Mcewen Inc. annual report, FY2023

Vollständiges Dokument

McEwen Mining Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; filed March 15, 2024. Figures are in U.S. dollars unless stated otherwise. The filing is an annual report, not a standalone fourth-quarter report.

Business context

McEwen is a gold and silver producer and explorer, with an advanced copper project. It wholly owns the Gold Bar mine in Nevada, the Fox Complex in Ontario, and the Fenix Project in Mexico; it holds a 49% interest in Argentina’s San José mine and a 47.7% interest in McEwen Copper, which owns the Los Azules project. San José and McEwen Copper are accounted for as equity investments; their sales are not included in consolidated revenue.

Financial and operating performance

  • Revenue: Consolidated gold and silver sales were $166.2 million, up 51% from $110.4 million in 2022. Sales from wholly owned operations were 88,699 GEOs at an average realized price of $1,927 per GEO, versus 63,825 GEOs at $1,788 in 2022. San José generated $242.5 million of mine-level sales on a 100% basis, but this is not consolidated revenue.
  • Profitability: Gross profit was $17.8 million (about 10.7% of consolidated revenue), compared with a $0.5 million gross loss in 2022. Net income attributable to McEwen shareholders was $55.3 million, or $1.16 per share, versus a loss of $81.1 million, or $1.71 per share. The 2023 result included a $222.2 million accounting gain from deconsolidating McEwen Copper. Adjusted net loss, a non-GAAP measure excluding McEwen Copper and San José results, was $23.0 million, or $0.48 per share, versus a $17.0 million loss in 2022.
  • Cash flow: Operating activities used $39.6 million; investing activities used $99.6 million; financing activities provided $172.2 million. Capital additions to mineral properties and plant and equipment were $26.1 million. Cash and cash equivalents ended the year at $23.0 million, down from $39.8 million; the filing attributes much of the cash-flow comparison to McEwen Copper’s deconsolidation.
  • Costs and margins: Production costs applicable to sales rose 31% to $119.2 million. Cash gross profit, a non-GAAP measure, was $47.0 million, up from $19.2 million. Full-year cash cost/AISC per GEO sold was $1,356/$1,615 for wholly owned operations, compared with $1,276/$1,688 in 2022. By operation, Fox Complex cash cost/AISC was $1,157/$1,351; Gold Bar was $1,565/$1,891; and San José was $1,393/$1,820, with the latter on a 100% mine basis for the reported cost figures.
  • Liquidity and debt: Working capital was $22.7 million, improving from a deficit of $2.5 million. Long-term debt was $40.0 million at year-end, bearing 9.75% interest and owed to an affiliate of Executive Chairman Robert McEwen. Monthly $1.0 million principal payments begin January 2025, followed by a $21.0 million final payment in August 2026. The company reported $16.1 million of year-end cash committed to Canadian flow-through spending.
  • Production: Consolidated production was 154,588 GEOs, up from 133,348 in 2022 and within 2023 guidance. Wholly owned production rose to 88,915 GEOs; San José attributable production declined 5% to 65,673 GEOs. The filing reports 2023 attributable proven and probable reserves of 0.3 million ounces of gold and 4.9 million ounces of silver, and measured and indicated resources of 2.4 million ounces of gold, 26.3 million ounces of silver and 2.4 million tonnes of copper.

Material changes versus 2022

  • Gold Bar production increased 64% to 43,678 GEOs, supported by a heap-leach pad expansion, higher processed tonnes and a revised plan that excluded carbonaceous material. Fox Complex production increased to 44,439 GEOs as throughput and mill availability improved, although mined and processed grades declined.
  • San José production fell due mainly to lower gold and silver grades; its costs per GEO increased year over year. The Fenix Project remained under review, with no decision to proceed disclosed.
  • McEwen sold shares and third-party investors subscribed for shares in McEwen Copper. After its ownership fell to 47.7%, McEwen lost control and deconsolidated the subsidiary in October, recording the $222.2 million gain and thereafter applying equity-method accounting. The company’s reported net income therefore does not reflect equivalent operating cash generation.
  • The company repaid $25.0 million of debt in May, reducing the outstanding balance to $40.0 million. It also issued $16.1 million of flow-through shares for Fox Complex exploration and development; common shares outstanding increased to 49.4 million at year-end from 47.4 million.

Outlook, commentary and risks

  • 2024 production and cost outlook: Gold Bar guidance is 40,000–43,000 GEOs, cash cost $1,450–$1,550 per GEO and AISC $1,650–$1,750. Fox Complex guidance is 40,000–42,000 GEOs, cash cost $1,225–$1,325 and AISC $1,450–$1,550. McEwen’s attributable San José guidance is 50,000–60,000 GEOs, cash cost $1,300–$1,500 and AISC $1,500–$1,700. No consolidated production guidance is clearly provided in the filing.
  • Los Azules: The updated preliminary economic assessment estimates a 27-year mine life, $2.7 billion after-tax NPV at an 8% discount rate, 21.2% IRR and $2.5 billion initial capital at the stated base-case assumptions. These are preliminary project estimates, not a feasibility-study result or guarantee of development. A feasibility study was scheduled for early 2025; environmental assessment review was ongoing, with a stated 12–18-month evaluation period.
  • Funding and market risks: Management said available liquidity and expected operating funds should cover anticipated requirements for the next 12 months. However, operating cash flow was negative, the company has substantial project spending needs and debt repayments begin in 2025. Results are sensitive to gold, silver and copper prices; the company does not hedge its metal sales. Other cited risks include operating-cost inflation, foreign exchange, permitting, water availability, environmental obligations, contractor dependence, and political and security conditions in Argentina and Mexico.
  • Controls and audit: Management and the auditor concluded internal control over financial reporting was ineffective at year-end due to a material weakness involving insufficient personnel and insufficiently precise controls over judgments related to inventory, mineral properties and income taxes, primarily in connection with McEwen Copper’s deconsolidation. Management described remediation efforts. The auditor issued an adverse opinion on internal controls but an unqualified opinion on the financial statements.
  • Other items: Reclamation and remediation liabilities were $43.0 million; the filing also lists $52.5 million of undiscounted future reclamation payments in its contractual-obligations schedule. The company reported no material legal proceedings. Dividends remain prohibited under the secured debt provisions.

Important facts for investors to verify

  • How much of 2023 reported profit and year-end liquidity reflects the McEwen Copper deconsolidation, and what cash is available to McEwen Mining after accounting for project commitments and flow-through restrictions?
  • Whether operating cash flow can improve enough to fund mine plans, exploration and the debt schedule, including the 2026 final payment.
  • Whether Gold Bar, Fox Complex and San José can meet 2024 guidance while controlling costs, and how reserve depletion and grade trends affect production beyond 2024.
  • Los Azules’ feasibility-study economics, funding plan, permitting progress and capital requirements; the PEA is preliminary and the project has no demonstrated feasibility-study result in this filing.
  • Progress and independent evidence of remediation of the material weakness in internal controls.
  • Potential effects of Argentina’s currency and policy changes, Mexico security conditions, reclamation obligations, and environmental or permitting developments.

Cash costs, AISC, cash gross profit, adjusted net loss and average realized price are non-GAAP measures; the company cautions that they are not standardized and should be considered alongside GAAP results.