McEwen Mining Inc.
Q3 2016 Earnings Call Transcript

Published: 7 Nov 2016

[Operator:]

Good morning, ladies and gentlemen and welcome to the McEwen Mining Third Quarter 2016 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 shareholders and investors. Welcome to our third quarter 2016 conference call. We've produced another solid quarter, positive net cash flow, positive earnings, and we continue advancing our development projects

[Andrew Elinesky:]

Thank you, Rob. As Rob mentioned, the Company continued a strong year. We had another solid quarter which was again a combination of stable production at our El Gallo mine in Mexico, continuing with low cash and all-in sustaining costs, as well as the continuing reliable performance of the San Jose mine in Argentina. And as Rob mentioned, we continue to add to our working capital and treasury balances, which remain very solid. The consolidated gold equivalent production for the quarter was in line with our guidance and expectations for the year and came in at 36,500 ounces for the quarter. This was a decrease of 7,000 ounces when compared to the same period in 2015. However, the same quarter in 2015 for Mexico production was a record year. Our production remains on-track to meet or exceed our guidance, the continued low costs in Mexico have allowed us to decrease our consolidated cash and all-in sustaining costs. We originally planned them to be coming in at $780 and $935 per ounce respectively, and we are now estimating those to come in at $700 and $860 per ounce. As a result of these decreased costs, as well as the higher gold and silver prices, earnings from our mine operations have increased significantly, which raised by over 41% to $18.9 million for the quarter. The continued strong performance for both of our mines, as we mentioned, is reflected in our improved treasury - we ended the quarter with liquid assets of just over $62 million compared to $55 million at the end of the second quarter. This also compares to the balance at the beginning of the year with just over $40 million worth. This increasing liquidity allowed the company to continue with its increased investment plans for exploration and project development, as well as maintaining our semi-annual dividend or return of capital which was paid during the third quarter. In Mexico, we are well on our way to having our second consecutive year of strong production and low costs. This was the result of operational improvements and strong grades combined with cost and input savings, as well as the weaker Mexican peso when compared to the U.S. dollar. While the planned gold grades can be expected to continue to decline due to our planned transition of lower grade Lupita pit, we continue to be very aggressive with our work on reducing cost there, as we want to continue with our strong operational cash flow generation at El Gallo. Moving over to Argentina, the continued steady operational performance of San Jose has been helped by the export tax eliminations made by the federal government earlier this year, as well as the continued foreign exchange savings. Our attributable income from the mine was once again significantly higher than the period in the prior year, as it rose to an income of just over $4.5 million in the quarter, while the same period in 2015 was a loss of just under $2 million. This continued increase in profitability has resulted in the company receiving another dividend, which came in at $7.9 million this quarter which brings year-to-date dividend received to just over $13 million. For comparison purposes, the total dividends received in all of 2015 came in at only $0.5 million. Given the revised operating environment in Argentina and improved metal prices, we are not expecting an interruption to dividend payments. Regarding our financial statements, the strong operational performance resulted in the Company continuing to report a quarterly net income, which came in at just over $44.5 million or $0.01 per share. This brought our year-to-date net income to just over $28 million or $0.09 per share. Our earnings from mining operations for the quarter was $18.9 million or $0.06 per share and the year-to-date numbers came in at $57.7 million or $0.19 per share. Moving on to cash generation; the cash flow from operations for the quarter was $4.2 million or $0.01 per share which, once again, brings our year-to-date generation to $25.5 million or $0.09 per share. One item of housekeeping; we're going to remind to our shareholders that during the quarter all the remaining exchangeable shares that were issued as part of the Minera Andes acquisition in 2012 were redeemed for common shares of McEwen Mining. While this provides the company with a reduction in administration and overhead costs, this should also remove any potential market confusion, as it now means that the company has only one class of shares. Thank you very much for your time, and I will now turn the presentation over to our new President and COO, Xavier Ochoa.

[Xavier Ochoa:]

Thank you, Andrew and Rob. As a newcomer to the company having had the opportunity to visit all the operations and projects, I have developed an integrated view of our business and opportunities. Today we have a solid operating platform of mature operations at both El Gallo Complex in Mexico and through our share in Minera Santa Cruz in Argentina. At El Gallo, the operations have a strong motivated team of local people who maintain operations running smoothly, considering the more challenging ore bodies we're mining now and into next year. The team there is now working diligently in the development of opportunities to extend the operating life of our assets with quality additions to the resource base we work with. At Minera Santa Cruz in Argentina, our operating partner, Hochschild Mining has advanced in optimizing the operations, drawing in on the strong technical expertise in underground mining from their operations in Peru, and that they are able to mine narrower veins with attractive grades using methods such as shrinkage stopping. Exploration there has been restarted around the existing operations. In regard to our projects, Gold Bar continues to advance. The U.S. Bureau of Land Management recently advised us that the timeframe to issue the project’s Record of Decision will be longer than expected, generating a delay in our plans. As a result, we are reviewing the impact of this, as well as the opportunities we have to recuperating the additional time required for permitting. Under the new timeline, the project will be coming online as a natural confirmation to our steady production from Mexico. At our Los Azules copper gold project in Argentina, the ongoing positive change taking place in the country is motivating us to advance with a new scoping study, which shows improvements in capital and operating costs. These will be reflected in a new preliminary economic assessment to be published in the first quarter of the year. This coming end of summer, which is at the start of the new year, a new drilling campaign to improve the knowledge and confidence levels of asset will be conducted. In Mexico, at El Gallo Silver project, we decided to revisit the project and are working towards completing a new study in line with the current silver prices, to improve the project’s economics. Also in the larger El Gallo district, we continue with our exploration efforts, which as you have recently seen from our press releases, we have had encouraging results from the El Encuentro – la Ravancha Zone, as well as an overall outlook that is reinforcing our interest in this district for a longer life Mexican operating base with growth potential. Thank you.

[Rob McEwen:]

Thank you, Xavier. Thank you, Andrew. As you've heard, our operations are performing well, we have internal growth and we continue to scan the markets for external opportunities to build production and resources in the least dilutive manner. Over the last three years, we've been able to build our production and treasury without giving away our upside our leverage to higher silver, gold and copper prices. During this period our production and treasury has grown without doing any debt or equity financing, without selling any metal streams or royalties and without putting any hedges in place that would limit the benefit of the expected higher precious metal prices, but much of the industry has done that and I believe they are sacrificing the returns to their share owners. Also, we continue to provide our share owners with an annual form of rent which at our current share price, is comparable to a yield of 0.3%. It's not bad in a world where you have negative interest rates. We're excited about our future; we embrace innovation and believe it is one of the keys to achieve our goal of entering the S&P500. Now I'm pleased to welcome your questions.

[Operator:]

[Operator Instructions] The first question comes from the Internet and the question is what is the status of the Silver project in Mexico? And what is the path to production?

[Rob McEwen:]

I'll ask Xavier to address that question.

[Xavier Ochoa:]

The status of the project right now is that we have a feasibility study that shows that it's a positive asset in terms of the return that we can get off the investment. However, we feel that the change in silver prices, as well as our better understanding of the district gives us an opportunity to actually go forward to better asset, so the reason that we're conducting a study now is because we think we can get some improvements before we make a decision forward. In terms of the path forward, the study will determine how to go forward but we are fully permitted right now to proceed with the project. So we don't have a permitting hurdle in front of us.

[Rob McEwen:]

Next question?

[Operator:]

The next question comes from Two Fish Management; what is the reasoning behind Mr. Sutherland leaving the company?

[Rob McEwen:]

Thank you for the question. It was just in preparation for our growth. We have a skill set; Xavier is a mining engineer with a lot of experience building mines, and we needed that type of experience to push forward. Next question?

[Operator:]

The next question comes from the Internet. What are your views on gold over the next 12 to 24 months?

[Rob McEwen:]

Next 12 or 24 months, I have a very positive outlook for gold. I think the election taking place in America has been a smokescreen, and that once it's passed -- that it doesn't matter who gets elected, the price of gold is heading up. The economic conditions around the world are troublesome and onerous. Mix that in with some political strife, gold is money and more and more people are going to resort to owning some of it to protect their assets. So how high will it go -- I certainly see it in the next 24 months pushing through $2,000 but it could go higher than that. I'm sure it will go higher than that. Next question?

[Operator:]

And the next question comes from the Internet. As a shareholder, I wanted to thank you for not selling metal streams or diluting our share value. How do you feel McEwen Mining can grow best moving forward? Does this involve merger or internal growth?

[Rob McEwen:]

Our future growth will come with both internal growth and external. As I said in the call, we're scanning the market for opportunities and that's a continuous process. We're just looking for the right combination of opportunities and fit. Next question?

[Operator:]

And the next question comes from the Internet. How much of your declining in costs stems from devalued pesos in Argentina and Mexico?

[Rob McEwen:]

Andrew, would you care to address that question?

[Andrew Elinesky:]

In Mexico, it's a significant portion, it's not the entire portion; the continued decreased levels in input costs, consumables and energy costs have also contributed. A lot of our cost in Mexico and Argentina are actually denominated in U.S. dollars anyways. So we've seen a joint element in terms of savings on devaluation of currency, as well as the lower input costs as well.

[Operator:]

[Operator Instructions] And there are no current questions at this time.

[Rob McEwen:]

Thank you, operator. That concludes our conference call. To my fellow share owners; I want to thank you for your support. And for everyone on the call, thank you for attending our third quarter conference call. Remember, gold is money.

[Operator:]

This concludes today's conference call. You may now disconnect.