McEwen Inc. Q4 FY2022 Earnings Call

Hello, ladies and gentlemen. Welcome to McEwen Mining's Fourth Quarter and Year End 2022 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Perry Ing, Chief Financial Officer; William Shaver, Chief Operating Officer; and Michael Meding, Vice President and General Manager of McEwen Copper. After the presentations, there will be a question-and-answer session. I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.

Thank you, operator. Good morning, ladies and gentlemen. Today, I'll start with a discussion about gold and then our share price performance and follow up with factors driving our future. With all the uncertainties in the world, many people are asking why the price of gold hasn't climbed much higher. I believe that most investors feel that we have entered into a new era where very low interest rates and massive monetary stimulation are here to stay. And gold's reputation as a store of wealth is no longer relevant or needed in a world awash with easy money. However, as we all know, the unexpected happens quickly. Rising interest rates and an unexpected bank failure are vivid reminders that gold still has a role to play in your portfolio. I suspect more investors will start adding gold and gold shares to their portfolios and they will follow the lead of a select number of central banks who became large gold buyers in 2022. In fact, their purchases were the largest made in the past 50 years by central bankers. Perhaps they, too, are concerned about holding too much of their reserves in fiat currencies. So, during 2022, the price of gold outperformed not only gold equities but also the Dow Jones. Gold increased 1% year-over-year, and at yesterday's close, it was up 6% since December 31, 2021. During that same period, the senior and junior gold equities, as measured by the ETFs, the GDX and the GDXJ registered losses of 10.5% and 15%, respectively in 2022, while the Dow was down 3.7%. But if we look back another year to December 31, 2021, and come forward to yesterday's close, the GDX was down 9.1%, the GDXJ down 16.2%, and the Dow was down 12.4%. We weren't as lucky in 2022. Our share price was hammered. It was down a painful 36%. Fortunately, it has recovered much of this loss and has increased an impressive 136% since the end of last year, December 31, 2022. And if we look back to December 31, '21, our share price is only down 13.1%, which is less than the GDX decline of 16.2%, and very close to the decline of the Dow Jones Industrial Average of 12.4%. So, looking at our stock chart from a technical perspective, it looks very promising. With our share price having broken out on the upside through its 50, 100, and 300-day moving averages. Driving this price improvement is our demonstration of improving operational performance, good exploration results, production growth, and lower cost per ounce, along with the growing recognition that McEwen Copper's Los Azules project is a large copper resource with large strategic shareholders, Rio Tinto, the world's second largest mining company, and Stellantis, the world's fourth largest automobile manufacturer and mobility provider. For 2023, we are looking at a production increase of 12.5% to 27.5% over what we did in 2022, and our costs are expected to decline by about 5%. In 2022, our Fox Complex and Gold Bar mines generated operating profits, but the accelerated activities at our subsidiary McEwen Copper and its Los Azules project and our heavy investment in exploration contributed significantly to our large reported loss. I will now ask Perry to provide details on how we performed financially in 2022 and, more importantly, what we see going forward in 2023. He will be followed by our Director and Interim Chief Operating Officer, Bill Shaver, who will comment on our success in stabilizing our mine operations and where we see growth in those operations. Bill will be followed by Michael Meding, our Vice President and General Manager of McEwen Copper, who will outline our progress at Los Azules and the financings we recently completed and the strategic shareholders we have. Perry, off to you.

Thank you, Rob. Good morning, everyone. As Rob mentioned, I will provide an overview of our fourth quarter and full-year results for 2022, followed by a discussion on the impact of the recent Stellantis and Nuton, Rio Tinto transactions on our balance sheet. These transactions are transformative for the company. They will help us reduce our debt in a rising interest rate environment and enable us to advance the Fenix project in Mexico, as well as continue our aggressive exploration efforts in Ontario and Nevada without issuing additional equity, especially given the current gold prices. For the Los Azules project, these transactions will accomplish two things. First, they bring a key partner in Stellantis and strengthen our relationship with Rio Tinto. Additionally, they provide significant funding for our exploration efforts in Argentina and offer McEwen Copper more flexibility regarding a potential IPO. Initially, I will start with a review of McEwen Mining's consolidated results for the prior year. It is important to note that we report McEwen Copper as a consolidated entity and show 100% of its expenditures on Los Azules in our income statement. As a U.S.-listed company following U.S. accounting standards, we cannot capitalize exploration and development costs for this project or any others until we have a completed feasibility study and permits for development, unlike many Canadian-listed peers who often capitalize these costs at much earlier stages. In terms of our headline figures, we reported a loss of $37.4 million for the quarter and $81.1 million for the year, equating to $0.79 per share and $1.71 per share, respectively. The annual loss stems from expensing costs at Los Azules after accounting for foreign exchange gains. Approximately 25% of the loss is attributed to exploration and development costs at our 100% owned properties. The remaining losses per share reflect our general and administrative costs as well as certain one-time tax charges. I also want to highlight that the per share amounts reflect the 10-for-1 share consolidation completed in July of last year, which re-established our compliance with NYSE share price listing requirements. Turning to our 100% owned mines, we achieved a cash gross profit of $7.9 million for the quarter and $19.2 million for the full year. These operations were essentially breakeven on a gross profit basis, marking a significant improvement over 2021. In terms of gold equivalent production, we produced 37,300 gold equivalent ounces in the fourth quarter, down just under 10% compared to the fourth quarter of 2021, largely due to a decrease of about 2,000 ounces at Gold Bar as we transitioned into the new Gold Bar South pit. Full-year production totaled 133,300 gold equivalent ounces, down approximately 14% year-over-year, also primarily driven by Gold Bar due to earlier carbonaceous ore issues and the transition into Gold Bar South. At the San Jose mine, production decreased about 10% year-over-year due to COVID-related issues in the first quarter of 2022. Bill Shaver will provide more details on these operations. From a revenue and cost perspective, realized gold prices remained roughly unchanged around $1,800 for both 2022 and the previous year. Prices dipped slightly in the fourth quarter of 2022 but appear to have rebounded strong in the first quarter of this year. In terms of costs, we observed a significant reduction in cash costs at our 100% owned operations, reported at $1,276 per ounce, which have consistently decreased since 2020, with lower costs noted at both the Fox Complex and Gold Bar compared to last year. All-in sustaining costs were mostly consistent with the previous year and accounted for the costs involved in bringing Gold Bar South into production in Nevada. At the San Jose mine, both cash costs and all-in sustaining costs saw slight year-over-year increases due to lower production attributed to the issues I mentioned earlier. Finally, regarding our treasury, at the end of the year, our cash and equivalent balance was $44 million, decreased from $60 million at the start of the year. Now, I will shift focus to the recent transactions with Stellantis and Nuton, Rio Tinto, and their implications for our balance sheet and working capital moving forward. These transactions closed within the last three weeks and included an offering of primary shares directly from McEwen Copper as well as a component of secondary shares from McEwen Mining. The key details are summarized in our news release, so I will summarize it at a high level. Essentially, McEwen Mining, viewed as a standalone company, will receive $48 million, and McEwen Copper will receive around ARS30 billion. The valuation of these transactions for McEwen Copper is nearly double the initial $10 per share amount from our investments in June and August of last year. Following these transactions, McEwen Mining's ownership of McEwen Copper will decrease from about 68% at the end of 2022 to 51.9% today. Regarding proceeds for McEwen Mining, we plan to use $25 million to pay off debt to Sprott Lending, thus lowering our total debt from $65 million to $40 million and saving considerable interest costs going forward. With our improved treasury, we believe we now have the necessary funds to develop Phase 1 of the Fenix project in Mexico and bring it into production over the next year without the need for additional capital injection. As for McEwen Copper's treasury, ARS30 billion is a substantial amount, equivalent to over $150 million at the official exchange rate and approximately $80 million using less official methods, like the Blue Chip Swap rate. With this financing round concluded, McEwen Copper is positioned well to carry out its drilling and development program for the remainder of the year and into 2024, as Michael will outline. Therefore, we no longer have an urgent need to complete an IPO in the first half of 2023. With that, I will hand the presentation over to Bill Shaver.

Thank you very much, Perry. Good morning, shareholders. This morning, I'd like to leave you with three messages regarding our operations. We have improved mining operations at the Fox Complex and are improving milling operations, which will result in higher output and lower cash costs in 2023. At Gold Bar, we have successfully transitioned to a new contractor and we have moved the operations to the Gold Bar South pit, which will produce most of the ore in 2023. Based on the first two months of production, we are fully transitioned on both fronts, that being the new contractor and full operations. Cash costs for these operations will be approximately $1,100 per ounce in 2023, which is a significant improvement of approximately 15% from 2022. Lastly, at the Fenix project, as Perry has mentioned, we have moved the plant we purchased last year to the plant site and are in the working stages of planning production in early 2024. The last quarter of 2022 was challenging, but hard work by all our mining operations helped us overcome these hurdles, making Q4 a reasonable quarter. We are also making progress in stabilizing and improving operations, so we can obtain predictable outcomes for gold production and costs in 2023 and into the future. So far, this year, we are on track. On the safety front, in 2022, we had two low severity lost-time incidents in January and March at our El Gallo operations. For the rest of the year, we were lost-time accident-free. At the Fox Complex, we operated for a full year in 2022 with no lost-time injuries. At Gold Bar, we recently passed three years without a lost-time injury. On the environmental front, there were no environmental events recorded in 2022. Now, I'll turn it over to each of the operations. At the Fox Complex, we had a very challenging year with our mill, which continued to have significant availability issues that hampered our throughput. This resulted in us missing our gold production last year. At the same time, the mine had an excellent year, which resulted in a stockpile build-up to 120,000 tonnes by year-end. This represents a value of approximately $15 million after milling and recovery. On a positive note, we have now undertaken crushing of the ore at the mine prior to it being shipped to the mill. This lowers the amount of work that the mill needs to do in processing the ore. This decision was based on a test program to prove this concept last year. We have been able to get our production tonnage through the mill successfully in Q1 of 2023 and are looking forward to improving the throughput when we get the contract crushing plant that we have planned for the remainder of the year at Froome into place. This plant will be commissioned in early April, which will allow us to reduce the size of the stockpile we have at the Fox mill, transforming it into gold and therefore cash. We anticipate we will meet our budgeted cash call for the year of $922 per ounce. At the Gold Bar mine in Nevada, 2022 was also challenging with issues of preg-robbing ore and our parting of ways with our mining contractor at the start of Q4. Notwithstanding these issues, we successfully transitioned the mine plan to main production in Q4, and we are happy to tell you we have successfully transitioned to a new contractor who is now in full production. We also completed the move to the Gold Bar South pit and are now in full production in this pit. Gold production from Gold Bar has been on budget for the first two months of this year, and we're looking forward to a good year from operations. At the Fenix project in Mexico, we have been able to develop an approach to get the Fenix project in production in a timely manner and at a significantly lower capital cost. We will reprocess the heap leach pad, which has a grade of 0.6 grams per tonne. To accomplish this, we have acquired a used 7,000 tonne per day gold processing plant, which operated recently at a local mining operation. We have moved 80% of this plant to our site. For Fenix, we will initially assemble only the grinding circuit, the cyclones, and the leaching portion of the plant and use the present El Gallo gold recovery circuit. This will reduce the CapEx to approximately $12 million with the potential to increase throughput as we move into production and prove that this plant will give the required outputs. There are a few minor changes in our permits that are required, but we hope to have this plant operating late this year or early 2024. With that, I thank you very much. And now I'll turn it over to Michael for an update on our world-class Los Azules project.

Thank you so much, Bill. I will quickly highlight our financing and the strategic importance of our new shareholders, then report on our drilling, exploration, and study work, and finally mention what we did last year and in 2023 concerning our enhanced organizational and ESG competence in Argentina. McEwen Copper completed an $81.9 million offering, including a $25 million investment by Nuton, a Rio Tinto Venture, on August 31, 2022, followed on October 24, by an option agreement with Kennecott Exploration, another subsidiary of Rio Tinto, for potential earn-in of 60% for Elder Creek by investing $18 million over seven years. Subsequent to December 31, 2022, we announced the closing of an ARS30 billion investment by Fiat Chrysler Argentina, a subsidiary of Stellantis, to acquire shares of McEwen Copper and of a second investment of $30 million by Nuton that increased the investment to $55 million. Now, Nuton is an innovative new venture with the portfolio of proprietary copper heap leach-related technologies and capabilities at the core, a product of almost 30 years of research and development. Those have the potential to economically unlock copper sulfide resources and achieve higher copper recoveries on oxide and transitional material. Rio Tinto is the world's second biggest mining company, bringing significant financial and technical resources to McEwen Copper and the Los Azules project. Stellantis, on the other hand, is one of the world's leading automakers. It produces iconic brands such as Alfa Romeo, Chrysler, Citroen, Dodge, Fiat, Jeep, Lancia, Maserati, Opel, Peugeot, Ram, Vauxhall, and others. In Argentina, Stellantis produces about 160,000 cars yearly, has about 3,000 employees, and is present with manufacturing in Buenos Aires and in Cordoba, Argentina. Partnering with Stellantis is an expression of a paradigm shift for downstream customers of copper. Companies realize that copper is a mineral critical to the green energy and mobility transition. To my knowledge, it's the first time an automotive company has invested in a copper company. Subsequent to those transactions, Stellantis and Nuton each own 14.2% of McEwen Copper. McEwen Mining's ownership is now approximately 52%. Now I'm going to talk about drilling, exploration, site, and study work. A total of $41.3 million was incurred in 2022 at the Los Azules project to advance drilling, engineering, and project feasibility work. Drilling has focused on increasing drill hole density to upgrade the copper mineral resource classification to measured and indicated and to better define the payback pit design, to provide metallurgical, hydrological, and geotechnical data to support mine design and exploration testing for potential extensions of the copper resource to the north, south, and depth of this already vast deposit, which Mining Intelligence ranked in 2022 as the ninth largest undeveloped copper project by copper resource size. In 2022, drilling started in January and went to May, when it stopped for the winter in the southern hemisphere, then restarted in October and is currently ongoing. Since October 2022, there were six drill rigs on-site and five more were added in early 2023. From 2022 to date, we have drilled over 105,000 feet, approximately 32,000 meters, in 98 drill holes to increase geological confidence, and we see that drill results are generally consistent with our model. Beyond our robust delineation results, published in January and March this year, we recently published our northern step-out exploration results with 1,052 meters of 0.29% copper including an interval of 480 meters of 0.42% copper, which demonstrates the potential of the deposits to the north. The updated PEA will include all available information on drilling, assay, and metallurgical testing obtained until early 2023 and is now slated for publishing during Q2 this year. We are developing a scenario for Los Azules as an open pit mine that initially processes leachable copper content in a heap leach, with a solvent extraction and electro winning facility to produce copper cathodes. This scenario is more environmentally sensitive due to its much lower water consumption and carbon footprint, and is de-risking the project due to lower complexity. The project design makes use of renewable energy, which will allow for low carbon footprint production and improves financial attractiveness. While the PEA as a base case considers economic leaching without Nuton technology, we are excited to be able to test heap leaching using their technology, which could represent a very interesting upside scenario, and initial results are promising. We are in preparation for the filing of the environmental permit application for the exploitation stage to the San Juan mining authorities. The drafting of the report is underway and on track for submitting it to the authorities in April 2023. In 2022, a major advance was made that will accelerate the development of the Los Azules project with the completion of a new low altitude access road, which goes to a maximum of about 11,000 feet or approximately 3,400 meters above sea level, which we share in part with other mining projects, including El Pachon from Glencore and Altar from Aldebaran Resources. The importance of having a second road into the site at more than 2,000 feet low altitude means that we now have almost year-round access to the site. In addition, we upgraded the exploration roads, the former existing roads, to allow for articulated 18 wheelers to get to the site, a significant logistics improvement, lowering costs and quickening transports. With regards to our organization, a strong and experienced management team was set up in Argentina in 2022. With management team members having a total of over 180 years of experience in Tier One operations, the majority in San Juan, Argentina where the project is located. To further cement our relations with local communities, we opened up our community affairs office in Calingasta in San Juan where the project is located, to have even closer relations with the community we are operating in. I can report that we are happy to receive ongoing support to develop our project there. This concludes my report on McEwen Copper. Thank you for your attention, and I will now turn it back over to Rob.

Thanks, Michael. I'd like to say I've always felt that Los Azules was a tremendous asset for McEwen Mining. The problem was in 2022, our share price was scraping along the bottom and our treasury was small. But in order to advance Los Azules, we needed a lot of money. The thought of trying to do a financing when our share price was at historic lows was just not attractive or possibly feasible. So, we decided the best way to advance Los Azules and build its value and surface the value for McEwen Mining and allow it to access financing was to create McEwen Copper and fund it separately. I believe we have been successful in surfacing value. We've attracted the second largest mining company in the world as a shareholder and the fourth largest automobile manufacturer in the world. Both did extensive due diligence on this, on Los Azules, and have confirmed that we do have a very large, attractive copper project that will likely be one of the larger copper mines in the world when it is built. Last August, we raised $82 million at a share price of $10. And now, seven months later, we've completed an even larger financing of $30 million and ARS30 billion at an average price of approximately $18.75. As a result, the implied value of Los Azules has increased from $260 million to $550 million, and that's excluding the 1.25% royalty that McEwen Mining holds on this property. So, now behind every share of McEwen Mining, on a fully diluted basis, is a value of $5.70 from Los Azules. Back in mid-2020, our share price was around $3 a share. Looking ahead, with our operations performing much better than they have in the past, with prospects of growth at our Fox Complex where we can see the potential to double production and further reduce cost to below $900 an ounce; mining at Gold Bar, we're in a new deposit that is higher grade and lower strip, and assuming the winter doesn't frustrate our plans, we'll be increasing production by better than 50%; and we're looking at the Fox Complex increasing production anywhere from 15% to 30% and keeping its costs around a $1,000 an ounce, we're looking at 150,000 to 170,000 gold equivalent ounces, representing an increase between 13% to 28%. McEwen Mining trades at a significant discount to its peer group, and our objective is to get up and exceed that peer group economic value for gold equivalent ounces. When we do that, along with continuing to progress our Los Azules project, I think that the value behind McEwen Mining is going to increase, and I see a value of somewhere between $7 and $28 a share. You might be wondering how I got that number. It’s really the sum of the parts. We have Los Azules in there, and compared to two other copper projects in the same province in Argentina, we're at a lower altitude closer to the infrastructure than they are, roads powered. Based on the published resources, we have a larger resource and a higher copper grade than either of those two properties, yet, one was purchased at $485 million last April and the other has a market cap of about $1.9 billion. So, you could see I think we are in a position to be somewhere between that $500 million and $2 billion for the value of Los Azules. We have five non-producing royalties, 1.25% on Los Azules, 1.25% on McEwen Copper's other copper project, Elder Creek, which you heard earlier has been optioned by Rio's exploration arm Kennecott Copper, and then we have our gold assets that are trading well below our peer group. I think there's quite a bit of room to grow. I think we're in a really good position to push forward on that front. The investment we have brought in recently into McEwen Copper, although it reduced our interest, increased the value significantly of that asset. It allowed us to reduce McEwen Mining's debt and put money in the treasury of McEwen Mining to further the development of our Fox Complex, expand down in Mexico, and fund our exploration program. If any of you are interested in getting exposure to McEwen Copper, right now, the best way to do it is through the shares of McEwen Mining or wait for the IPO of McEwen Copper. Thank you. Operator, let's open the session for questions and answers.

Certainly. And your first question comes from Jake Sekelsky from Alliance Global Partners. Your line is open.

Hey, Rob and Perry.

Hi, Jake.

Thanks for taking my question.

Go ahead.

So, just starting with Gold Bar, you mentioned the change of contract during Q4. Can you give us any color on the improvements you've seen since making that switch, and if you're able to quantify them at all?

Sure. I'll ask Bill to address that question.

Thanks very much for the question. Yes, I guess, there's two aspects to the improvement. The first aspect is that we have a significantly different contractual arrangement with this group. That, along with their performance, has brought the relationship to a very professional level, which is contractually not complicated. That has been nice to see from my perspective and also from the site's perspective. They have successfully transitioned in a relatively short time, approximately three months from the time we first started talking to them until we had a contract in place and they were on site. They are now totally ramped up as the Gold Bar South project, which is a new mining operation. If you were there a year ago, it was a big hill out in the middle of the desert. Now, it's a full-scale mining operation, producing about 100,000 tonnes of ore a month and between 300,000 and 400,000 tonnes a month of waste. It's been a relatively smooth transition. We've had this fall and early winter, with the toughest winter that they've had in a decade in Nevada from the perspective of snow and rain. So, with those challenges and seeing the success of the first two months where we're basically right on budget, I think that tells me we're on the road to seeing better performance as the year goes on. As the contractor becomes more comfortable and the amount of workspace in the pits expands. Right now, it's a very small pit because we're just starting. I hope that answers the question.

That's helpful. And then, just looking at Los Azules, obviously, looking at the recent financing and increased cash position from McEwen Copper, I'm just wondering if this has changed your thinking on the IPO timeline with a longer cash run. Obviously, I think you have a bit more flexibility and a kind of market approach. Any thoughts here would be helpful.

Sure, Jake. We initially planned to finish the updated PEA and use it as a foundation for going public in the first half of the year. However, now that the financing is complete, there’s no immediate need for additional financing. We can consider financing later this year or early next year in a more favorable market.

Got it. Okay. That makes sense. That's all on my end. Thanks again.

Thank you.

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

Hey, Rob. Thanks for taking my questions.

Hi, Heiko. Go ahead.

One of our primary questions is about the contractor at Gold Bar South. With the new personnel there, what efficiencies have they introduced to enhance production? How much more improvement do you anticipate? Additionally, do you believe any of these efficiencies could be applied to other sites?

Bill, once again, could you jump in?

Yes. The potential upside at Gold Bar South is that once we reach full operations, which we are very close to, we will be able to increase production to a higher level. We do not yet have a complete understanding of what that capability will be. It's important for us to manage the operation efficiently due to the relatively short life of the pit, which is between 12 and 18 months. Our goal is to optimize production while ensuring we achieve the right recoveries from the operation. Additionally, we need to expand our leach pad this year, and that work is starting and will be finished by late summer, around August or September. These are some complicating factors, but we are currently on budget and on schedule regarding production. While we are not entirely clear on the recovery from this ore, early indications suggest that it could be higher than our study predicts. Overall, we are optimistic about the future, but we need to manage our operating costs carefully. Additionally, we require some cash for exploration efforts, which can all be funded through Gold Bar to help us determine our next steps after Gold Bar South.

Heiko, in terms of applying what we're doing at other sites, this contractor is specific to this mine, and I don't think we'll be using them at other sites at this point.

No, I didn't mean physically move them over. I meant, more of the techniques. But that was helpful nonetheless. My next question was going to be pointing out your market cap, still you own 52% of McEwen Copper, and that's $286 million right there, which puts a $100 million on the rest of the company. Including net debt, you're still looking at $100 million, $120 million, $130 million or whatever. You did a, I think, terrific job describing how you plan on unlocking all of this earlier on the call. To that I thank you. The one thing I think I'd like to see just a touch more color on is the management time priorities for the senior team for the company. I assume there's at least some people that are going to have some overlap, and how you expect time priorities to be spent, please?

Michael has done an excellent job of bringing together an experienced Argentinian management team that is overseeing much of the operations at McEwen Copper in Los Azules. We have management from Toronto focused on financing as well as on Elder Creek, which will primarily be managed by Rio Tinto's Kennecott copper division in the coming years. Michael, could you share some insights about the team you've put together and their backgrounds?

Yes, sure, Rob. No problem. As Rob has said, we set up a local management team. In Argentina, we have myself with the majority of my time. I have about 16 years in Latin America and 10 in San Juan in Argentina. I spent about seven years with Barrick being responsible for financing operations for their assets in Argentina. We have our project director, who's American, but who also relocated to San Juan in Argentina to be directly connected with the team. Then, the next line of management from human resources has more than 16 years in Tier One, Tier Two operations to our legal manager with 20 years of experience with Barrick in natural resources. Our environmental and health and safety manager has 20 years of experience in Tier One operations with Barrick. Through all the different functions, we have a very strong team that is capable of bringing this project from where it currently is over to feasibility, engineering, and construction and operation. Rob?

Yes. So, Heiko, does that cover your...

Yes, it does. Thank you very much. Appreciate it.

Thank you.

And your next question comes from the line of Mike Kozak from Cantor Fitzgerald. Your line is open.

Yes, good afternoon, everybody. Thanks for hosting the call. A couple of questions from me. First one, you put out 2023 cash cost and ASIC guidance in your December 21 press release last year. But that guidance was noticeably absent from your press release this morning. Was that just an unplanned omission? Or should I interpret that as your previous 2023 cash cost guidance should no longer be relied upon?

I'm sorry to say, that was an omission.

Okay. I would like to reiterate the cost guidance. Regarding the PEA at Los Azules, which is now expected in Q2 instead of Q1, I've observed significant ongoing work during the site visit a few weeks ago, including exploration drilling, met testing, geotech drilling, and updates to the life of mine plan, which seem to be evolving frequently. My question is, by delaying the PEA to Q2, what additional data might you be able to include that could enhance the project economics compared to what would have been possible for Q1?

I was just going to say one aspect is deciding on the base case. We've done a number of optimization runs, and we're just finalizing that base case and getting agreement across the board on all of our consultants. Mike, do you want to add further information?

Sure. Yes. What we looked at beginning of this year was that we had some interesting additional drilling information that we wanted to include. This requires an update on the work around the mineral resource estimate from the work of the geostatisticians to the geological data to the mine planning. While we said we were going to publish the PEA by the end of Q1, we now think that we are going to complete it by the end of this month or early next month depending on the optimization work that Rob just mentioned. We still think that we can do some further work that will run a couple of weeks later publishing the PEA, especially in the framework of the obtained financing that gives us more headroom to look for, as Rob said before, a buoyant financial market. We have the time we want to make sure we get the best possible outcome for this PEA. I think we owe that to our shareholders.

No, that makes perfect sense. Thanks for that color. Maybe just one follow-up. You touched on this briefly. I was going to ask on it anyway. But you mentioned that now you've upgraded that exploration road so that you can get 18-wheeler trucks in there. Can I then assume that if you wanted to you would now be able to winterize the camp? I'm not saying if you will or if you won't, but is that possible now to enable drilling year-round?

Yes. So, as we had highlighted before, and Rob had mentioned in a prior press release, one of the things that is critical for us is access to the site. Access to the site comes through the exploration road and through the southern road. On top of that, we upgraded the exploration road, as you said, to bring tractor trailers to site. This means that the potential construction of a winter camp, a true four-season camp with fixed installations, is now possible much more efficiently. Should we decide to go forward and construct this camp, then we could think about winter drilling this season, but we're currently evaluating that and looking for what is the most cost-effective and efficient solution, and what is required from a study program point of view to complete the feasibility study by the end of 2024.

Okay. Very good. Very helpful. Thanks. That's all from me.

Thanks, Mike.

Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research. Your line is open.

Thank you very much, and congratulations on all the progress. In your press release, you mentioned 42 meters of 2.78% copper in hole AZ23191 on Los Azules. Could you tell us how deep that was and whether it was oxide leach mill open pit or underground ores?

Mike, care to cover that question?

Sure. The section is in our press release where you can see where the copper mineralization is. The 174 exploration one is mostly primary, and the 3191 is mostly secondary, and then goes into primary.

Is primary mill ore or leach ore?

Primary would be either mill ore or using a technology such as Nuton's heap leaching technology or other advanced technologies.

So, it's not an old-fashioned leach, but it might be a tomorrow's heap leach?

Today, it's the mill. It would be a mill today, but thinking that there are advances taking place in recovering metals, we’re hoping we'll see a heap leach alternative.

Thank you for clarifying and helping me. Could you just repeat the 2023 cost guidance that was omitted from the release? I didn't get it that quickly.

Hi, John. It's Stefan Spears on the line. Yes, so in December, we guided on a consolidated basis, so that's 100% owned operations cash costs of $1,200 and all-in sustaining of $1,500; Gold Bar, we guided cash cost of $1,400, all-in sustaining of $1,680; Fox was $1,000 cash cost and $1,320 all-in sustaining; and San Jose at $1,250 cash costs and $1,550 all-in sustaining.

Thank you. Concerning the mill at El Gallo and the ramp at Stock, could you give some indication as to what month in 2024 or early or late 2023 that might begin production and what the monthly production rate might be?

Bill, could you address that question?

Yes. We expect to have the Fenix plant operational in the first quarter of 2024, capable of processing between 3,500 and 4,000 tonnes per day. For the Fox site, we aim to construct the portal in the last quarter of this year and commence production either late in the first quarter or in the second quarter next year from ore that is relatively close to the surface, which we have been actively drilling over the past few months. Essentially, there is ore situated quite near the surface that will take less than three months to develop. Following that, we will continue to drive the ramp downward towards Stock West and potentially Stock East, where we also have near-surface ore. As you may be aware, the higher quality ore in the Stock West deposit is significantly deeper, ranging from 200 to 400 meters below the surface.

Bill, if I could follow-up. Maybe it's too much to ask you what the gold output could be in 2024 from Stock since you're still infilling the gold to finalize the grade. Concerning El Gallo at 3,500 tonnes per day, how much gold per month or per quarter would that be given the grades and recoveries?

With regard to Fox, we anticipate that we would be able to continue production at the same rate as we are planning for 2023 at Fox, which is somewhere in the range of about 4,000 ounces per month. To tell you the truth, I don't remember the production number from El Gallo, but it's around 1,500 ounces per month from the Fenix project.

I don't remember the production number from El Gallo, but it's around 1,500 ounces per month from the Fenix project.

Yes, it's about 1,500 ounces per month from the Fenix project. From a cash generation perspective, Fenix will be a very good project with a relatively short payback period, because we've basically worried the capital cost down to something in the range of $12 million.

Thank you for all those explanations, Michael and Bill.

No problem.

Pleasure.

You're welcome, John.

And your next question comes from the line of Bill Powers, a private investor. Your line is open.

Yes. Thanks for such a great conference call today. But question on the Stock. I know you were planning to do quite a bit of drilling, and it sounds like from Bill's recent comments that you're planning to drive a shaft down and then start producing ore. I guess, is this at the point where Froome production is I guess continue to go forward? Or is this going to be produced along with Froome?

That's a good question. This year, we plan to conduct 100,000 meters of drilling at Stock, with some of that also at Grey Fox and a few other projects. A significant portion of the drilling will occur at Stock. As it stands, Froome operations will continue at least until the first quarter of 2026. We expect to be mining at Stock before we exhaust the ore at Froome. We aim to boost the tonnage in 2024 by increasing output from the Fox Complex, which will enhance our total coal production. However, I cannot specify what the coal production will look like at this time since we haven't finalized the resources and mine plans for that period. I estimate that it could amount to a couple of thousand ounces a month once we ramp it up.

Okay. It seems there is still considerable exploration at Froome, and its timeline keeps getting extended. You appear to have significant exploration plans in that area. Will additional adjustments need to be made to the mill to process this ore? Or is accommodating the increased throughput already part of your plans for this year, given that it seems to be a bottleneck at the moment?

That's correct. The mill has been a bottleneck. Crushing the ore at the mine has significantly reduced the pressure on that because the plan going forward is to crush down to 6 millimeters, transport that, and put it directly into the ball mill and leaching part of the circuit. This year, we need to determine what the long-term configuration of that mill will be. Will we also crush at the Stock site? Or will we consider something innovative at the front end of that plant, like a larger ball mill or another type of tower mill for grinding? Part of our task this year is to figure out what the long-term solution is and implement it so we can take advantage of ore from Froome, as well as from Stock, while also having a view of what the future may hold at Grey Fox.

Okay. And one last question. Regarding getting back on track in San Jose, I understand there was a decrease in production last year. What changes are you and Hochschild planning to implement to increase production again, or is it intended to operate at a lower level this year?

Sure. So, production should rebound. Obviously, they're not anticipating any of the issues they had in early 2020 to be repeated in 2023. Our partner Hochschild is projecting significantly lower costs relative to last year. If you look at Hochschild's guidance, I believe they're guiding around $1,400 all-in sustaining. Yes, so I'd say overall a substantial improvement at San Jose.

Are you expecting dividends if production rebounds? Is that something they would provide guidance on?

It's certainly something we're expecting. But we don't have the ability to provide any real color on that at this point.

Okay. Thank you so much.

Thanks.

And there are no further questions at this time. Mr. Rob McEwen, I turn the call back over to you.

It was a year of big numbers. Over the past 15 months, large losses that were largely a function of the consolidation of the work being done at Los Azules. We will expect that to continue as long as McEwen Mining is over 52% of the ownership and up to the feasibility study at Los Azules, which we expect to have at the end of '24. We consolidate all of the expenditures, as Perry said, that occur in Los Azules, and it has an adverse impact on our earnings. We also have a large exploration program this year that probably will not be as large next year at our other properties, and that contributed to the loss. The mines are generating operating profit, and we're looking at increased production and an improved cost per ounce. I do think the copper assets will continue to play a very large role in building the value of McEwen Mining, but I'm not discounting at all the precious metal assets catching up, and we hope to surpass our peer group valuation. With that, I'd like to thank everyone for attending and look forward to our next exploration updates. Thank you, operator.

This concludes today's conference call. Thank you for your participation. You may now disconnect.