McEwen Mining Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited; amounts below are U.S. dollars unless stated otherwise.
Business context
McEwen explores, develops and produces gold and silver in the U.S., Canada, Mexico and Argentina, and develops copper through Los Azules. It owns the Gold Bar mine, the Fox Complex, Mexican projects and 68.13% of McEwen Copper; it also holds a 49% equity interest in Argentina’s producing San José mine, operated by its joint-venture partner.
Financial and operating results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $26.0 million | $37.1 million | $82.2 million | $101.6 million |
| Gross profit (loss) | $1.5 million | $0.3 million | ($0.3 million) | ($0.6 million) |
| Operating loss | ($15.6 million) | ($17.4 million) | ($56.3 million) | ($41.8 million) |
| Net loss attributable to McEwen shareholders | ($10.5 million) | ($17.4 million) | ($43.7 million) | ($35.9 million) |
| Net loss per share | ($0.21) | ($0.38) | ($0.91) | ($0.79) |
- Q3 cash gross profit, a non-GAAP measure, was $5.8 million versus $6.4 million. Management cited lower sales volumes and a $51/oz year-over-year decline in realized gold-equivalent price, partly offset by lower production costs.
- Q3 production was 35,653 gold-equivalent ounces (GEOs), down 17% year over year. McEwen’s attributable San José production was 19,328 GEOs; wholly owned operations produced 16,326 GEOs, down 23%.
- Q3 average realized price for wholly owned operations was $1,742/GEO; cash cost was $1,219/GEO and all-in sustaining cost (AISC) was $1,659/GEO. These are non-GAAP measures. San José cash cost and AISC were $1,223/GEO and $1,562/GEO, respectively.
- Other income was $6.3 million in Q3 and $16.0 million for nine months. A principal contributor was foreign-exchange gains from “Blue Chip Swap” funding transfers to Argentina: net gains of $5.5 million in Q3 and $11.6 million year to date. These gains helped reduce the Q3 net loss and are not a recurring operating result.
- Nine-month cash used in operating activities was $50.6 million, versus $19.1 million in 2021. Investing activities used $16.9 million; financing activities provided $65.5 million. Cash, cash equivalents and restricted cash totaled $58.7 million at September 30, compared with $60.6 million at year-end 2021.
- Current assets were $96.1 million and current liabilities $58.1 million, giving reported working capital of $38.0 million. Total debt carrying value was $63.8 million, including $4.0 million classified as current; the senior secured facility’s scheduled principal payments begin August 2023. The company reported compliance with its loan covenants.
Material changes and notable items
- Revenue declined 30% in Q3 year over year, reflecting fewer GEOs sold and a slightly lower realized price. Gold Bar production fell 42%, primarily due to carbonaceous material and mining-contractor staffing issues; Fox Complex production rose 9%.
- The Gold Bar mining contractor stopped work on September 29 after a billing dispute and left the mine. The company expected litigation, subsequently engaged a replacement contractor, and anticipated some Q4 cost and production impact.
- Q3 revenue included $15.8 million from gold sales under an Auramet supplier-advance arrangement. A further $4.7 million for 2,860 ounces pledged but not yet delivered was recorded as a contract liability.
- McEwen Copper completed its Series B financing tranches, raising $41.9 million in 2022; McEwen Mining’s ownership was diluted to 68.13%. The financing supports Los Azules development.
- The company completed a one-for-ten reverse stock split in July 2022 to regain compliance with NYSE minimum-share-price requirements. Share and per-share data in the filing reflect the split retroactively.
- Inventory write-downs for the first nine months totaled $6.2 million at Black Fox and El Gallo. El Gallo’s residual leaching was expected to cease in Q4 2022.
Outlook, risks and contingencies
- Management stated it believed available liquidity, together with funds from ongoing operations, would cover anticipated operating, capital-expenditure and working-capital needs for the next 12 months. This is management’s assessment, not a guarantee.
- An updated Los Azules Preliminary Economic Assessment (PEA) was planned for Q1 2023, with feasibility-study-level work targeted thereafter; the filing describes a feasibility study as intended by 2024. These are forward-looking plans.
- Gold Bar South had received regulatory approval; development work was expected to be completed in late Q4 2022. The company also said heap-leach-pad gold ounces might be materially higher than documented, subject to confirmation expected in Q4 2022.
- Key exposures include commodity-price and foreign-exchange movements, operating costs and production levels, funding access, permitting, labor and contractor availability, and political and economic conditions in Argentina. The company does not hedge gold or silver sales.
- Reclamation and remediation liabilities were $38.1 million. Surety bonding covered reclamation obligations in Nevada and Canada; the filing describes the possibility that bonding could need replacement with cash. The company also disclosed uncertainty over collection timing for its $0.8 million Mexican VAT receivable.
- McEwen Copper’s October 2022 agreement for Rio Tinto subsidiary Kennecott to earn a 60% interest in Elder Creek by investing $18 million over up to seven years is a subsequent event disclosed in the filing.
Key facts for investors to verify
- Whether Gold Bar’s replacement contractor restored planned mining activity, and the status and potential cost of the contractor dispute and expected litigation.
- Whether operating production, costs and cash use improve, particularly at Gold Bar, and whether the company sustains adequate liquidity while meeting debt and reclamation requirements.
- Whether Los Azules achieves the PEA and feasibility-study milestones, and how project funding and McEwen Copper ownership may change.
- Whether the Gold Bar leach-pad ounce estimate is confirmed and whether Auramet ounces pledged but not delivered are subsequently settled.
- How much reported earnings and liquidity depend on non-recurring foreign-exchange gains, financing proceeds and other non-GAAP measures.