McEwen Inc (MUX) 2023 Q1 法說會逐字稿

Hello, ladies and gentlemen, and welcome to the McEwen Mining's Q1 2023 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Perry Ing, Chief Financial Officer; William Shaver, Chief Operating Officer; Michael Meding, Vice President and General Manager of McEwen Copper; Stefan Spears, Vice President of Corporate Development; Jeff Chan, Vice President of Finance. (Operator Instructions)

I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.

Thank you, operator. Welcome, and good morning, ladies and gentlemen. I'll make this quick. We have gotten our mojo back.

From September 1 of last year to last Friday, May 5th, our share pricing has increased by 200%. That represents an increase 4x greater than the GDX and the GDXJ indices 11x greater than the price of gold and 15x greater than the price of copper and isn't it about time and we still have much to regain. This outperformance was driven by a number of factors, which you'll hear in greater detail as we go on today. But the big ones were an ARS 30 billion investment in McEwen Copper by Stellantis, who is the world's fourth largest automobile manufacturer and also an investment by the world's #2 mining company, Rio Tinto, their technology arm, they increased their investment by $30 million to $55 million. Also factoring in as our increase in gold production and decreasing cost per ounce at our Fox and Gold Bar mines. We also had encouraging drill results from Fox and Los Azules, and we benefited from an improving gold, silver and copper price. We're going to be improving our balance sheet, deleveraging it by reducing our debt by 38% on Friday of this week, and I believe the best is yet to come.

I will now ask Bill Shaver, our Director and Chief Operating Officer, to speak of our operations and growth projects for next year. And just before we start, he will be -- after Bill, will be Stefan Spears, our VP Corporate Development. He'll speak about our exploration progress, followed by Perry Ing, our CFO; and Jeff Chan, our VP of Finance, to address our finances, and we'll conclude with Michael Meding, our VP and General Manager of McEwen Copper. Bill?

Thank you very much, Rob. Good morning, shareholders. This morning, we are happy to report our operational and financial results for Q1, which have improved dramatically over last year and are expected to continue to incrementally improve based on changes we are making in our operations.

On the safety front, our safety record continues to be the cornerstone of our plans going forward. Our 3 mining operations worked without a lost time incident in Q1. We did have a minor medical aid in February when a diamond drill contractor employee cut his finger on a sharp piece of metal. But other than that, there were no injuries to people or contractors working for the organization. On an operational front, at the Fox Complex, we have continued our operational improvement process, which has resulted in a higher gold production and lower costs in Q1. We processed 17,500 tonnes of ore and produced 12,929 ounces of gold in the first quarter versus 8,000 tonnes of ore processed and 7,246 ounces in Q1 of 2022. Thus, a very significant improvement of 57% on tonnage and 78% on ounces.

Costs have also improved by approximately 30% over Q1 of 2022. We now have cash cost of $1,088 and all-in sustaining cost of approximately $1,300 per ounce. The Fox Complex is basically continuing a path of incremental improvement that began in Q2 of 2022 and have made steady improvement since that. We hope to continue this improvement over the remainder of the year. At Gold Bar, we completed the transition to a new contractor in January as planned and on schedule. And we also moved the operation, the open pit operation that is run by the contractor to the Gold Bar South pit, which produced most of the ore in Q1. In part of this transition was done because of the very heavy snowfall that we had over the winter in the Pick pit, which is at a higher elevation.

In Q1, we placed 578,600 tonnes of ore on the leach pad versus a budget of 459,000 tonnes. We produced 6,456 ounces of gold versus our budget of 8,952 ounces. The cash cost per ounce sold was $1,491 and is a significant improvement from 2022 of $284 and ASIC was $17.25 versus $26.33 in Q1 of last year. The shortfall of 2,496 ounces was due in part to the slower beaching rate of the Gold Bar South ore but also due to a record snow over the winter as well as a very wet and rainy spring. The very heavy snowfall over the winter led to very high snow melt along with very heavy spring rains, which resulted in a diluted gold grade in our solution that goes back and forth from the leach pad to the gold recovery plant. This had some impact on our recovery.

The very high spring runoff also interrupted production and site access for approximately 3 days in the quarter. During that time, our 2 access roads were flooded and getting to the site involve a boat and helicopter for a few days. With the help of our own people and our contractors were able to mitigate the impact of these unusual weather events. We are working diligently to get our production back on track and we have returned to work in the Pick pit in mid-April where the ore has much better leaching kinetics, which will allow the gold to be released much quicker. This will improve our gold production in the remainder of the year.

In Mexico, at the El Gallo Phoenix project, we have moved the plant that we purchased last year to the site and are planning for production in early 2024. We are presently working on 3 important aspects of the project. Number one, the permitting modifications required by the revised plant configuration and production rate, the construction, engineering and scheduling for the project and the financing for this construction. As you might remember, we will reprocess the heat leach pad, which has a grade of 0.6 grams per tonne. To accomplish this, we acquired a use 7,000 tonne per day gold processing plant, which was recently operating at another mining operation.

We have moved this plant to our site, and we will assemble the front end of the plant, meaning the grinding cyclones and reaching portion of the plant and used the present El Gallo gold recovery circuit when we start production. The acquisition of this equipment reduces the capital cost for the project down to approximately $12 million with the potential to allow us to increase production as we move to production. We see this plant operating later this year or early 2024. In all of our operations, we are continuing our progress in stabilizing and improving operations so we can obtain predictable outcomes for gold production and cost in 2023 and into the future.

Thank you very much. And now I'll turn it over to Stefan Spears for an update on our exploration efforts.

Thank you very much, Bill. I'll start by highlighting exploration results from projects in the Timmins region. We have a large exploration and resource delineation program ongoing at the Stock property, the site of our mill as well as the past producing Stock Mine. To date, in 2023, we've completed 42,800 meters or approximately 140,000 feet of diamond drilling. Yesterday, on May 8, we published an exploration update, which you can reference for complete results and diagrams. We had a positive outcome from our drilling near surface up plunge along the historic stock mine trend. This mineralization occurs just below the bedrock surface very close to the proposed ramp access to Stock West and our mill with strong gold grades and widths in 8 holes.

2 highlights are 18.9 grams per tonne gold over 9.4 meters, including 103 grams per tonne over 0.9 meters. And in the second hole, 18.7 grams per tonne gold over 3 meters, including 53 grams per tonne over 1 meter. Results are true width and uncut. Drilling also returned positive results from the Stock Mine trend down plunge below the historic mine workings as well as step-out drilling at Stock West, where additional intersections carrying visible gold are currently in the lab. We also encountered a potential new hanging wall zone above Stock West, which returned an intersection of 5.7 grams per tonne gold over 5.9 meters true width. Exploration drilling in Timmins will continue throughout the year at stock with drilling also allocated to Grey Fox to follow up on positive results received last year.

Moving to Nevada. Exploration is just getting ramped up after the winter and a very wet spring period. We look forward to reporting on progress at several near-mine exploration targets during our next call. In Argentina, the McEwen Mining management team visited the San Jose joint venture mine in April to tour the site and received presentations on the production plan for 2023 and exploration progress. Drilling to define new veins is ongoing with a focus in 2022 and 2023 on 2 veins to the north of the mine. The first called Mora Northwest located approximately 750 meters north of the nearest underground infrastructure, had an initial resource defined in 2022 with additional potential along strike. The Mora Southwest located approximately 250 meters from the nearest infrastructure, returned encouraging drill results, such as 390 grams per tonne silver and 1.8 grams per tonne gold over 1.8 meters true width. And the local geological team believe this vein has good potential for additional resource growth.

In the second half of this year, drilling is planned at the Telken North target, which is adjacent to the Cerro Negro mine, targeting the extension of the Northwest trending vein system that exists on Newmont's property. We intend to highlight exploration opportunities and results from San Jose more actively in our disclosure going forward.

Finally, moving to Los Azules. We have published 4 drilling updates so far in 2023. Most of the drilling has been devoted to delineating the deposit and improving our knowledge of the geologic controls metallurgy, rock quality, hydrology, et cetera, which is essential as we move to more advanced engineering studies. The area around Los Azules deposit remains underexplored with numerous geophysical targets never tested by drilling. One deep exploration hole testing a geophysical anomaly to the north and below the deposit was published on March 6. It was highly successful returning an intersection of 1,052 meters of 0.29% copper, including 480 meters grading 0.24% copper. Copper grade in this hole increased below 500 meters with grades up to 1.46% copper over 26 meters in early mineral porphyry with coat stainless, which is typical of the high-grade core of the resource.

Thank you. I'll now turn the call over to Perry Ing, CFO.

Thanks, Stefan. I'll provide a brief overview of our first quarter results for 2023, following on from Bill's overview of our operating results. Jeff and I will then discuss our liquidity and the impact of the Stellantis and Nuton Rio Tinto transactions, which closed late in the first quarter.

So starting with McEwen Mining's consolidated results. We reported a GAAP net loss of $43 million or $0.91 a share, which compares to a GAAP net loss of $20.7 million or $0.45 per share for the same period in 2022. Given that the reported loss is primarily a function of the loss of Los Azules exploration expenditures at McEwen Copper, we have introduced a new metric this quarter of adjusted net earnings loss, which is a non-GAAP measure, focusing on the results of our 100% owned gold operations and excludes the results of both McEwen Copper and the San Jose mine.

Accordingly, our adjusted net loss on this basis was $6.4 million or $0.14 per share for the quarter compared to $13.1 million or $0.28 per share in the first quarter of 2022. Our adjusted net loss improved significantly despite acceleration spending on our 100% owned properties, nearly doubling from $3 million to $6 million this quarter. This demonstrates a significant improvement in our operations, particularly at the Fox Complex during the quarter. This is reflected also in the improvement in our reported gross profit and cash gross profit figures on a quarter-over-quarter basis.

So looking at our operations and characterizing our results, build in a thorough job reviewing our operational successes and challenges at our properties. I'll also add continuing on from Stefan's discussion about San Jose that, at the San Jose mine, first-quarter production was generally disappointing. It came in at 23,000 gold equivalent ounces, which while slightly ahead of the first quarter of 2022, was significantly below budget expectations with resulting all-in sustaining costs coming in over $200 above-realized gold equivalent sales prices. This is primarily a result of lower grade process as they experienced a high level of mining dilution and also processed lower-grade stockpiles because of -- or shortfalls from underground mining. The average gold and silver grades processed were approximately 1/3 lower than the comparative period in 2022.

Tonnage to the plant was 108,000 tonnes, which was slightly ahead of the 103,000 tonnes processed in the comparative period. We will work with the team at San Jose and our partner, Hochschild Mining, to monitor the execution of the drilling and recovery plans that have outlined to better define the mining resources and access new areas of ore, not in the original mine plan, as Stefan outlined. This should have a positive impact for San Jose, both in 2023 and 2024. Adding the results of the 3 operations together leaves us consolidated production of roughly 30,000 gold equivalent ounces for the quarter compared to 25,000 ounces for the first quarter of 2022. Again, while slightly ahead of where we were last year, we still have a fair amount of work ahead of us to meet guidance for the year. But based on the plans outlined by Bill, we believe we could do so and can also deliver these results profitably, especially at current gold prices.

From a liquidity standpoint, the transactions, which Rob outlined leaves the company in much better shape in terms of cash and working capital as evidenced by our balance sheet. We are currently in the process of retiring $25 million of our debt with front lending, which should have closed in the coming days, as Rob mentioned. And this will further deleverage our balance sheet.

Now I'll turn it over to Jeff Chan, our VP Finance, to go over a couple of additional highlights.

Thank you, Perry. During Q1, we raised a total of $185 million, consisting of private placements and secondary common share sales. These transactions brought in ARS 30 billion from FCA Argentina, a subsidiary of Stellantis and USD 30 million from Nuton, Rio Tinto Venture. McEwen Mining as a stand-alone company received $47.5 million in consideration of its 8.7% interest in McEwen Copper. The balance of the funds will be used by McEwen Copper to advance the Los Azules Copper project. The pricing of the recent transaction implied the market value for our copper business of $550 million.

From an accounting perspective, the cash rate is fully reflected on our balance sheet, hence the reported cash balance of $190 million. As we described in Note 4 to our financial statements, as of March 31, McEwen Copper held ARS 29.5 billion at an official exchange rate of ARS 209 to $1. We are prudently managing our Argentine peso balances to mitigate inflation and devaluation risks, investing in low-risk liquid securities. As a result, our investments in Argentina yielded $9 million in interest income during Q1 against $7 million in devaluation impact on our peso balances.

I'll now hand things over to Michael Meding to discuss our Los Azules Copper project.

Thank you, Jeff. In McEwen Copper, we had a remarkable quarter this year. In a challenging market, and as mentioned by Rob, we have been able to win the support and investment of Stellantis, the world's fourth biggest carmaker by an equity investment of ARS 30 billion, obtaining a stake of 14.2% in McEwen Copper. This is remarkable because, to my knowledge, it is the first time a car maker has invested in a copper developer. This is testimony to a trend shift in the mining sector and validates the value that Los Azules and [Stellantis] represent. Car makers realize the eye-watering amount of natural resources required to shift toward greener energy metrics and electromobility and the need to secure supply.

Los Azules present a unique opportunity, a future mine that is aimed to be a paradigm shift in the mining world. A mine entirely built towards minimized environmental and carbon footprint with low water consumption aiming to produce copper cathodes that have direct industrial applications also in Argentina and are very attractive from an ESG perspective. It is remarkable because it is strategic beyond the essential but near financing. Stellantis produced about 160,000 cars in Argentina, half of which are exported, has approximately 24,000 employees in Argentina direct and indirect. 24,000 families that depend on Stellantis, which produced in Buenos Aires and Córdoba. Urban centers that do not have the same appreciation of mining as the more distant mining provinces in Argentina. Now we'll have a significant amount of exposure to our copper development, not only through the sharing of future tax income, but also directly through Stellantis participation in McEwen Copper.

With Stellantis, we now bring mining to those urban centers, an essential component of our ESG strategy. Rio Tinto, the world's second-biggest mining company to their copper technology arm Nuton, also took the opportunity to invest another ARS 30 million acquiring a percentage, which now makes them equal shareholders to Stellantis, owning 14.2% of McEwen Copper. As highlighted by Jeff, this together means that the implied market value of McEwen Copper increased from approximately $260 million to $550 million, while the share ownership of McEwen Mining decreased from 68.1% to 51.9%. This represents an overall value cation of 80% for McEwen Mining shareholders from $160 million to $290 million. Rio Tinto ratified the value of McEwen Copper and our important of Los Azules project.

So far, we have an environment where there was a scarcity of drill rigs, secured 15 drill rigs. This, including 4 new Boart Longyear LF160 we own ourselves and part of which we dedicated to local supply development. We have drilled 34.4 kilometers in 127 holes or 111,500 feet so far and have delivered and communicated strong inflow results in this year's press releases with more to come. Stefan had mentioned in their exploration update our promising results regarding the stabbed exploration, showing the potential to increase to further our already vast deposits laterally and at depth. We have improved our existing roles. Our exploration road now can support 18 winners, which we have successfully tested with commercial load to the site for the first time since the project inception. This is important because it makes future logistics so much more cost-efficient.

Argentina has become relatively more attractive compared to jurisdictions such as Chile or Peru. It shares thousands of kilometers of border in the Andes Mountains ridge where significant copper deposits are located. Testimony to this increase of interest in Argentina, especially Sao Juan, was the attendance of our event at PDAC, where we invited the Vice Governor of San Juan, the Mining Minister of San Juan, and the Ambassador of Argentina to Canada and representatives of the financial sector and which was very well attended. This as well as the recent visit of the Canadian Ambassador to Argentina at which together with the Minister of Mines of San Juan we travel to our projects.

We demonstrated our progress at the Los Azules project in the Andes, the first project the ambassador visited in this province. Both are indications that Canada and Argentina are interested in working together to bring mining projects forward that play in a central role in the future energy transition. We have made remarkable strides also on the permitting side and filed for our environmental permit application for exploitation with San Juan authorities. An event, including the governor, the Minister of Mines and representatives of the National Secretary of Mines and Legislators on the 14th of April and which is the primary permit application to furthering our project.

Another milestone was the recent Memorandum of Understanding we signed with YPF Luz. YPF is one of the biggest companies in Argentina and the majority state-owned national oil, gas and energy company. This memorandum signed between McEwen Copper and YPF Luz sets out the framework to deliver appropriate solutions to provide 100% renewable energy for the operation of Loz Azules and San Juan, aimed to prepare Los Azules for carbon neutrality by 2038. Our competent management team in Argentina with powerful local experience is prepared to drive the project to build our vision, a green, sustainable mine with an accelerated timeline. Chemical exploration on the other hand, the Rio Tinto company is expected to start drilling at our Elder Creek properties during this month. Kennecott is slightly to invest $18 million over 7 years to be able to earn 60% of Elder Creek.

Thank you for your attendance. I will turn the conversation back to Rob.

Thank you, Michael. Operator, we're going to go to a question-and-answer period. And we have 2 questions that came in online. The first one from [Glenn Wesure], he's a shareholder. He asked what measures we're taking to minimize the potential losses from a declining Argentinian peso. I'll ask Michael to reply to this question.

Sure. So we invest in low-risk and highly liquid investments in Argentina. In Q1, we gained about $9 million of interest income versus a devaluation of $7 million. So we made about $2 million versus the devaluation of the peso, which is a good outcome. We also invest a lower amount in CDRs about ARS 4 billion to further our potential upside versus the devaluation of the peso.

Thank you, Michael. Glenn also asked another question about contractors. We read in the 10-Q that we use drilling contractors, and the reason for that is they have the expertise that we lack to do the exploration drilling. He also wondered about the contractor at Gold Bar, and that has always been part of the Gold Bar plan. It was a way to reduce the upfront capital development costs. We have a new contractor there that is working very well for us.

The next question came in from [Valeria Bittencourt] of FP Wealth Management in London, England on behalf of her Managing Director, Brent Fitzgerald. 3 parts. One, is there a price target available via research/analyst report? There are 4 currently out there, and they range from $9.50 a share to $11, 2 at $11, one at $10.50 and $9.50. And they are alliance partners, H.C. Wainwright, ROTH and Cantor Fitzgerald.

The second question, will we be looking to raise additional capital by the issuance of new shares this year? The answer is no, assuming current gold and silver prices stay where they are. And we haven't looked at going outside. There could be M&A activity or other projects. But at the moment, all of the projects that Bill mentioned will be financed by internally generated funds.

The third question had to do with our share structure, asking, are there any restricted shares due to mature? There are none. Warrants, all of the warrants that are outstanding, of which there's 1.9 million warrants. They're out of the money at the moment. and there's options of $0.4 million. We have no convertible debt or convertible financing proposed. And the last number for the short position was 1.7 million shares.

And I don't believe there are any other online questions at this point. Operator, do you have any questions in the queue?

(Operator Instructions) The first question comes from the line of Jake Sekelsky from Alliance Global Partners.

So you've had some exploration success at Fox recently. Can you just remind us the size of the exploration program there for this year? And maybe just what's left as far as flow-through dollars still that you have left to spend in 2023?

Bill probably has the handle of the exact number, but the flow-through commitment is around $14 million, of which we've spent...

We've spent about…

$4 million?

$5 million. At the end of April of about $5 million. So we -- and at the present time, we have 7 drills operating and basically drilling approximately 10,000 meters per month.

Okay. That's helpful. And then just switching gears to Los Azules. You mentioned in the release that the environmental impact report was submitted. Are you able to just provide any high-level color on what that process looks like in the timeline of events on that?

Sure. Michael?

Sure. Jake, so far on the 14th of April. What is going to happen now is the following. The Minister of Mines is having a commission of an additional 14 different entities will evaluate the different aspects of the report. And then hopefully, within a relatively short period of time, issued the approval for us to be able to basically start with construction and future operation of this mine. To give you a comparison, Josemaria from Lundin Mining's evaluation took about a year, and it's a little bit more of a complex project than ours. So to give you a frame of reference in terms of timing.

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

It's actually Marcus calling in for Heiko. So in terms of McEwen Copper, with the implied value you mentioned of $550 million and your 52% ownership, this yield, $286 million value that the original McEwen still has, which is well over half your market cap. The idea of McEwen Copper was to surface value and you can easily argue that that's exactly what's happened thus far. So just looking ahead, is there a price for which you'd sell the remaining 52%? And again, it's a decent chunk of your market cap. So while you lose an important asset, you'd also be able to return a significant amount of cash to shareholders.

That's an interesting question. We haven't pondered the sale of it, but we have wondered about the value, there are 2 public values out there for copper projects within the same province we're in Argentina, the Josemaria property that Lundin bought for $485 million. And there's the Filo project that has a market cap in excess of $2 billion. We are larger than both of those projects. Our copper grade is higher than both of those projects. We are located at lower altitude than those projects, and we are closer to infrastructure, power, and highways. So I look at it, the value is somewhere between what we've just come up to and the $2 billion. So that will give you a range.

Okay. Fair enough. Yes, those are fair comps, for sure. And then just changing gears here a bit, when you described your gross profit and cash gross profit, you talk about improvements at Fox and Gold Bar, we're now essentially halfway through Q2. Can you give some color on what exactly led to these savings, what improvements were undertaken? What continues to bear fruit in Q2? And what are your expectations for the remainder of the year? Is there anything else you're working on implementing?

This is Bill Shaver. Yes. At Fox, we're actually working on a process that will increase the tonnes through the mill by something in the order of 1,400 tonnes per day. And we're doing that in a very organized fashion. In the last quarter of last year, we did a bunch of test work on crushing at the mine and delivering to the mill material that was already crushed. That experiment was successful, and we have now, I guess, engaged a contractor to crush all of the ore that we're producing at Froome down to even a slightly smaller size than we did the test work on.

So we'll be able to feed that into the mill at a slightly higher tonnage. So we're only this month at a point where we're starting to put that process into place. And the results will be what the results turn out to be. But we anticipate that's going to increase the throughput in the mill by approximately 10%. And we have some more optimistic views of what that might be. But I think 10% is a pretty conservative number. So that would increase the gold production by, say, a little over 1,000 ounces per quarter. Although that doesn't sound like a great amount of money in a year, it's going to result in $10 million.

So that's the plan going forward. In the case of Gold Bar, we're finding the leaching time on the Gold Bar South or to be a little bit longer than we anticipated. Though it's still early days because the first ore from Gold Bar South was put on the leach pad in the middle of the winter. So the leaching is always better once the weather gets warmer. And of course, we've had a lot of rainfall and snowfall which resulted in dilution of our leaching capabilities. So we anticipate that getting us back into the Pick pit will allow us to put ore onto the pad that reaches more quickly and hopefully bring that back into line.

So optimistically, I would say we're going to improve at both of those sites. And we're going through the process of getting Phoenix constructed and that we'll be able to produce something in the order of the cash flow out of that process, which we won't see until next year is estimated at something in the order of $10 million per year. So I think there's lots of potential upside in operations that were incrementally changing in a manner that has very low risk and very low capital impact to effect. So that's where the planning is going.

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

Some of the things I want to touch on were already hit on, but a few left. First, Los Azules, what's the total budget for this year?

It's $132 million.

And will that all be expensed, I guess, through the income statement?

Yes.

Okay. Then shifting over to Gold Bar, the processing rate in the first quarter is about 580,000 tonnes just shy of that. Do you guys feel that that's sustainable with the new contractor? Obviously, it's quite a bit better than the old contractor on a quarterly basis, but is it sustainable? Was there any factors that led to a higher processing rate in Q1? Could we do better than that? Just any color there would be great.

Yes. So I would say that because of -- well, to be perfectly honest, I haven't looked at that particular issue. However, in the first quarter, there was a significant amount of snow and rain and of course, operating in the winter is a little more challenging than the rest of the year. So I would say we did a really nice job in the first quarter. So far this quarter, we're basically pretty much on schedule to continue at something over 100,000 to 120,000 tonnes per month. So I don't see that in a lot of jeopardy. There is slightly more stripping to do as we move forward with Gold Bar South just because the ore body there is partly a pretty high hill. And so the stripping in the early part of the mine life is very low.

And as you get lower, the stripping increases. But on the other hand, the waste that we're stripping is basically moving something between about 1/4 of a mile. So it's not moving very far where there ore is, in fact, from Gold Bare South of the mill is about 5 miles. So that is a long way, but the road is relatively level for the most part. So the truck speeds are very good. The road is about 50 meters wide. So there's no issue with traffic control or anything else. And there's no -- except for trucks and utility vehicles and so and there's no other traffic on that road. So I think you can expect that the performance going forward will be the same.

Okay. And then last thing for Rob, on MSC, it seems like an annual thing lately that there's like a quarter that's rough happened to be the first quarter last year as well. And it seems that that's preventing any cash dividends from coming out. Do you have any long-term thoughts about that asset or how you can start actually getting some cash out of it?

Good question, Joe. Traditionally, the first quarter is the toughest quarter since the mine started, which is holidays and starting up. We were down there. A number of us were down there in the last month, looking at their operations. They have a large land package. They're still finding new veins. And we're optimistic with the silver price where it is today, they should be able to generate attractive earnings, and we're hopeful we'll see a dividend coming out of it. We have made some observations and providing them some comments how they might be able to help that improve the operations, just having a different set of eyes looking at it.

So I think it still has an interesting life ahead of it. We have asked them if they want to sell it. They said not at a price that we were ready to jump at. And we asked them if they wanted to buy our share and they didn't offer a price that was attractive that we wanted to jump at. So at the moment, it's as it stands. There is Newmont just below it that has a processing facility in a larger mine and some of their veins appear to come right up to the boundary of our property. And they might think that might be an operation they should add to their package. But at the moment, nothing in the works.

(Operator Instructions) Our next question comes from the line of [Bill Powers,] Private Investor.

Congrats to all of you guys on a quite a good quarter. I was very impressed. But my question today really revolves around the stock development, the ramp that was put in the most recent presentation, and that was put out in the news release. And my question would be is if you could just give us a little view of the timing of the ramp, the cost as well as what this might bring production at the total Fox Complex up to should – Froome continue to produce once it goes into production in the Stock Mine?

Yes. So thank you very much for the question. And I guess the answer is a little bit complex, but let me just take a stab at it here. So first of all, we have the Froome mine, which eventually will run out of ore. And we are doing an extensive review of the Froome operation at this point to absolutely put a pin in when we'll run out of ore at the Froome mine. And so based on the gold price that we have today, the number of tons that will come out of Froome will be more than we have in our resources and reserves at this point. So what we're trying to do is thread the needle between the transition from Froome to the transition to stock.

And at the same time, we're making improvements on the milling process that we have in place a stock without spending significant amounts of money. And with the help of a contractor crushing the material to push that tonnage up as high as we can get it. And then it's a question of managing cash flow and expenditures. But we're in the midst now of putting a study together in terms of the capital and operating cost of the stock line. And we hope to start that ramp at stock as early as late in the third quarter, so that we might perhaps get underground before winter sets in. And then we've been fortunate enough to find some ore pretty close to surface. And there's also some ore in the old pardon probably late in the second quarter.

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

I'm just following up on the previous gentleman's question to Bill. And I'm thinking of the Odyssey ramp that Agnico is moving into this year, where they have 98,000 ounces of reserves, but they say they're going to produce about 50,000 ounces. And as you move into this ramp without a lot of documentation, but you expect to hit ore given the drill results you've had which month might there be gold ounces? And how many tons per month do you think is going to be taken from the ramp to the mill? I'm not asking you able to predict the gold output or the gold grade. If you just tell us how many tons you're going to take out of the ramp that might be ore then we can make some guesses on our own.

Yes. So we don't have a definitive number on what that's going to look like. And it's in part because we're still in the midst of taking the diamond drill results and converting those into resources and reserves and putting mine plans to them. So I guess what we're hoping is that we will be able to at least continue without interruption at the tonnage that we're putting through the mill at the present time, which is something a little over 100,000 tons a quarter. And we're doing, as I said a little bit earlier, significant work to try and understand what the upside is in the processing plant.

If we do the crushing down to a smaller size so that we optimize the work that can be done by the crushing plant and at the same time, relieve some of the work that's being done in the ball mills so that we can put more tonnes through the mill. The other aspect of this, which is not obvious in anything we've said so far is that the ore at stock is a little bit softer than Froome. So the work index at Froome is somewhere between '21 and '23, and we expect the work index at stock to be something in around 16 or 17 range. So that will allow us to have a mill where the tonnage is a little higher than we're thinking about now. So that's the process that we're going through in order to try and figure out what the optimum looks like eventually.

So Bill, is the ramp in stock 3 years by 3 meters or 5 meters by 5 meters or tell us a little bit on how big the ramp is?

Well, there is no ramp-up stock at the present time. So the planning for the ramp now is probably a ramp that's somewhere in the order of 4.8 meters by 4.8 meters. And the reason that it can be a wee bit smaller than a traditional ramp is the fact that we have the old stock mine there, which will allow us to connect to the old parts of the mine to give us ventilation as we drive the ramp down. So that basically means that the vent tubes that we have to carry with the development of the ramp, don't have to be 2 foot, 4-foot diameter vent tubes. They'll be smaller, and therefore, the heading can be a little bit smaller.

How many stopes do you think you're going to try to develop? And how many tonnes per day might come out of the ramp, 200 tonnes a day, 400 tonnes a day? What are you guessing?

Yes. I think we're looking for the same kind of tonnage that's coming out of Froome today. Basically, Froome has probably 3 stopes involved in operations on a continuous basis at different points in the mining process being drilling, blasting, marking, so on. And so I think you're going to look at something like 1,200 tonnes a day coming out of the stock [grant].

Super, super. That's very exciting. And I apologize for asking you these detailed questions a couple of months before you're going to have all the answers.

Well, we don't have all the answers. We've got all the questions. And so there's all of those things numbers I gave you, put a little question mark beside them. But that's part of what you have to do at this phase is to try and understand what does an optimization look like. And it will again depend on the resources that we find and how fast we can drive the ramp and all of those wonderful things.

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

Thank you, operator. Thank you, everyone, for attending and the rest is yet to come. Thank you.

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