Business context and reporting period
McEwen Mining Inc. filed this Form 10-K for the fiscal year ended December 31, 2022; it also reports fourth-quarter results against Q4 2021. The company produces gold and silver and is advancing the Los Azules copper project. Its portfolio includes the wholly owned Gold Bar mine in Nevada and Fox Complex in Ontario, a 49% interest in Argentina’s San José mine, and the Fenix Project in Mexico. San José is accounted for under the equity method, so its sales are not included in consolidated revenue.
Key financial and operating metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Consolidated gold and silver revenue | $110.4 million | $136.5 million |
| Gross profit (loss) | $(0.5) million | $(6.5) million |
| Net loss attributable to McEwen shareholders | $(81.1) million; $(1.71) per share | $(56.7) million; $(1.25) per share |
| Cash used in operating activities | $(58.6) million | $(20.2) million |
| Cash additions to mineral properties and plant/equipment | $24.2 million | $34.9 million |
| Production / sales | 133,300 / 132,186 GEOs | 154,391 / 153,415 GEOs |
| Cash and cash equivalents at year-end | $39.8 million | $54.3 million |
| Working capital at year-end | $(2.5) million | Not stated in the supplied filing text |
Including restricted cash, year-end cash, cash equivalents and restricted cash totaled $43.6 million; $36.8 million was held for McEwen Copper. Total assets were $528.7 million and total liabilities were $172.4 million. Debt principal comprised a $50 million secured term loan and a $15 million unsecured subordinated note; the balance sheet reported $10.0 million current debt and $54.0 million long-term debt. Cash gross profit, a non-GAAP measure, was $19.2 million, versus $17.3 million in 2021. The company reported 2022 cash cost/AISC per GEO of $1,276/$1,688 for its wholly owned operations, and $1,306/$1,714 for San José on a 49% attributable basis.
Material changes versus the prior comparable period
- Revenue declined 19%, primarily due to fewer ounces sold from wholly owned operations and a slightly lower realized price. Average realized price for those operations was $1,788 per GEO, down from $1,803.
- Total production fell 14%. Gold Bar production declined 39%, affected by carbonaceous ore and the mining-contractor transition; San José production attributable to McEwen declined, while Fox Complex production rose 22%.
- Production costs applicable to sales decreased 23% to $91.3 million, and cash gross profit improved despite lower revenue. The company nevertheless recorded a larger net loss, including $81.7 million of exploration and advanced-project spending.
- Operating cash outflow increased to $58.6 million. Cash and cash equivalents decreased by $14.5 million; the broader cash-and-restricted-cash total decreased by $17.1 million.
- Mineral reserves declined year over year: Gold Bar attributable gold reserves fell from 370,000 to 204,000 ounces; San José gold reserves from 134,000 to 94,000 ounces and silver reserves from 8.1 million to 5.1 million ounces. The filing cites depletion, higher costs and updated mine plans among relevant factors.
Outlook, management commentary, risks and unusual items
- Management said it believed liquidity, together with operating cash generation, would fund anticipated needs for the next 12 months. This outlook should be weighed against negative working capital, operating cash outflow and scheduled debt repayments.
- Gold Bar 2023 production was expected to come primarily from Gold Bar South, with a new mining contractor expected to improve efficiencies. Gold Bar and San José met revised 2022 guidance; Fox Complex production was slightly below revised guidance.
- Management expected to publish an updated Los Azules preliminary economic assessment in early Q2 2023 and was targeting submission of its environmental impact report to San Juan authorities by April 2023. These are forward-looking plans, not completed milestones.
- The Fox Complex PEA projected a possible nine additional years of production after Froome, averaging 80,800 gold ounces annually, with a 21% IRR at $1,650/oz gold. This is a preliminary study estimate, not production guidance or a demonstrated reserve-based outcome.
- The Fenix Project remained under review, with no development decision. The company purchased a secondhand processing plant for $2.8 million and said it could materially reduce Phase 1 capital needs; strategic alternatives include financing, cost reductions and possible divestiture of the Mexican business.
- Notable unusual income included a realized $19.8 million foreign-exchange gain from Blue Chip Swap transactions used to transfer funds to Argentina. The company also recognized $5.8 million of income and mining tax expense, versus a $7.3 million recovery in 2021.
- Key risks include volatile unhedged gold, silver and copper prices; persistent losses and financing needs; debt covenants and repayments; operating-cost and production uncertainty; reclamation obligations; permitting and environmental requirements; and political, currency, security and community risks in Argentina and Mexico. Reclamation liabilities were $41.8 million, with $39.4 million covered by surety bonds in the United States and Canada.
- Subsequent to year-end, Stellantis and Nuton transactions reduced McEwen Mining’s ownership of McEwen Copper to 51.9%; each investor held approximately 14.2%. The company said proceeds received directly by McEwen Mining were expected to support debt repayment and general corporate purposes, while McEwen Copper proceeds would advance Los Azules.
Important facts for investors to verify
- Review the timing and sources of liquidity against debt covenants, the $2.0 million monthly term-loan principal payments scheduled to begin August 2023, and the note’s 2025 maturity.
- Track operating performance at Gold Bar South and Froome, including production, recoveries, costs and whether contractor changes deliver expected improvements.
- Check progress and updated economics for Los Azules, including the PEA, permitting, capital requirements, funding commitments and the company’s post-transaction ownership.
- Assess the assumptions behind reserve estimates, leach-pad inventory and reclamation liabilities. The auditor identified Gold Bar leach-pad inventory valuation as a critical audit matter; its reported carrying value was $7.6 million.
- Distinguish reported consolidated revenue and cash flows from San José’s 49%-attributable operating figures and from non-GAAP measures such as cash gross profit, cash costs and AISC.
- Consider dilution and governance: shares outstanding increased, a 1-for-10 reverse split occurred in July 2022, and CEO Robert McEwen beneficially owned approximately 17% of McEwen Mining shares as of March 13, 2023.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2022.