Earnings Call Transcript - MUX Q4 2021

Operator, Operator

Hello, ladies and gentlemen and welcome to McEwen Mining's fourth quarter and year-end 2021 operating and financial results conference call. Joining us today are Rob McEwen, Chairman and Chief Owner; Segun Odunuga, VP and Corporate Controller and Interim CFO; Peter Mah, Chief Operating Officer; Michael Meding, Vice President of Andes Corporación Minera S.A.; and Steve McGibbon, Executive Vice President of Exploration. After the presentation, 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.

Rob McEwen, Chairman and Chief Owner

Thank you, operator and hello to and welcome to fellow shareholders and investors. As you know, we've been working to turn our fortunes around. Today we're going to discuss the progress that we made in 2021 and provide our outlook for this year. In 2021, we had a number of notable steps of improvement. We increased our production, lowered the cost per ounce at our operations, delivered positive exploration results along with a preliminary economic assessment for our Fox complex showing that there's a 10-year life out in front of there. We created McEwen Copper to fund the advancement of our Los Azules copper project. Today on the call, a number of our officers will be talking about 2021 results and looking forward into this year. And we're going to start with Segun Odunuga. You're up, Segun.

Segun Odunuga, VP and Corporate Controller and Interim CFO

Thank you, Rob. Good day, everyone. Our financial performance continues to improve our operations at Fox Complex mine in 2021 after a 2020 marked by the beginning of the COVID-19 pandemic. Although mostly impacted by COVID-19, our 50-50 gold ratio operation generated $10 million in dividend payments to McEwen Mining during 2021. Our liquid assets at the end of the year, which includes cash and cash equivalents of $54.3 million, including distributed cost of $6.3 million, investments in short-term cash equivalents of $1.8 million and precious metal inventory of $1 million. We have $63.9 million as of December 31, 2021. In 2021, we completed three financing transactions, which included a $40 million private placement for the advancement of the project at the Fox complex here in Ontario in Canada, before obtaining commercial production during 2021 ahead of schedule. We are expecting that the mine will continue to deliver as planned during 2022. Also in 2022, primarily, we will continue to monitor operating margins by reviewing capital expenditures, material contracts, improving our management systems, and also bringing synergies to our procurement of recurring materials between operations. As we all are aware, we started the year with high costs, which are already impacting our cash flow at about $25,000. We expect to see an offset with the increasing gold prices, with the current gold price averaging $1,900. This is something that we are expecting will especially impact us, even though the diesel price is increasing, but we expect to see offset with the gold price. We'll be working in those areas in 2022 to advance the project. This study will be accounted in our income statement, our financials, so we expect to see our income statement in 2022 be impacted by spending that we are doing at Los Azules. Subsequent to the year end at March 5, we raised $15.1 million through a flow-through financing that will be used exclusively for our qualifying exploration expenditures on building the business case applied in the preliminary economic assessment for the Fox complex and these are all the important things that we will be working towards in 2022. I will now turn the call to Peter for operational updates.

Peter Mah, Chief Operating Officer

I've just joined Rob and everybody. Thank you. The three highlights for 2021 were improved production, lowering costs, and advancing our pipeline of growth projects. I'll just take a moment to go through some of those highlights. For Q4 2021, consolidated production was 31,300 gold ounces and 683,000 silver ounces, so 40,150 GEOs or 33% higher than Q4 2020. Our consolidated production for 2021 was 154,410 GEOs above the midpoint of our guidance for the year and about 34% higher than 2020. Production cost per ounce for '21 decreased compared to 2020, and additional reductions remain a focus for this year. Cash cost per ounce sold from our one mine in 2021 were $1,453, representing an 18% decrease over last year, and all-in sustaining costs were $1,635, or 21% below 2020. For 2022, we are forecasting production between 153,000 to 172,000 GEOs. The focus on the Fox Complex production in Q4 2021 was 9,460 GEOs, 18% higher compared to mining at Black Fox since Q4 2020. Fox Complex production in 2021 was 30,060 GEOs or 23% higher in production compared to 2020. Production guidance in 2022 at the complex based on full-year production guidance will be approximately 44,000 to 49,000 GEOs. 2021 cash costs all-in per GEO were $1,461, down from the same period last year. For 2022, we will just keep continuing with our little downward trend and work to improve efficiency as we advance our growth projects. We also came up with a Fox preliminary assessment. It adds another 80,800 ounces of gold, so again, growing our scale, helping spread our fixed costs that will add after the project is completed. We have about another 2.5 years of mining left. We added a year of resources in 2021. The IRR on that project is 21%, and it comes with some nice low-cost ounces, cash costs being $770 and all-in sustaining costs being around $1,246. Exploration at the Fox continues through 2022. Gold Bar in Nevada, our production for Q4 2021 was 9,950 GEO or 66% higher compared to Q4 2020. Operations in Nevada produced 43,850 GEOs for the year representing a 57% increase over 2020. This improved production was mainly due to improved operating efficiencies. 2021 cash costs and all-in sustaining costs per GEO for Gold Bar were $1,687 instead of $1,753 of last year. Production guidance for Gold Bar in 2022 is 38,000 to 44,000 GEOs. We will continue addressing reduced costs in 2022.

Steve McGibbon, Executive Vice President of Exploration

Thank you, Peter, and good afternoon, everyone. In 2021, we invested $20.9 million in exploration at Fox Complex in Nevada and delivered solid results from three important projects. Our principal goal in 2022 will focus on: one, cost-effectively discovering and extending gold deposits adjacent to our existing operations; two, drill testing very attractive exploration targets at Stock; and three, seeking to expand further to depth in other areas. During 2021, we completed over 250,000 feet or 77,000 meters in drilling focused on Stock and Grey Fox properties. The best 2021 results from drilling yielded a 20 meter true width intercept of 7.43 grams per ton gold. The exploration budget for 2022 at Fox is about $10 million. Now at Gold Bar in 2021, we completed 17,500 meters of drilling, which included some metallurgical and geotechnical drilling programs at Ridge and Tonkin Rooster. The Gold Bar exploration budget for 2022 is $2.5 million and will target replacement of mining depletion and growth of mineral resources and reserves.

Rob McEwen, Chairman and Chief Owner

Thank you, Steve. I'd like to now introduce the newest member of our team, Michael Meding. He is looking after our material and copper. He has spent seven years working for Barrick in San Juan province, Argentina, at both Veladero mine and other significant operations. He brings extensive experience and strong connections there politically and commercially. Michael, could you provide some insights on your recent trip?

Michael Meding, Vice President

Thank you so much, Rob. As Rob said, senior management just came back from San Juan, Argentina. There, we visited our Los Azules properties and had the opportunity to meet key stakeholders, including the South Juan Governor and Minister of Mines, who were all positive about our project and advancing it as quickly as possible. We visited the site and saw our drill program advancing. This is an exciting opportunity, as stakeholders expressed their support for our efforts.

Rob McEwen, Chairman and Chief Owner

Very good. Thank you, Michael. Before starting the question-and-answer portion, I want to make a few comments. For those of you unfamiliar with the term GEO, it refers to gold equivalent ounces and includes the conversion of silver ounces that have come from our operations in Argentina and some in Nevada to gold equivalents. Regarding the new access road mentioned by Michael, it's aimed at significantly lowering travel time to our site. Looking forward, we expect to see a trend of lower costs per ounce and a slight increase in production. However, I want to alert everyone to expect higher costs in the first quarter primarily due to COVID and equipment issues. Despite these challenges, there are many positive developments to look forward to.

Segun Odunuga, VP and Corporate Controller and Interim CFO

Sure. First quarter is going to be quite expensive. I'll do it on a consolidated basis first. Cash costs will be $1,900, all-in sustaining costs around $2,450. For the second quarter, $1,400 cash costs and $1,850 all-in sustaining. For the third quarter, it's projected to be $1,230 and $1,550, and in the fourth quarter $1,200 cash and $1,350 all-in sustaining. It was COVID and weather that affected Black Fox and Gold Bar during the first quarter.

Peter Mah, Chief Operating Officer

Yes, for Gold Bar, the CapEx for the year is around $10 million. We're expecting to be able to bring that project on in the second half of this year, moving it forward from the feasibility spend.

Joseph Reagor, Analyst

Hey Rob and team. You mentioned weather impacting Q1 like Gold Bar, but looking back to Q4 the grade, was quite a bit below the first three quarters. Was that planned or was that something where the resource didn't match expectations?

Rob McEwen, Chairman and Chief Owner

Peter, please.

Peter Mah, Chief Operating Officer

In Q4 we changed out the mining contractor and transitioned to core unit rates. So we didn't quite get the strip we had hoped for and ore released, so things have gone well now. All the contractors are fully transitioned and we expect to get back on track this year.

Rob McEwen, Chairman and Chief Owner

I'm not sure which timeframe you're referring to, but we're still in West and obviously that mining's extended out longer than the feasibility by adding in some other opportunities. So we've been mining some waste and this year we continue to do that. The higher grades will actually come with Gold Bar South in the mine plan. And we're advancing that ahead of the feasibility, quicker into this half of the year as the permit is progressing well.

Joseph Reagor, Analyst

Okay. And then looking at the guidance for this year particularly at Gold Bar, is it just not as high as maybe we'd anticipated? Any additional color you can give as far as future expectations on grade?

Rob McEwen, Chairman and Chief Owner

We expect the exploration work we're doing will expand the resource base and positively contribute to the payback period in the preliminary economic assessment.

Joseph Reagor, Analyst

Has that been pushed out? Are we still looking at those numbers?

Rob McEwen, Chairman and Chief Owner

We're encountering some natural problems that were unanticipated before and experienced some operational issues. I share your disappointment.

Joseph Reagor, Analyst

If you cannot improve your cash flow and profitability in the near future, would you be willing to sell the whole Company to a larger miner?

Rob McEwen, Chairman and Chief Owner

If you had a bid, you'd look at it. We encountered some serious operational issues, but I believe we will rebuild the company.

Unidentified Analyst, Analyst

What about a reverse split as a way to address the NYSE issues?

Rob McEwen, Chairman and Chief Owner

You have to be above a dollar for 30 trading days to avoid delisting. It's a six-month period from the date of notice.

Unidentified Analyst, Analyst

That's good to know. There are concerns about your assets and the future.

Rob McEwen, Chairman and Chief Owner

The market is always addressing these concerns. We remain confident in our future prospects for copper and gold production.

Bill Powers, Private Investor

Just a quick question on the costs. What is going to be, is it the big drop into Q3 versus a slight uptick into Q4 or about a 20% uptick in Q4?

Rob McEwen, Chairman and Chief Owner

Improved production terms of the number of ounces and reduction of large waste removal at Gold Bar. Thank you all for joining us today. The best is yet to come. I know it's been a long way, but the metal prices are moving in the direction that reflects the huge amounts of liquidity that's been pumped into the system by governments around the world. Hard assets appreciate in value, and that's something we are seeing in both gold and copper.