use to access the Whiskey Jack and the north end there of Contact and 147. So those were all in the plan. Very promising, encouraging results, confirming the geologic interpretations and our business cases for the PEA.

Over at Gold Bar, Ridge was our #1 target. So we have got some great results there, continued drilling there. The next one we're going to be targeting after that is the Old Gold Bar mine. And targeting analysis is underway there and then Tonkin will follow, and then we'll also do some follow-up drilling at Pick. So continuing to follow the plan and really encouraging results.

And just a quick clarification with El Gallo. Obviously, you're saying that cash costs and all-in sustaining are no longer key metrics that you're using, which makes sense. So you're no longer relying on disclosing cash costs, all-in sustaining costs or really anything else. Is there another metric that you would be willing to disclose? Or any more guidance you can give to us in regards to helping us estimate the cash flow from this site for the rest of the year? And any idea with a duration of how long for this to come to disclosable assets? Or how long of phase this [disposable] asset, rather.

So Heiko, this is Anna. Thanks for the question. We do provide some costs with respect to El Gallo and (inaudible), I'm certainly happy to take this offline with you as well. The cost to keep El Gallo is important as we look to kind of strategically decide what to do with that asset. That will come in probably the next couple of months. We continue to have a workforce there that we're keeping. We are permitted there to start our operations.

So in terms of cash flow, I would say we're pretty much breakeven in terms of the care and maintenance. But we do continue to sort of invest in keeping El Gallo along until a formal decision is made by the company on being strategic with the asset.

Your next question comes from the line of Jake Sekelsky from Alliance Global Partners.

Just staying in Mexico with a quick question on Fenix. I'm just curious where it stands from a capital allocation standpoint. And if you guys have any plans to move forward with the development decision there? Or just sort of your thoughts around that.

Jake, it's Anna.

Jake...

Go ahead, Rob.

Go ahead.

Okay. So at the moment, we are, again, just evaluating strategic options. We will probably come to a decision on that asset in terms of how we will fund it and what the next steps are in the next couple of months, if not sooner. Rob, I didn't know if you had anything further to add on that?

No, that's covered, Anna. You covered it well.

So that's probably a midyear type event that we'll see something out of there on that.

That's correct, Jake.

And then just switching over to Black Fox and the Timmins region in general, the hub-and-spoke strategy seems like it's coming together, with Froome coming online. But do you think there's additional M&A opportunity in the region? Or are you guys sort of comfortable with the assets and the land that you have there now? And...

Jake, until our currency is stronger, we're looking at building our base on a -- looking solid before we think of stepping out.

Your next question comes from the line of Joseph Reagor from ROTH Capital Partners.

So first thing, the dividend from MSC was pretty significant this quarter. Was that solely from this quarter? Or was there some kind of extra cash in there from previous quarters during the pandemic when maybe the guys over [with Harsha] were being a little more conservative in holding back the cash?

I can answer that question. Thanks for the question. So the cash received, it is a bit of both, you are right. So they held that cash for most of 2020 in light of COVID. There is a surplus there and -- so it's about a mix of both. We are certainly happy to have received the $5 million dividend. And there is a signal that there will be potentially more dividends this coming year, but it is really quite dependent on the situation in Argentina with respect to COVID. Certain things right now in terms of their operations look like they're all back in order. But we sort of remain on hold there with respect to further dividends for the rest of 2021.

Okay. Fair enough. And then switching gears to Gold Bar. Obviously, the cash costs were quite elevated in the quarter. I assume the plan is that as grades tick up and stacking rates tick up over the remainder of the year, we should see cash costs come down. I know you're not giving specific guidance, but is it best for us from a modeling standpoint to assume a gradual decline?

Yes Joe, this is Peter. Yes, you're exactly right there. Hello?

Yes. You're exactly right there. We are working to work through that strip we talked about last year. We're getting through that, releasing ore and looking at opportunity ore and including that the exploration stuff you heard earlier. So we're working towards the feasibility and beating the feasibility.

Okay. And then one final one, if I could, on Gold Bar. From what we've been hearing, there's a lot of people looking to buy operating assets in Nevada. Is that something you would consider selling? Or do you guys consider it kind of like a flagship of the company?

Every asset has price. So as -- we're always open to suggestions, but we think our property in Nevada is large. It's on a trend where there's some major mines just above us. And we don't think there is a loss in a exploration potential there. We think there is room to grow that deposits and our Tonkin project significantly. So they have to put a sleek number in front of that.

(Operator Instructions)

Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research.

Rob, congratulations on the life extensions at Gold Bar. Concerning the PEA for Black Fox, I'm directing the question to Peter and Steve, I don't understand why it's the PEA when the mill and tails and processing is very well defined. How much money would you have to spend to upgrade the gold resources, to determine the precise size and shape of stopes, the mine development layout, resolve any uncertainties about top cuts or drill density for it to be a feasibility study, how many holes, how many dollars would that be to have a more certain mine plan?

I'll start, Steve. John, it sounds like you're on the team already, in the room talking. Yes, those are all big questions. And I think that the reason why we're a PEA and combining the 3 really good project areas in the district. It was quite a challenge to assess the trade-offs and what order we could bring things in and what permitting, and we did a big gap analysis to identify all that. So we're right in the middle of running the cash flows now and answering all those questions.

So I can't really report there that will come out, obviously, with the PEA, but we plan to fast track right to an FS and potentially, in some cases, if we can see a clear enough line of sight right towards project development and early production. And that, if you recall in the past calls, was our objective to see if we did identify a pathway there.

And then we like the Stock West deposit, and we like accessing the Grey Fox area through the Gibson decline, and that's what we're trying to respond to an answer. At Grey box, there's a lot of drilling has been done, but again, up above 400, 500-meter level. So there's a lot more to do. And that will be one of the outputs from the PEA.

Peter, let me try another way since I'm an honorary member of the team. The year-end reserve for Black Fox was 14,000 ounces. We all know there's more gold there. Since McEwen has bought the project, there's been innumerable over 1-ounce assays often 0.5 meter or a meter narrow. How much money do you think the property merits to drill tightly, so a QP calls it reserves?

Yes, I'll pass that to Steve, but I can add to that, too, after.

Yes. I guess, specific to Black Fox, what I would say is that as you'd be aware, we do get some very high-grade drill results. But the ore at the same time, is very, very nuggety. And we expect that in order to really be able to identify and seize on that potential that we need to undertake a significant program that probably gets our drilling centers somewhere between 5 and 8 meters to try to overcome that nuggety nature of the ore. And we can kind of confirm what that drilling is from more immediate access points, but the longer-term potential of the property will require a significant amount of drilling, of which we haven't put a final number on at this point. We're really just initially trying to target accessible areas and drill him with a density that satisfies us, but that we would reliably converting them into reserves.

It's -- 5 to 8 meters is an impressive goal. That would certainly define the size and the shape of stopes.

Correct. I concur with Steve, and we've moved -- we're in the process of moving the production team to Froome, and that way exploration can go about carrying out the drilling and work needed without the pressure of production on their backs. And we like the west flank, we like the deeps and is there a potential connection to Froome. So we're still going to be advancing that Stock project, and hopefully, coming forward with a better understanding that's minable shapes and higher grades achievable.

There are no further questions at this time. Mr. Rob McEwen, and I turn the call back over to you.

Thank you, operator. Thank you, everyone, for joining the call, and taking it forward to further exploration news and our PEA coming out of Timmins, and our movement on loss of business. All the best. Have a very successful day. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.