McEwen Inc. Q3 FY2025 Earnings Call

Hello, ladies and gentlemen. Welcome to McEwen's Third Quarter 2025 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 of McEwen Copper; Carmen Diges, General Counsel and Secretary; Michael Swistun, President and CEO of Canadian Gold Corp. I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.

Thank you, operator. Good morning, fellow shareholders, interested investors. We have been preparing McEwen Mining to benefit from the stronger metal prices we are seeing today. Over the past year, gold at just below $4,000 an ounce is up 45%, silver up 47% and copper is close to $5, up 13%. I believe the intermediate and long-term prices will be considerably higher. This is an excellent environment for our portfolio mix of assets. You could think of us as a mini Freeport with a growing gold production pipeline and large exposure to a robust world-class long-life copper story. The improved gold and silver prices have shielded us from the unexpected events that can temporarily throw us off course and off guidance. Fortunately, these moments are temporary and can be resolved in a relatively short period and have not seriously delayed our ambitious growth plans of delivering by 2030, 250,000 to 300,000 gold equivalent ounces of annual production, plus watching Los Azules become a copper mine. In the first 5 years, we expect to produce at an annual rate of over 450 million pounds of copper a year, which at today's copper prices would yield about $2.2 billion. Based on the feasibility study we just released and the current copper price, it would have a gross margin of 64%. We have made several investments in the quarter, and I'll start with those. Then I'll ask Michael Meding to talk about the excitement at Los Azules, and afterward, we will discuss our finances and our gold operations. So I'll start with Ian Ball to talk about our investment in Canadian Gold Corp.

Ladies and gentlemen, we're experiencing technical difficulties, please stay on the line. We'll resume momentarily.

Thank you very much, operator. So on the Canadian Gold front, we're set to close that acquisition in January. Upon closing, we expect to issue an updated resource estimate by the end of February that will come out with our year-end financials and will be part of a preliminary economic assessment. Our shareholders will note, we have not included Tartan in any of our guidance for the next 5 years, but we fully anticipate including that as we begin our studies of that project. Exploration is ongoing, and Canadian Gold is scheduled to publish an exploration update over the next 3 weeks. The key there is we've been drilling on the main zone and continuing to build out that resource. We've been doing a lot of work on the recently acquired ground to the west, which is from Hudbay, where historically, there have been many high-grade drill intercepts and surface. We believe there are synergies between Tartan and that ground. It aligns well with the McEwen mining portfolio in terms of the underground style, the processing plant, and we feel there are many ways we can optimize this and accelerate the permitting on this project to get it back into production after completing some test work that we're currently undertaking. We are quite optimistic about the time frame for permitting, the exploration, as well as the production profile that it can deliver for McEwen going forward.

Mike, would you hop on the call?

Okay. Thank you, Rob. Thank you, operator. Q3 was an excellent and transformative quarter for McEwen Copper. We successfully advanced Los Azules from a world-class deposit into a derisked politically endorsed and bankable asset. At McEwen Copper, we are committed to excellence in three key areas: operations, ESG, and exploration. The most significant strategic event of the quarter was the acceptance of Los Azules into Argentina's large-scale investment incentive program on September 26. This is a fundamental game changer for the project. Through this program, Los Azules now benefits from 30 years of legal, fiscal, and customs stability, access to foreign exchange, and a significantly lower and internationally competitive tax rate. This provides a predictable framework and strong protection against future regulatory changes. The approval is a powerful public endorsement, personally announced by Argentina's Minister of Economy and reinforced by President Javier Milei on their official accounts. We also finalized a collaboration agreement with the IFC, a member of the World Bank Group. This partnership aligns the project with the IFC's rigorous ESG performance standards and establishes a framework for collaboration on future financing. Our latest milestone was the publication of the NI 43-101 feasibility study results on October 7. The study confirms robust project economics driven by a production process designed for low environmental impact. The leach and SX-EW process will produce 99.99% LME Grade A copper cathodes and, as Rob already mentioned, in the first 5 years, we expect to produce 204,000 tonnes of pure copper per year. The highlights include a $2.9 billion after-tax NPV at 8%, a 19.8% after-tax IRR, a payback of 3.9 years, $3.2 billion initial CapEx, a C1 cash cost of $1.71 per pound of copper produced, and an all-in sustaining cost of $2.11 per pound of copper. The financial model used a copper price assumption of $4.35 per pound. The full NI 43-101 technical report is scheduled for publication later this month. Looking ahead, detailed engineering for Los Azules is set to commence, and we are targeting construction for late 2026 or early 2027, subject to project financing. Finally, let's discuss the upside. Our total mining rights cover approximately 32,000 hectares. To date, we have explored less than 10% of our holdings, about 3,000 hectares. We have already identified 8 significant targets, 4 of which we will focus on in the upcoming season. We have strong reason to believe we can significantly increase the resource size of Los Azules and ultimately convert this project into a major mining district. Thank you so much. I hand back over to you, Robert.

Thank you, Mike. Perry?

Thank you, Rob. Good morning, everyone. I'll just provide some brief highlights from our third quarter report. In terms of headline numbers, we reported a net loss of $0.5 million or $0.01 a share compared to a loss of $2.1 million or $0.04 a share in the corresponding period. I will note that this net loss included $4.3 million in terms of the loss from McEwen Copper. As we've noted previously, now that the feasibility study for Los Azules has been published, going forward from the effective date of the feasibility study at the beginning of September, we will be able to report those associated costs on a capitalized basis. Any loss attributable to Los Azules from prior periods will now be capitalized going forward. In terms of adjusted EBITDA, we reported $11.8 million of positive EBITDA during the quarter or $0.22 a share compared to $10.5 million or $0.20 a share in the corresponding period. In terms of our treasury, we ended the quarter with $51 million in cash as well as $24 million in marketable securities. Our cash balance was relatively unchanged from the prior quarter at June 30. Looking ahead to 2026, we have outlined several significant projects. We expect to finish the stock ramp by the end of next year, complete a heap leach pad expansion at Gold Bar, and undertake El Gallo Phase 1 with a capital cost of approximately $25 million. Overall, we expect to accomplish these using our existing treasury and cash flows from operations. Specifically for the El Gallo project in Mexico, we also expect to utilize some form of gold prepay for approximately half of the anticipated CapEx. With that, we'll turn it over to Bill for some comments on operations.

And what we're going forward.

Good morning, shareholders. We started off the year poorly; however, we have had a very good start to Q4. Q3 wasn't exactly as we anticipated due to some issues with the final few months of the Froome mine. This is, to some extent, one of the outcomes of the end of a mine life. However, the Froome West deposit has picked up nicely towards the end of Q3, and we anticipate it producing gold at the rate in our guidance through Q4 and well into 2026. We now see Froome mining until Q3 of 2026, by which time the stock deposit should be coming into production, which we're now indicating is occurring later in the first half of next year. The ramp development at Stock is progressing on schedule, and I must say both the mining contractor and our own mining crews continue to maintain an excellent safety record with no lost time accidents. Q3 has been quite challenging at Gold Bar due to the fact that one part of our ore that we intended to mine turned out to be unmineralized material. We pivoted to Q4 where we are back into the normal routine of mining and stripping and are moving north of 1.5 million tonnes per month. This is a very good outcome for operations. We have had significant success in both operations at Gold Bar and Stock. At our Board meeting yesterday, we approved proceeding with the re-leaching of the assets in Mexico, starting construction early in the new year followed by leaching of the El Gallo leach pad and putting those tailings back into the pit. We see a challenging fourth quarter ahead, but we are optimistic about our position in October and look forward to producing gold in Mexico soon. Thank you.

During the year, we've enjoyed exploration success with the discovery of the Froome West deposit, allowing us to bridge our production during a time when permitting delays impacted our production pipeline and development plans. We are getting excellent grades and continuity in our exploration at Gold Bar and the acquired timberline properties. There's one area, Seven Troughs, which excites me due to its historic record as one of the highest grade mines in Nevada, averaging over 1.2 ounces per tonne. A recent grab sample in an area that historically showed substantial material exceeded 270 grams over a short intercept, which is still exciting given that location's backstory. Gold in Timmins, our Grey Fox area, is growing, and we will have a preliminary economic assessment out in the first quarter of next year. We aim to expand in Mexico as mentioned by Perry and Bill, and we have plans to acquire some additional properties and investments in areas that hold potential for growth. I must emphasize that our production miss year-to-date is inexcusable, but we are taking steps to remedy that. I will now open it up for questions.

Your first question today comes from Heiko Ihle from H.C. Wainwright.

Rob, can you hear me okay?

Loud and clear. Can you hear us?

Perfect. First of all, congratulations to Ian Ball on his appointment. Rob, you preempted a bit of what I was going to ask you regarding your deal with Paragon Geochemical Labs. Do you think that you will engage in more vertical integration like this? And building on that, do you think we'll see a bit of an arms race for a lack of a better word, where other companies will want to get involved with suppliers or distributors in order to guarantee supply and fast processing? For example, an assay lab. Would this be a potential target? Please elaborate on what you were describing earlier on the call.

Heiko, Paragon holds a technology called photo assay, and it's an X-ray process that is faster, cheaper, and more comprehensive in the data provided. I first saw this technology 5 years ago, and it comes out of Australia. Paragon has secured 12 units, which is almost about the annual production. Some of the majors have bought units for their sole use. I believe as more capital flows into the mining space, which is certainly going to happen as nations and corporations seek new mineral sources, the importance of compressing time and maximizing data from assays will grow increasingly critical. The old suppliers of assays are struggling; you can see delays of 3 to 4 weeks or longer. Here, you can get results in 2 weeks or even almost daily. The industry is under significant strain with labor issues, leading to competition. With many projects coming onstream, there will be shortages of trucks, shovels, and drills. In Argentina, for example, we faced shortages with drills, resulting in our purchase of 8 drills because they weren't readily available. The mining investment currently makes up a small portion of global portfolios, approximately 1% to 2%, compared to around 12% a decade ago. If we can regain that interest, it will spark competition for inputs needed to define an ore body, and we must shorten decision-making timelines in the industry. Therefore, you'll see more technology in the field. I view Paragon's technology as disruptive and beneficial for the industry. We will actively seek other opportunities to enhance our understanding and efficiency.

Yes.

Yes, good answer. I've seen this machine in operation; I was trying to recall where, but it may have been at one of your assets. At Gold Bar, you produced 8,200 ounces, which is frankly quite a bit lower than we had in our model. You discussed geological reinterpretations and changes to mine plans. What should we anticipate for next year? This must sound like a temporary issue, correct?

I would say absolutely that the zone we mined in the last quarter turned out to be unmineralized material. That part of the pit effectively became stripping material. The historical drilling done many years ago did not identify that part of unmineralized material. We mined through that, and we are now back into what we would consider normal ore. The rest of the mining operations are aligning well with the block model, and we simply missed that in our confirmation drilling or mine planning. We had decided over a year ago to begin stripping that area because of rising gold prices—a process that would not have happened at the prior price levels. For next year, we expect the mine plan to remain consistent, and we will soon announce production guidance for next year.

Your next question comes from Joseph Reagor from ROTH Capital Partners.

I think Heiko asked the two biggest questions, but just to follow up on Gold Bar. You indicated in your comments that you're doing more work to review this. How much risk do you see for an overall resource change, if any? Or is this merely a matter of sequencing?

It appears to be a matter of sequencing and not a large risk.

That's good to hear. Additionally, with Phoenix mid next year, how comfortable are you with that timeline to secure all your permits? Is there potential for an earlier start?

Yes, the last question is a bit uncertain. We have a permit for some of the work, but it needs to be amended. We hope the timing aligns with our estimates.

We have had several meetings with government authorities regarding permitting, and we are fairly optimistic about receiving the necessary permits in time for construction to commence in Q1.

Okay. Also, in your comments on Canadian Gold, I believe part got cut early on. What is the timeline for completing that merger and expectations by quarter for analysts after that?

There is a shareholder vote in December, which must be ratified by the courts, set for early January. Afterward, we will conduct a resource estimate and a preliminary economic assessment.

Assuming you close in Q1, when do you estimate the PEA will be released? How many months or quarters should we expect?

You would likely be looking into the fourth quarter of next year.

Your next question comes from the line of Gord Weber from RBC Capital Markets.

With respect to resource estimates, how would McEwen Mining now calibrate or estimate their proven resources?

The same methodology as others in the industry.

How many ounces or equivalent ounces would McEwen claim to have today?

It's detailed in our statements—around 3 million ounces at Fox and approximately 4.2 million across all operations. We also have development and drilling projects ongoing at Grey Fox and we're starting at Seven Troughs.

It seems a little inequitable that Canadian Gold Corp stockholders are being asked to tender 50 shares for one of those shares when we know we have proven resources.

We put a bid on the table accepted by management, and we're proceeding with shareholder approval in December. We believed it was an equitable valuation, and management felt the same.

Will there be a resource estimate available for stockholders before the vote?

We're not controlling that process; I cannot provide an answer.

As a majority shareholder, wouldn't you want to know that number before concluding the transaction? Or do you have some insight suggesting it should conclude?

That is not the case; the drilling is ongoing, and the area has historical production. It's an area favored for its energy costs and mineral deposits.

That is refreshing to hear.

Any other comments or questions?

I'm all set. I've enjoyed watching your stock double. Congratulations on Los Azules; it's exciting what's taking place. The gold market has fluctuations but offers great buying opportunities. My question concerns the IPO for Los Azules; can you share any further details on potential timing and funds to be raised?

We aimed to proceed sooner, but with the feasibility report published in October, we didn't feel the market could support an IPO this quarter. We are now looking toward sometime next year to take the company public.

Any other major news we can expect in the next quarter or two?

I have a meeting tomorrow with the President of Argentina in New York. I don't foresee it significantly moving the market.

Your drilling success has been encouraging, and I wish you good luck in the future. I look forward to any positive news.

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

Thank you very much, operator. Thank you, everyone. We have set our course for the future and aim to significantly increase production from our gold mines by 2030. There are also a couple of other projects we hope to bring into production, and we’re targeting the copper mine to be operational by 2030. Overall, this is positive news for the long term. Thank you.

And this concludes today's call. You may now disconnect.