McEwen Mining Inc. (NYSE: MUX) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results; amounts are U.S. dollars unless noted. McEwen produces gold and silver and holds interests in the Los Azules copper project and the San José mine.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Gold and silver sales from wholly owned operations | $41.2 million | $34.8 million |
| Gross profit | $6.0 million | $4.4 million |
| Gross margin | 14.6% | 12.8% |
| Net loss attributable to McEwen shareholders | $20.4 million; $0.41 per share | $43.1 million; $0.91 per share |
| Adjusted EBITDA, non-GAAP | $6.3 million; $0.13 per share | $(2.9) million; $(0.06) per share |
| Cash provided by (used in) operating activities | $3.9 million | $(19.5) million in cash-flow statement |
| Capital expenditures | $4.5 million | $5.0 million |
| Cash and cash equivalents, quarter-end | $22.0 million | $23.0 million at Dec. 31, 2023 |
| Working capital | $14.1 million | $22.7 million at Dec. 31, 2023 |
| Debt | $40.0 million | $40.0 million at Dec. 31, 2023 |
Sales increased 19%, largely reflecting higher realized prices: $2,131 per GEO at wholly owned operations versus $1,856 a year earlier. Production costs rose 7% to $25.1 million. The lower net loss principally reflects McEwen Copper’s deconsolidation beginning in Q4 2023; McEwen recorded its 47.7% share of that investee’s Q1 loss, $18.0 million, as an equity-method loss. San José is also equity-accounted, so its sales are not included in consolidated revenue.
Consolidated production was 33,037 GEOs, up 8%, and sales were 34,407 GEOs, up 13%. Gold Bar production rose 82% to 11,716 GEOs; Fox Complex production fell to 7,486 GEOs amid lower mined grades; attributable San José production increased 15% to 12,934 GEOs. Cash and cash equivalents plus restricted cash totaled $26.4 million, including $4.4 million of restricted cash. Working capital fell $8.6 million, partly due to current-liability increases and reclassification of $3.0 million of debt as current.
Material changes and significant items
- McEwen Copper’s Q1 loss of $18.0 million contrasts with no equity-method loss in Q1 2023; Los Azules project expenditures had been consolidated in the prior-year period. The carrying value of the McEwen Copper investment was $308.1 million at quarter-end.
- MSC contributed $1.3 million of equity-method income, versus a $3.5 million loss in Q1 2023. Its operating results improved with higher grades and sales, while Argentine inflation continued to pressure costs.
- Fox Complex inventory was written down by $0.8 million. Fox cash cost and AISC were $1,555 and $1,928 per GEO, respectively, above full-year guidance ranges; management attributed this to low grades and stockpile processing.
- Gold Bar cash cost and AISC were $1,088 and $1,201 per GEO, respectively, below full-year guidance ranges. San José’s corresponding figures were $1,607 and $1,947, above guidance ranges; management expects unit costs to moderate as production increases.
- Debt was $40.0 million, including $3.0 million classified as current. The term loan bears fixed interest of 9.75%; an affiliate of the CEO is a lender, and the company paid it approximately $1.0 million of interest during the quarter.
Guidance, outlook, risks and contingencies
- Management reiterated 2024 consolidated production guidance of 130,000–145,000 GEOs; Fox Complex 40,000–42,000; Gold Bar 40,000–43,000; and attributable San José 50,000–60,000 GEOs.
- Los Azules is progressing toward a feasibility study targeted for early 2025. The 2023–2024 drilling program had exceeded 185,000 feet by March 31. Environmental review continues, with water management and wetlands among issues raised by the technical commission.
- The Fenix Project decision to proceed remains under review. Management states it believes liquidity, together with operating cash generation, is sufficient for anticipated operating, capital and working-capital needs over the next 12 months.
- Reclamation liabilities were $43.3 million. Surety bonding totaled approximately $42.5 million; the facilities require an 11% deposit and carry an average annual financing fee of 2.3%. The company reported compliance with bonding obligations but notes bonds could be drawn if reclamation obligations are not met.
- The Fox streaming agreement requires specified gold production to be sold at the lesser of market price or $561 per ounce, subject to inflation adjustments, through 2090. The company also reported a $2.0 million contract liability for pledged but undelivered gold under its Auramet supplier-advance arrangement.
- On April 16, 2024, McEwen agreed to acquire Timberline Resources in a stock merger, expected to issue approximately 1.8 million shares, subject to customary approvals and conditions.
- Key risks include commodity-price, inflation, foreign-exchange, permitting, operating and funding risks; the company does not hedge gold or silver sales. Management disclosed an ongoing material weakness in internal control over financial reporting. Disclosure controls were not effective as of March 31, 2024; remediation and testing are continuing.
Important facts for investors to verify
- Reconcile the cash-flow comparison: the cash-flow statement reports Q1 2023 operating cash use of $19.5 million, while the selected-results table reports $28.6 million. The filing text does not explain this discrepancy.
- Track working capital, unrestricted cash, debt maturities and the company’s ability to fund operations and planned investment.
- Monitor Fox grade recovery and unit costs, and whether each operation achieves full-year production and cost guidance.
- Review Los Azules feasibility-study progress, permitting and environmental review, financing needs, and the valuation and funding implications of the 47.7% investment.
- Follow remediation of the material weakness and the effectiveness of newly designed controls.
- Confirm completion conditions, shareholder and regulatory approvals, and expected dilution for the Timberline merger.
Adjusted EBITDA, cash costs, AISC and realized price are non-GAAP measures; the filing cautions that definitions may differ across companies. Interim results may not indicate full-year performance.