Mcewen Inc. annual report, FY2021

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McEwen Mining Inc. — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021; filed March 4, 2022. Unless noted, amounts are U.S. dollars. The filing also reports fourth-quarter results. McEwen operates gold and silver mines and projects in the United States, Canada, Mexico and Argentina, and holds an 81.4% interest in McEwen Copper, which owns Los Azules. Its 49% San José mine interest is accounted for using the equity method, so San José sales are excluded from consolidated revenue.

Financial and operating performance

  • Revenue and earnings: 2021 consolidated gold and silver sales were $136.5 million, up 30% from $104.8 million in 2020. Net loss attributable to McEwen shareholders was $56.7 million ($0.12 per share), compared with $152.3 million ($0.38 per share) in 2020. The 2020 loss included an $83.8 million noncash Gold Bar impairment; no impairment was recorded in 2021. GAAP gross loss improved to $6.5 million from $26.9 million.
  • Fourth quarter: Revenue was $35.0 million versus $27.7 million in Q4 2020; net loss attributable to shareholders was $21.0 million versus $23.5 million.
  • Cash profitability and costs: Non-GAAP cash gross profit was $17.3 million in 2021, versus a $4.0 million loss in 2020. For wholly owned operating mines, reported cash cost and all-in sustaining cost (AISC) were $1,453 and $1,635 per gold-equivalent ounce sold, respectively, versus $1,772 and $2,077 in 2020. These are non-GAAP measures.
  • Production and sales: Attributable production totaled 154,392 gold-equivalent ounces in 2021, including 76,839 ounces from San José; sales totaled 153,415 ounces. Both were materially higher than in 2020. The Froome mine achieved commercial production September 19, ahead of schedule. The Black Fox mine ceased operations during 2021.
  • Cash flow and investment: Operating activities used $20.2 million, improved from $27.9 million used in 2020. Additions to mineral property interests and plant and equipment were $34.9 million, up from $13.4 million. Investing activities used $24.6 million; financing activities provided $81.0 million.
  • Liquidity and debt: Year-end cash and cash equivalents were $54.3 million, restricted cash was $6.3 million, and working capital was $32.6 million. Reported liquid assets, a non-GAAP measure including restricted cash, investments and precious metals, were $63.5 million. Long-term debt had $50.0 million principal outstanding and a $48.9 million carrying value. The filing describes scheduled principal repayments starting August 2022 and a $26 million final payment in August 2023, while also reporting subsequent-year terms to defer principal repayments to August 31, 2023; see verification items below.
  • Other balance-sheet items: Reclamation and remediation liabilities were $35.5 million. Shareholders’ equity was $389.9 million, and the accumulated deficit was $1.24 billion.

Material changes versus 2020

  • Revenue rose with higher sales volumes and a higher average realized price for wholly owned operations ($1,803 per gold-equivalent ounce in 2021 versus $1,771 in 2020). Production growth reflected improved Gold Bar operations, Froome’s ramp-up and recovery of San José from COVID-related restrictions; El Gallo residual-leach output declined.
  • Operating cash use decreased, but capital additions increased substantially, principally due to Froome development and its move into commercial production.
  • Exploration expense increased to $22.6 million from $15.9 million, mainly reflecting expanded Timmins-region programs. The loss recognized from the San José investment increased to $7.5 million from $1.5 million, including higher operating and COVID-related costs.
  • Financing included $29.9 million net proceeds from a common-stock offering, $12.0 million net proceeds from flow-through shares, and $40.0 million from selling an 18.6% interest in McEwen Copper. The share count increased; subsequent to year-end, the company also completed a $15.1 million flow-through offering.

Outlook, commentary and risks

  • Management reported 2021 production within its guidance ranges; the filing text provided here does not state a clear 2022 consolidated production guidance figure.
  • A January 2022 Fox Complex preliminary economic assessment estimated potential production averaging 80,800 ounces of gold annually for nine years after Froome, with a 21% IRR at $1,650 gold and estimated average cash costs and AISC of $769 and $1,246 per ounce. This is preliminary, forward-looking analysis, not an approved development plan; management said no decision had been made to pursue the expansion.
  • Gold Bar South’s mining permit remained pending at filing. Management had anticipated approval in Q1 2022 and production in H2 2022; these were expectations, not confirmed outcomes. McEwen Copper’s Los Azules program planned 174,000 feet of drilling through Q2 2022 and continued access-road construction.
  • Fenix in Mexico had a feasibility study and key Phase 1 environmental permits, but no development decision. Management was evaluating lower-capital alternatives and possible divestiture of the Mexican business.
  • Principal risks include volatile gold, silver and copper prices (the company does not hedge metal sales), operating-cost and reserve uncertainty, project funding and dilution, permitting and reclamation costs, foreign-exchange and political risks, COVID-related disruptions, and reliance on the majority partner at San José. The filing notes that COVID-19 adversely affected results, liquidity and operations in both 2020 and 2021.
  • The company disclosed a January 5, 2022 NYSE notice because its average closing share price had been below $1 for 30 consecutive trading days. It had six months to regain compliance; its TSX listing was unaffected.
  • Ernst & Young issued an unqualified audit opinion and an unqualified opinion on internal control over financial reporting. The audit identified Gold Bar leach-pad inventory valuation as a critical audit matter because estimated recovery rates involve significant judgment.

Important facts for investors to verify

  • Confirm the executed terms and current status of the debt repayment deferral, covenant requirements and any other lender concessions; the filing describes both scheduled payments and a subsequent deferral.
  • Check whether Gold Bar South received its permit and whether the anticipated production timing was achieved.
  • Compare actual Froome and Fox Complex production, costs and remaining mine life with management’s plans and the preliminary assessment’s assumptions.
  • Assess how much reported liquidity is available for corporate operations: $39.8 million of year-end cash and restricted cash was designated for McEwen Copper, and some cash was restricted.
  • Confirm the company’s NYSE listing compliance status, subsequent share issuance and resulting dilution, and progress on planned Los Azules financing or listing.