McEwen Mining Inc.
Q3 2015 Earnings Call Transcript

Published: 9 Nov 2015

[Operator:]

Good morning ladies and gentlemen and welcome to the McEwen Mining Third Quarter 2015 Financial Results Conference Call. I would now like to turn the meeting over to Mr. Rob McEwen, Chief Owner. Please go, Mr. McEwen.

[Rob McEwen:]

Thank you, operator. Good morning, ladies and gentlemen. I will reiterate that, welcome to our third quarter 2015 conference call. Presenting with me today will be our Managing Director, Nathan Stubina and our Controller, Andrew Iaboni. I would like to start by saying Q3 was robust. We had strong production growth, positive cash flow and operating earnings. Our treasury is growing larger, we paid our first dividend, we approved a share buyback program. We increased our production guidance for the year and here to give you the financial details is our Controller. Andrew Iaboni.

[Andrew Iaboni:]

Thanks, Rob. We finished the quarter with $30.9 million in cash and cash equivalents compared to $22.4 million at the end of Q2, this represents an increase of $8.5 million in cash flow from operations during the quarter. Improved cash flow is largely attributable to the strong operational performance at El Gallo 1 and is net of our first semiannual return of capital distribution of half a cent per share paid on August 17. Our current VAT receivable is $10.9 million which we have a line of credit securitized against the VAT receivable in the amount of $5.2 million. During the year we received total VAT refunds of $4.3 million of which 200,000 was used to reduce the line of credit during Q3. Also during the third quarter McEwen Mining recorded net income of $2.6 million or $0.01 per share and on a nine month year-to-date basis we recorded a net loss of $5.4 million or $0.02 per share. Our earnings from mining operations were $13.4 million and $44 million for the three and nine months ended. This compares to a loss of $800,000 and earnings of $17 million during the comparable period. The significant increase is a combination of our increased production and reduced mining costs. We define our earnings from mining operations on page 34 of the 10Q. For the three and nine months period we spent $1.8 million and $7.3 million on exploration. These expenditures relate to drilling and feasibility work conducted on our Gold Bar project along with near mine exploration programs at El Gallo 1. For remainder of the year, we plan on spending an additional $1 million in exploration and for 2016 we are planning on spending $6 million in exploration. During the year we spent $1 million on sustaining capital in Mexico. We are projecting sustaining capital expenditures in Mexico to be approximately $500,000 for Q4 and $3.3 million for 2016, most of these expenditures pertain to our leach pad expansion which is expected to be complete in March 2016. At this time I'll turn the call over to Nathan for an operational update.

[Nathan Stubina:]

Thank you Rob and Andrew. First of all, I am pleased to report a record quarterly production of 43,400 gold equivalent ounces. Due to these results our consolidated 2015 production guidance was recently increased to 150,000 gold ounces from an original 138,000. In Mexico at our El Gallo mine, we produce over 19,500 gold equivalent ounces this quarter compared to 6800 ounces during the same quarter of 2014. During Q3, the average ore grade mine was approximately 2.7 grams per ton or 0.078 ounces per short tons. This higher than reserve grade, plus our costs and process improvement projects contributed to the very low all-in sustaining cost value of $570. For 2015 the year-to-date AISC for Mexico is $578. From our 49% share of the San Jose mine in Argentina, our production was over 12,000 ounces of gold and almost 870,000 ounces of silver. Both of these values are an improvement over the same quarter of 2014. For our share of production from Argentina, the forecast for 2015 is maintained at 46,500 ounces of gold and 3.1 million ounces of silver. For our Gold Bar development project which is located in Nevada and is 100% owned by McEwen Mining, we issued a positive feasibility study on October 21, key findings are a low capital cost of $60 million, a solid internal rate of return of 20% at a gold price of $1150 and average annual production of around 65,000 ounces at an estimated average cash cost of $720 per ounce. The complete report will be available in early December. Formal notice from the Bureau of Land Management States that our record of decision for the environmental impact statement is expected in January of 2017. Construction should take about 10 to 12 months which means production should start in early 2018. For the El Gallo 2 Silver projects in Mexico we’re continuing with metallurgical patchwork aimed at improving silver recoveries, at the same time reducing CapEx and OpEx. We plan to produce a new feasibility study during Q2 of 2016. Exploration efforts for the remainder of this year and early 2016 will be focused on near mine targets. Thank you very much.

[Rob McEwen:]

Thanks, Andrew. Thanks, Nathan. In a sea of disappointing results for the industry, I'm very pleased with our performance both on a quarterly basis year to date and for the balance of the year. Going into '16 looks strong and we not only will survive at these prices, we’ll prosper. I'd also like to thank Perry Ing, who is our recently departed CFO for his strong contribution to the company's growth and wish him much success in the future. Our search for a CFO is ongoing and we’re considering both internal and external candidate and until a selection is made, the Board has recommended that I serve as the Interim CFO. At this point, we’re now happy to take your questions. Operator please open it up for Q&A.

[Operator:]

Our first webcast question comes from Stuart Bailey [ph].

[Unidentified Analyst:]

The average realized prices of $1,106 for gold and $14.05 for silver in the quarter seemed a low spot prices for the quarter. Is this due to the penalty imposed by the Argentina government?

[Rob McEwen:]

No I think it's just a matter of timing Stuart [when we] made the sales. There's no penalty from Argentina.

[Operator:]

Your next question comes from the line of Heiko Ihle with H.C. Wainwright. Your line is open.

[Unidentified Analyst:]

Good morning, Rob. Congratulations on the quarter. You took the gold bullion cash cost are quarter-over-quarter from almost $1800 to a thousand and the sequential cash cost consequence is quite comprehensive as well. Walk us through the remainder of the year and most importantly what changes are you guys are going to undertake to keep this thing moving in the right direction I mean we have it modeled, I just want to see, you know, the actual quantifiable differences you're going to make?

[Nathan Stubina:]

Yes. So far up the Q3 it's around 55,000 - 56,000 ounces, the target for Mexico will be 62,000. We weren’t as impacted as the rainy season as we were last year so that's why the Q3 results are quite strong and that will continue into Q4 and of course into Q1 of next year. So everything in Mexico's is running quite smoothly and we’re pretty sure we’re going to hit this new target of 62,000 ounces in Mexico.

[Unidentified Analyst:]

Very fair. You guys have a very strong treasury I mean $36 million in cash for a company of your size is -- I wouldn’t want to say unheard of, but certainly a rarity out in the market. Just sort of walk us through potential acquisitions, you’re willing to do something if the right opportunity arose but should we be shocked to see something happen before the end of the year?

[Rob McEwen:]

You should never be shocked, of giving some advanced notice. But we've been preparing ourselves for opportunity, making sure we have a strong balance sheet to give us that ability. I think there are opportunities out there we've been looking at a number - unfortunately first impressions are usually better than when you get deep into the situation, there are questions and ownerships issues and financial concerns that make the deal a little more difficult but there's opportunity out there and we're looking for it.

[Operator:]

[Operator Instructions].

[Rob McEwen:]

Okay. If there are no further questions. I would like to thank everybody for joining the call and wish you well and here is to higher gold price. It’s going the wrong way today but it's going to come back. Thank you.

[Operator:]

Ladies and gentlemen this concludes today's conference. You may now disconnect.