McEwen Inc (MUX) 2020 Q1 法說會逐字稿

Hello, ladies and gentlemen, and welcome to McEwen Mining's Q1 2020 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Peter Mah, Chief Operating Officer; Meri Verli, Chief Financial Officer; and Sylvain Guérard, Senior Vice President of Exploration. (Operator Instructions) I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead.

Thank you, operator. Good morning to all the shareholders, ladies and gentlemen, it's been -- it's been over 2 months since the World Health Organization declared the COVID-19 virus a global pandemic. Starting in late March and during April, our operations were temporarily shut down to test all of our employees in compliance with government-imposed restrictions. I'm delighted to say that none of our employees or the employees of our contractors have contracted virus. In part, we hope this result is because of our rapid action and the biggest measures that we put in place. As of today, Black Fox is back up operating normally. Gold Bar is starting to increase activities with a focus on preparing for production. Government restrictions had our San José Mine operating at 50% capacity and our El Gallo Mine limited to residual leaching. We think these government restrictions will be lifted in June.

Let's turn to Gold Bar. Last year was a disaster. I have, and I'm sure you hope our problems would be far behind us, but this year, we have experienced a significant hit. This quarter, we are reporting a very large noncash write-down of our Gold Bar mine. This is a result of a revised geological model that reduces the size and structural interpretation of the deposit. This mine was to be a star asset for us, but so far it has been clearly one enormous screwup. Many professionals tend to work for us and others who were technical consultants made decisions that compounded to bring us to where we are today. We're not ready to close the mine and write it off as a very bad benefits decision for several reasons. We believe there are opportunities to improve the operation reducing costs and also defined additional resources through exploration. Both Peter and Sylvain will speak to these issues later in the presentation.

I'd like to talk about our financial results for the quarter. First, our liquidity. At the end of Q1, our liquid assets were $31 million compared to $46.5 million at the end of the year. Working capital was $25.3 million. However, we are forecasting that our working capital will decrease below the required working capital levels required by our debt covenants. Therefore, we are evaluating several alternatives to refinance in order to extend and amend the turns of our $50 million debt. Until we have an alternative financing in place, which addresses the risk created by a potential working capital shortfall, our auditors have added a growing concern language to our financial statement, and that is reflected in our Q1 [10-K] report. Assuming a constant -- assuming that current oil price remains constant, and we've been able to refinance the debt and manually term -- extend the term, we believe we have adequate cash to fund the company through 2020.

The big item on our balance sheet and income statement is the impairment of the Gold Bar mine, and which has a consequence of changes to our resource estimate related to the mine. Our finance department, our auditors and then our external property evaluators, all that information we put together and performed a recoverability test using a discounted cash flow method, employing 9% discount rate. It also used -- which I find hard to believe -- a long-term gold price assumption, $42.30 per ounce. The conclusion was that the carrying value needed to be impaired and thus we are recording a noncash impairment, reducing plant and equipment and real property interest by $83.8 million in the first quarter. When we combine the impairment with $6.3 million spent on exploration and some projects plus G&A, the consolidated net loss for Q1 was $99.2 million or $0.25 a share. Excluding the impairment, the net loss would have been $15.4 million or $0.04 a share.

I would now like to provide an introduction to our new Chief Operating Officer, Peter Mah, who joined the company on April 2. Peter is someone who I have worked with before at Goldcorp, it's a low-grade mine. He is a very accomplished engineering executive, who is a believer in innovation, likes to challenge conventional wisdom and we have to say that he has been working flat out for the last 6 weeks to put in place strategies that we believe are going to turn McEwen Mining into a performer. I will now ask Peter to continue with the presentation.

Thank you, Rob. I'm very excited to be joining McEwen Mining and the opportunity to work alongside you again. McEwen Mining has a bright future. We have some near-term operational challenges to overcome and a stellar pipeline of resources and discoveries with which to grow. Before providing the operations and projects updates, I'd like to share some of my background and how my experience can be applied to the challenges and opportunities at McEwen Mining. I'm an engineer with a background in mining and mineral processing and earned a master's degree in open pit and underground rock mechanics.

Over the past 30 years, I've worked as an engineer, a supervisor, manager and executive in open pit and underground operations. My experience spans feasibilities, new mine builds, expansions and a turnaround. I also worked in the Red Lake Mines for 9 years in varying capacities. My experience as Mine General Manager at the Victor Diamond Mine has taught me the importance of blending challenging clay-rich ores and material handling systems designs to optimize processing efficiencies and throughput. At the Musselwhite mine, efficiencies in transverse open stoping and conveying will support the transition to production at our new Froome project. Speaking of Froome, the ramp development advanced in Q1 2020 and first ore is expected in Q4 2021. The Froome deposit has a resource grade of 5 grams per tonne and is expected to provide 2 to 3 years of mill feed (inaudible) low-cost transverse open stope mining method. Continuing with the update on the growth of the Black Fox complex, the high-grade mineralization at Grey Fox project, Black Fox Mine and the Stock Mine represent high-growth potential to utilize the excess capacity at the Stock mill. High-grade open pits are being evaluated at the Grey Fox project. Permitting is set to begin in Q2 2020, and expected to take approximately 2 years.

In addition to the open pits, underground scenarios are being evaluated. The Grey Fox project is expected to grow into a long-life core asset for the company. Company has received permit -- received the permit to dewater the stock shaft and is evaluating options and costs to reaccess the mine via the existing shaft. Resource definition drilling is required to further advance this exciting discovery.

High-grade intercepts at Stock East are also encouraging, and there is strong potential for underground and/or open pit mining. At the Black Fox Mine, lateral development was boosted in Q1, increased ore faces and access to new stoping areas in the west side of the mine. Other cost and productivity improvement plans include reducing stope dilution through improved drill control and capability trials, more focused exploration and mining in the upper part of the mine to reduce haulage costs, ground control optimization, reductions in rehab and improving development rates.

Moving to Nevada, results at the Gold Bar mine were disappointing. An estimated 25% to 35% reduction in contained ounces in the Gold Pick deposit is expected. Drilling, resource modeling updates and determination of the best business case going forward is ongoing and expected to be completed in early Q3. Key drivers for rising costs and underperformance in 2019 is being analyzed for improved solutions. Some areas for improvement being examined are resource reserve definition drilling to improve mine planning delivery, improved stockpile management and blending, better unit mining costs and productivities with dispatch system, assessment of run-of-mine heap leaching, improved grade ore and blast control practices.

In April, the mine began a staged return to operations that included maintenance, site cleanup and limited stripping for the next drill-ready ore in West Pick and processing of stockpiled ore. All re-mining remains on hold as management suggests plans for operations. Gold Bar South is in the permit stage and is expected to begin production in the second half of 2021. Ongoing metallurgical work indicates favorable metallurgical recoveries in excess of 70% with the potential for run-of-mine heap leaching. The mineralization starts at service and exploration is planned targeting the extensions.

In Mexico, El Gallo Mine continued to produce gold from residual leaching, the Fenix Project study demonstrates robust economics, and we expect to finalize this study in the second half of 2020. At our San José joint venture mine in Argentina, operations remain at 50% capacity due to the government travel restrictions. I will now turn the call over to Sylvain to take you through the exploration update.

Thank you, Peter. Our exploration over the last 2 weeks is focused on 3 properties: Black Fox and Stock in Timmins, Ontario and Gold Bar in Nevada. During this time, through our strong commitment to exploration, with results that are clearly indicating the high quality of our projects, our drill programs have quickly driven the establishment of a discovery process that is contributing to our resource growth and to the definition of an outstanding project development pipeline.

Here are some key highlights. Starting with Nevada at the Gold Bar mine, the start-up of mining at Gold Pick West indicated lower grade and tonnage than expected and has led to a revision of the resource model with more emphasis on the geological and structural controls of the gold mineralization, which is now better exposed in the open pit. To assess with the model review and to derisk short-term mining, we have designed an in-pit drill program consisting of RC, reverse circulation and core drilling. This drilling started in late March and about 15,000 meters have been completed so far in Q2.

Drill results, as shown on the slide, are confirming significant gold mineralization over the West Pick area and will assess reinforcing our model. Significant drill results have been defining, first, in-pit mineralization derisking mining with results such as 5 grams over 64 feet, including 11 gram per tonne over 17 feet and 3.4% over 90 feet. Also, strong intersection beneath the revised pit, such as 2.9 gram per tonne over 82 feet, 1.2 over 144 feet and 1.7 gram per tonne gold over 225 feet and potential to extend mineralization to the southwest of Gold Pick, where we hit an intersection of 0.9 gram per tonne gold over 120 feet outside the pit boundary. An update resource estimate using recent tool. In 2019, significant drilling occur at the Gold Bar sub deposit, where we have reinforced the geological and structural understanding and increased confidence in the resource of this quality satellite deposit to the main Gold Bar operation.

The upside potential to grow the resource at Gold Bar South, which stands at 63,000 ounces of [measure] indicated remain strong, and a drill program expected to start later in Q2 will focus on 3 main targets: first, the South extension as the deposit is open with the last drilling in this area returning significant results, as shown on the slide. Second, the Northern portion of the deposit, which was only partially tested; and finally, Northeast/Southwest structures that control higher-grade mineralization.

Moving now to tenants, at the Black Fox Mine, our focus for resource and reserve expansion is on the west side of the mine from 300 to about 700-meter depth. We have generated multiple positive intersection, including high-grade pits typical of the Black Fox style of mineralization, suggesting potential launches increase over these target area. The most significant recent intersection, such as 79 gram per tonne gold over 2.9 meters and other high-grade pits are shown on the figure where the yellow highlights are indicating 2020 drill results.

At Grey Fox, now we are pleased to announce that the mineral resource estimate for the Grey Fox deposit has been updated with exploration drilling completed in late 2019. The updated resource estimate contain 800,000 -- 888,000 gold ounces at 7.1 gram per tonne gold in the indicated category and 173,000 ounces gold at 6.6 gram per tonne in the inferred category, representing 43% and 30% increase, respectively, compared to the previous estimate. The Grey Fox gold mineralization -- mineralized system is large, covering an area of 1.5x1.5 kilometers and is composed of 5 distinct deposits located on our Black Fox property, 3.5 kilometer Southeast of the mine. We believe the potential to grow the Grey Fox resource is excellent. Open pit and underground mining scenarios are being evaluated for the potential development of the Grey Fox deposit. More information about this evaluation will be provided later in 2020.

On the Stock property, our exploration is focused on the 3-kilometer trend, reflecting a strong gold system that owe the Stock Mine to newly defined zones of mineralization. The main highlights of our 2019 drill program is the discovery of a significant new zone of innovation at Stock West. We have a total of 31 drill holes completed into this area. The gold mineralization is associated with core drilling and (inaudible) sulfide hosted in coarse granules from basic rock. Drill intersections average around 5 gram per tonne gold over widths ranging from 15 to 20 meters and occur in an area measuring 265 meter along strike and 200 meter (inaudible). The new mineralized zone is located less than 350 meters from existing underground development at the mine and within a kilometer west of our mill.

The Stock West remain open in all directions and an exploration program is being designed to produce an initial mineral resource estimate and to test the extensions of the mineralization in order to assess the potential size of the discovery. Our exploration effort at Stock produced results quickly with the first inferred resource of Stock East in late 2018, and then we upgraded it to indicated resource category at the end of 2019. Stock East is a shallow zone of mineralization hosting 121,000 gold ounces located within 1 kilometer east of our processing mill.

Our 2019 program generated some of the best intersections so far at the East Zone, including 63.6 gram per tonne over 6.2 meters and 34.7 gram per tonne over 6.5 meters, suggesting potential high-grade shoot. At the historical Stock Mine, we have demonstrated that the mineralized gold system is open on the dep extension of the old mine with a deep intersection of 27 gram per tonne gold over 7 meters, which include 0.8 meters grading 311 gram per tonne gold, a preferred gold depth of approximately 900 meter.

To conclude, I would say that we are well positioned to keep adding value going forward based on solid exploration foundation we have established in Timmins. In only 2 years, we have developed a strong exploration pipeline, which goes from target delineation and drill testing to resource estimations. Our rate of drill success is increasing. We have strong positive momentum and remain focused on a few high-quality targets, including new discoveries, that are showing excellent upside and development potential at Stock West and Grey Fox. In Nevada, at Gold Bar, mining at the Gold Pick deposit reveal a different geological setting and control of the gold mineralization then was the foundation of our feasibility study. With this new understanding of the geological setting, our in-house technical team believes there is more goal to be formed on and around our highly prospective district scale Gold Bar property. That concludes our presentation. We will now open the call to questions. Thank you.

(Operator Instructions) Our first question comes from the line of Jake Sekelsky of ROTH Capital Partner.

And I hope everybody's well. It looks like work at Grey Fox is progressing pretty well. I mean it's good to see resources expand there. Are you able to just provide any color on the environmental studies and permitting work that might need to be done as you work towards bringing it into the mine plan?

Sure. I'll just ask Peter to jump in on that question.

Yes. We actually have all RFP in draft form ready to approve, various works on baseline, water management, water studies, the movement of the Creek that are north and south pits are -- we'll mine through. So that's sort of early baseline information and development of the project description.

Okay. And have you seen that process slow at all just given the operating environment right now with the pandemic?

No. Actually, we haven't seen any impacts on that. There's been -- we've been all working virtually and engaging with their consultants through the RFP process and the various departments. So we've not seen any real impact there.

Okay. That's helpful. And then just at Gold Bar, it looks like activities right now are focused on [intake] drilling at Gold Pick and some stripping activities. Just trying to get a handle on the budgeted costs for these during Q2 and going forward. So are you able to provide any insight on that?

As mentioned, we're evaluating the plans forward and we'll come forward with that end -- at the end of Q2, early Q3, as mentioned.

Our next question comes from the line of Bhakti Pavani of Alliance.

I would like to start with Gold Bar. If I correctly understood, you had about 15,000 meters of drilling completed at Gold Pick. Just wanted to understand, do you think that drilling is sufficient enough to put out an updated resource or do you plan to further drill and derisk the deposit?

Sylvain, would you like to answer Bhakti's questions?

Yes, sure. Yes, our drilling so far had been focused on the West Pick part of the Gold Bar deposit because this is where we are seeing short-term mining. So we want to derisk. We want to also hopefully regain additional answers that is currently lost or are falling under the revised pit scenarios. And we are also testing extensions around the pit at the same time. This drilling is critical for those reasons. Another thing to that, the plan is to move to Gold Bar South, where we see Gold Bar South to increase the resource there and come back at Gold Bar for follow-up drilling, including on the east side of the deposit. We will have a resource update at the end of Q2 based on a revised interpretation of the structural setting based also on all of the available historical and new drilling information. So to answer your question, this is key information that will contribute to a revised resource that will be completed by the end of Q2.

Okay. One more question with regards to Gold Bar. You did mention in your prepared remarks that you have slowly started stripping and currently processing stockpiles. At this stage, what level of stockpiles do you have at site?

Peter, could you address that question?

Yes. We had some stockpile material left just before shutting down for COVID, about 60,000 tonnes. That will be used up in the next 4, 5 days. And then we have another stockpile of broken ore in West pick, about 60,000 tonnes that we're contemplating milling, but we haven't taken that decision yet.

Got it. Could you maybe provide some kind of color on the grade?

Sorry, I couldn't hear the question.

I said, could you maybe provide some color on what kind of grade does -- is there in the stockpiles or the broken ore?

I don't have that off the top of my head. But yes, I'm sorry, I don't have that answer for you.

No worries. Moving to Black Fox. You had pretty good results at Grey Fox and the drilling results shown in the slides look pretty good. So at this point, you guys are still developing the access ramp for Froome. Is that on target? And with the drill results present to date, what does it imply for Black Fox? I mean do you see that expand -- do you see the mine life expanding within the Black Fox mine? Or do you think Froome will be replacing the Black Fox mine over the next 2 years?

Yes. So the decline is about -- straight-line about 150 meters in. We've got about 800 meters to get to the ore. The schedule I've quoted earlier is taking into account where we are currently in the decline and targeting first ore Q4 2021. The idea is that we'll extend, hopefully on this west flank, the new discoveries that Sylvain's team and exploration have found in the western area of Black Fox, that will actually extend out Black Fox mining itself as well. But initially, it was planned Black Fox would finish mining and Froome will start. The additional development I mentioned earlier targeting some of that west flank area that we're drilling now and having good success on hits. So my expectations is we'll see some improvement on the Black Fox mine side as well.

That's great. With regards to advanced projects, there was about a $1 million charge in Q2 with regards to Canada. I'm assuming that's related to the actual development for Froome. Question is, how much of more development cost is remaining for the development of Froome at this point? And the second question is with regards to the $1 million cost in Mexico, which is related to Project Fenix, so how much of that cost still remains to be incurred in Mexico at this point?

Meri, if I could ask you to provide those numbers, please.

Sure. So in terms of Froome, we have forecasted another around $10 million, $10.5 million for the rest of the year. And then Fenix, there could be -- just to know though for Fenix, it includes also property holding costs. So we might have something similar for the rest of the year.

So is it going to be a $1 million quarter?

No, not a quarter. Not the quarter, like something similar for -- I think it comes at the second half of the year, so around another $1 million, and there may be some like really small amount.

Your next question comes from the line of Adam Graf of B. Riley FBR.

Adam. Hello, guys, thanks for taking my call. Just a question, Rob, on the overall graphical development plan that you guys presented to us last time. Has there been any updates there on schedule? I think you guys mentioned a little bit about this potential for Western Black Fox development. Has there been any update there on the overall coordinated plan?

Not in terms of schedule. No, it's still a couple of years out seeing possible production.

And then just as far as the development over to Stock West, are you guys holding off until you're breaking -- have broken through on Froome? Or what's the development plan there just to drift over to Stock West?

Peter, do you want to comment on that?

Yes. We have about 250,000 ounces of mineral inventory there that we're targeting, which is enough to pull the trigger on the development. But we'd like to get better resource definition drilling done first. And as well, the permit, I mentioned that we received to dewater the main shaft at Stock is another option we're looking at that could connect into that decline and any potential remnant mining that would be in Stock Mine. So we're evaluating the costs and the trade-offs of what's the best way to go about while further drilling is required.

Could you guys get into the Stock Mine to do some remnant mining there prior to the achieving permits for Grey Fox?

Yes. The Stock Mine is permitted. And as I mentioned, we have the permits to dewater now, and that's exactly the opportunity we're examining, it's early stages. We're getting some quotes on what it would take to dewater the shaft and restore it to your production shaft or an exploration shaft. So I'm just going through some of those evaluations over the next quarter.

And would that be -- you'd be looking at that prior to development of -- or prior to at least drifting over to Stock West to do underground test mining and structural confirmation and all that?

That's a possibility. As you probably are aware from previous communications, it's fairly lengthy, about a 2.5-kilometer development program for Stock West. So we're looking at opportunities, is there any way to bring ore to the mill quicker and get access for drilling. Especially the deeper targets that Sylvain mentioned, it would be helpful if we could get down on some of the lower levels of the existing mine, provide some drill platforms there. So those are some of the things we're looking at and hopefully can come forward with some exciting options on how to develop that, that mine.

Would you need additional permits for -- if you were to open pit Stock East and if you didn't, what -- I know it's lower grade, but at what kind of gold price does all of a sudden that ore become interesting because you have so much extra mill capacity.

Yes, we would need extra permits. We haven't actually advanced that even though there's a fairly nice resource there. It's near proximal to some water and a river there and some low-lying areas and as well, it's open further to east and at depth. So we're not sure the size of it yet to be able to go to permit. As well, we've hit some really high-grade intersections and [heap]. So there's an underground trade-off versus a pit and more drilling to take that decision.

And our next question comes from Heiko Ihle -- sorry, it comes from Mike Kozak.

Yes. So just looking at the balance sheet here and with the Gold Bar challenges going to impact on near-term cash flows for the company, I mean, to what degree can you cut back on some discretionary spending? And then are you, in fact, looking at cutting back on things like exploration G&A, sustaining CapEx? And if so, by how much?

Assuming the current gold price stays or goes higher, and we can refinance -- sorry, the terms under our debt we should -- should have adequate capital to go through the year. We've been looking at about $5 million of exploration at both Black Fox and Gold Bar in about $1 million in Mexico. And if prices change, then we change our plan again.

Got it. And I think the first principal repayment on that debt started, I think, Q3. So I mean, presumably, you want to refi that debt, I guess -- coming months.

Yes, that's correct.

Our next question comes from the line of Heiko Ihle of H.C. Wainwright.

They heard my name (inaudible) got ready to ask and I got skipped over. I hope everyone on this call and their families are staying safe. And I'm sort of grateful you guys still over $6 million exploration given the longer-term potential of the assets there. And just to follow up on one of Jake's questions earlier a little bit. I mean in regards to Sylvain and your remarks, you spent a decent amount on the pre-stripping at the gold -- Gold Pick West pit, should we expect to see expenditures in that regard in Q2 and Q3? And building on that, I mean, how much potential is there today that you're mining in that area and essentially just move it elsewhere?

Peter, do you want to take a stab at that?

Well, we know West Pick is a positive business case. So we're just looking for the best way to go about and carry the mine forward and make improvements to the overall cost and productivities before we restart. Once we get the updated resource model that Sylvain mentioned, we'll rerun our pit optimization, have a better view on strip. But at current, there's nothing major in terms of stripping that's a change from the past? And what was the second part of your question?

How much -- no, I think you got it pretty well. The -- I mean it was -- how much do you see in expenditures? And how much is there in order -- could you possibly delay the mining there?

Delay the mining?

Just like move it elsewhere.

And go after like Pick East or something?

Correct.

Yes. I mean we're right on top of the Pick West ore. Our current thinking is to mine out Pick West and then move to Pick East. But there may be an opportunity to come down the mountain there and do it differently than previously. So once we see the resource update, we'll be looking at those scenarios.

Got it. In regards to the NYSE listing, close to 90% of your volume is on the NYSE. I looked this morning, it was [4 point million] shares versus 480,000 on average per day in (inaudible), but clearly, the listing is extremely important. Can you walk us through some of the timelines that you have that you're willing to disclose, by when you have to consider like a reverse split or like any other options in order to make sure you can stay listed, given that there is a variety of approval processes that would be needed if you were to do some of the tougher choices?

Sure. Well, one, it's not our intention to do a reverse split. And the New York Stock Exchange in light of the COVID virus issues has pushed the deadline for compliance with that requirement of being over $1 out to early December. So we've got a good runway. In terms of timing, you'd have to give notice to shareholders. And so you probably have to be looking 2 months before that, so into early October.

Okay. So that's actually much more compressed than I thought it would be. I mean -- because I mean at this point it's 6.5 months, but it sounds like you got 4 months left to come back. And presumably, that's actually going to happen. And on that [same tone], can you venture a guess on your G&A savings during Q2 and thereafter, given the essential stoppage of travel conference attendance? Are you looking to maybe downsize your office a little bit? How meaningful of a number do you think you can get with everybody working from home? And how sustainable do you think it is, please?

Well, we have a lease. I'm not sure when our office lease -- our head office lease expires. From what I can gather, I mean, people don't mind working from home some of the time, but they don't want to do it all the time. And you still need an office presence. We have not investigated downsizing the office, although that thought has been moved around because of the familiarity people are getting with using technology that work remotely. No, we haven't -- I can't give you a number on Q2 or 3 as to where we -- the savings we might achieve, not at this time.

Fair enough. Actually, someone else who's scooped up at the house. Let's hope we can all go back to an office at some point in time.

Our next question comes from John Tumazos of Very Independent Research.

Did the Gold Bar charge wipe out all of the PP&E, but none of the working capital?

Meri, is there anything left?

Yes, of course. We haven't really finally allocated the charge between -- basically between our PP&E and mineral interest. But we've determined that the fair value of mineral -- or net assets, let's say, it is $47 million. We'll be splitting it and allocating it at a certain point in Q2.

Rob, the issue with the bank covenants reminds me of a training Class I was in and was a graduate student for commercial bank lending officers at Morgan Guaranty Trust company. And a fellow named [Charleston Chatfield III] gave a 2-hour presentation on relationship banking and winning back the [firestone] account. And I'm a little bit confused that the lenders like your company enough to loan you money and now at sort of an awkward time, they're enforcing the covenants and have triggered a going concern. And it would seem a lot simpler if they just charged you a fee to waive the covenant, which banks like to charge fees, or sat down with you privately to seek a remedy before it sort of triggered all these different events.

Are the lenders just fundamentally uncomfortable with your strategy of assembling assets and drilling exploration? Or do they like the managers that departed more than the managers in place? Or are they just trying to make you write a personal check for $50 million to settle the loan? It's just -- it's sort of a weird situation. And to the extent you can make any comments, if you understand the situation yourself, I'd appreciate your insight.

Sure. We're not -- we haven't violated the covenants on the loan for the first quarter. It's the second quarter that we're concerned about in going forward. The gap was structured with a 3-year term, but a partial repayment of principal starting on the second anniversary. So that's where we start getting into working capital issues. That -- and that would amount to about $2 million a month or about $10 million for the year principally in impairment. They haven't -- the lenders a concern, and they just had this covenant that you had to maintain a minimum of $10 million working capital at the end of each quarter.

But we're just looking ahead. And that's where it's the partial (inaudible) payment and the working capital clause that got the auditors to say there's a growing concern over the next 12 months. And we haven't gotten to saying, I should write a check. We have talked to another party or 2. And their creditors, I have half of that yet. Creditors put up 25 and I was another creditor for 25. So and I had looked at it and said, "Well, if we can -- we're looking to refinance and if we can refinance, we seem to have some agreement at the moment that we could extend the term and lighten or lighten and extend the partial repayments. That's where we are. And as to the -- that creditor, the half of the debt, they're just -- they like it, but they didn't expect, nor did we, the problems that we'd encountered with Gold Bar.

The Grey Fox 7 gram per tonne material seems really good. Given the need to do some development to ramp into it and other logistics, dewatering, ventilation, all the infrastructure to get into it, how many quarters or years out is that 7 gram material from going through the mill?

Peter, would you like to speak to that question of John?

Yes. So the resource just came out last week. So we haven't actually updated the open pit and underground scenarios for the announcement you've just heard from Sylvain. So I really can't speak to that yet. I think what I can say is the new discovery at Gibson is an exciting discovery potential, another open pit or third one, Tumazos, we have the 147, the Contact and Gibson, and then looking at how undergrounds fit around those and transition and doing those trade-offs to look at what has the best margin and returns and what combinations of open pit and underground mining. So quite a bit of work coming ahead of us there.

Do you think it's a year to figure it out and then a couple of years to get into it or longer?

No, I think it's probably 6 months of work, line planning work won't take that long, but other technical evaluations. We are proceeding with the Grey Fox pit permits on the 147 and the Contact, and we're probably going to roll in initially expedite the work on the Gibson pit and include that in the project description. So our first priority would be the open pit. And then making sure how our footprint fits together and how the underground fits together with those pits so that we're not sterilizing good ore, still a number of trade-offs need to happen there, but we are proceeding with the permitting for the open pits.

It's a little bit like a basketball game where you got your 3-point shooter on the bench with the NYSE listing requirements and the bank loan and all these different pressures on the company, that 7-gram material going through the mills, your 3-point ace, but you need to sink a basket?

Yes, we're very excited about it. It is harder ore, but we have to be a bit measured in how we bring in, in what quantities relative to the mill capacity. So that's other parts of the trade-off and how it all blends together with the rest of the feed. But yes, we're very excited about it. I mean very high-grade pits and very attractive underground ore, and we're certainly going to be going on it as hard as we can.

And your next question comes from the line of [Bill Power], private investor.

I had a couple of different questions. But I guess the first 1 would be, you said that in Gold Bar that the auditors were using a price of $1430 or something along those lines. And I would assume that -- it doesn't sound like they were using the future strip prices going forward or anything along those lines. I guess, have you worked out internally if you use the forward strip of -- it's substantially higher as you -- I'm sure you're aware, what the write-down would have been by -- or is it materially different?

It would probably be different. I know, to answer your question, I don't believe I look at prices higher than $1430. They employ endless projections, but apparently, we have Bank of America, $3 million, but they look beyond that and said, analysts were still down around $1,400 going into the future.

Okay. Okay. And so as far as they didn't -- so basically, they were using analysts. They weren't using what actual pricing is in the futures market. That didn't seem to impact at all.

No.

And is that a traditional way of doing write-downs? Or do they go to -- because this is kind of the -- the reason I'm asking is, this is the second time in less than a year that they wanted to change the accounting for the end of mine life in Mexico as well as they wanted to -- like we had talked about made up a new category to put that into. And it appears that by using analysts, this seems as though it's a little random to not what you could -- what the futures market is telling you to price it?

Yes. I probably would have picked a higher -- I would have picked a higher price, this is my view on the gold market, but (inaudible)

And that's fine. I'm -- it just seems as though it's a little bit when you -- I guess, for other -- in other industries, there is a pricing that is very clear and well established, whether it's COMEX or whatever. But anyway, to move on from that, getting to the Black Fox Mine. In the last quarter, you had an average grade of 4.58 with a process grade of 3.53, and that's down materially from the first quarter of last year, but yet you were still able to come in very well on cash costs. And the all-in sustaining was actually lower. How did that seem to -- how did you kind of come to those numbers? If you could shed some light on that.

Yes, they're improving their operations a bit. There were a lot of problems in the first half of 2019 that didn't occur. We had a crusher fire. Then it was followed by a flood, especially those weren't reoccurring events. That's why the costs are coming down.

Okay. And do you expect to return to a higher grade later this year? And I guess, are there further improvements that you can see for the costs, at least the cash costs coming down further?

Well, we hope to have better recoveries. Dilution has been a problem at the mine ore dilution due to mining and the ground control

(technical difficulty)

implementing cable bolting trials and different techniques to try and minimize that we start an onset of dilution. And once it starts, it starts raveling up to that fall. So that's sort of been the historical challenge, especially at the lower areas of the mine. The upper areas that we're targeting in the west flank, 300, these are new areas of the mine, which aren't around an old remnant mining. And so another reason we're targeting in our development to get access to new areas should help the overall dilution, but I'm not expecting -- yes, yes.

Okay. So that sounds like you have it under control and are expecting improvements on the -- at least grade wise going forward. Is that fair to say?

Yes. We're targeting that. I think it's going to take time to prove it out and hone it. There is a good opportunity there to improve things.

Okay. And last question today. I appreciate all your patience. As I'm reading through the announcement on down at Grey Fox, were the Whiskey Jack discovery -- or I don't know whether that was included in the discovery, but there seems to be some -- it didn't -- it wasn't mentioned specifically that it was included in the updated resource. Was the drilling down at Whiskey Jack included or is that something to be put in, in the future?

I can answer that. Yes, Sylvain speaking. Good questions. And yes, Whiskey Jack is included in this revised updated resource. We have for the first time included Gibson. Gibson is part of Grey Fox. It's to the west, hosted in a different host rock. It's in a satellite. But we know now that the structures, the vein that control mineralization cut all units from basic volcanic to sediment to satellite, all of those rocks can be potential host. And we merge in this updated resource Contact Zone and we added Whiskey Jack to it. So it's part of what is shown as Contact Zone in this revised resource. And as you know, we had spectacular results there, 53 grams over 7.4 meter at Whiskey Jack. It's a new discovery with just starting point, but enough to be included in this resource.

And your next question comes from the line of [Mike Hawkin].

I just have a few questions on Gold Bar. Given the comments about the mineralization being more structurally controlled at Gold Pick, can you provide some high-level guidance on what you expect the impact to be on mine grade, dilution, strip ratio, at least for this year? I think there was some comment about stripping similar, but any comments on that would be helpful.

Peter, do you want to talk about that?

Yes. As I mentioned, we're waiting on the resource update in order to provide those numbers and those will come out towards the end of the next quarter?

Okay. But can you at least comment on sort of at least geometrically, it's more structurally controlled and less bedding control. So does that mean that there're the narrower zones that have to be mined in a more narrow fashion? Or any commentary around that?

Yes. I think the slide that Sylvain showed of all the drill intercepts gives you a good idea. It hasn't significantly changed the actual waste development required to access West Pick. So we have -- we'll have full access to the ore. Some of the drilling results that Sylvain mentioned are outside of our current optimized pit shells, so with the old interim model. So we're anticipating some of those waste blocks to transition into West Pick ore, but really, I can't comment until we see a resource model in both the cones and do all that good stuff.

Okay. And maybe just a follow-up on that. It just gives you the impression, given the reduction in -- or the, I guess, the anticipated reduction in ounces and the commentary around it being structurally controlled, that the zones are going to be different geometry than what you initially anticipated? I'm thinking narrower. But the drilling that you showed had some pretty wide intercepts. So just wondering if you could help me reconcile what you think is going on there.

Right. Yes. Well, the actual, the 3 zones, you have the west, the central and the east, haven't changed all that much. The drilling that Sylvain mentioned is confirming the mineralization in West Pick, and that's been most the focus, near-term mining. The majority of the ounces were lost in the write-down in the, what we call the hump area, and it's the stripping program, we move from West Pick towards East Pick. I think Sylvain can give probably a better color on that. Sylvain, could you speak to that issue?

Yes, sure. Sorry, I was on mute. Yes. The control of mineralization has always been both stratigraphic and structurally controlled, so structure across the right stratigraphical bedding horizon and allocated to the bedding stratigraphic control versus the structural control. And this has impacted, of course, the way the model, the resource model have been designed in the past. As we get better exposure to the pit, and of course, a lot detail coming from (inaudible) and mining, we get better definition of what's going on.

We started with cabin. Overall, the reconciliation was okay. When we moved to the West Pick upper bench, we saw less tonnes and less answers. And we decided to go back with drilling, not just RC drilling, but also core -- oriented core to look in more detail at the rock and better understand the control of the mineralization. The drilling so far, as indicated, is showing that goal is there. Grade is there. Of course, we have to wait, as Peter said, for our revised resource update and what would be the revised mine plan based on this global revision that we are doing right now. And based on those new estimation, we will see what business -- where we stand at (inaudible).

Okay. And could you comment on sort of the width of those structures that you see carrying grade versus what you saw in the bedding-controlled mineralization?

Yes. There is actually a lot more structures than what was previously interpreted or understood. More we get information, more we realize the structural setting is complex, which is not necessarily a bad thing, but it's different how it was understood and interpreted so we still have significant width associated to structures, to multiple structures, intersection of structure, generating a wider zone of mineralization. The biggest impact we are seeing is that the model itself would be spreading less away from the structure than it used to do as part of the last estimation.

Yes, Mike, it was a real blindside. I mean the structural interpretation was the foundation for the feasibility study in the mine plan. And then it was built on that basis. And then the same party came along and did an estimate based on the mining and said, "Oh, well, it's not as laterally dispersed or spread. It's more vertically controlled."

And maybe just 1 more question on Gold Bar. If I look at just the cumulative ounces placed on the pad and the (inaudible) have been produced, I get a cumulative recovery rate of about 52% after a little over a year of leaching. Is that correct? And can you comment on how it compares to the feasibility and how you think about recoveries going forward on the project?

Peter, would you like an attempt at that? Peter has only been with us since April.

Yes. (inaudible) I'll do my best. If I recall, I think we ran the numbers in April, it was about 55% recovery. So we're pretty close there. The actual recovery rates are slower than what the FS forecasted. So you're seeing a bit more of a lag, and it takes longer to get up to FS levels, but largely the expectation is to get towards the FS level by the end of mine life in cumulative. There are some impacts with a shorter mine life, obviously, less leach time. So as we update this resource model and the life of mine, we'll be able to understand that better. We have done some leaching tests with [Forte] and are in the middle of updating recovery model to reflect the combined run-of-mine placement on the heap leach and agglomerated. And so far, our production is following those curves very well. So [Forte's] work will culminate and complete in August. And through that study, we're also going to take the new updated model, which will include a clay model. And a robbing model for the carbonaceous material. We're going to feed all of that into an economic assessment to find the best net present value approach for agglomerated versus raw versus hybrid of agglomerated and raw.

Okay. And did you -- did you understand what's causing the difference in recovery versus the initial test work at this point? Is it that -- is it clay that's being placed on the pad or carbonaceous into? Or is it something else?

It was a combination. And hence, why I think we've taken the model over internally and plan to create those models and refine them with our in-pit mapping. So we can -- that's what I was getting out of out blending. And in terms of the (inaudible) segregation, but right now, we segregate all the carbonaceous material out. But early on in the build, there were some tonnes placed on there. I can't recall the amount, but a small portion of the area, which has been taken into account in the model.

This concludes today's Q&A session. If you have any further questions, please direct them back to our management and (inaudible). I turn the call back over to Mr. Rob McEwen. Thank you very much.

Thank you, operator. Thank you, everyone, for join8ing us. Stay strong and healthy. Thank you. Good-bye.

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