McEwen Inc. Q3 FY2024 Earnings Call

Hello, ladies and gentlemen, welcome to McEwen Mining Q3 2024 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; William Shaver, Chief Operating Officer; Perry Ing, Chief Financial Officer; Jeff Chan, Vice President, Finance; Stefan Spears, Vice President, Corporate Development; Michael Meding, Vice President and General Manager at McEwen Copper; Carmen Diges, General Counsel and Security. After the speakers' presentation, there will be a question-and-answer session. I will now turn today's call over to Rob McEwen, Chief Owner. Please go ahead, sir.

Thank you, Operator. Good morning, fellow shareholders and interested investors. You heard who is with me today on the call, and they're available to answer your questions when we move into that period. During the third quarter and the first nine months of this year, we have made significant progress reporting double and triple-digit improvements in key performance metrics. As you can read in our press release, the third quarter of 2024 was stellar compared to the third quarter of 2023. Revenue is up 36%, gross profit is up 268%, adjusted EBITDA is up 586%, and operating cash flow is up at $23 million from a negative $2.3 million back in 2023. Our safety record is also stellar. We are pleased to report our records at Gold Bar with 54 months without a lost time accident; at the Fox Complex, 33 months without a lost time; and McEwen Copper Los Azules, an amazing 1.3 million man-hours without a lost time accident. During the quarter, we continued to push our exploration, spending $5.3 million at the Fox and Gold Bar mines and $6.1 million at Los Azules, the McEwen Copper project. These expenditures are viewed as strategic investments which have successfully extended the life of our mine and are currently treated as expenses, largely contributing to the net loss we recorded of $2.1 million or $0.04 a share. We will be providing updated resource estimates set to be released early next year. For McEwen Copper, we have raised privately over the funds. In the last quarter, we closed on $56 million, which will be used to complete the bankable feasibility study for Los Azules. We expect the feasibility study to be completed in the first half of next year, and we're also expecting to receive our environmental permit to construct the mine during that same period. Once we have both the feasibility study and the environmental permit in hand, we plan to IPO McEwen Copper. It's worth noting that we've raised privately over $470 million for the development of Los Azules. Based on the last financing that we completed at $30 a share, it gives an implied market value to McEwen Mining of $984 million. I expect this value will soon reach the unicorn status that I predicted several years ago. During the quarter, we made some investments. In Nevada, we completed the acquisition of Timberline Resources. It has three properties, one close to our Gold Bar mine that has patented land claims with over 0.5 million ounces outlined, which we will be using to extend the life of our Gold Bar mine. We are starting to drill on some of the exploration targets we've identified, starting this week and continuing through the year. At Fox, work is underway to expand our tailings facility to accommodate increased production from our Fox Complex, and we will be driving a ramp to connect the underground at Stock, linking Stock East, Stock Main, and Stock West. In Ontario, we bought a position in a company called Inventus Mining. It has very interesting Paleoplacer Gold deposits. These deposits are common in South Africa and contributed to South Africa's large gold production. It's a shallow deposit that we think could be easily mined and we find it a very interesting property. We also invested $14 million in McEwen Copper, part of the $56 million we raised earlier this year, believing that after BHP and Lundin's deal of over $4 billion, we looked at our property and said its lower altitude, larger resource, and proximity to infrastructure indicate a higher value for our Los Azules property. At this point, I'd like to open the session for questions. I can say we have two questions that came in online. One was how much capital the company is planning to raise for Los Azules? And another related question about the anticipated IPO in 2025—can we provide preliminary details on the expected offering price and size of the offering? I'm sorry to say, we can't provide comments on either of those since it would be considered pre-marketing, and we haven't completed the feasibility. So we do not have a hard number to say how much we are going to raise. But once we have the feasibility study out, we can answer those questions. The second question outlines what studies have been completed at Los Azules for the feasibility and what is outstanding. Additionally, what are we going to be doing on the newly discovered porphyry system that's 3 kilometers away? I’ll ask Mike Meding, our VP and General Manager of Los Azules to answer these questions.

Thanks so much, Rob. Our record-breaking drilling campaign last season with 23 rigs at site provides most of the technical data needed for the feasibility study. We plan to drill an additional approximately 7,700 meters this season to complement existing data using rigs operated mainly by local contractors. We are planning nearly 4,000 meters of machine drilling using diamond drills in the area designated for future project infrastructure, along with about 1,400 meters of geotechnical sonic drilling, 1,500 meters of geotechnical diamond drilling, and 800 meters of hydrogeological wells to support our study conclusion. In Q3, we updated the mineral resource model, optimized pit resources, and conducted initial reserve calculations with results likely close to the preliminary economic assessment of the PEA. We also completed hydrological models, process instrumentation diagrams, and initiated third-party reviews for resource modeling, geotechnics, hydrology, and metallurgy. Metallurgical recoveries are trending at expected levels with recoveries of around 76%, in line with the prior press release we issued. We've signed a second memorandum of understanding with YPF to ensure feasibility study level of engineering aligns with our goals. YPF committed to options to supply renewable energy for the project through solar and hydro sources. Our team conducted benchmark visits in Chile and the U.S. and engaged with major equipment suppliers on electric and autonomous speed options. What are the remaining steps? The remaining steps before the feasibility study include completing the site investigation as I mentioned before; the final mine design; complete metallurgical variability testing; engineering; logistics; planning; equipment specification; capital and operating cost confirmation; and finally, the write-up of the feasibility study itself, which we have already started. We aim to include the Newton upside as potential in the NI 43-101 report. Regarding Tango, depending on fund availability, we have a comprehensive program in place to test the mineralization in Tango. You remember that we discovered a possibly about 3 kilometers east of Los Azules. This will not be included in the feasibility studies, but we have identified an appropriate system. We have observed volumes on the surface, quartz veining, copper veining, and geophysical anomalies. We drilled relatively shallow last season but noted 106 meters with about 0.11% of copper. While this is borderline, it shows that the system is mineralized. We need to drill more towards the center of the anomaly to confirm the presence of higher grade. That's our focus for Tango going forward.

Thank you, Mike. Operator, are there other questions?

Your first question is from the line of Jake Sekelsky with Alliance Global Partners.

Hey, Rob, thanks for taking my questions. Looking at Gold Bar, it turned in another strong quarter from a production perspective. Are the higher production levels we saw over the last two quarters something we should expect to continue heading into 2025?

I may be the right person to answer that question for you. We have increased the amount of material we're moving at Gold Bar, but much of that material is actually waste that we are moving off part of the pit called Big Three. It's basically a stripping operation. Although we are moving significantly more material, the expectation is that the gold production in 2025 will be in line with what we've done this year. We will have an equal amount of gold produced in 2025 with more tonnes being mined due to the amount of stripping we're doing aggressively now, benefiting from the high gold price.

That's helpful. Switching to the Timberline acquisition, Rob, can you give us some color on the permitting process and timeline at Eureka? How quickly might some of this material be brought into the Gold Bar mine plan?

Sure. I'll ask Stefan Spears to address that question.

No problem, Rob. Hi, Jake. We are already working on the permitting process, and we've obtained our permit to conduct exploration. As Rob indicated in his remarks, exploration has started on part of the property. There are two segments to the property: one area has patented mining claims that are not BLM ground, so we're dealing with just the state for permitting there, which has a quicker timeline of about two years. BLM permitting is a slight unknown but is expected to take longer and will affect the Lookout Mountain resource. The way the team is looking at it, it will be permitted in several phases, with the earliest possible production projected for around 2027 and then layering on from there.

Got it. That’s helpful. Lastly, any color on the development work being done at Fox and what still needs to be done over the next quarter to improve stope access?

Bill, would you care to address that?

Yes. We are in the final stages of obtaining our permit to start the ramp excavation to access the main ore body at Stock, as well as Stock East. Simultaneously, we are doing some shaft rehabilitation to ensure proper egress from the mine and help with the eventual ventilation system for the operation. We're hoping to have some parts of the Stock operation in operation in Q3, Q4 of next year. This will overlap nicely with ore coming out of the mine, preventing a gap between the two operations. This year, we've had a very successful drilling program, extending the ore into Stock East and down to as deep as 600 meters. The future looks promising, especially with today's prices, it looks even better. We are optimistic about what we can achieve with our assets in Timmins and are diligently working on a plan to reach around 100,000 ounces per year by 2028. This planning will be outlined in our 2025 budget process, which we are currently working on and will share with our Board in December.

Got it. That’s all for me. Thanks again, and congrats on the quarter.

Thank you, Jake.

Your next question is from the line of Joseph Reagor with Roth Capital Partners.

Hi, Joe.

Hey, Rob, and team, thanks for taking the questions. Just to follow up on Jake's question about Gold Bar but more generally about our current guidance—should we read into the fact that Q4 might be a low production quarter because there's less ore stacked in Q3? Or is there no incentive to raise guidance ahead of the quarter? How should we interpret that?

Actually, the plan for Q4 anticipates it will be a low production period, partly due to some of the stripping we are doing on Big Three. I don't remember the exact number, but it seems to me for the quarter, the estimate is around 8,000 ounces. That aligns with what we previously planned. So we are on track to meet guidance, as we had anticipated a better quarter and are working to make the last quarter slightly better.

Okay, fair enough. For Los Azules, post the equity issuance a few weeks ago, what's the cash balance roughly right now in the subsidiary?

Jeff, do you want to answer?

Sure. Let me pull that up, but it would be just north of $40 million at the moment.

You got that, Joe?

Yes. All right. One final thing— as you work towards adding the Timberline acquisition to Gold Bar, will you be trading it as a separate mine or as a separate pit, but still all through Gold Bar from an accounting standpoint?

From an accounting standpoint, it will likely be unitized under Gold Bar. Most likely, yes.

That's partly because operationally we may eventually have a leach pad at Timberline but the final product will still be extracted at Gold Bar. We will transport carbon back to Gold Bar and then remove the gold.

Okay, that's helpful. I’ll turn it over. Thanks, guys.

Thank you.

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

Hello, Heiko.

Hey, Rob, how are you?

Excellent. Thank you.

You had somewhat lower-than-expected grades at San Jose. Can you provide a bit of color on what happened? I assume the mine plan is still intact? Most importantly, what have you seen in Q4 thus far? How should we think about our longer-term estimates for the site? I assume this is more of a one-time issue, right?

Yes. Perry will answer that question.

Good morning, Heiko. Thanks for your question. Yes, we have regular dialogue with the team from Hochschild management at San Jose. They advised that the lower grades were temporary. Again, it was mostly reconciliation versus the resource model, but that seems to have been rectified by October. So Q4 is trending positively thus far, and we believe the operation is on track to meet guidance. Overall, they are quite bullish on San Jose as an operation. Obviously, silver prices having increased significantly in the past quarter has helped.

Fair enough. Here’s something completely different, and I'm shocked this hasn't come up yet. You're based in Canada; you operate Gold Bar in Nevada. Given big news out of the state today, we're getting a new President in January. Have you thought about the impact of all this, whether positive or negative, from the election results?

Well, McEwen Mining is a Colorado incorporated company. Gold Bar is in Nevada, and President-elect Trump has said that he wants to encourage domestic resource development. I think it can only be positive, as he aims to streamline regulations and create more employment.

And he is pro-mining, obviously.

Yes, so I believe that’s good for Gold Bar and our other properties there.

I figured you'd indicate that, but do you have any internal checklist of things that you're focusing on?

It's too early to determine. The outcome of the election was uncertain, and we thought it best to let the dust settle before making any assessments.

Fair enough. Thank you very much.

Thank you, Heiko.

Your next question is from the line of Chris White with TELUS Ventures.

Hello, Chris.

Good morning, Rob and team. Congratulations on the sales price of $2,499 an ounce. That's great. I've got two quick questions, possibly for Bill. With the press release, I'm struggling with the numbers on Slide 28 of the corporate deck. It says our all-in sustained costs were going to be going down to like $1,650 to $1,750 at Gold Bar, but the press release shows that Gold Bar's actual was $1,822. At Fox, it says $1,450 to $1,550 for Fox, while the actual was $1,953 or $400 to $500 more than Slide 28 suggested. Can you provide details on this, and what would it take to manage to get under $1,500 in Q4? Is that even feasible?

Do you want to answer part of that, Jeff? I would say the chances of getting under $1,500 is probably very low. For Gold Bar, this reflects an aggressive stripping program we are currently engaging in to take advantage of the high gold price. Big Three is a bit lower grade than average at Gold Bar—at these prices, even low-grade ore is valuable. If the price of gold fell back to $1,500, that material might not even be considered ore. So we may see higher costs per ounce now due to doing proper work aimed at putting us in a better position for the next year.

So on Slide 28 of your corporate deck, you’re going after different parts of the mine than it indicated when it provided the all-in sustained costs of $1,650 and $1,750, correct? The price of gold is higher?

That's correct. Also, the stripping we are doing now will expose ore for next year.

Any comment on Fox? Why did Fox come in so high?

Fox is primarily high due to lower production in Q3. That's basically where it ties back to our revisions. Some of it is attributed to the funding we are putting into getting Stock going as well.

And that wasn't factored in on the Slide 28 piece? What's the delta between what you have in the corporate deck and what actually happened in Q3?

This is Jeff Chan here. Regarding Slide 28 in the deck, we need to keep in mind that the guidance figures are provided on an annual basis. Specifically for Gold Bar, we still expect to meet or exceed our cost guidance on an annual basis. As Bill mentioned earlier, given the planned declining production, it makes sense to see quarterly unit costs rise. However, we expect to still meet our annual target. At Fox, this is precisely what Bill mentioned—higher-than-expected unit costs are due to lower planned production.

At Fox, there was an unexpected failure of one of the stopes that affected a larger area underground, which reduced our production. When we decrease production, the cost per ounce goes up.

That's very helpful. So it sounds like you're sticking with the estimates on Slide 28 and Q3 was just an outlier. Is that a fair articulation? Maybe Jeff—

I would add caution. Expect slightly higher costs per ounce at Fox, which will depend on the production levels in the last quarter.

Understood. Lastly, you mentioned 15% to 20% fewer ounces compared to the annual guidance at Fox. Had that not happened, would we be looking at potentially a breakeven quarter? If so, what are you doing to ensure this doesn't happen again? It seems that’s what's stopping us.

Correct, Chris, and this is Perry. Had we produced slightly more ounces, we would have had a positive quarter. Moreover, once we finish the feasibility study and have the permits in hand, we can capitalize the exploration costs incurred by McEwen Copper. Looking at our year-to-date expenditures, our loss proportionally totaled about $37 million. This would have been negated as a loss, resulting in profitability for the year and quarter.

We're looking at $34 million.

When do you estimate that will come together? I’ve been with you since 2016, and it's been rough, so I’m eager for it to happen.

We expect the feasibility to be ready in the first half of next year. The timelines for that are fairly definite. Regarding permits, we are subject to timing from the appropriate ministries in Argentina.

So, first half of 2025, we should be printing positive quarters, fair?

We'll have the feasibility, expect to have the permit. We need to get the IPO out. We don't need to have the IPO? All right, so by the end of the first half, we should be moving into positive territory, assuming we don't acquire something else.

Excellent. Thank you, guys.

Yes, thank you, Chris. Thank you for your loyalty.

Your next question is from the line of John.

Hi, I have two questions. First, I've been an individual investor for over 12 years now having over 40,000 shares. When people ask me why I invested in the company, I tell them it's unique. You founded Goldcorp and started this company, having a significant stake in it, plus originally having no debt. However, what puzzles me is that twelve years ago, the stock peaked significantly higher. From what I can see, the company appears in much better shape now. You finished the road for the copper, and you mentioned that the copper is worth more than the stock price. What puzzles me is why the market isn't reflecting this significantly? Shouldn't we be in the 20s or 30s?

Thank you, John. Let’s address your first question regarding the stock price. I agree we are in better shape than we were before. We have production from a variety of areas. Unfortunately, from 2018 to 2022, our operations failed to deliver guidance and missed it by a wide margin. As a result, revenue was low, leading people to question our ability to finance our copper projects, which are large and capital-intensive. We decided to separate the copper operations to raise the funds privately without diluting McEwen Mining. There have been improvements in our precious metal operations, but consistency in production remains an issue— while one operation is up, another is down. This situation will resolve itself as we improve operations. Our internal estimates of value suggest the sum of the parts indicates we have significant potential. We have valuable copper holdings and a royalties portfolio. When comparing us to peers, we are trading at a significant discount currently. The results from our copper operations and what lies ahead should address concerns about the life expectancy of these assets and their costs. I feel it is indeed a matter of timing, which has been a painful process.

Can I ask one more question?

Yes.

Institutional investors have grown over the years, right?

Indeed, we have good volume. We trade an average daily volume of about 500 to 1,000 shares on the New York exchange. Our liquidity has improved. As our balance sheet and operational performance continue to improve, I believe we'll gain the attention of more institutions and retail investors.

I'm 68. I know you're 74. How much longer do you think you will continue with this?

Let me share a story. Years ago, I met with an executive coach. He asked me how long I expected to live, and I said since I was around 20, I assumed I'd live to 100. He inquired what I would be like at 99. I said I'd like to be clear-headed and mobile. He said if I wanted to maintain that clarity, I shouldn't plan to die at 100. My wife and I have invested in regenerative medicine and research, believing life expectancy is going to extend. So I stated, I believe I'll live to 120. And he replied if I moved to 120, I would have my life ahead of me again. What will I do with that? So my view would be to maximize that life for ten times the current experiences and impact. I'm not in a rush. I believe McEwen Copper has the potential to surpass Goldcorp. Our Los Azules property, when adjusted as a gold equivalent, amounts to over a 60 million-ounce gold deposit, and is projected to cost just over $600 cash or under $1,000 all-in for its 27-year lifespan of producing more than 600,000 ounces per year. It's a significant gold deposit, almost equivalent to the historical gold production from the Timmins district. There is substantial potential across the board with the current high demand for copper and the expected market deficits due to various factors.

I agree with you regarding the potential life expectancy, yes.

Good.

Thank you very much for sharing all that. I appreciate it. Someday, I'll come from Hershey, Pennsylvania, to meet all of you. Thank you.

Maybe we'll get down and see you in Hershey.

Okay. That would be great. Thank you.

Yes, fine.

At this time, there are no further questions. I will now hand the call back over to Rob McEwen for any closing remarks.

Before we close off, Perry just wanted to make comments.

We did receive an email about Page 4 of our news release. We can confirm a typo on one of the columns regarding the gross margin percentage. We will update that on our website version, but the correct percentage should be 17.6% rather than 35.1% gross margin at the San Jose mine in the third quarter. Thank you, Rob.

Thank you. Well, thank you, everyone, for joining the call today. I hope you share the same thoughts that this was a great quarter. Our goal is to keep repeating these results. Thank you and wishing you successful investing.

This concludes today's call. Thank you for joining. You may now disconnect.