McEwen Mining Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited interim results; amounts are U.S. dollars unless noted. McEwen produces gold and silver and is advancing copper projects. It owns the Gold Bar mine, Fox Complex, 51.9% of McEwen Copper (including Los Azules), and 49% of Minera Santa Cruz (MSC), which owns the San José mine.
Financial and operating highlights
| Metric | Q2 2023 | H1 2023 |
|---|---|---|
| Gold and silver sales revenue | $34.4 million | $69.1 million |
| Gross profit (loss) | $(3.5) million | $1.0 million |
| Net loss attributable to McEwen shareholders | $(21.6) million; $(0.46) per share | $(64.7) million; $(1.36) per share |
| Cash used in operating activities | $(25.2) million | $(53.8) million |
| Cash and cash equivalents, period end | $84.8 million | $84.8 million |
- Liquidity and debt: Working capital was $92.0 million, versus a deficit of $2.5 million at December 31, 2022. Total debt was $40.0 million, down from $64.0 million. The remaining loan bears interest at 9.75%; principal payments are scheduled to begin January 2025, with final payment due August 2026. The lender is an affiliate of CEO Robert McEwen.
- Cash flows and funding: H1 financing activities provided $159.4 million, including $185.4 million from McEwen Copper financing, partly offset by $25.0 million of debt repayment. Investing activities used $35.5 million, including $26.9 million invested in Argentine-listed securities. H1 capital additions to mineral properties and equipment were $9.0 million.
- Production and costs: Q2 consolidated production was 35,625 GEOs, including 17,358 attributable GEOs from San José; sales from 100%-owned operations were 18,172 GEOs. Q2 realized price for 100%-owned operations was $1,951 per GEO. Q2 cash costs/AISC per GEO sold were $2,113/$2,585 at Gold Bar and $1,237/$1,371 at Fox Complex. MSC reported $1,362/$1,811 on a 100% mine basis.
Changes versus comparable periods
- Q2 revenue increased 12% from $30.6 million in Q2 2022, but production costs rose 29% to $29.6 million. Gross profit of $4.2 million a year earlier became a $3.5 million gross loss; cash gross profit declined to $4.8 million from $7.7 million.
- Q2 shareholder loss widened to $21.6 million from $12.5 million. Los Azules advanced-project spending was $28.5 million in Q2; H1 advanced-project and exploration spending totaled $72.2 million, primarily for Los Azules.
- Q2 output at 100%-owned operations increased to 18,267 GEOs from 16,565, mainly reflecting higher Gold Bar production; Fox Complex output declined. Attributable San José production decreased 12% year over year.
- Cash and cash equivalents rose to $84.8 million from $39.8 million at year-end. McEwen Copper financing reduced McEwen’s ownership from 68.1% to 51.9%, while the company said it retained control.
Outlook, commentary and risks
- Management reiterated 2023 production guidance of 150,000–170,000 GEOs consolidated; 42,000–48,000 each for Gold Bar and Fox Complex; and 66,000–74,000 GEOs for San José. Gold Bar and MSC first-half unit costs were above full-year guidance. Management expects higher-grade Pick production, the heap-leach expansion and lower planned H2 strip ratio to support Gold Bar production and unit-cost improvement. MSC costs may remain above guidance due to capital development.
- Los Azules’ June 2023 preliminary economic assessment describes a Phase 1 case with 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. These are PEA estimates, not a feasibility study or assurance of project results. The company targets a feasibility study within two years and planned another drilling phase from early October 2023.
- Management stated liquidity, together with operating funds, should cover anticipated requirements for the next 12 months. It reported that $82.1 million of cash was allocated to Los Azules. The filing also describes $27.7 million of liquid securities in Argentina as a mitigation against inflation and currency devaluation.
- Argentina’s high inflation and peso devaluation materially affect reported results: Q2 included $21.4 million of interest earned on peso holdings and approximately $24 million of foreign-exchange loss. A 1% peso movement would affect results by about $0.7 million, per the filing. The company does not hedge gold or silver sales.
- Other risks include funding needs, permits, commodity and currency movements, operating costs and production, exploration and reserve uncertainty, and dependence on MSC’s majority owner for mine operations. The company reported one lost-time incident at El Gallo in Q2. It reported no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Reconcile adjusted net loss: the Q2 highlights state $13.0 million, while the selected-results table and non-GAAP reconciliation report $14.5 million. The filing text does not provide a clear resolution.
- Clarify the reported Argentina securities balance: the balance sheet lists investments of $29.2 million, while MD&A refers to $27.7 million of liquid securities. Confirm composition, availability and exposure to peso devaluation.
- Assess how much of the $84.8 million cash balance is practically available for corporate and operating needs given the $82.1 million Los Azules allocation.
- Track whether Gold Bar and MSC improve production and unit costs sufficiently to meet full-year guidance, and whether the Fox Complex maintains its cost outlook.
- Evaluate Los Azules’ funding, permitting, engineering and feasibility milestones against the PEA assumptions, particularly its substantial initial capital estimate.
- Review related-party loan terms and repayment capacity, plus the continuing impact of Argentine currency movements on earnings and liquidity.