McEwen Mining Inc. — Q1 2023 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2023, compared mainly with Q1 2022. McEwen produces gold and silver in the U.S. and Canada, holds a 49% equity-method interest in Argentina’s San José mine, and controls McEwen Copper, which owns the Los Azules copper project. Dollar amounts below are U.S. dollars.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Gold and silver sales revenue | $34.8 million | $25.5 million |
| Gross profit (loss) | $4.4 million | $(6.0) million |
| Operating loss | $(42.8) million | $(24.1) million |
| Net loss attributable to McEwen shareholders | $(43.1) million; $(0.91) per share | $(20.7) million; $(0.45) per share |
| Cash used in operating activities | $(28.6) million | $(15.6) million |
| Cash used in investing activities | $(5.0) million | $(4.0) million |
| Cash and cash equivalents, at period end | $190.8 million | $63.8 million |
| Working capital, at period end | $134.1 million | $36.2 million |
- Cash provided by financing activities was $185.0 million, primarily from McEwen Copper share placements and secondary share sales. Cash, cash equivalents and restricted cash ended the quarter at $195.0 million.
- Debt was $64.1 million, including $16.0 million current and $48.1 million long-term. Total liabilities were $172.4 million. Reclamation and remediation liabilities totaled $42.2 million.
- Of cash and cash equivalents, $158.8 million was held by McEwen Copper; management said $158.8 million of consolidated cash was allocated to advancing Los Azules. The balance included $143.8 million reported as Argentine-peso cash, translated at the official exchange rate.
- Q1 production was 30,397 gold-equivalent ounces (GEOs), up 21% year over year; sales were also 30,397 GEOs. Revenue rose 36%, mainly from higher Fox Complex output. Average realized price for 100%-owned operations was $1,856 per GEO, versus $1,895.
- Management reported non-GAAP cash gross profit of $11.3 million, versus a $2.3 million loss, and adjusted net loss of $6.4 million, versus $13.0 million. These measures exclude specified items and are not substitutes for GAAP results.
Material changes versus the prior comparable period
- Gross profit improved by $10.4 million as production costs applicable to sales fell $4.4 million and revenue increased $9.2 million. Management attributed the cost and production improvement to Fox Complex throughput and productivity gains and changes in Gold Bar mining operations.
- Shareholder net loss more than doubled, primarily because Los Azules advanced-project and exploration spending increased. Advanced-project costs were $33.6 million, including $31.9 million at Los Azules; exploration expense was $5.9 million.
- McEwen Copper financing reduced McEwen Mining’s ownership from 68.1% to 51.9%. The company retained control and recorded a $72.1 million increase in non-controlling interests and $113.3 million in additional paid-in capital. Net income attributable to non-controlling interests was $6.7 million.
- Fox Complex produced 12,700 GEOs, up from 7,670, with higher throughput and grades. Gold Bar output was broadly stable. San José’s attributable production rose 5%, but its equity-method loss increased to $3.5 million from $1.1 million.
- Interest and other finance income was $8.5 million versus $1.6 million of expense, largely reflecting interest earned on Argentine-peso holdings. Other expense was $2.6 million, including foreign-exchange losses; Q1 included a $7.5 million net gain from Blue Chip Swap transactions.
Guidance, outlook, commentary and risks
- Management reiterated 2023 consolidated production guidance of 150,000–170,000 GEOs. Guidance includes 42,000–48,000 GEOs each for Fox Complex and Gold Bar, and 68,600–71,800 GEOs for San José on the stated attributable basis.
- Q1 unit costs exceeded full-year guidance at Gold Bar and San José: cash costs were $1,491 and $1,800 per GEO, respectively, versus guidance of $1,400 and $1,250. San José AISC was $2,234 per GEO versus $1,550 guidance. Fox Complex cash costs were $1,088 versus $1,000 guidance; AISC was $1,311 versus $1,320 guidance. Management cited seasonal labor effects and lower-than-forecast mined grades at San José.
- Management expected the updated Los Azules preliminary economic assessment in Q2 2023. It reported more than 105,000 feet drilled that season and submitted the project’s exploitation-phase Environmental Impact Report on April 14, 2023. The project’s development, permitting, technical studies, funding needs and results remain uncertain.
- The company said it believed available liquidity and operating cash generation would fund anticipated operating, capital and working-capital needs for the next 12 months. However, Q1 operating cash use increased year over year, substantial cash was designated for Los Azules, and $140.9 million of Argentine-peso holdings was exposed to currency movements; management estimated a 1% currency change could affect results by $1.4 million.
- Other key risks include gold and silver price volatility (the company does not hedge sales), inflation and exchange-rate changes, access to funding, permitting and development uncertainty, operating costs and production variability, and dependence on decisions by MSC’s majority owner. The company disclosed no legal proceedings, defaults on senior securities, or material changes to its previously reported risk factors.
- Management reported effective disclosure controls as of March 31, 2023 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Reconcile the sharp rise in shareholder net loss with the $39.5 million of advanced-project and exploration spending, and distinguish GAAP results from management’s adjusted measures.
- Review the terms, use and availability of McEwen Copper financing proceeds, the company’s retained 51.9% ownership, and the portion of cash actually available for McEwen Mining’s other needs.
- Track Argentine-peso exposure, official-rate translation, interest income, and the potential effect of further currency devaluation.
- Assess whether San José can improve grades and unit costs enough to meet its 2023 guidance, and whether Gold Bar and Fox Complex can meet production and cost expectations.
- Monitor Los Azules’ updated economic assessment, permitting, development funding and technical assumptions, as well as reclamation obligations, surety requirements and the $64.1 million debt balance.