McEwen Inc (MUX) 2024 Q4 法說會逐字稿

Hello, ladies and gentlemen. Welcome to McEwen Mining's fourth quarter and year-end 2024 operating and financial results conference call. Present from the company today are Rob McEwen, Chairman and Chief Owner; William Shaver, Chief Operating Officer; Perry Ing, Chief Financial Officer; Jeff Chan, Vice President, Finance; Stefan Spears, Vice President, Corporate Development; Michael Meding, Vice President and General Manager of McEwen Copper; Carmen Diges, General Counsel and Secretary. (Operator Instructions)

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

Thank you, operator. Good morning, ladies and gentlemen. Welcome to the call. 2024 was a good year for McEwen Mining, while our consolidated production of 135,884 gold equivalent ounces was 12% lower than what we produced in 2023. The selling price of our production was 24% higher. As a result, our adjusted EBITDA was 3.8 times higher this year at $29.2 million or $0.57 a share versus $7.7 million or $0.16 a share in 2023.

We did post a net loss of $43.7 million, and that was due to the equity account when we do the expenditures at Los Azules of $47 million. There's a difference of $3.3 million. We spent another $16.5 million on exploration, bringing it to $19.8 million, and there was $10 million in depreciation. So our mines are making money at this point, and it is the large investment we've been making in Los Azules to bring that project forward that is creating this net loss.

And speaking of that, when we took -- started financing Los Azules separately in McEwen Copper, we did a financing at $10 a share, which effectively put a value on that property of $175 million. This was a property that was largely obscured in our portfolio by the performance of our gold assets. Today, based on the last financing that we've done in the McEwen Mining at $30 a share, puts the value and implied value on Los Azules of $984 million.

We have a 46% interest in that now, and that equates to $457 million value and on a per share basis, $8.47 a share, behind every McEwan Mining share. So that's the big number, and we're pushing that project forward to a feasibility study. And after which, once we have hopefully approved in the RIGI, which is a large investment intensive scheme enacted by the Argentinian government, we get that approval and complete the feasibility at the end of June of this year, we'll be ready to do an IPO. And that will be dependent on the market sentiment towards copper, but right now, there's a positive view on the price of copper.

Coming back in -- later in this call, I will ask Michael Meding, our Vice President and General Manager, McEwen Copper, to speak in greater detail about Los Azules. Looking at the McEwen Mining's gold assets, we've spent quite a bit of money on exploration. As I said, $16.5 million in the past year at our Fox Complex up in Timmins, Ontario. That exploration has increased our indicated and inferred resources to a total of over 2 million ounces, and that's allowing us to now plan for a doubling of production from what we produced this year to 60,000 ounces in 2027. And we can see there's a possibility to increase that production further, four to fivefold increase over what we've done this year in 2024, to 130,000 to 150,000 ounces, bringing on the Grey Fox deposit where the exploration had increased the resources.

That subject permitting would increase our consolidated production to 225,000 to 250,000 ounces per annum. So exploration is working at Fox. It's also been extending our reserve life at Gold Bar, and that's being augmented by the purchase of Timberline resources, which is a property near to Gold Bar, where we're getting some initial good exploration results.

Our investment in 49% interest in the San Jose mine, a mine operated by Hochschild Mining, is also expecting to pay a dividend shortly and be a welcome change from a number of years without a dividend, but higher metal prices, gold and silver are helping that.

During the year, we increased our debt from $40 million to $130 million by way of a capped call convertible debenture. We chose that route to raise capital because we could get a 100% premium over our share price at the time we announced this debt deal.

So we were trading at around $8.60 a share, and we were able to get a conversion price by use of this structure of a 100% premium over market. So our cash now is approximately $62 million. A large part of that money is going into increasing the production at our Fox Complex and at Gold Bar.

And at this point, I'd like to ask Michael Meding to speak about Los Azules.

Thank you so much, Rob. Los Azules had a great year. In terms of environmental safety and regulatory compliance, we have safety excellence, 1.5 million ounces without a lost time incident. We have received our environmental impact statement, which is the environmental permit for the construction and operation of the future Los Azules mine, December 3 last year. You could find it on our press release. And we completed all the geological to support sustainable water use in the future.

In terms of operational achievements, we have drilled over 51,000 meters in 2024. We have now a project progress of about 90% by the end of 2024. And as Rob said before, we plan to publish -- we tend to complete the feasibility study by June this year. We have now the majority of our engineering complete for the feasibility study. We have a new structure geological model. We had great work done by the community and sustainability team. We have more than 3,500 participants in 61 meetings covering 50% of Calingasta's economically active population in 2024.

We have done lots of training initiatives to support Calingasta. That's the department where our project is located, prepare themselves for the future work at our project with more than 890 participants, including 521 women, and we have also joined the UN Global Compact.

I think that is a summary of what was going on from Los Azules. We're looking forward to the completion of the feasibility.

Thank you, Michael. More recently, we received a claim -- a statement of claim from an indigenous group that have interest in the property we have in Timmins. We believe it is without merit, and we're working to engage constructively with the leadership of that tribe.

At this point, I'd like to open the session to questions.

(Operator Instructions) Jake Sekelsky, Alliance Global Partners.

So you touched on opportunities for mine life extension at Gold Bar. I am just curious if you're able to provide any additional color on sort of a critical path forward there on the permitting side and bringing the Timberline properties into the mine plan.

Sure. I'll ask Bill Shaver, our Chief Operating Officer, to comment.

Yes. Thanks very much, Jake. So we're doing exploration work at the present time on the Timberline property. As Rob mentioned earlier, we did about $1.2 million worth of work last year, and we're in the midst of doing approximately $4 million worth of exploration work on Timberline properties, which include the ones right adjacent to Eureka and also at Seven Troughs project, which is another project that we got in that transaction.

I guess, generally, the permitting timeframe for Timberline is there's two parts to it. That's because there's part of the claims that are there are patented claims, and they have a shorter period for permitting. And then there's a part of the property that's on BLM land, and the permitting time for that property is something in the order of -- could be done in three years, but it's generally seen as three to five years.

So that permitting work will start immediately this year because we have some of the -- from the drilling that we did last year, we have some understanding in the patented ground, what we might be able to do in the short term. So those permits we will make application for those in the next quarter and hopefully have those permits sometime early next year or early to mid next year. And so that kind of fits in with what's happening at Gold Bar at the [peak] and at Gold Bar South.

But at the present time, we have assets to mine at Gold Bar itself that extend into 2030. So I guess what we see happening with Timberline is we'll go through that permitting process and then [tap] those in as they come on stream.

Okay. That's helpful. And then I noticed you broke out the royalty portfolio in the release. I mean, how should we think about these going forward? Is it an area you might look to expand upon or more something that you might be looking to monetize in some way shape or form when the time is right?

Yes to both those questions.

Fair enough. And then just lastly here, we're sitting with gold over $3,000 an ounce, pushing all-time highs. Just curious, have those price levels caused you to go back and reexamine some of the near-term mine planning?

I would say absolutely. We're getting focused now, especially at Gold Bar, to try and increase production because -- to take advantage of these high prices and also to -- we're looking at whether we can do the same in Timmins because at these prices, if we could increase even by 10% production in Timmins and 10% in Nevada, that would basically create about $10 million of cash.

So I think, yes, we're working diligently now to get ramped up to try and take advantage of the price that we're seeing at the present time, which all indications seem to tell us that that price is going to go higher.

Mike Kozak, Cantor Fitzgerald.

So just one question for me and then maybe a follow-up. What's your best estimate as to when you'll know whether or not Los Azules is approved or not approved, then it potentially admitted into RIGI?

Two, three, four months from now. There's only been two groups approved so far, and there was about 11 in line to be reviewed.

Okay. And then -- that's helpful. That was actually my follow-up. So I saw this morning that YPF's Vaca Muerta South oil pipeline was approved under RIGI, which is the second one. So my follow-up was, do you have any sense as to where Los Azules is in the queue of projects that have applied for and are awaiting that RIGI approval?

Mike, perhaps you could answer that.

So I mean, we are the second metal mining project that filed for the RIGI. Where we sit is a little bit difficult to say. I mean we have applied February 11, and we have given an in-person presentation a week after that filing. The regulator has about 45 days. But it's -- every time there is an information request towards the company, the clock stops on the 45 days. That means that we have now received, for example, information request from the regulator on March 5 that we're going to respond to tomorrow. And we are hopeful that over the next couple of months, as Rob said, we're going to get approved.

But it's a little bit difficult to say. It's a new regulation. And how long each step exactly takes and where one sits in the queue is difficult to say.

Chris White, [Grey Aspen].

Just four quick ones here. The first one, Rob, has to with your opening comments. For Los Azules investments, if the company wasn't doing those investments, would MUX's quarterly earnings been positive? I'll give you the other three here quick, and then you could just go down.

Yes.

Do you know what that number is?

$47 million, the charge we took from Los Azules. So we reported a loss of $43 million. So it would be slightly positive there than if you backed out the exploration depreciation.

So just roughly (inaudible) around $3 million to $4 million?

Yes.

That's correct.

And then seeing how the market is valuing MUX disproportionately on those quarterly earnings that they're coming out of negative and looking to be positive, have you guys done an analysis of what the spot price gold needs to be with your investments to print a positive quarterly earnings?

Maybe I'll add up a little bit and note that with the work that Michael and his team are doing, he will -- we expect to be able to publish our feasibility study in the next quarter. And under US accounting rules, that will allow us to, in fact, capitalize our expenditures on Los Azules like companies that report under international accounting standards.

So I would say, beginning at the end of the second quarter or start of the third quarter, we will, in fact, no longer need to report those losses. But otherwise, in terms of adjusting your other question, I mean, it's a little bit complex. It depends where in the cycle we are in terms of costs. But obviously, at $3,000 spot gold, we expect to be generating significant positive income from our gold operations.

That's helpful. What is -- what are you guys -- what's management's current expected AISC for 2025 GEO? I couldn't find that in the release. Is that there?

Yes. So let me answer that for the team. So at both of our Fox and Gold Bar operations, we're projecting about $1,700 to $1,900 per GEO sold. We do expect to decrease those naturally over time. I think at Gold Bar, we do have a period of high strip in the first half of this year. So we don't expect the same in 2026. We expect that to naturally lower. And then at Fox, once we ramp up our stock mine and enter into an area of significantly lower cost and higher grade, we would also expect to see that decline.

And that answer takes into consideration what Bill just answered about increasing the throughput with the price of gold being high that you guys wouldn't do an AISC as like 2,000 or something higher. Is that correct?

No -- that's correct. That does take into account some of the considerations Bill mentioned as well.

That's great. Last thing, and I'll hush up. Is there any way when you guys do these releases, we can get the heads up on the call more than the day before? Or are you guys doing that on purpose? How does that process work?

No. We don't do that on purpose. There is some last-minute changes that came in and unfortunately delayed it. Normally, I'd like to give you a day or two. This is -- I agree with you. It's very short. On table 1 in the press release, you'll find the cash cost and AISC cost outline (inaudible) operation.

John Tumazos, John Tumazos Very Independent Research.

I'm concerned about Rio Tinto's participation in the McEwen Copper. Last week, there was an international arbitration won by Entrée Resources against the Mongolian government in Rio Tinto, where in 2012, the 2004 and '08 agreements were not honored, and Rio Tinto made this little company pay lawyers for international arbitration for 12 years, trying to squeeze into [debt] and squeezing out of the property. And the little company won; God bless them.

And you may recall that Robert Friedland didn't end up with much of Mongolia because Rio Tinto left them exposed to the capital overrun. So I'm a little worried that having Rio Tinto money is a little bit (inaudible) cancer. So what are your projections to keep them from squeezing you out?

Excuse me (inaudible) to answer my question? I'm just very unhappy with what they did on the other company.

It's Stefan Spears. Maybe I can help you and get an answer to that question. So currently, the investment by Rio is through an intermediary, which is Nuton. And I know you're aware of that organization. It's a technology arm of Rio Tinto. And they hold equity in McEwen Copper, which is a Canadian unlisted company, a private company. And then McEwen Copper through subsidiaries owns 100% of Los Azules. So currently as it stands, they have just over 17% equity in McEwen Copper. And we do have a shareholder rights agreement with them that provides for normal things, preemptive rights, tag-along rights, and so forth. As far as your direct question about squeezing us out, it is not possible for Rio to squeeze us out in any way, shape, or form at this stage.

Okay. Would you be reluctant to take any more money from them?

Not really. I mean, if it's in the same form. So say, they're, for example, anti-diluting, they want to maintain their interest at [17] or even increase their interest, doesn't change their position from a strategic standpoint. I think where you obviously want to be sure that you've got the right partner is when you consider doing an asset-level transaction, where you're selling an interest in the asset to a party that is going to be a long-term supporter and a proponent for the project. I think that's a very -- one has to take that decision very carefully. But we're not at that decision point yet.

I'm just a little guy rooting for little guys.

Appreciate that.

Thank you, John. That is a good heads up.

[Bill Powers], private investor.

A couple of questions. I guess, we start in Canada. Could you just give a little more color on the progress at Stock? I know it seems to have been delayed quite a bit. And I thought we'd be producing from that by mid this year rather than late this year. If you could maybe expand on that a little bit?

Yes. So I'll take that. Thanks very much, Bill. Yes, I mean, we were slowed down a little bit by the permitting. But at this point, we've got all of the portal drilled and blasted, and we should have start driving the ramp, I guess, in the next 10 days or so. So that should put us down to the fourth level sometime late in the third quarter.

And at the same time, we'll be driving out towards the eastern part of Stock to get some mining there, and there's also some mining that we're contemplating doing up there the portal. But the main thing is to get down to the fourth level with the main ramp. At this point, we're also dewatered all the way down to below the loading pocket, which is at the fourth level. So the next step underground is to -- where we're accessing down the shaft is to get all of the surveying done of all the headings, try and understand where there might be or and if possible, get underground to do some drilling with small underground drills so that we can understand where the early mining might be in the old part of the Stock line. And so that part of the process is going to start next month.

We don't have -- the access that we have to the fourth level is limited in terms of we're accessing that by an alimak, and we're in the midst of trying to figure out if we should put a temporary hoist and head frame there to make that work a little bit easier to do. So I think we're in pretty good shape there.

Okay. I mean, I guess, along the same lines, I know you've done a lot of drilling at Grey Fox. Could you give us some estimates on the timeline on kind of the rehab of the portal? Or is that going to be this year project or a next year projects since that seems to have a material impact on future production?

Yes. So we're in the midst of putting a team together that's going to be responsible for Grey Fox, and that's going to happen in the first week of April. And from there, we'll go into figuring out what we need to do in terms of permitting and so on to get us back into what's called the Gibson ramp, which will hopefully allow us in the short term to do some underground drilling to start to put together resources and reserves and mining plans and so on.

And of course, then there's the permitting phase of that whole undertaking. And we're hoping that we can move that along quickly, but I would say the normal timelines on doing that kind of stuff is two to three years. So we're hoping it will be better, and we're going to initiate all of that stuff there in the next six months.

Okay. One last question for you, Bill, while I have you. Is any movement on Mexico since that seems to be a something that could be impactful should you be able to get the permit move forward?

Yes. So we are, I guess, waiting for getting a permit there. I guess, with all of the goings on with tariffs and things with cartels and so on. we're moving ahead cautiously in Mexico. And I guess, once we see a permit, then we'll make a decision whether we should move ahead with that or not. And at this point, you're right, it's a little bit of an untapped resource there, which, at these prices, would look pretty good.

And so I think it's a bit of wait and see in terms of moving ahead there. But basically, we're ready to move ahead. We have equipment in Mexico. We have gas-fired power plant. We have all of the -- more or less all of the assets to make that get started fairly quickly. So I guess, we're just hoping that kind of the whole climate in Mexico might change a little bit here in the near future.

Well, they seem to have handed out permits elsewhere for existing operations. And hopefully, you guys -- I mean, since I'm guessing this is a permit that this needs to be amended. It would not be something new, I would think, that you guys would be able to be premiere, the front of the queue for that.

Well, that's correct. And we -- I guess, four weeks ago, where we had meetings with the economic ministry to see if we could move that process along and like we're hopeful, but permitting everywhere in the world today is the timelines are at best unpredictable, including here in Canada.

Thanks for all your time. I just have one last question. I think this may be more directed at Rob or Perry. But in your Q4 release, you mentioned -- it was mentioned that the joint venture with Hochschild has $200 million in cash. And to me, it seems as though that's an extremely large number, especially given that there was an expansion last year that was completed. And now at today's run rate, it would be generating substantial cash. I guess, as far as -- it seems as though the payout or the dividend should be substantial this year. Could you guys give some color on what you're expecting from them and why you guys -- why there's $200 million in cash there?

Where did you see the $200 million?

Maybe I misread that. Maybe I missed it. What is the exact number?

We'd be banging down their doors if they had that much money.

That's right, Rob. So they keep -- they typically keep -- well, right now, their cash balances are kind of in the $25 million to $40 million range. But as Rob mentioned in his opening remarks, we've had positive conversations with Hochschild to declaring a dividend later this month, just under $5 million, so we should be receiving our share of just over $2 million by the end of the first quarter.

You'll also notice in the reserve reports, they have done a good job extending mine life. It's still not long. I mean, it's still kind of 18 months on reserves and two to three years on resources. So it's going to be a combination of dividends and putting money into exploration and looking at how we can make that operation more efficient. But you're right. At these prices, it should generate fair bit of free cash, and we'll keep investors updated on dividends on a regular basis.

(Operator Instructions) [Carrie Devries], private investor.

I've got a whole bunch of questions for the (inaudible), so I won't get into other ones. But all these questions are with the goal of determining what your investment in McEwen Mining is going to be worth hell of a lot more than it certainly is. I'll start with my first question on Los Azules. Initially, I think I was wrong in assuming that when we IPO, when you IPO, hopefully, Q3, the shares will be returned -- will be given to the shareholders. That's not the case, is it?

That's not the case. No.

Okay. Given that Los Azules made about $2.5 billion for production, what's the timeline to build the mine after your IPO until you're producing?

Right now, we have a plan to, assuming all the finance is in place, to do the engineering and then put a shovel in the ground in late 2026, with production starting in late 2029 and running for 27 years.

And in that case, I'm looking -- I'm trying to figure out how to value [mature] mine shares. We currently have 46%, give or take of Los Azules. If I was to do a worst-case scenario post-IPO and assume that you have to raise all the equity at $30 a share and given costs always increase, we could be issuing 100 million shares, which would bring McEwen Mining business down on a worst-case scenario to 10%. What's your worst-case scenario?

That's mine. Well, one, we started financing McEwen Copper at $0.10 -- $10 a share. Our last financing is at $30. If you look at what it might go out at on an IPO, I'm thinking it's going to be quite a bit higher than that. If you just look at relatively recent transaction where BHP, the largest mining company in the world, came in and did a deal with Lundin Mining on two copper projects in the same province as Los Azules, and that was valued at $4.5 billion. And when you compare Los Azules to the two projects, Josemaria and Filo del Sol, we have some definite advantages over that, and I think it could be more value.

There -- and I'll start -- we're at a lower altitude than either of them. So operations and the health of the workers is better because there's more oxygen. We're a larger resource than either of them and both of them combined and a higher copper value than either of them, although they have some gold. We would be a lower capital intensity as we're going with a heap leach process as opposed to a conventional mill producing a concentrate will be producing a cathode, which can be used by industry immediately rather than having to go to a smelter in the case of concentrate.

We're closer to infrastructure, major roads and hydro corridors. So we'll have our feasibility out there. They're a little more advanced, and we are (inaudible) and feasibility studies. We'll have our feasibility out by the end of the second quarter. So they have a value of $4.5 billion, and our value is, based on the last financing, just under $1 billion. I would expect in an IPO, assuming copper market stays where it is or goes higher, that we could shrink that difference between $4.5 billion and the $1 billion that I spoke of. So I would expect we'd be selling at higher than $30 a share on the current share structure.

Sorry. May I interrupt?

Yes. Go ahead, Mike.

Sorry to jump in. But I mean, we are not looking to finance McEwen Copper Los Azules project entirely to equity. What we're looking forward to is a certain valuation. We could think about, for example, 40% to 60%, 40% equity, 60% debt. That could be a reasonable assumption. And with regards to the debt, what we're looking into is export credit agency-supported debt, and development finance organization or development finance institutions-supported debt. That's our main focus at the moment while we are also in the (inaudible) selection process.

Okay. Thanks very much, Mike. That's exactly what I was thinking, too. I was just doing -- what if worst-case scenario, we had to do all equity, how much are we going to be left in McEwen Mining, which then transitions me -- and thank you very much, Rob. You have a whole (inaudible) of the question, great there regarding Los Azules, much appreciated, and you are to be congratulated for bringing that mine to fruition. That's a Tier 1 asset.

So I might (inaudible) I've been there for 12 years along with you. So your share price and my share price are pretty much the same. You put 200 -- or excuse me, $140 million, which translates to about $17 a share. Adjusted for inflation, I think you need $25 a share just to get your money back. In 2016, we're sitting at $50 a share, and we (inaudible) share to date, which a really nice load. We're up [$0.50], and we were happy.

It's not anyone's fault that the gold mine sector has been out of favor like it has for so many years, and I think it's reasonable to assume that the retail investor and institutional investor is going to start looking at this sector with gold over 3,000. And silver, it looks like it was the breakout run it for [40], but that's left to be seen. Maybe it will happen this week; maybe it won't.

My last question to Mr. Chair, you need $25 just to get share price, just to get your money back. And I don't think you went into this just to get your money back and put in all this work. When do you think you will at least see $25? And I know I'm asking for speculation. When do you think you can get your money back (inaudible) with you?

And I don't know if I have five more years to wait in these uncertain environments, given what's happening with currencies, world war, (inaudible), et cetera, and over valuations in the stock market. If I want to be a (inaudible), I'd rather hold gold volume, which is (inaudible).

Right. Well, you're absolutely correct. I didn't go in there to lose money, and all investors is the same way. You make an investment; you're expecting it to go up, not go down unless you're shorting. In terms of Los Azules, that little piece I gave the comparison with the BHP Lundin deal, if we just went up halfway up the value, so doubling. Right now, there is $8.47 per share behind value due to Loz Azules behind every share of McEwen Mining. So a doubling of that would get it up to $17, a little over that. And the gold sector, as you observed, is been unloved for quite a while. It represents -- and most portfolios are under -- gold underrepresented in.

You're going to see, I believe, a lot more M&A occurring in the space driven by the natures whose treasuries are filling up very quickly, and they're going to be looking at the intermediates and the juniors. And that is going -- and that's one of the reasons we've been looking at a number of juniors. While I was running Goldcorp, we maintained portfolio of juniors. I viewed it as a listening post for what was going on in the industry and treated some of them as a farm team, where, in the case of Goldcorp, most of them went up beyond where I wanted to accept the goodwill by doing M&A.

So we just sold them and financed a large portion of our capital development through capital gains. And we've been doing that in a small way or would have been like -- would have liked to have been doing much more of that because we're in a moment when I think there's a lot of value to be created in the junior space. If you look at the past gold mania, if you want to call it, where people really get excited about gold, the seniors, you can see a triple-digit increase in the number of the junior explorers, and developing companies, you can see a four-digit increase in value.

So it's a spot to be watching, and I think more investors will be looking, and you're going to see the discoveries that people are making, gaining greater prominence and attention in the market. So when will that return to my cost base and exceed it? I think we're in a market right now -- if you look at commodities relative to financial assets, we're at a 40-year low. It's a cyclical nature. And I'd say that commodities, precious metals are going to be appreciating in value as we watch the world bifurcate into various areas, with tariffs and geopolitical conflicts causing not only sovereign states but large manufacturers looking very quickly to secure safe sources of supply and whereas the regular supply areas have been disrupted by these factors.

And I'd just say anyone who's looking at the junior sector and hasn't invest, it's a place they should pay more attention to.

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, ladies and gentlemen. Looking forward to better days ahead, increased production, more cash flow, and better share price.

This concludes today's call. You may now disconnect.