McEwen Inc (MUX) 2024 Q1 法說會逐字稿

Hello, ladies and gentlemen, welcome to McEwen Mining's Q1 2024 operating and financial results conference call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Perry Ing Chief Financial Officer; Jeff Chan, Vice President, Finance, William Shaver, Chief Operating Office; Stefan Spears, Vice President, Corporate Development; Michael Meading, Vice President and General Manager of McEwen copper; and Carmen Diges, General Counsel and Secretary.

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

Thank you, operator. Good morning, ladies gentlemen, and welcome to our first quarter 2024 conference call. Few moments ago and looked at our share price and thought, well, what half a half were down about $2. And I think a lot of it is -- I think it's overdone, but it's probably due a bit to our accounting policies, the difference between accounting treatment in Canada and in the United States of America. And I'd like to ask Perry Ing, our CFO, to talk about that difference.

Good morning, Rob. So we would like to reiterate the fact that as a US GAAP reporting company, we expense all of our attributable expenses related to the losses or less copper project in Argentina. So given that we own 48% of the company. All of the work scope going into drilling for that project is being expensed through our income statements. Unlike in a lot of our peers, Canadian and Australian listed companies that report under international financial reporting standards. where they may capitalize those costs and you would not see them reflected in net earnings.

So if you look at more detail into our earnings, we reported a consolidated net loss of approximately $20 million, of which $18 million was directly attributable to our investment in McEwen Copper as well as the additional $4 million in general exploration expenses. So again, had we reported under IFRS, we would not be showing a loss of that nature.

Thank you, Perry. I started out saying we had a good quarter, and we're active on many fronts. We've been hitting production guidance, generating positive cash flow from our gold and silver mines. Our exploration is producing encouraging results at our Fox Complex, our San Jose mine, and our Los Angeles project.

In addition, there has been a dramatic political shift that's occurred in Argentina. Its newly elected President is moving aggressively to make the country attractive to large direct foreign investment, of which we have one of those situation.

Overall, our consolidated gold equivalent production was up 7% over the first quarter 2023, and costs were in line with guidance. At two of our three mines, we're making good progress. At Gold Bar and San Jose, they exceeded guidance by delivering higher production and lower costs. At Gold Bar, production was up 80%; and at San Jose, it was up 15%.

While the results of Fox Complex were disappointing due to mining lower grade in tonnage during the quarter, we're expecting over the balance of the year that the production will increase and the cost per ounce will fall to be in line with our year-end guidance.

From a financial perspective, the news was also positive. During the quarter, our gross profit was $6 million, some 36% higher than the $4.4 million in the first quarter of 2023. And in this quarter, we reported our results also on an adjusted EBITDA basis, because we believe it provides a better representation of the performance of our gold and silver mining operations. Why? Because it removes the impact of our ongoing investment in McEwen copper.

During the quarter, our adjusted EBITDA was $6.3 million and or $0.13 a share and versus an adjusted EBITDA loss of $2.9 million or $0.06 a share. So when we include the $18 million loss attributable to our investment in McEwen copper, we reported a consolidated loss of $20.4 million or $0.41 a share.

In Argentina, The company's new President, Javier Milei, who Mike, Carmen, Steffen, and I had the great honor to have a one hour meeting with recently, has unleashed an infectious mood of great optimism, something that has not existed in that country for many decades. I said to him that Argentina is very much like the story of Sleeping Beauty, who is poisoned by years of populist government policies and fell into a deep sleep. And now he is the Prince whose kiss has woken her.

Global Investors and the innovators are starting to take notice. Just two weeks ago, Elon Musk tweeted its time to invest in Argentina. And President relays election coupled with the progress we're making advancing Los Azules has made this quarter an incredibly exciting time for McEwen Copper and for McEwen Mining. Our other asset in Argentina is our 49% owned San José silver and gold mine. Performance in Q1 of this year was much better than the comparable period last year. And as a result, management is considering resuming its dividend later this year. So we'll be receiving money hopefully from that investment term for the first time in a couple of years.

We've also encountered encouraging exploration results there from two different targets. The best assay results reported were 12 meters of 12.7 grams gold, plus 101 grams silver; and the other was 6.2 meters of 23.3 grams gold, plus 314 grams silver, pretty nice holes. It's worth noting that the San Jose land package surrounds Newmont, Sarah Nigro property on three sites.

So let's go back to Los Azules. As the winter begins in the southern hemisphere, the 22 drills that were operating there are now being removed, having drilled some 69,000 meters this season, which is quite a large program. This drilling has been confirming and upgrading the categories of our estimated resources that were contained in the June 2023 preliminary economic assessment. They were also drilling to precisely define the location of our payback pit, which is calculated to be payback in three years through the winter where we'll be progressing on delivering a bankable feasibility study for losses, the less in the first half of next year.

So looking ahead, we are now in a position to think about growing and I feel the market conditions are ideal to search out opportunities in anticipation of much stronger markets for gold, silver and copper. And here's what we've been doing first, we've been taking a closer look at the potential opportunities on our existing properties. And we will lease very shortly providing you with exploration results from our Fox Complex, Los Angeles and San Jose.

Second we're looking at opportunities that are close to these existing operations. And to that end, we've recently made a friendly takeover bid for a company called Timberline resources, which has property located close to our gold mark Gold Bar mine. And it also has a property adjoining the QM Koppers elder Creek property, both of which are in Nevada and three, I believe there are some interesting situations out there that where we could consider bolstering our management strengths, increase our resource base and annual production and provide us with greater leverage to the prices of gold, silver and copper in Los Angeles. We have some funds to continue for a while.

We are looking at terms doing completing the feasibility study and doing the associated engineering and all the financing for Los Angeles has been done in McEwen copper. We continue to look for opportunities with our principal investors and others to fill that out funding.

At this point I'd like to ask Michael meeting, our Vice President, General Manager of McEwen Mining, McEwen copper, to provide an overview of the political situation in Argentina and some of the changes to regulations that are being promoted and the impact it could have on the value of that asset of ours.

Thank you so much, Rob. Hello, everybody. I'm exciting times in Argentina. As Rob said already, we had an exciting quarter with lots of August and Los Azules. And what we're looking at at the moment, Los Azules has a very strong PA without further incentives. What we see in Argentina is that a lot of projects that could benefit from a better investment incentive scheme, and that has been presented to the Congress of the Lower House and a couple of days that Jim has received approval and by the lower house and is now in the Senate for discussion, it's going to the same to the commissions and the administration.

He's trying to get approval of this new exciting project. It's called native assets in Spanish. It contains something called VG. That's a large infrastructure investment incentive finishing just to give you some ideas, what this means if it goes through and we are cautiously optimistic that it will go through some other soft years, income tax would be reduced from 35% to 25%.

Export duty would be reduced from 4.5% to 0% VAT recovery and would be basically instant and the operating bank to extend the credit takes us 1.2% would be we would be able to use 100% as an advance for income tax. So this means that this combined with what is included having the opportunity to ensure access to the capital markets can change the face of the mining project and other large infrastructure projects in Argentina, we think that this project is a major driver for the Argentine economy going forward Back to you, Rob. .

Thank you, Mike. I think in I think as many of you know, there is a high rate of inflation in Argentina, and we've been able to offset that.

Yeah, that's right, Rob. Overall, after our last financing transaction and McEwen Copper, we were able to invest in a variety of products that to essentially fully hedged our exposure to Argentine inflation and devaluation. So I believe at the end of the first quarter, McEwen copper had a treasury of just over $60 million. First, we've deconsolidated McEwen copper in the fourth quarter of last year. We no longer show McEwen copper's cash balance on our balance sheet, et cetera, are partly only reports from there are 48% of their earnings and loss in our income statement.

Thank you, Perry. I'd now like to open the call to question here.

(Operator Instructions)

Jake Sekelsky, Alliance Global Partners.

Hi, Rob and tea, thanks for taking my quetion.

Hi, Jake.

So it was good to see cost come down quite a bit ago. And I know you mentioned this is a function of mining, lower strip areas. And just curious, is that something you expect to continue a bit into Q2 here? And before moving back to Martin, more normalized levels of strip, as you mentioned in the second half?

I'll ask Bill to comment on that subject.

but I guess so production in the first quarter was pretty much on or it's a little over budget, but it's all pretty much on schedule in the second quarter. We will be expanding the work that we're doing in PIC and also expanding the work that we do and will involve ourselves to train or to get warm material or more ore onto the pad in order to improve our leaching. As you probably know, the first quarter is always a bit of a challenge because of rain and snow and cold weather this year was a little bit better than last year. Although this year we did release about four point just under 5 million gallons for last year, we released about 9 million gallons. So all in all, I think the first quarter responded well to all all of production challenges, and we see the second quarter as improving over that.

What about the stripping?

Yeah, the stripping is just related. I guess to where we're taking the ore at the at the time. And and we're working with our contractor to two, I guess, upgrade the number of trucks we have at the site to look after the stripping that's associated with the ore. So all in all, we see those two things. It's kind of being tied together.

Okay, that's helpful. And then Rob, you touched on opportunities for growth and things that we're looking at from an M&A standpoint. I'm just curious, should we be thinking more along the lines of complementary type transactions such as Timberline? Or would you be willing to look at more of a transformational type acquisitions or just your thoughts there would be helpful.

We're just going on several fronts, Jake. I just think this market is delivering some situations that bear a lot of consideration and there was a transformational opportunity that was attractive to take a close look at it because I think we're in one of these rare opportunities where this is the time to grow because we're going to see higher prices going forward, quite confident of that.

I agree with you there. Okay, that's all for me. Thanks again.

Thanks, Jake.

Joseph Reagor, Roth Capital Partners.

Hey, Rob and team. Thanks for taking my questions. I guess following on the Jake's comment, last comment there on acquisitions, the Timberland acquisition, what's the yield? Do your guys' best guess on timing on closing that?

I can answer that. It's Stefan. we're looking at a, I would say, date in early July for that closing. There are a couple of factors that could accelerate that, but that's a good way to use it.

Okay, thanks. That's helpful. And then, going back to the opening comment about the accounting treatment on McEwen copper Can you kind of give us any guidance for the rest of this year on what you think your direct income level expense is going to look like?

So there's not such a big delta between what we have and what actually curves, Joe, I think as far as McEwen copper, you know, Q2 is going to be pretty similar to Q1. I mean, we had over 20 rigs going until May. So we'll continue to have those costs flowing through Q3 will be quieter as there's no drilling activity, although we will still be working on the feasibility.

And then Q4 activity will be dependent on when when copper raises money and what the what the program will be in terms of in terms of drilling in the fall. But and I will note, obviously, once we do have a feasibility study for McEwen copper and permits in hand, then no under US GAAP and that we can start capitalizing costs at Los Angeles that could make them kind of in line with our Canadian peers.

Okay. What is the timing on having that feasibility study in hand?

Certainly, first half of next year.

So that's helpful from a modeling standpoint. And then on Fox, Rob, you commented that the first quarter grades were light, but you expect things to pick up and then cost to drop. Have you already seen a pickup in grade in Q2?

The grade -- it is Bill. The grade has picked up from the this month. It's running now around three grams, and we hope to see that pick up a little bit more. But we're saying at this point that the grade in Q2 will be around three grams So now, right, right now, it's a it's a case of making sure we but through the all the tons we can through the mill.

Okay. So we should expect tonnage to stay relatively similar to what Q1 was a great start working its way higher over the rest of the year?

That's correct.

Okay. Questions I had thanks, guys.

Thank you, Joe.

Mike Kozak, Cantor Fitzgerald.

Good morning, Rob and team. Thanks for hosting the call. The last. The last caller asked one of my questions, but I just wanted to follow up here and make sure I heard Perry's comment correctly that EV right at the end of the prepared remarks, did you say cash and investments of approximately 60,000,006 zero in the copper subsidiary at exit Q1 at the end of Q1?

That's correct. Yes.

Okay, And then maybe as a follow-up to that, in prior quarters in prior years, you guys would give some, call it, soft guidance on when you would look at potentially IPO-ing McEwen copper is IPO kind of off the table now? Or is the priority to keep funding this with Stellantis and Newton? Or how are you thinking about potentially IPO-ing that unit?

Well, we feel we're in a in between spot in that where we've got the PEA last year that was published and we're looking at a feasibility study. There's probably 100,000 meters of drilling that haven't been included in the resource, the results of which and we are we filed for an environmental application approval and we're hopeful to get that before we publish the feasibility study. So after the feasibility is out and the we have a permit in hand, that would be a time to be looking at an IPO when we believe we'd maximize the value of Flipkart.

Okay. Thank you for that. I'll turn it back, Intier.

[Bill Powers] Private Investor.

Your line is yes, thank you and thanks, Rob, for hosting this call on just a couple of quick questions. I guess we could start with the decline at Fox. Could you just give us an update on that? I know it was supposed to start sometime this year. If you could give us a an update on that as well as the progress towards construction starting in Mexico.

Okay. I'll ask Bill to address that question.

Yes, in terms of the ramp at staff, we expect to start the surface excavation work this month. We're in the midst of negotiating with contractors on that matter. And we hope to get started this like as soon as they can get the equipment into the field. So and the people, we're talking to have equipment in their yard. So that should should start as scheduled in terms of Phoenix.

So there we are waiting for permits and we those have all been the Rave required submissions have all been made. We optimistically, we hope to see that in. It's kind of the third second well, second to third quarter, I guess I'm going to say the third quarter now because we're hoping to have it like in the next few months, there's an election coming up in Mexico.

So or we're actually planning to make a trip to Mexico in May in the next few weeks where we will go and have a chat with the Minister of Economic Development who who we had to the site last year. And basically, he said he would probably help us in any way you could. And if we needed help to come and see him so or we're going to maybe take advantage of that. And but yes, we're and we're doing now the final engineering of the plant. And so as soon as we have a permit in hand, we'll start working on that. We've already ordered gas generators for that project and most of the equipment that's going to be installed is now refurbished at site.

Okay. So you'd expect some construction by B to begin that fourth quarter with potentially first production coming out of Q1 of next year. Is that a reasonable timeframe?

That would be our hope, yes, since then.

And I guess as far as the given the results that came out in stock earlier in FIT or in February of this year, the are there any plans to include the Stock East into the initial ramp going down? Or is that something for area for future development now?

Absolutely. That is going to be the first order of the day. Once we get underground. And we are we've completed the drilling program in the first quarter of the year at Stock East and the results of that I would say are are very good and we are going to have an announcement about those results sometime in the next 30 days. And yes, we'll basically once we get the ramp collared and get underground, we will be heading in two directions, one towards Stock East and the other toward Stock West. So yes, that's so because of its of that particular ore zone is very close to surface.

Yes, we will head there, right, right away as soon as we get underground counts right now.

It's all the questions I had. Thanks so much.

Thinking about things.

(Operator Instructions)

All right, looks like there are no further questions at this time. Mr. Rob McEwen, I will turn the call back over to you.

Thank you very much, operator. Thank you, ladies and gentlemen, for joining us. I believe there is a question I came in my e-mail, and I think I've already answered it relating to the market performance this morning. I think is overdone and we've got a lot of positive momentum at the moment.

Thank you, operator.

Thank you so much. This does conclude today's conference. You may now disconnect.