McEwen Mining Inc.
Q2 2017 Earnings Call Transcript

Published: 4 Aug 2017

[Operator:]

Good morning, ladies and gentlemen and welcome to the McEwen Mining 2017 Second Quarter Financial Results Conference Call. I would now like to turn the meeting over to Mr. Rob McEwen, Chief Owner. Please go ahead, Mr. McEwen.

[Rob McEwen:]

Thank you, Operator. Good morning fellow shareowners, ladies and gentlemen. Welcome. Our second quarter can be characterized as one of increasing investment in key assets, essentially building our future. We've been moving aggressively on four fronts. At our Gold Bar project in Nevada, we are completing the engineering design, signing up contractors and securing longer lead time capitalized assets in anticipation of receiving our permits in Q4. Once received, this will enable us to build and operate the mine, which we expect will take about a year to do. In Mexico the good news is we have reconfigured our El Gallo Silver project such that it will now meet our investment criteria thresholds using current silver prices. And new feasibility study will be released in early 2018. Also in Mexico exploration will be focused on several key areas to expand the known mineralization and extend the operations of El Gallo Gold. On our newly acquired properties in Timmins, we're quite excited about them. They hold interesting promise. We are assessing the best sequence for mining of the open pit and underground resources and at the same time we are testing for extensions of the known high grade mineralization. Our large Los Azules copper project has advanced significantly and we will be releasing in September a new preliminary economic assessment and it will show that we have significantly lowered the CapEx and improved the economics. While we're intensely focused on being a precious metal company, I strongly believe that Los Azules represents the single biggest value creator currently in our portfolio. At this time I would like to ask Andrew to tell you about our financial performance and liquidity.

[Andrew Elinesky:]

Thank you, Rob. Good morning everyone, thank you again for joining us. I am able to report that the company had a reasonable second quarter, with consolidated production of just over 32,000 gold equivalent ounces. This was in line with our expectations and we are on track to meet our full year guidance for 2017. However, despite the solid production levels and reasonable operating costs, the company reported a net loss of $1.7 million or $0.01 per share. This was due to the combination of decreased profits at the San Jose Mine in Argentina, and increased levels of exploration and development of other projects that Rob just mentioned. The spending increase was also reflected in our cash balance. We saw a reduction of $4.1 million or $0.01 per share during the quarter. And combining this cash spend with the reduced market value of our equity investments and reduced buoy on inventory, this meant that our liquid asset balance decreased by $11 million during the quarter. Moving the conversation to site results, in Mexico, as mentioned, our production was in line with our expectations. However cash costs and all-in sustaining costs were significantly lower than our full-year guidance. This was similar to our first quarter, where we saw the effects of the carryover of lower cost heap leach inventory from 2016. Obviously, the mine is constantly working to reduce their costs and we’ll try to lock in as much of these savings as possible. However, at this point of the year, we still expect our per ounce cost to trend in line with our full-year guidance as we progress into the second half of 2017. The anticipated benefit of an increasing grade profile for the second half of 2017 should allow us to meet our full year guidance and increase our operating cash flows. Profitability in Mexico was being challenged by appreciation of the Mexican peso versus the dollar, which has increased in value by over 13% since the start of the year. Regarding our capital investment plans in order to extend the mine life beyond 2018, we are continuing with our exploration program while also furthering our studies and evaluations of the significant resources in the area. Overall, we anticipate that El Gallo will still remain a strong contributor of free cash flows for the year. At the San Jose Mine in Argentina, we saw improvement in production in the quarter despite unusually harsh winter conditions. As a result of increased snow falls in the area, cash costs per ounce continue to be higher than full-year guidance, but with the recent depreciation of the Argentinian peso versus the dollar, and the planned increase in production for the fourth quarter of 2017, full-year cost should meet our stated guidance. These higher cash cost combined with the continued increase in capital investments and exploration results in a decrease in our share of the income from the mine when compared to the prior-year. Despite this decrease in profitability, the joint venture continued with its issuance of dividends and we received $2.4 million during the quarter. We expect the dividends should continue to be paid during the year despite the increased cost and capital investment levels. Before handing over to Xavier, I would like to briefly discuss our projects. As Rob mentioned, at our Timmins projects we closed the Lexam VG [acquisition] during the quarter. We immediately commenced with our planned expenditures in Timmins with the initiation of resource valuations and trade-off studies and we have a full-year budget for that of $3 million. Secondly, at our Los Azules copper project in Argentina, we are in the process of completing the updated PEA and the results should be announced later in the third quarter. With the completion of the seasonal drill campaign, we have seen a drastic reduction in our expenditures there. And finally at Gold Bar, Nevada, as Rob mentioned, we continue with our advancement of critical path items including the key vendor engagements, as well as the building and team development with the planned permit approval coming later this year. And at this point, I would like to thank you again for taking the time to join us and I will now turn the presentation over to our President and COO, Xavier Ochoa.

[Xavier Ochoa:]

Thank you, Andrew. Good morning. At our operations and projects, I’d like to start with El Gallo Gold. I had mentioned in our last call, we are now in the final stages of mining in the current pits. Mining reached the final bottom benches at one pit and all mining activity is now concentrated into the two other known pits. These pits are oxides and that is focal point for us. This shown in a quarter-to-quarter production, a decrease of 49% at El Gallo when compared to the same third quarter last year. They produced in the past quarter 9,780 gold equivalent ounces, which reflects, prior lower grades that were processed. The average grade mine, however, climbed to 2.5 grams per ton gold, which will be largely processed during the third quarter. On July 30, we had a piece of tempered steel go through the primary crusher with substantial mechanical damages resulting from it. At this time, we expect quick remedial actions to minimize the effect of crushing down time, which will mitigate the negative estimated impact of 1,500 ounces this may have. We will further update what the actual impact on the total annual production and cost will be, as we think this could be minimal. At El Gallo Gold, total cash cost and all-in sustaining cash cost were 706 and 843 gold equivalent ounce respectively. As the year advances, we expect our cost to trend towards our guidance numbers for the entire year. We will see an impact on our cost from harder ore in the transition sulfide materials at the bottom of the pits. On completion of the mining in the pits, ore leaching and processing at the heap will continue for three years. At the El Gallo Silver project also in Mexico, during the third quarter we continued to advance our work on the project with the positive advances. Work aims to reduce the initial capital investments and lower operating cost. We remain on track to complete this work during the second half of the year. At the San Jose Mine in Argentina, where we hold a 49% interest, during the second quarter we saw our share of attributable production at 22,804 gold equivalent ounces. This was a quarter-on-quarter production decrease of 5%, vis-à-vis the same quarter last year. During the quarter in the month of June, heavy winter weather in the Patagonia resulted in unusual snow storms that affected delivery of ore mine for processing. At the Los Azules project also in Argentina, during the second quarter we dedicated ourselves to complete up work to the field campaign completed during the first quarter of the year which focused on supergene, high grade, enrichment zone definition and improving it's continuity. The results obtained from drilling are now being used to refine our understanding of the deposit. Engineering work continued to define our project configuration, mine plants and infrastructure, which will be reflected in the new preliminary economic assessment, on track to be finalized in the third quarter of this year. At our Gold Bar project in Nevada in the United States, which we look forward to being our newest mine, we have focused our efforts on advancing the permitting. Our team was successful in completing the mandatory 45 day common period, updating the environmental impact study and having the required notice of availability issued and now the permitting process is at its final stage. As of today, we believe that permitting remains on schedule to receive a positive Record of Decision from the U.S. Bureau of Land Management in the third quarter of the year, as planned. In parallel, detailed engineering work was nearly completed with supplier evaluations finalized for the execution of the project. As Rob indicated, at our properties in the Timmins Camp, we're now in process of advancing studies in the four projects towards defining a development program. At El Gallo, brownfield exploration is now looking at the deeper portions of our existing pits to determine what the potential for new resources is in the zones containing transition and sulfidic mineralization. At the district level, the presence of this transition and sulfide zones represent an opportunity for exploration efforts. We are now looking into the deeper less oxidized mineralization which could become another chapter in the story of our prolific El Gallo district in Mexico. Nonetheless outside exploration is still being sought. At San Jose, a surface exploration program is now ready to start as spring comes in, to support targets defined last fall. Thank you very much. Back to you, Rob.

[Rob McEwen:]

Thank you, Xavier. I’d just like to close, before opening the session up for questions, with a few comments on gold. I see two positives for gold and silver. First is where we are in the year. We are entering a period where gold has frequently exhibited seasonal highs, running from late August, through October. This seasonality is a well-known pattern. So, there is optimism there. And the other, watching the Dow and other broad market indices hitting new highs, it’s interesting to note that gold has been holding it’s own, gold and silver, and actually showing signs of positive moves forward. And I think that’s just reflecting while we have these highs in the broad market. Some people are starting to look at neglected areas and the precious metals space is one of those that features very prominently. So I think going forward it’s still looking quite good for gold. Operator, I’d like to open up the session for questions, please.

[Operator:]

[Operator Instructions] Our first question comes from the line of Heiko Ihle with Rodman & Renshaw. Your line is open.

[Heiko Ihle:]

Hi guys. Good quarter.

[Rob McEwen:]

Thank you, Heiko.

[Heiko Ihle:]

For the Timmins project, you said you are spending 3 million for the new resource estate and the initial trade off analysis. Let's assume this all goes well, can you walk us through potential news flow for the site for remainder of this year and for next year please?

[Rob McEwen:]

Xavier, would you like to handle that.

[Xavier Ochoa:]

Could you please clarify the question.

[Heiko Ihle:]

Sure. So you said, you are spending 3 million of Timmins for the new resource estimate in the initial trade off analysis. Let's assume the recent investment goes well, just sort of walk us through timing for news flow for the rest of this year. I mean it’s already August, for the next fiscal please.

[Xavier Ochoa:]

Thanks for clarifying. What we are doing is the combination of updating the resource estimates, as well as conducting the detailed level of trade-offs that are necessary to determine, how we want to proceed with the project. So, this year, we want to complete those studies, define which of the four projects goes first and then that puts us into next year to complete the required permitting, depending on whether it’s open pit or underground option and then we can actually go into development. So, we’re actually going to be in a position probably coming into the end of the quarter or following quarter to have more news on to what there is going to be the first part of the project coming out the gates in 2018.

[Heiko Ihle:]

So you mentioned that the crusher at El Gallo went out of service. Can you just walk us through what exactly broke? It sounds like you’re going to turn this into lowest to almost no expenditures and you have a lot of contingency plans in place. Just what broke and timeline of getting this replaced, please.

[Xavier Ochoa:]

What happens is, we had drill hammer come in, jammed into the jaw and the vibration pour into the bushings is, where the jaw sits. To do that work, you actually have to remove it and remachine the seats. So what our plan for that is, bringing a temporary crushing in replacement of that, while we do a proper repair on that and then reset it. In between there is tiny lost crushing.

[Operator:]

[Operator Instructions] And I am showing no further questions at this time. I'd like to turn the call back to Mr. McEwen, for closing comments.

[Rob McEwen:]

Thank you, Operator. I’d like to thank everyone for joining us today. Hope you have great summer. Hope it gets warmer, drier, and sunnier at least on the East Coast, and on the West Coast, gets a little cooler and little more rain and for everyone a higher gold price in September. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating on today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.