MUX 10-Q
McEwen Inc. (MUX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from to
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Non-accelerated filer | ☐ | Smaller reporting company | ||
Emerging growth company | ||||
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MCEWEN MINING INC.
FORM 10-Q
Index
3 | ||
3 | ||
Consolidated Balance Sheets at September 30, 2022 (unaudited) and December 31, 2021 (audited) | 4 | |
5 | ||
6 | ||
7 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | |
42 | ||
44 | ||
45 | ||
46 | ||
47 | ||
2
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
(in thousands of U.S. dollars, except per share)
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | | ||||
Revenue from gold sales to Auramet (Note 16) | | — | | — | ||||||||
Total revenue | | | | | ||||||||
Production costs applicable to sales |
| ( |
| ( |
| ( |
| ( | ||||
Depreciation and depletion | ( | ( | ( | ( | ||||||||
Gross profit (loss) | | | ( | ( | ||||||||
OTHER OPERATING EXPENSES: | ||||||||||||
Advanced projects - Los Azules |
| ( | ( | ( | ( | |||||||
Advanced projects - Other | ( |
| ( |
| ( |
| ( | |||||
Exploration |
| ( |
| ( |
| ( |
| ( | ||||
General and administrative |
| ( |
| ( |
| ( |
| ( | ||||
Income (loss) from investment in Minera Santa Cruz S.A. (Note 9) |
| |
| ( |
| |
| ( | ||||
Depreciation |
| ( |
| ( |
| ( |
| ( | ||||
Reclamation and Remediation (Note 11) |
| ( | ( |
| ( | ( | ||||||
| ( | ( | ( |
| ( | |||||||
Operating loss |
| ( | ( |
| ( |
| ( | |||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest and other finance expenses, net |
| ( |
| ( |
| ( |
| ( | ||||
Other income (Note 4) | |
| |
| |
| | |||||
Total other income (expense) |
| |
| ( |
| |
| | ||||
Loss before income and mining taxes | ( | ( | ( | ( | ||||||||
Income and mining tax recovery | | | | | ||||||||
Net loss after income and mining taxes | ( | ( | ( | ( | ||||||||
Net gain attributable to non-controlling interests (Note 18) | | — | | — | ||||||||
Net loss and comprehensive loss attributable to McEwen shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per share (Note 13): | ||||||||||||
Basic and Diluted | ( | ( | ( | ( | ||||||||
Weighted average common shares outstanding (thousands) (Note 1, Note 13): | ||||||||||||
Basic and Diluted |
| |
| |
| |
| | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
MCEWEN MINING INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
September 30, | December 31, | ||||||
| 2022 (Unaudited) |
| 2021 |
| |||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents (Note 17) | $ | | $ | | |||
Restricted cash (Note 17) | — | | |||||
Investments (Note 5) |
| |
| | |||
Receivables, prepaids and other assets (Note 6) |
| |
| | |||
Inventories (Note 7) |
| |
| | |||
Total current assets |
| |
| | |||
Mineral property interests and plant and equipment, net (Note 8) |
| |
| | |||
Investment in Minera Santa Cruz S.A. (Note 9) |
| |
| | |||
Inventories (Note 7) | | | |||||
Restricted cash (Note 17) | | | |||||
Other assets |
| |
| | |||
TOTAL ASSETS | $ | | $ | | |||
LIABILITIES & SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | | $ | | |||
Contract liability (Note 16) | | — | |||||
Flow-through share premium (Note 12) | | | |||||
Debt, current portion (Note 10) | | — | |||||
Lease liabilities | | | |||||
Reclamation and remediation liabilities (Note 11) |
| |
| | |||
Other liabilities (Note 18) | — | | |||||
Total current liabilities |
| |
| | |||
Lease liabilities | | | |||||
Debt (Note 10) | | | |||||
Reclamation and remediation liabilities (Note 11) |
| |
| | |||
Other liabilities | | | |||||
Total liabilities | $ | | $ | | |||
Shareholders’ equity: | |||||||
Common shares: | $ | | $ | | |||
Non-controlling interests (Note 18) | | | |||||
Accumulated deficit |
| ( |
| ( | |||
Total shareholders’ equity |
| |
| | |||
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | $ | | $ | | |||
The accompanying notes are an integral part of these consolidated financial statements.
Commitments and contingencies: Note 16
4
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands of U.S. dollars and shares)
Common Stock | ||||||||||||||
and Additional | ||||||||||||||
Paid-in Capital | Accumulated | Non-controlling | ||||||||||||
Three months ended September 30, 2021 and 2022: |
| Shares |
| Amount | Deficit | Interests | Total | |||||||
Balance, June 30, 2021 |
| | $ | | $ | ( | $ | — | $ | | ||||
Stock-based compensation |
| — | | — | — | | ||||||||
Issuance of equity by subsidiary (Note 18) |
| — | | — | | | ||||||||
Net loss | — | — | ( | — | ( | |||||||||
Balance, September 30, 2021 |
| | $ | | $ | ( | $ | | $ | | ||||
Balance, June 30, 2022 | | $ | | $ | ( | $ | | $ | | |||||
Stock-based compensation |
| — | | — | — | | ||||||||
Issuance of equity by subsidiary (Note 18) | — | | — | | | |||||||||
Share repurchase (Note 1) | — | ( | — | — | ( | |||||||||
Net loss |
| — | — | ( | ( | ( | ||||||||
Balance, September 30, 2022 |
| | $ | | $ | ( | $ | | $ | | ||||
Common Stock |
| ||||||||||||||
and Additional |
| ||||||||||||||
Paid-in Capital | Accumulated | Non-controlling |
| ||||||||||||
Nine months ended September 30, 2021 and 2022: |
| Shares |
| Amount | Deficit | Interests | Total |
| |||||||
Balance, December 31, 2020 |
| | $ | | $ | ( | $ | — | $ | | |||||
Stock-based compensation |
| — | |
| — |
| — | | |||||||
Sale of flow-through shares | | | — | — | | ||||||||||
Sale of shares for cash | | | — | — | | ||||||||||
Issuance of equity by subsidiary (Note 18) | — | | — | | | ||||||||||
Net loss | — | — | ( | — | ( | ||||||||||
Balance, September 30, 2021 |
| | $ | | $ | ( | $ | | $ | | |||||
Balance, December 31, 2021 | | $ | | $ | ( | $ | | $ | | ||||||
Stock-based compensation |
| — | | — | — | | |||||||||
Sale of flow-through shares | | | — | — | | ||||||||||
Shares issued for debt refinancing | | | — | — | | ||||||||||
Issuance of equity by subsidiary (Note 18) | — | | — | | | ||||||||||
Share repurchase (Note 1) | — | ( | — | — | ( | ||||||||||
Net loss |
| — | — | ( | ( | ( | |||||||||
Balance, September 30, 2022 |
| | $ | | $ | ( | $ | | $ | | |||||
The accompanying notes are an integral part of these consolidated financial statements.
5
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands of U.S. dollars)
Nine months ended September 30, | ||||||
2022 |
| 2021 | ||||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss from operating activities: | ||||||
(Income) loss from investment in Minera Santa Cruz S.A. (Note 9) |
| ( |
| | ||
Depreciation and amortization |
| |
| | ||
Loss (gain) on investments (Note 5) | | ( | ||||
Gain on sale of mineral property interests | — | ( | ||||
Unrealized foreign exchange gain and adjustment to estimate (Note 11) |
| ( |
| ( | ||
Income and mining tax recovery |
| ( |
| ( | ||
Stock-based compensation |
| |
| | ||
Reclamation and remediation (Note 11) | | | ||||
Change in non-cash working capital items: | ||||||
Decrease (increase) in other assets related to operations |
| ( |
| | ||
Decrease in liabilities related to operations | ( | ( | ||||
Cash used in operating activities | $ | ( | $ | ( | ||
Cash flows from investing activities: | ||||||
Net additions to mineral property interests and plant and equipment | $ | ( | $ | ( | ||
Investment in marketable equity securities (Note 5) |
| — |
| | ||
Dividends received from Minera Santa Cruz S.A. (Note 9) |
| |
| | ||
Cash used in investing activities | $ | ( | $ | ( | ||
Cash flows from financing activities: | ||||||
Proceeds from sale of shares, net of issuance costs (Note 18) | $ | | $ | | ||
Sale of flow-through common shares, net of issuance costs (Note 12) | | | ||||
Proceeds from promissory note (Note 10 and Note 14) | | | ||||
Subscription proceeds received in advance (Note 18) | ( | | ||||
Payment of finance lease obligations | ( | ( | ||||
Cash provided by financing activities | $ | | $ | | ||
(Decrease) increase in cash, cash equivalents and restricted cash |
| ( |
| | ||
Cash, cash equivalents and restricted cash, beginning of period |
| |
| | ||
Cash, cash equivalents and restricted cash, end of period (Note 17) | $ | | $ | | ||
Supplemental disclosure of cash flow information: | ||||||
Cash received (paid) during period for: | ||||||
Interest paid | $ | ( | $ | ( | ||
Interest received | | | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
McEwen Mining Inc. (the “Company”) was organized under the laws of the State of Colorado on July 24, 1979. The Company is engaged in the exploration, development, production and sale of gold and silver and exploration and development of copper.
The Company operates in the United States, Canada, Mexico and Argentina. The Company owns a
The interim consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are unaudited. While information and note disclosures normally included in financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, the Company believes that the information and disclosures included are adequate and not misleading.
In management’s opinion, the unaudited Consolidated Statements of Operations and Comprehensive Loss (“Statement of Operations”) for the three and nine months ended September 30, 2022 and 2021, the unaudited Consolidated Balance Sheet as at September 30, 2022 and audited Consolidated Balance Sheet as at December 31, 2021, the unaudited Consolidated Statement of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021, and the unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto and the summary of significant accounting policies included in the Company’s annual report on Form 10-K/A for the year ended December 31, 2021. Except as noted below, there have been no material changes in the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s Form 10-K/A for the year ended December 31, 2021. The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated. Investments over which the Company exerts significant influence but does not control through majority ownership are accounted for using the equity method.
Share consolidation and Articles of Amendment
Effective after the close of trading on July 27, 2022, the Company filed Articles of Amendment to its Second Amended and Restated Articles of Incorporation with the Colorado Secretary of State to, among other items, effect a one-for- reverse split of its outstanding common stock. This reverse split, or consolidation, resulted in every
The Articles of Amendment also served to reduce the Company’s authorized capital from
7
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 2 SIGNIFICANT ACCOUNTING ISSUES
Flow-through Issuance and Equity Financing
During the nine months ended September 30, 2022, the Company completed a Canadian Exploration Expenditures (“CEE”) flow-through common share financing for gross proceeds of $
During the nine months ended September 30, 2021, the Company raised gross proceeds of $
NOTE 3 OPERATING SEGMENT REPORTING
The Company is a mining and minerals production and exploration company focused on precious metals in the United States, Canada, Mexico, and Argentina. The Company’s chief operating decision maker (“CODM”) reviews the operating results, assesses performance and makes decisions about the allocation of resources to these segments at the geographic region level or major mine/project level where the economic characteristics of the individual mines or projects within a geographic region are not alike. As a result, these operating segments also represent the Company’s reportable segments for accounting purposes. The Company’s business activities that are not considered operating segments are included in General and Administrative and Other and are provided in this note for reconciliation purposes.
The CODM reviews segment income or loss, defined as gold and silver sales less production costs applicable to sales, depreciation and depletion, advanced projects and exploration costs, for all segments except for the MSC segment, which is evaluated based on the attributable equity income or loss. Gold and silver sales and production costs applicable to sales for the reportable segments are reported net of intercompany transactions.
Capital expenditures include costs capitalized in mineral property interests and plant and equipment in the respective periods.
Significant information relating to the Company’s reportable operating segments for the periods presented is summarized in the tables below:
Three months ended September 30, 2022 |
| USA |
| Canada |
| Mexico |
| MSC |
| Los Azules |
| Total | ||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | — |
| ( | |||||||||||
Depreciation and depletion | ( | ( | — | — | — | ( | ||||||||||||
Gross profit (loss) | ( | | ( | — | — | | ||||||||||||
Advanced projects | ( | ( | ( | — | ( |
| ( | |||||||||||
Exploration | ( | ( | — | — | ( | ( | ||||||||||||
Income from investment in Minera Santa Cruz S.A. | — | — | — | | — |
| | |||||||||||
Segment income (loss) | $ | ( | $ | | $ | ( | $ | | $ | ( | $ | ( | ||||||
General and administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | $ | | $ | | $ | — | $ | | $ | | ||||||
8
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Nine months ended September 30, 2022 |
| USA |
| Canada | Mexico | MSC |
| Los Azules |
| Total | ||||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | — |
| ( | |||||||||||
Depreciation and depletion | ( | ( | — | — | — | ( | ||||||||||||
Gross profit (loss) | ( | | ( | — | — | ( | ||||||||||||
Advanced projects | ( | ( | ( | — | ( |
| ( | |||||||||||
Exploration | ( | ( | — | — | ( |
| ( | |||||||||||
Impairment of mineral property interests and plant and equipment (Note 8) | — | — | — | — | — | — | ||||||||||||
Income from investment in Minera Santa Cruz S.A. | — | — | — | | — |
| | |||||||||||
Segment income (loss) | $ | ( | $ | | $ | ( | $ | | $ | ( | $ | ( | ||||||
General and Administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | $ | | $ | | $ | — | $ | | $ | | ||||||
Three months ended September 30, 2021 |
| USA |
| Canada |
| Mexico |
| MSC |
| Los Azules |
| Total | ||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | — | ( | ||||||||||||
Depreciation and depletion | ( | ( | — | — | — | ( | ||||||||||||
Gross profit (loss) | | | ( | — | — | | ||||||||||||
Advanced projects | ( | ( | ( | — | ( | ( | ||||||||||||
Exploration | ( | ( | | — | — | ( | ||||||||||||
Loss from investment in Minera Santa Cruz S.A. | — | — | — | ( | — | ( | ||||||||||||
Segment loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
General and administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | $ | | $ | — | $ | — | $ | — | $ | | ||||||
Nine months ended September 30, 2021 |
| USA |
| Canada |
| Mexico |
| MSC |
| Los Azules |
| Total | ||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | — | ( | ||||||||||||
Depreciation and depletion | ( | ( | — | — | — | ( | ||||||||||||
Gross profit (loss) | | | ( | — | — | ( | ||||||||||||
Advanced projects | ( | ( | ( | — | ( | ( | ||||||||||||
Exploration | ( | ( | ( | — | ( | ( | ||||||||||||
Loss from investment in Minera Santa Cruz S.A. | — | — | — | ( | — | ( | ||||||||||||
Segment loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
General and Administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | $ | | $ | — | $ | — | $ | — | $ | | ||||||
9
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Geographic Information
Geographic information includes the long-lived asset balances and revenues presented for the Company’s operating segments, as follows:
Long-lived Assets | Revenue (1) | Revenue (1) | ||||||||||||||||
September 30, | December 31, | Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 | 2021 | ||||||||
USA | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Canada | | | | | | | ||||||||||||
Mexico | | | | | | | ||||||||||||
Argentina (2) | | | — | — | — | — | ||||||||||||
Total consolidated (3) | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
| (1) | Presented based on the location from which the precious metals originated. |
| (2) | Includes Investment in MSC and other subsidiaries of $ |
| (3) | Total excludes $ |
NOTE 4 OTHER INCOME
The following is a summary of other income for the three and nine months ended September 30, 2022 and 2021:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
COVID-19 Relief | $ | — | $ | | $ | — | $ | | ||||
Unrealized and realized gain (loss) on investments | ( | | ( | | ||||||||
Foreign currency gain on Blue Chip Swap | | — | | — | ||||||||
Foreign currency gain, other | | | | | ||||||||
Other income (loss), net | | ( | | | ||||||||
Total other income | $ | | $ | | $ | | $ | | ||||
During the three and nine months ended September 30, 2022, the Company recognized $nil (three and nine months ended September 30, 2021 - $
From time to time, the Company may acquire and transfer marketable securities (“Blue Chip Swap”) to facilitate intragroup funding transfers between the U.S. parent and its Argentine subsidiary. The Blue Chip Swap transaction utilizes the existing loan structure between the Company’s Canadian, Cayman Islands, and Argentina entities. The Company does not acquire marketable securities or engage in these transactions for speculative purposes. Under this strategy, the Company generally uses marketable securities of large, well-established companies, with high trading volumes and low volatility. The Company does this to improve cash management for funding its Argentinean subsidiary. Nonetheless, as the process to acquire, transfer and ultimately sell the marketable securities occurs over several days, some fluctuations are unavoidable.
As the marketable securities are acquired with the intention of a near term sale, generally less than seven days, they are considered financial instruments that are held for trading. Accordingly, all changes in the fair value of the instruments, between acquisition and disposition, are recognized through operations in the Consolidated Statements of Operations. Upon receipt of the transferred equity instruments by the local investment broker, the Company realizes an immediate foreign exchange impact. This foreign exchange impact is incurred directly as a result of holding equity instruments with the intention of trading, and as such the foreign exchange impact is also recognized through operations.
10
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
For the nine months ended September 30, 2022, the Company completed eight blue chip swap transactions to transfer funds from its Canadian USD bank account to Argentina. These funds were used for the continued development of the Los Azules Copper project. For the three and nine months ended September 30, 2022, the Company realized a net gain of $
NOTE 5 INVESTMENTS
The following is a summary of the activity in investments for the nine months ended September 30, 2022:
As at | Additions/ | Net gain | Disposals/ | Unrealized | As at | |||||||||||||
December 31, | transfers during | (loss) on | transfers during | gain (loss) on | September 30, | |||||||||||||
| 2021 |
| period |
| securities sold |
| period |
| securities held |
| 2022 | |||||||
Marketable equity securities – fair value | | — | — | — | ( | | ||||||||||||
Warrants | | — | — | — | — | | ||||||||||||
Total Investments | $ | | $ | — | $ | — | $ | — | $ | ( | $ | | ||||||
On June 23, 2021, the Company closed the sale of
NOTE 6 RECEIVABLES, PREPAIDS AND OTHER CURRENT ASSETS
The following is a breakdown of balances in receivables, prepaids and other assets as at September 30, 2022, and December 31, 2021:
| September 30, 2022 |
| December 31, 2021 | |||
Government sales tax receivable | $ | | $ | | ||
Prepaids and other assets | | | ||||
Receivables, prepaid and other current assets | $ | | $ | | ||
Included in government sales tax receivable for the nine months ended September 30, 2022 is $
Government sales tax receivable includes $
11
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 7 INVENTORIES
Inventories at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, 2022 |
| December 31, 2021 | |||
Material on leach pads | $ | | $ | | ||
In-process inventory |
| |
| | ||
Stockpiles |
| |
| | ||
Precious metals |
| |
| | ||
Materials and supplies |
| |
| | ||
$ | | $ | | |||
Less long-term portion | ( | ( | ||||
Current portion | $ | | $ | | ||
During the nine months ended September 30, 2022, inventory at the Black Fox, El Gallo and Gold Bar operation were written down to their estimated net realizable value by $
NOTE 8 MINERAL PROPERTY INTERESTS AND PLANT AND EQUIPMENT
The applicable definition of proven and probable reserves is set forth in the new Regulation S-K 1300 requirements of the SEC. If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are charged to expense based on the units of production method upon commencement of production. The Company’s Gold Bar and Black Fox properties have proven and probable reserves estimated in accordance with Regulation S-K 1300. The El Gallo Project is depleted and depreciated using the straight line method, as the project does not have proven and probable reserves as defined in Regulation S-K 1300.
The Company reviews and evaluates its long-lived assets for impairment on a quarterly basis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Once it is determined that impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its estimated fair value.
During the nine months ended September 30, 2022,
NOTE 9 INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) – SAN JOSÉ MINE
The Company accounts for investments over which it exerts significant influence but does not control through majority ownership using the equity method of accounting. In applying the equity method of accounting to the Company’s investment in MSC, MSC’s financial statements, which are originally prepared by MSC in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, have been adjusted to conform with U.S. GAAP. As such, the summarized financial data presented under this heading is presented in accordance with U.S. GAAP.
12
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
A summary of the operating results for MSC for the three and nine months ended September 30, 2022 and 2021 is as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 |
| |||||||||
Minera Santa Cruz S.A. ( | ||||||||||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | ( | ||||||||||
Depreciation and depletion | ( | ( | ( | ( | ||||||||||
Gross profit | | | | | ||||||||||
Exploration | ( | ( | ( | ( | ||||||||||
Other expenses(1) | ( | ( | ( | ( | ||||||||||
Net income (loss) before tax | $ | ( | $ | | $ | | $ | | ||||||
Current and deferred tax expense | | ( | | ( | ||||||||||
Net income (loss) | $ | | $ | ( | $ | | $ | | ||||||
Portion attributable to McEwen Mining Inc. ( | ||||||||||||||
Net income (loss) | $ | | $ | ( | $ | | $ | | ||||||
Amortization of fair value increments |
| ( |
| ( |
| ( |
| ( | ||||||
Income tax recovery | | | | | ||||||||||
Income (loss) from investment in MSC, net of amortization | $ | | $ | ( | $ | | $ | ( | ||||||
(1) Other expenses include foreign exchange, accretion of asset retirement obligations, other finance-related expenses.
The income or loss from the investment in MSC attributable to the Company includes amortization of the fair value increments arising from the initial purchase price allocation and related income tax recovery. The income tax recovery reflects the impact of the devaluation of the Argentine peso against the U.S. dollar on the peso-denominated deferred tax liability recognized at the time of acquisition, as well as income tax rate changes over the periods.
Changes in the Company’s investment in MSC for the nine months ended September 30, 2022 and year ended December 31, 2021 are as follows:
Nine months ended September 30, 2022 |
| Year ended | |||
Investment in MSC, beginning of period | $ | | $ | | |
Attributable net income from MSC | | | |||
Amortization of fair value increments |
| ( |
| ( | |
Income tax recovery | | | |||
Dividend distribution received |
| ( |
| ( | |
Investment in MSC, end of period | $ | | $ | | |
During the three and nine months ended September 30, 2022, the Company received $nil and $
13
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
A summary of the key assets and liabilities of MSC on a
As at September 30, 2022 | Balance excluding FV increments | Adjustments | Balance including FV increments | ||||||
Current assets | $ | | $ | | $ | | |||
Total assets | $ | | $ | | $ | | |||
Current liabilities | $ | ( | $ | — | $ | ( | |||
Total liabilities | $ | ( | $ | ( | $ | ( | |||
NOTE 10 DEBT
$
On August 10, 2018, the Company finalized a $
On June 25, 2020, the Company entered into an Amended and Restated Credit Agreement (“ARCA”) which refinanced the outstanding $
| ● | Scheduled repayments were extended by |
| ● | Additionally, the minimum working capital maintenance requirement was reduced from $ |
| ● | The Company issued |
| ● | Sprott Private Resource Lending II (Collector), LP replaced Royal Capital Management Corp. as the administrative agent and a lender. An affiliate of Robert R. McEwen remained as a lender. The remaining principal terms of the original agreement remained unchanged. |
On March 31, 2022, further amendments were made to the ARCA which refinanced the outstanding $
| ● | Scheduled repayments of the principal were extended by |
| ● | The minimum working capital maintenance requirement was reduced from $ |
14
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
| ● | The Company issued shares of common stock valued at $ |
The remaining principal terms of the original agreement remained unchanged. The Company is currently in full compliance with all covenants under the ARCA.
$
On March 31, 2022, the Company issued a $
A reconciliation of the Company’s long-term debt for the nine months ended September 30, 2022 and for the year ended December 31, 2021 is as follows:
| Nine months ended September 30, 2022 |
| Year ended | |||
Balance, beginning of year | $ | | $ | | ||
Promissory note- initial recognition | | — | ||||
Interest expense |
| |
| | ||
Interest payments |
| ( |
| ( | ||
Bonus interest - Equity based financing fee | ( | — | ||||
Balance, end of period | $ | | $ | | ||
Less current portion | | — | ||||
Long-term portion | $ | | $ | | ||
NOTE 11 ASSET RETIREMENT OBLIGATIONS
The Company is responsible for the reclamation of certain past and future disturbances at its properties. The most significant properties subject to these obligations are the Gold Bar and Tonkin properties in Nevada, the Timmins properties in Canada and the El Gallo Project in Mexico.
A reconciliation of the Company’s asset retirement obligations for the nine months ended September 30, 2022 and for the year ended December 31, 2021 are as follows:
|
| Nine months ended September 30, 2022 |
| Year ended | ||||||||
Asset retirement obligation liability, beginning balance | $ | | $ | | ||||||||
Settlements |
| ( |
| ( | ||||||||
Accretion of liability |
| |
| | ||||||||
Revisions to estimates and discount rate |
| |
| | ||||||||
Foreign exchange revaluation | ( | | ||||||||||
Asset retirement obligation liability, ending balance | $ | | $ | | ||||||||
Less current portion | | | ||||||||||
Long-term portion | $ | | $ | | ||||||||
15
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
The Company’s reclamation expenses for the periods presented consisted of the following:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 | 2022 | 2021 | |||||||
Reclamation adjustment reflecting updated estimates | $ | — | $ | | $ | | $ | | ||||
Reclamation accretion | | | | | ||||||||
Total | $ | | $ | | $ | | | |||||
NOTE 12 SHAREHOLDERS’ EQUITY
Equity Issuances
Flow-Through Shares Issuance – Canadian Exploration Expenditures (“CEE”)
On March 2, 2022, the Company issued
On December 31, 2020, the Company issued
On September 10, 2020, the Company issued
The Company is required to spend these flow-through share proceeds on flow-through eligible CEE as defined by subsection 66.1(6) of the Income Tax Act (Canada). As of September 30, 2022, the Company had incurred a total of $
Flow-Through Shares Issuance – Canadian Development Expenses (“CDE”)
On January 29, 2021, the Company issued
The Company is required to spend these flow-through share proceeds on flow-through eligible CDE as defined by subsection 66.2(5) of the Income Tax Act (Canada). The Company satisfied the total of $
16
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Shareholders’ Distributions
Pursuant to the ARCA (Note 10), the Company is prevented from paying any dividends on its common stock, so long as the loan is outstanding.
NOTE 13 NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss attributable to the Company’s common shareholders by the weighted average number of common shares outstanding during the period. Potentially dilutive instruments are not included in the calculation of diluted net loss per share for the three and nine months ended September 30, 2022 and 2021, as they would be anti-dilutive.
For the nine months ended September 30, 2022, all the outstanding stock options (
NOTE 14 RELATED PARTY TRANSACTIONS
The Company recorded the following expense in respect to the related parties outlined below during the periods presented:
| Three months ended September 30, |
| Nine months ended September 30, | |||||||||
2022 |
| 2021 | 2022 |
| 2021 | |||||||
Lexam L.P. | — | | — | | ||||||||
REVlaw | | | $ | | | |||||||
The Company has the following outstanding accounts payable balances in respect to the related parties outlined below:
September 30, 2022 | December 31, 2021 | |||||||||||
REVlaw | $ | | | |||||||||
REVlaw is a company owned by Carmen Diges, General Counsel & Secretary of the Company. The legal services of Ms. Diges as General Counsel & Secretary and other support staff, as needed, are provided by REVlaw in the normal course of business and have been recorded at their exchange amount.
An affiliate of Mr. McEwen participated as a lender in the $
On March 31, 2022, the Company issued a $
On August 23, 2021, an affiliate of Mr. McEwen participated in the Series B private placement offering conducted by McEwen Copper, the Company’s subsidiary that owns and is developing the Los Azules copper project (Note 18).
17
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 15 FAIR VALUE ACCOUNTING
As required by accounting guidance, assets and liabilities on the Consolidated Balance Sheets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Warrants
Upon initial recognition, the warrants received as part of the asset sale to Nevgold (Note 5) were valued using the Black-Scholes valuation model as they are not quoted in an active market. The warrants have been accounted for as equity investment at cost. Average volatility of
Assets and liabilities measured at fair value on a recurring basis.
The following table identifies certain of the Company’s assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as at September 30, 2022 and December 31, 2021, as reported in the Consolidated Balance Sheets:
Fair value as at September 30, 2022 |
| Fair value as at December 31, 2021 | ||||||||||||||||
| Level 1 |
| Level 2 |
| Total |
| Level 1 |
| Level 2 |
| Total | |||||||
Marketable equity securities | $ | | $ | — | $ | | $ | | $ | — | $ | | ||||||
Total investments | $ | | $ | — | $ | | $ | | $ | — | $ | | ||||||
Marketable equity securities that the Company holds are exchange-traded and are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the investment is calculated as the quoted market price of the marketable equity security multiplied by the number of shares held by the Company.
The fair value of financial assets and liabilities held at September 30, 2022 were assumed to approximate their carrying values due to their historically negligible credit losses.
Debt is recorded at a carrying value of $
Impairment of Mineral Property
During the nine months ended September 30, 2022, there were
NOTE 16 COMMITMENTS AND CONTINGENCIES
In addition to the commitments for payments on operating and finance leases and the repayment of long-term debt (Note 10), as at September 30, 2022, the Company has the following commitments and contingencies:
Reclamation Obligations
As part of its ongoing business and operations, the Company is required to provide surety bonding for its environmental reclamation obligations of $
18
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Surety Bonds
As at September 30, 2022, the Company had a surety facility in place to cover all its bonding obligations, which include $
Streaming Agreement
As part of the acquisition of the Black Fox Complex in 2017, the Company assumed a gold purchase agreement (streaming contract) related to production from certain land claims. The Company is obligated to sell
The Company records the revenue from these shipments based on the contract price at the time of delivery to the customer. During the three and nine months ended September 30, 2022, the Company recorded revenue of $
Flow-through Eligible Expenses
On March 2, 2022, the Company completed a flow-through share issuance for gross proceeds of $
In January 2021, the Company closed a flow-through share issuance to fund the development at the Froome deposit. The Company incurred the full required spend of $
In 2020, the Company completed
Prepayment Agreement
On July 27, 2022, the Company entered into a precious metals purchase agreement with Auramet International LLC (“Auramet”). Under this agreement, the Company may sell the gold on a Spot Basis, on a Forward Basis and on a Supplier Advance basis, i.e. the gold is priced and paid for while the gold is:
| (i) | at a mine for a maximum of 15 business days before shipment; or |
| (ii) | in-transit to a refinery; or |
| (iii) | while being refined at a refinery. |
During the three and nine months ended September 30, 2022, the Company received the combined net proceeds of $
19
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2022
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 17 CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Consolidated Balance Sheets to the amounts disclosed in the Consolidated Statements of Cash Flows:
September 30, 2022 | December 31, 2021 | |||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash - current | - | | ||||
Restricted cash - non-current | | | ||||
Total cash, cash equivalents, and restricted cash | $ | | $ | | ||
As of September 30, 2022, of $
NOTE 18 NON-CONTROLLING INTERESTS
On August 23, 2021, the Company announced that its subsidiary, McEwen Copper, closed the first tranche of a Series B private placement offering in which McEwen Copper issued
As a result of the common shares issued, the Company’s
On June 21, 2022, the Company announced that McEwen Copper had closed the second tranche of the Series B private placement offering in which McEwen Copper issued
As a result of the common shares issued, the Company’s
On August 31, 2022, the Company announced that McEwen Copper had closed its third and final tranche of the Series B private placement offering under which McEwen Copper issued
As a result of the common shares issued, the Company’s
On September 30, 2022, the Company recorded $
20
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the following discussion, “McEwen Mining”, the “Company”, “we”, “our”, and “us” refers to McEwen Mining Inc. and as the context requires, its consolidated subsidiaries.
The following discussion analyzes our financial condition at September 30, 2022 and compares it to our financial condition at December 31, 2021. The discussion also analyzes our results of operations for the three and nine months ended September 30, 2022 and compares those to the results for the three and nine months ended September 30, 2021. Regarding properties or projects that are not in production, we provide some details of our plan of operation. We suggest that you read this discussion in conjunction with MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and our audited consolidated financial statements contained in our annual report on Form 10-K/A for the year ended December 31, 2021.
The discussion contains financial performance measures that are not prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP” or “GAAP”). Each of the following is a non-GAAP measure: cash gross profit, cash costs, cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, average realized price per ounce, and liquid assets. These non-GAAP measures are used by management in running the business and we believe they provide useful information that can be used by investors to evaluate our performance, our ability to generate cash flows and our liquidity. These measures do not have standardized definitions and should not be relied upon in isolation or as a substitute for measures prepared in accordance with GAAP. Cash Costs equals Production Costs Applicable to Sales and is used interchangeably throughout this report.
For a reconciliation of these non-GAAP measures to the amounts included in our Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 and to our Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, and certain limitations inherent in such measures, please see the discussion under “Non-GAAP Financial Performance Measures”, beginning on page 36.
This discussion also includes references to “advanced-stage properties”, which are defined as properties for which advanced studies and reports have been completed indicating the presence of mineralized material or proven and probable reserves, or that have obtained or are in the process of obtaining the required permits. Our designation of certain properties as “advanced-stage properties” should not suggest that we have or ever will have proven or probable reserves at those properties as defined by Regulation S-K 1300.
OVERVIEW
We were organized under the laws of the State of Colorado on July 24, 1979. We are engaged in the exploration, development, production and sale of gold and silver and exploration for copper.
We operate in the United States, Canada, Mexico and Argentina. We own a 100% interest in the Gold Bar mine in Nevada, the Fox Complex gold mines in Ontario, Canada, the El Gallo project and the Fenix silver-gold project in Sinaloa, Mexico, a 68% interest in the Los Azules copper deposit in San Juan, Argentina, and a portfolio of exploration properties in Nevada, Canada, Mexico and Argentina. We also own a 49% interest in Minera Santa Cruz S.A. (“MSC”), owner of the producing San José silver-gold mine in Santa Cruz, Argentina, which is operated by the joint venture majority owner, Hochschild Mining plc.
In this report, “Au” represents gold; “Ag” represents silver; “oz” represents troy ounce; “t” represents metric tonne; “gpt” represents grams per metric tonne; “ft.” represents feet; “m” represents meter; “sq.” represents square; and C$ refers to Canadian dollars. All of our financial information is reported in United States (U.S.) dollars unless otherwise noted. Throughout this Management’s Discussion and Analysis (“MDA”), the reporting periods for the three months ended September 30, 2022 and 2021 are abbreviated as Q3/22 and Q3/21, respectively, and the reporting periods for the nine months ended September 30, 2022 and 2021 are abbreviated as 9M/22 and 9M/21, respectively.
In addition, in this report, gold equivalent ounces (“GEO”) includes gold and silver ounces converted to gold equivalent calculated based on a 78:1 silver to gold ratio for the first quarter of 2022, 83:1 silver to gold ratio for the second quarter
21
of 2022, 90:1 silver to gold ratio for the third quarter of 2022, 68:1 silver to gold for the first quarter of 2021, 68:1 for the second quarter of 2021 and 83:1 silver to gold ratio for the third quarter of 2021.
Response to the COVID-19 Pandemic
We are continuing to closely monitor and respond, as possible, to the ongoing COVID-19 pandemic. As the situation continues to evolve, ensuring the health and safety of the Company’s employees and contractors is one of our top priorities.
The long-term impact of the COVID-19 pandemic on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak, variants of the COVID-19 virus, related advisories and restrictions and the success and acceptance of various vaccines, and other adverse effects caused (or contributed to) by pandemic, such as supply chain constraints, labor shortages and inflationary pressures. Management is actively monitoring the global situation and its effect on our financial condition, liquidity, operations, suppliers, industry and workforce.
In response to the need to protect our employees and our company, we formed our COVID-19 Task Team. The Task Team consists of management members from each operating site and office and has coordinated steps to prevent a wider spread of the virus, while exchanging information with associations, governments and industry peers. We have implemented preventative measures to ensure a safe working environment for our employees and contractors and to prevent the spread of COVID-19 including facilitating access to vaccinations at our sites by coordinating with local health authorities.
As of September 30, 2022, corporate employees have returned to the head office working on a hybrid in-office and home-based work schedule.
During Q3/22, we did not qualify for any additional COVID-19 relief funds through the Canadian government’s Canadian Emergency Wage Subsidy and Canadian Emergency Rent Subsidy programs. The Canadian government closed these relief funds at the end of October 2021.
Index to Management’s Discussion and Analysis:
23 | |
24 | |
24 | |
25 | |
25 | |
27 | |
27 | |
27 | |
28 | |
28 | |
28 | |
30 | |
31 | |
31 | |
31 | |
32 | |
MSC operating results | 32 |
34 | |
Los Azules Project | 34 |
35 | |
40 | |
40 | |
40 |
22
OPERATING AND FINANCIAL HIGHLIGHTS
Highlights for Q3/22 are included below and discussed further under Consolidated Financial Performance:
Operational Highlights
| ● | The Company’s consolidated operations produced 35,653 GEOs for the three months ended September 30, 2022, compared to 42,874 GEOs during the same period in 2021. This included 16,326 GEOs from our 100% owned operations and 19,328 attributable GEOs from the San José Mine(1). The 16,326 GEOs were 23% lower than same period last year and the 19,328 GEOs were 11% lower than the same period last year. |
| ● | McEwen Copper has been active in progressing the Los Azules copper project in Argentina on multiple areas including drilling, road construction, technical studies, and community engagement. McEwen Copper is on track for it’s update of the Preliminary Economic Assessment (PEA) and once the PEA is complete aims to advance the work on a Feasibility Study level of detail. The overall program may be further optimized based on the outcome of the PEA and by ongoing study work. |
| ● | On April 1, 2022, the Gold Bar mine received the regulators’ record of decision approving the amendment to the plan of operations to include and proceed with the development of the Gold Bar South Project. Mining activities and production are expected to begin during Q4/22. |
| ● | Froome mine at the Fox Complex continues to perform as expected in terms of ore grade and tonnage. |
Financial Highlights
| ● | Cash and cash equivalents of $54.9 million were reported as at September 30, 2022. |
| ● | We had positive working capital of $38.0 million as at September 30, 2022. |
| ● | Revenues of $26.0 million were reported in Q3/22 from the sale of 15,408 GEOs from our 100% owned operations at an average realized price(2) of $1,742 per gold equivalent ounce. |
| ● | We reported a cash gross profit (2) of $5.8 million in Q3/22, with a gross profit of $1.5 million. We reported a net loss of $10.5 million. |
Exploration
| ● | We spent $12.8 million on exploration and advanced projects in Q3/22, with the primary focus on advancing the Los Azules Copper Project in Argentina and expanding the resource base at Stock West (Fox Complex), Canada and at Gold Bar mine areas, USA. |
| (1) | At our 49% attributable interest. |
| (2) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. See “Non-GAAP Financial Performance Measures” beginning on page 36. |
23
SELECTED CONSOLIDATED FINANCIAL AND OPERATING RESULTS
The following tables present select financial and operating results of our company for the three and nine months ended September 30, 2022 and 2021:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
(in thousands, except per share) | ||||||||||||
Revenue from gold and silver sales(1) | $ | 25,988 | $ | 37,129 | $ | 82,177 | $ | 101,575 | ||||
Production costs applicable to sales | $ | (20,172) | $ | (30,760) | $ | (70,939) | $ | (85,481) | ||||
Loss before income and mining taxes | $ | (11,066) | $ | (18,242) | $ | (45,351) | $ | (39,734) | ||||
Net loss | $ | (10,530) | $ | (17,401) | $ | (43,712) | $ | (35,856) | ||||
Net loss per share | $ | (0.21) | $ | (0.38) | $ | (0.91) | $ | (0.79) | ||||
Cash used in operating activities | $ | (6,197) | $ | (21,656) | $ | (50,552) | $ | (19,076) | ||||
Cash additions to mineral property interests and plant and equipment | $ | (25,392) | $ | (8,111) | $ | (17,140) | $ | (28,483) | ||||
| (1) | Excludes revenue from the San José mine, which is accounted for under the equity method. |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
(in thousands, except per ounce) | ||||||||||||
Produced - gold equivalent ounces(1) | 35.7 | 42.9 | 97.1 | 114.2 | ||||||||
100% owned operations | 16.4 | 21.3 | 47.4 | 57.7 | ||||||||
San José mine (49% attributable) | 19.3 | 21.6 | 49.7 | 56.5 | ||||||||
Sold - gold equivalent ounces(1) | 35.0 | 42.4 | 95.4 | 113.2 | ||||||||
100% owned operations | 15.4 | 21.1 | 46.3 | 57.4 | ||||||||
San José mine (49% attributable) | 19.6 | 21.3 | 49.1 | 55.8 | ||||||||
Average realized price ($/Au Eq. oz)(2)(3) | $ | 1,742 | $ | 1,793 | $ | 1,833 | $ | 1,802 | ||||
P.M. Fix Gold ($/oz) | $ | 1,729 | $ | 1,790 | $ | 1,824 | $ | 1,805 | ||||
Cash cost per ounce ($/Au Eq. oz sold):(2) | ||||||||||||
100% owned operations | $ | 1,219 | $ | 1,390 | $ | 1,342 | $ | 1,400 | ||||
San José mine (49% attributable) | $ | 1,223 | $ | 1,100 | $ | 1,300 | $ | 1,098 | ||||
AISC per ounce ($/Au Eq. oz sold):(2) | ||||||||||||
100% owned operations | $ | 1,659 | $ | 1,539 | $ | 1,760 | $ | 1,555 | ||||
San José mine (49% attributable) | $ | 1,562 | $ | 1,466 | $ | 1,718 | $ | 1,441 | ||||
Cash gross profit(2) | $ | 5,816 | $ | 6,369 | $ | 11,238 | 16,094 | |||||
Silver : Gold ratio(1) | 90 : 1 | 73 : 1 | 83 : 1 | 70 : 1 | ||||||||
| (1) | Silver production is presented as a gold equivalent with a silver: gold ratio of 90:1 for Q3/22 and 73:1 for Q3/21. See page 22. |
| (2) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. See “Non-GAAP Financial Performance Measures” beginning on page 36. |
| (3) | On sales from 100% owned operations only, excluding sales from our stream. |
CONSOLIDATED PERFORMANCE
In Q3/22, we reported a net loss of $10.5 million (or $0.21 per share) compared to a loss of $17.4 million (or $0.38 per share) in Q3/2021. The current net loss includes $12.8 million of expenditures on exploration activities and advanced projects, of which $7.8 million was related to expenditures for the Los Azules project and $5.0 million on the continued exploration at our Canadian, US and Mexico operating sites. The improvement in net loss in Q3 2022 is mostly due to foreign currency gains.
24
Cash gross profit (a non-GAAP measure) of $5.8 million for Q3/22 decreased by $0.6 million from the $6.4 million cash gross profit recorded in Q3/21. The decrease in cash gross profit of $0.5 million is attributed to decreased revenue by $11.1 million, partially offset by lower production costs of $10.6 million during Q3/22 as compared to Q3/21. Please see Results of Operations section.
Production of gold equivalent ounces (GEOs) from our 100% owned mines in Q3/22 decreased from Q3/21: 16,326 versus 21,258 GEOs respectively, as a result of lower production at the Gold Bar mine.
Our share of the San José mine production was 19,328 GEOs in Q3/22, which was 11% lower than the 21,600 GEOs produced in Q3/21, primarily due to lower gold grades processed and recovery rates.
CONSOLIDATED OPERATIONS REVIEW
Revenue from gold and silver sales in Q3/22 of $26.0 million decreased by 30% or $11.1 million compared to Q3/21 of $37.1 million. The lower revenue in Q3/22 compared to Q3/21 is attributable to the decrease in GEOs sales and by a slight decrease in realized gold price which was $51/oz lower year over year.
Production Costs applicable to sales in Q3/22 decreased by 34% or $10.6 million compared to Q3/21. The decrease is driven by production costs at all of our operations. This is discussed further in the “Operations Review” section.
Advanced project costs for Q3/22 of $8.8 million, increased from the $4.0 million, spent in Q3/21. Costs during Q3/22 were largely driven by expenditures to advance the Los Azules Copper Project. Costs during Q3/21 included continued spending for the Fox Complex expansion PEA and the Fenix project in Mexico, however there were no costs to advance the Los Azules project in the same period last year.
Exploration costs of $3.9 million for Q3/22 decreased from $6.2 million in Q3/21. The spending in Q3 2022 was to continue exploration to expand high-potential target areas in the Timmins region of Ontario and at the Nevada operations.
Income from investment in MSC of $0.8 million in Q3/22 represents a $3.4 million positive change from the $2.6 million loss recognized in the Q3/21 period. The income from investment in MSC attributable to the Company includes amortization of the fair value increments arising from the initial purchase price allocation and related income tax recovery. This is discussed further in Note 9 to the Consolidated Financial Statements.
Reclamation and remediation expenses of $0.5 million in Q3/22 compared to $1.3 million for Q3/21. The expense decreased by $0.8 million from Q3/21 due to reclamation completed at Tonkin Springs and estimate updates.
Interest and other finance expenses, net of $1.8 million in Q3/22 compared to $2.1 million in Q3/21.
Other income of $6.3 million in Q3/22 increased from the $1.3 million recognized in Q3/21. This is discussed further in Notes 4 and 5 to the Consolidated Financial Statements.
Income and mining tax recovery of $0.5 million for Q3/22 decreased compared to $0.8 million in Q3/21. The decrease in the tax recovery for Q3/22 is primarily due to the flow-through share premium amortization.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents and restricted cash balance as at September 30, 2022 of $58.7 million decreased by $1.9 million, from $60.6 million as at December 31, 2021. This was driven by cash used in operating activities of $50.6 million, Cash used in investing activities of $16.9 million and cash provided by financing activities of $65.5 million.
Cash used in operating activities was impacted by a net loss of $44.0 million, payments to vendors of $4.3 million, an increase of assets related to operations of $14.6 million and a change in reclamation costs of $4.0 million, refer to Note 11 to the Consolidated Financial Statements for the details on the change in reclamation costs.
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Cash from financing activities, during the nine months ended September 30, 2022, included net proceeds of $14.4 million (gross proceeds of $15.1 million) from the issuance of Canadian exploration expenditures (“CEE”) flow-through shares on March 2, 2022. We are required to spend the flow-through share proceeds on CEE flow-through eligible expenditures as defined by subsection 66.2(5) of the Income Tax Act (Canada). For more details on our flow-through share financing, refer to Note 12 to the Consolidated Financial Statements. Cash proceeds of $15.0 million were provided through an unsecured loan provided by a related party that will be used for working capital purposes. Details on the promissory note and the loan can be found in Note 10 and Note 14 of the accompanying Consolidated Financial Statements. Additionally, the second tranche of the private placement of $10 million investment by the Victor Smorgon Group advised by Arete Capital Partners, both of Australia, and $5 million from other investors, for total gross proceeds of $15.0 million. The amounts raised in third tranche of the private placement now stand at $26.9 million (Note 18).
Cash used in investing activities of $16.9 million in Q3/22 was largely driven by additions to mineral properties of $17.1 million less dividends received of $0.3 million. Additions to mineral properties in Q3/21 was $28.5 million and dividends received were $7.6 million.
Working capital as at September 30, 2022 was $38.0 million, and increased by $5.4 million from working capital of $32.6 million as at December 31, 2021. The change is largely attributed to the financings completed in the 2022 period, partially offset by cash used in operating and investing activities. Current liabilities at September 30, 2022 include $4 million in debt, which has been reclassified from the long-term liabilities as the principal payments under the ARCA become due beginning in August 2023.
We believe we have sufficient liquidity along with funds generated from ongoing operations, to fund anticipated cash requirements for operations, capital expenditures and working capital purposes for the next 12 months.
26
OPERATIONS REVIEW
U.S.A. Segment
The U.S.A. segment is comprised of the Gold Bar mine and other exploration properties in Nevada, U.S.A.
Gold Bar Mine
The following table summarizes certain operating results for the Gold Bar mine for the three and nine months ended September 30, 2022 and 2021:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating Results | (in thousands, unless otherwise indicated) | |||||||||||
Mined mineralized material (t) |
| 510 |
| 606 |
| 1,295 |
| 1,716 | ||||
Average grade (gpt Au) |
| 0.60 |
| 0.62 |
| 0.66 |
| 0.70 | ||||
Processed mineralized material (t) |
| 442 |
| 638 |
| 1,196 |
| 1,768 | ||||
Average grade (gpt Au) |
| 0.62 |
| 0.61 |
| 0.67 |
| 0.71 | ||||
Gold equivalent ounces: | ||||||||||||
Produced |
| 7.2 |
| 12.4 |
| 18.6 |
| 33.9 | ||||
Sold |
| 7.2 |
| 12.1 |
| 18.7 |
| 33.7 | ||||
Revenue from gold and silver sales | $ | 12,596 | $ | 21,683 | $ | 34,334 | $ | 60,919 | ||||
Cash costs(1) | $ | 12,357 | $ | 18,753 | $ | 34,834 | $ | 53,376 | ||||
Cash cost per ounce ($/Au Eq. oz sold)(1) | $ | 1,712 | $ | 1,553 | $ | 1,859 | $ | 1,582 | ||||
All‑in sustaining costs(1) | $ | 14,787 | $ | 19,541 | $ | 42,171 | $ | 56,875 | ||||
AISC per ounce ($/Au Eq. oz sold)(1) | $ | 2,049 | $ | 1,618 | $ | 2,251 | $ | 1,685 | ||||
Silver : gold ratio |
| 90 : 1 |
| 73 : 1 |
| 83 : 1 |
| 70 : 1 | ||||
| (1) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 36 for additional information. |
2022 compared to 2021
Gold Bar produced 7,186 GEOs in Q3/22, which reflects a 42% decrease from the 12,436 GEOs produced in Q3/21. The decrease was partly due to the presence of carbonaceous material that needed to be treated as waste and the lower mining rates from the mining contractor due to the staffing issues on their side. Our mining contractor halted work on September 29 and elected to leave our mine as a result of disagreements over billing rates and practices. The termination of this relationship is expected to result in litigation.
Subsequent to the quarter end, we engaged a new mining contractor to resume mining activities. The change of contractor will have some impact on costs and production in Q4, however it is not expected to be material compared to Q3.
Regulatory approval to amend the plan of operations to include the Gold Bar South (“GBS”) deposit was received April 1, 2022. The work to develop GBS with the construction of the access road should be completed by late Q4.
Revenue from gold and silver sales of $12.6 million from Gold Bar in Q3/22 decreased from the $21.7 million revenue in Q3/21. This reflected the 40% decrease in GEOs sold, partially offset by a 3% decrease in realized gold price ($1,742/GEO in Q3/22 compared to $1,793/GEO in Q3/21).
Production costs applicable to sales of $12.4 million in Q3/22 decreased by $6.4 million from the $18.8 million in Q3/21. The lower costs were driven by lower tonnes mined (ore and waste) as management reforecasted mine plan to avoid mining in preg-robbing carbonaceous material in the Pick Central.
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Cash cost and AISC per gold equivalent ounce sold in Q3/22 were $1,712/oz and $2,049/oz, respectively. This compares to the respective Q3/21 results of $1,553/oz and $1,618/oz. The higher cash cost, on a per ounce basis, was the result of a lower number of ounces sold in Q3/22, compared to Q3/21, 7,217 GEOs vs 12,075 GEOs respectively.
The Company’s independent technical experts have provided an initial indication that the number of ounces of Au on the heap leach processing pad may be materially higher than presently documented. The Company is in the process of confirming this and results should be expected in the fourth quarter of 2022.
Exploration Activities – Nevada
In Q3, we spent $1.1 million on exploration activities. With the support of a team of McEwen geologists from Argentina and Mexico, a campaign of regional geological mapping and rock chip sampling was conducted.
Also during the quarter, sample analyses were returned for the Atlas Mine drill program conducted in Q2. No significant results were obtained.
Canada Segment
The Canada segment is comprised of the Fox Complex gold properties, which includes the Black Fox underground mine which is on care and maintenance, the Froome underground mine currently in operation feeding the mill and the Grey Fox and Stock advanced-stage projects, the Stock mill, and other gold exploration properties located in Timmins, Ontario, Canada.
Fox Complex
Black Fox mine production ceased in 2021 as commercial production was reached at the Froome mine on September 19, 2021.
On January 26, 2022, we announced the results of our PEA on the Fox Complex. The PEA estimates positive economics for our expansion project at Fox, where after depletion of Froome, production could continue for another 9 years, at average of 80,800 oz gold per year. Overall, estimated economics predict an IRR of 21% at a gold price of $1,650/oz, at average cash costs and AISC of $769/oz and $1,246/oz, respectively. Work continues to look at opportunities to optimize the payback period of the Fox Complex.
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The following table summarizes the operating results for the Fox Complex mines for the three and nine months ended September 30, 2022, and 2021:
Three months ended September 30, | Nine months ended September 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Operating Results | (in thousands, unless otherwise indicated) | ||||||||||||
Mined mineralized material (t) |
| 112 |
| 81 |
| 325 |
| 185 |
| ||||
Average grade (gpt Au) |
| 3.66 |
| 3.12 |
| 3.54 |
| 3.14 |
| ||||
Processed mineralized material (t) |
| 85 |
| 93 |
| 257 |
| 211 |
| ||||
Average grade (gpt Au) |
| 3.68 |
| 3.04 |
| 3.78 |
| 3.17 |
| ||||
Gold equivalent ounces: | |||||||||||||
Produced |
| 9.0 |
| 8.3 |
| 27.9 |
| 20.6 |
| ||||
Sold | 8.0 | 8.4 | 26.7 | 20.5 | |||||||||
Revenue from gold and silver sales | $ | 13,058 | $ | 14,227 | $ | 46,200 | $ | 34,966 | |||||
Cash costs(1) | $ | 6,196 | $ | 9,635 | $ | 26,103 | $ | 22,622 | |||||
Cash cost per ounce ($/Au Eq. oz sold)(1) | $ | 774 | $ | 1,154 | $ | 978 | $ | 1,102 | |||||
All‑in sustaining costs(1) | $ | 10,474 | $ | 11,886 | $ | 37,743 | $ | 27,500 | |||||
AISC per ounce ($/Au Eq. oz sold)(1) | $ | 1,308 | $ | 1,423 | $ | 1,415 | $ | 1,339 | |||||
Silver : gold ratio |
| 90 : 1 |
| 73 : 1 |
| 83 : 1 |
| 70 : 1 | |||||
(1) As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 36 for additional information.
2022 compared to 2021
Production in Q3/22 from the Fox Complex was 8,970 GEOs, compared to 8,259 GEOs in Q3/21, a 9% production increase. Fox Complex production was exclusively from the Froome mine, whereas in Q3/21, the Froome mine was still ramping up to commercial production.
Revenue from gold sales of $13.1 million decreased in Q3/22 by $1.2 million compared to Q3/21. The decrease reflects fewer GEOs sold and a lower average realized gold price in Q3/22 versus Q3/21.
Production costs applicable to sales of $6.2 million in Q3/22 decreased by $3.4 million, compared to $9.6 million in Q3/21. The lower costs were predominately due to increase in stockpile due to the mill constraints.
Cash cost and AISC per gold equivalent ounce sold were $774/oz and $1,308/oz in Q3/22, respectively, and $1,154/oz and $1,423/oz in Q3/21, respectively. As discussed above, the decrease in cash costs and AISC in Q3/22 compared to Q3/21 was primarily driven by increasing stockpile inventory.
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Exploration Activities
In Q3, we incurred $2.7 million for exploration including 17,051 metres (55,927 feet) of surface drilling in 23 holes at Stock and 11 holes at the Black Fox property. The focus of our work during the quarter included:
| ● | Continuing delineation of the Stock West deposit based on an in-fill strategy developed in coordination with consultants and designed to save several thousand metres of planned drilling; |
| ● | Expansion of shallow mineralization identified proximal to the past-producing Stock Mine; |
| ● | Test high grade drill results from 2021 at Gibson and Whiskey Jack targets at Grey Fox in order to potentially expand known mineral resources; |
| ● | Conduct initial drilling on the southern PNG claim at the Black Fox property and |
| ● | Initiate an internal updated resource estimate on the Stock Property to assess the value of results returned since the last estimate in 2021. This work is anticipated to be completed in Q4 2022. |
Four areas of interest have emerged from the program that may be expanded with additional drilling in 2022. Five drills were active on surface at the end of the quarter.
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Mexico Segment
The Mexico segment includes the El Gallo Project (formerly “El Gallo 1” or “El Gallo Mine”) and the advanced-stage Fenix Project, located in Sinaloa, Mexico.
El Gallo Project
Current activities at the El Gallo Project are limited to residual leaching as part of closure and reclamation plans.
The following table summarizes certain operating results at the El Gallo Project for the three and nine months ended September 30, 2022, and 2021:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating Results | (in thousands, unless otherwise indicated) | |||||||||||
Gold ounces: | ||||||||||||
Produced |
| 0.2 |
| 0.6 |
| 0.9 |
| 3.0 | ||||
Sold |
| 0.2 |
| 0.7 |
| 0.9 |
| 3.1 | ||||
Silver ounces: | ||||||||||||
Produced |
| 0.0 |
| 0.1 |
| 0.6 |
| 5.0 | ||||
Sold |
| 0.5 |
| 1.4 |
| 0.9 |
| 5.9 | ||||
Gold equivalent ounces: | ||||||||||||
Produced |
| 0.2 |
| 0.6 |
| 0.9 |
| 3.1 | ||||
Sold |
| 0.2 |
| 0.7 |
| 0.9 |
| 3.2 | ||||
Revenue from gold and silver sales | $ | 334 | $ | 1,219 | $ | 1,643 | $ | 5,690 | ||||
Silver : gold ratio |
| 90 : 1 |
| 73 : 1 |
| 83 : 1 | 70 : 1 | |||||
Cash costs and All-in-sustaining costs
As the El Gallo Project’s gold production and sales are the result of residual leaching activities, we have ceased relying on and disclosing cash cost and AISC per gold equivalent ounce as key metrics for the operation. Incremental residual leaching costs included production costs less inventory movements.
The decrease in residual leaching costs for Q3/22 was $0.5 million, resulting in a final $0.3 million write-down of the heap leach and in-circuit inventory balances. The residual leaching activities at El Gallo are expected to cease in Q4/22.
2022 compared to 2021
Production and revenue, as expected, decreased in Q3/22, compared to Q3/21, as we wind down our residual heap leach operation.
An agreement to purchase a second-hand gold processing plant and associated equipment was executed in September 2022 for a purchased price of $2.8 million, and a 50% of down payment was completed upon signing. This package includes substantially all the major components required for Phase 1 of the Fenix project and excess items that will be sold or used at other operations. This equipment purchase materially reduces the Phase 1 capital investment required (as described below).
Advanced-Stage Properties – Fenix Project
We announced on December 31, 2020 the results of a feasibility study for the development of its 100%-owned Fenix Project, which includes the El Gallo Gold and El Gallo Silver deposits, located in Sinaloa, Mexico.
The study envisions a 9.5-year mine life with an after-tax IRR of 28% using $1,500/oz gold and $17/oz silver, with an estimated initial capital expenditure of $42 million for Phase 1 and $24 million for Phase 2. The project implementation is envisioned in two distinct phases: Phase 1 (years 1 to 6) - gold production from heap leach reprocessing, and Phase 2 (years 7 to 10) - silver production from open pit mining.
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The key environmental permits for Phase 1 were received in 2019, including the approval for an in-pit tailings storage facility and process plant construction.
The Fenix Project feasibility study was published on February 16, 2021 and is available for review on our website and SEDAR (www.sedar.com).
Multiple strategic alternatives continue to be evaluated for the project including lower capital costs, potential base metal evaluation and the possible divestiture of our Mexican business unit.
MSC Segment, Argentina
The MSC Segment is comprised of a 49% interest in the San José mine, located in Santa Cruz, Argentina.
The following table sets out certain operating results for the San José mine for the three and nine months ended September 30, 2022 and 2021 on a 100% basis:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating Results | (in thousands, except otherwise indicated) | |||||||||||
San José Mine—100% basis | ||||||||||||
Mined mineralized material (t) |
| 169 |
| 149 |
| 405 |
| 387 | ||||
Average grade mined (gpt) | ||||||||||||
Gold |
| 4.2 |
| 5.2 |
| 5.0 |
| 5.3 | ||||
Silver |
| 371 |
| 375 |
| 353 |
| 351 | ||||
Processed mineralized material (t) |
| 149 |
| 150 |
| 354 |
| 396 | ||||
Average grade processed (gpt) | ||||||||||||
Gold |
| 4.9 |
| 5.2 |
| 5.6 |
| 5.4 | ||||
Silver |
| 413 |
| 381 |
| 385 |
| 343 | ||||
Average recovery (%): | ||||||||||||
Gold |
| 86.4 |
| 87.8 |
| 87.3 |
| 88.6 | ||||
Silver |
| 87.9 |
| 88.1 |
| 88.0 |
| 88.2 | ||||
Gold ounces: | ||||||||||||
Produced |
| 20.1 |
| 22.1 |
| 56.0 |
| 60.5 | ||||
Sold |
| 20.1 |
| 21.6 |
| 54.7 |
| 59.1 | ||||
Silver ounces: | ||||||||||||
Produced |
| 1,739 |
| 1,613 |
| 3,862 |
| 3,856 | ||||
Sold |
| 1,788 |
| 1,605 |
| 3,868 |
| 3,841 | ||||
Gold equivalent ounces: | ||||||||||||
Produced |
| 39.4 |
| 44.2 |
| 101.5 |
| 115.6 | ||||
Sold |
| 40.0 |
| 43.5 |
| 100.2 |
| 114.0 | ||||
Revenue from gold and silver sales | $ | 65,278 | $ | 72,098 | $ | 176,808 | $ | 195,797 | ||||
Average realized price: | ||||||||||||
Gold ($/Au oz) | $ | 1,632 | $ | 1,656 | $ | 1,759 | $ | 1,718 | ||||
Silver ($/Ag oz) | $ | 18.14 | $ | 22.68 | $ | 20.81 | $ | 24.54 | ||||
Cash costs(1) | $ | 48,930 | $ | 47,911 | $ | 130,231 | $ | 125,166 | ||||
Cash cost per ounce ($/Au Eq. oz sold)(1) | $ | 1,223 | $ | 1,100 | $ | 1,300 | $ | 1,098 | ||||
All‑in sustaining costs(1) | $ | 62,489 | $ | 63,855 | $ | 172,130 | $ | 164,256 | ||||
AISC per ounce ($/Au Eq. oz sold)(1) | $ | 1,562 | $ | 1,466 | $ | 1,718 | $ | 1,441 | ||||
Silver : gold ratio | 90 : 1 |
| 73 : 1 |
| 83 : 1 |
| 70 : 1 | |||||
(1) As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 36 for additional information.
32
The analysis below compares the operating and financial results of MSC on a 100% basis.
Q3 2022 compared to Q3 2021
Gold and silver production each decreased by 11% in Q3/22, compared to Q3/21. The decrease is attributed to a lower head grade of both gold and silver. Operations in Q3/22 returned to normal production levels compared to Q3/21 where production was significantly limited due to decreased staffing availability as a result of COVID-19 cases.
Revenue from gold and silver sales decreased by 9% in Q3/22, compared to Q3/21. The decrease reflects a decrease in GEOs sold in Q3/22, and slight decrease in realized prices per ounce of both gold and silver.
Cash costs in Q3/22 increased by $1.0 million, or 2%, compared to Q3/21.
All-in sustaining cost GEO sold in Q3/22 of $1,562/oz increased slightly compared to the $1,466/oz incurred in Q3/21.
Investment in MSC
Our 49% attributable share of operations from our investment in MSC in Q3/22 resulted in a $0.8 million income, compared to a loss of $2.7 million in Q3/21.
MSC Dividend Distribution (49%)
There were dividends received from MSC of $0.3 million in 9M/22, compared to $7.6 million in dividends received during the same period in 2021.
McEwen Copper Inc.
The Company owns a 68.13% interest in McEwen Copper Inc. (“McEwen Copper”), which owns a 100% interest in the Los Azules copper project in San Juan, Argentina, and the Elder Creek exploration project in Nevada, USA.
On August 23, 2021, McEwen Copper successfully closed the first tranche of the proposed $80 million private placement (the “Offering”), with a $40 million investment by Robert McEwen, Chairman and Chief Owner.
On June 21, 2022, McEwen Copper closed the second tranche of the Offering with a $10 million investment by the Victor Smorgon Group and $5 million from other investors, for total gross proceeds of $15 million.
On August 31, 2022, McEwen Copper raised $26.25 million towards the final tranche of the oversubscribed $81.85 million Offering including a $25 million investment by Nuton LLC, a Rio Tinto Venture.
McEwen Copper will use proceeds from the Offering to conduct exploration drilling, complete new resource model, baseline monitoring for environmental permitting, community development and relations, other technical work and general corporate purposes. Publication of an updated Preliminary Economic Accessment (“PEA") on the Los Azules copper project is planned in Q1 2023.
On October 24, 2022, McEwen Copper signed an agreement whereby Kennecott Exploration Company (“KEX”), a subsidiary of Rio Tinto for KEX, to earn a 60% interest in the Elder Creek property by investing $18 million over up to seven years (the “Expenditure Commitment”). If and when the expenditure commitment is completed, KEX and McEwen Copper will form an unincorporated 60:40 joint venture.
33
Los Azules, San Juan, Argentina
The Los Azules project is one of the world’s largest undeveloped open-pit copper porphyry deposits and is located in the Province of San Juan, Argentina. The total indicated and inferred resources were estimated at 10.2 and 19.3 billion lbs. of copper, respectively, as defined in a technical report that was completed in 2017. Since that time, extensive enterprise optimization work has been completed on potential larger scale, lower cost and lower carbon footprint options revealing opportunities to guide the drilling and technical workflows. Please refer to our website at www.mcewenmining.com for further details.
McEwen Copper spent $7.6 million dollars in Q3/22 on the activities below.
Drilling Program
Several drilling contractors were secured for the upcoming drilling season and mobilization commenced in September. Starting in early October the exploration road was operational and site access was available.
The drilling program aims to:
| 1. | Improve the structural and geo-metallurgical understanding of the deposit and geologic model. |
| 2. | Support the development of a feasibility study to be completed by 2024 and |
| 3. | Further improve the confidence in the mineral resource estimate and expand the overall resource base. |
Road Construction
The Company aims for access to the site for much of the year to advance exploration activities. A new low altitude road access (max 3,400 metres above sea level “MASL”) has been developed, it has only one high mountain pass and we share part of the road with other mining projects including El Pachon (Glencore) and Altar (Aldebaran Resources). The road will be further upgraded and was succesfully used for demobilization and allowed for extension of drilling season through May of 2022. The two existing roads to the site are anticipated to provide near year-round access to adequately support the current phase of work.
Technical Studies
The study teams continued to work on an updated PEA to include all drill information, assay information and metallurgical testing of core obtained during the 2017, 2018 and 2022 exploration seasons. Work on trade-off studies related to power supply and the potential for renewables, mining methods and processing options, an updated glacier study, and initial geotechnical field of work for the design of the tailing and waste storage facilities were continued during the quarter. Hydro-geological assessments of historical information and the re-establishment of existing water monitoring locations was started.
All hyperspectral scanning of available core has been completed for new and historic core. Data from this initiative will ensure a refined and improved geological and resource model. By end of Q3, some 62,500 meters of current and historic drilling had been scanned and processed.
A preliminary optimization study was completed in Q1/22 using existing information and was further refined during Q2 & Q3. The study focused on the following objectives: improve value, optimize scale and capital requirements, reduce complexity, minimize risks and enable fast trade-off analysis of environmentally friendly and regenerative solutions. The analysis continues to show there is potential to include several changes to previous limitations which could create a significant increase in the value of the project which the company aims to include in the forthcoming PEA update Q1/23.
Metallurgical studies continue, utilizing international certified laboratories as well as additional confirmation work with the Institute of Mining Investigations, part of the engineering faculty of the University of San Juan.
The preparation of the Exploitation Environmental Impact Report, the basis for environmental permitting, has been awarded to Knight Piesold and the drafting of the report is underway.
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NON-GAAP FINANCIAL PERFORMANCE MEASURES
We have included in this report certain non-GAAP financial performance measures as detailed below. In the gold mining industry, these are common performance measures but do not have any standardized meaning and are considered non-GAAP measures. We use these measures in evaluating our business and believe that, in addition to conventional measures prepared in accordance with GAAP, certain investors use such non-GAAP measures to evaluate our performance and ability to generate cash flow. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. There are limitations associated with the use of such non-GAAP measures. We compensate for these limitations by relying primarily on our U.S. GAAP results and using the non-GAAP measures supplementally.
The non-GAAP measures are presented for our wholly owned mines and the San José mine. The GAAP information used for the reconciliation to the non-GAAP measures for the San José mine may be found in Note 9, Investment in Minera Santa Cruz S.A. (“MSC”) – San José Mine. The amounts in the tables labeled “49% basis” were derived by applying to each financial statement line item the ownership percentage interest used to arrive at our share of net income or loss during the period when applying the equity method of accounting. We do not control the interest in or operations of MSC and the presentations of assets and liabilities and revenues and expenses of MSC do not represent our legal claim to such items. The amount of cash we receive is based upon specific provisions of the Option and Joint Venture Agreement (“OJVA”) and varies depending on factors including the profitability of the operations.
The presentation of these measures, including those for MSC, has limitations as an analytical tool. Some of these limitations include:
| ● | The amounts shown on MSC’s individual line items do not represent our legal claim to its assets and liabilities, or the revenues and expenses; and |
| ● | Other companies in our industry may calculate their cash gross profit, cash costs, cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, average realized price per ounce, and liquid assets differently than we do, limiting the usefulness as a comparative measure. |
Cash Gross Profit or Loss
Cash gross profit or loss is a non-GAAP financial measure and does not have any standardized meaning. We use cash gross profit to evaluate our operating performance and ability to generate cash flow; we disclose cash gross profit as we believe this measure provides valuable assistance to investors and analysts in evaluating our ability to finance our ongoing business and capital activities. The most directly comparable measure prepared in accordance with GAAP is gross profit or loss. Cash gross profit is calculated by adding back the depreciation and depletion expense to gross profit or loss.
The following tables present a reconciliation of cash gross profit or loss to the most directly comparable GAAP measure, gross profit or loss:
Three months ended September 30, 2022 | Nine months ended September 30, 2022 | ||||||||||||||||||||||||
Gold Bar | Fox | El Gallo | Total (100% owned) | Gold Bar | Fox | El Gallo | Total (100% owned) | ||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||
Gross profit (loss) | $ | (1,275) | $ | 4,063 | $ | (1,285) | $ | 1,503 | $ | (3,775) | $ | 11,878 | $ | (8,359) | $ | (256) | |||||||||
Add: Depreciation and depletion | 1,514 | 2,799 | — | 4,313 | 3,275 | 8,219 | — | 11,494 | |||||||||||||||||
Cash gross profit (loss) | $ | 239 | $ | 6,862 | $ | (1,285) | $ | 5,816 | $ | (500) | $ | 20,097 | $ | (8,359) | $ | 11,238 | |||||||||
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Three months ended September 30, 2021 | Nine months ended September 30, 2021 | ||||||||||||||||||||||||
Gold Bar | Fox | El Gallo | Total (100% owned) | Gold Bar | Fox | El Gallo | Total (100% owned) | ||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||
Gross (loss) profit | $ | 790 | $ | 707 | $ | (1,153) | $ | 344 | $ | 1,335 | $ | 1,875 | $ | (3,793) | $ | (583) | |||||||||
Add: Depreciation and depletion | 2,140 | 3,885 | — | 6,025 | 6,208 | 10,469 | — | 16,677 | |||||||||||||||||
Cash gross (loss) profit | $ | 2,930 | $ | 4,592 | $ | (1,153) | $ | 6,369 | $ | 7,543 | $ | 12,344 | $ | (3,793) | $ | 16,094 | |||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
San José mine cash gross profit (100% basis) | (in thousands) | |||||||||||
Gross profit | $ | 6,972 | $ | 12,498 | $ | 24,948 | $ | 42,209 | ||||
Add: Depreciation and depletion | 9,376 | 11,690 | 21,629 | 28,422 | ||||||||
Cash gross profit | $ | 16,348 | $ | 24,188 | $ | 46,577 | $ | 70,631 | ||||
Cash Costs and All-In Sustaining Costs
The terms cash costs, cash cost per ounce, all-in sustaining costs, (“AISC”) and all-in sustaining cost per ounce used in this report are non-GAAP financial measures. We report these measures to provide additional information regarding operational efficiencies on an individual mine basis, and believe these measures provide investors and analysts with useful information about our underlying costs of operations.
Cash costs consist of mining, processing, on-site general and administrative expenses, community and permitting costs related to current operations, royalty costs, refining and treatment charges (for both doré and concentrate products), sales costs, export taxes and operational stripping costs, but exclude depreciation and amortization (non-cash items). The sum of these costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.
All-in sustaining costs consist of cash costs (as described above), plus accretion of retirement obligations and amortization of the asset retirement costs related to operating sites, environmental rehabilitation costs for mines with no reserves, sustaining exploration and development costs, sustaining capital expenditures and sustaining lease payments. Our all-in sustaining costs exclude the allocation of corporate general and administrative costs. The following is additional information regarding our all-in sustaining costs:
| ● | Sustaining operating costs represent expenditures incurred at current operations that are considered necessary to maintain current annual production at the mine site and include mine development costs and ongoing replacement of mine equipment and other capital facilities. Sustaining capital costs do not include the costs of expanding the project that would result in improved productivity of the existing asset, increased existing capacity or extended useful life. |
| ● | Sustaining exploration and development costs include expenditures incurred to sustain current operations and to replace reserves and/or resources extracted as part of the ongoing production. Exploration activity performed near-mine (brownfield) or new exploration projects (greenfield) are classified as non-sustaining. |
The sum of all-in sustaining costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.
Costs excluded from cash costs and all-in sustaining costs, in addition to depreciation and depletion, are income and mining tax expense, all corporate financing charges, costs related to business combinations, asset acquisitions and asset disposals, impairment charges and any items that are deducted for the purpose of normalizing items.
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The following tables reconcile these non-GAAP measures to the most directly comparable GAAP measure, production costs applicable to sales; the El Gallo project results are excluded from this reconciliation as the economics of residual leaching operations are measured by incremental revenue exceeding incremental costs expensed in the current period, with the latter not relevant on the evaluation of the residual leaching operations. Residual leaching costs for the three months ended September 30, 2022 were $0.5 million compared to $1.8 million in the same periods of 2021. For this reason, we have ceased relying on, and disclosing, cash cost and all-in sustaining cost per gold equivalent ounce as key metrics for the El Gallo Project.
Three months ended September 30, 2022 | Nine months ended September 30, 2022 | ||||||||||||||||||||
Gold Bar | Fox | Total | Gold Bar | Fox | Total | ||||||||||||||||
(in thousands, except per ounce) | (in thousands, except per ounce) | ||||||||||||||||||||
Production costs applicable to sales - Cash costs (100% owned) |
| $ | 12,357 | $ | 6,196 | $ | 18,553 | $ | 34,834 | $ | 26,103 | $ | 60,937 | ||||||||
Mine site reclamation, accretion and amortization | 202 | — | 202 | 1,435 | — | 1,435 | |||||||||||||||
In‑mine exploration | 767 | — | 767 | 2,830 | — | 2,830 | |||||||||||||||
Capitalized underground mine development (sustaining) | — | 4,080 | 4,080 | — | 11,130 | 11,130 | |||||||||||||||
Capital expenditures on plant and equipment (sustaining) | 1,012 | — | 1,012 | 1,508 | — | 1,508 | |||||||||||||||
Sustaining leases | 448 | 198 | 646 | 1,563 | 509 | 2,072 | |||||||||||||||
All‑in sustaining costs | $ | 14,786 | $ | 10,474 | $ | 25,260 | $ | 42,170 | $ | 37,742 | $ | 79,912 | |||||||||
Ounces sold, including stream (Au Eq. oz)(1) | 7.2 | 8.0 | 15.2 | 18.7 | 26.7 | 45.4 | |||||||||||||||
Cash cost per ounce ($/Au Eq. oz sold) | $ | 1,712 | $ | 774 | $ | 1,219 | $ | 1,859 | $ | 978 | $ | 1,342 | |||||||||
AISC per ounce ($/Au Eq. oz sold) | $ | 2,049 | $ | 1,308 | $ | 1,659 | $ | 2,251 | $ | 1,415 | $ | 1,760 | |||||||||
| (1) | Total gold equivalent ounces sold for Q3/22 was 15,408 and includes gold equivalent ounces sold from the operating mines of 15,222, as disclosed above, and 186 gold equivalent ounces sold from the El Gallo Project for Q3/22. |
Three months ended September 30, 2021 | Nine months ended September 30, 2021 | |||||||||||||||||
Gold Bar | Fox | Total | Gold Bar | Fox | Total | |||||||||||||
(in thousands, except per ounce) | (in thousands, except per ounce) | |||||||||||||||||
Production costs applicable to sales - Cash costs (100% owned) | $ | 18,753 | $ | 9,635 | $ | 28,388 | $ | 53,376 | $ | 22,622 | $ | 75,998 | ||||||
Mine site reclamation, accretion and amortization | 167 | 101 | 268 | 483 | 754 | 1,238 | ||||||||||||
In‑mine exploration | (79) | 568 | 489 | 881 | 1,812 | 2,692 | ||||||||||||
Capitalized underground mine development (sustaining) | — | 857 | 857 | — | 1,088 | 1,088 | ||||||||||||
Capital expenditures on plant and equipment (sustaining) | 310 | 483 | 793 | 853 | 726 | 1,579 | ||||||||||||
Sustaining leases | 390 | 242 | 632 | 1,282 | 498 | 1,780 | ||||||||||||
All‑in sustaining costs | $ | 19,541 | $ | 11,886 | $ | 31,427 | $ | 56,875 | $ | 27,500 | $ | 84,374 | ||||||
Ounces sold, including stream (Au Eq. oz)(1) | 12.1 | 8.4 | 20.4 | 33.7 | 20.5 | 54.3 | ||||||||||||
Cash cost per ounce ($/Au Eq. oz sold) | $ | 1,553 | $ | 1,154 | $ | 1,390 | $ | 1,582 | $ | 1,102 | $ | 1,400 | ||||||
AISC per ounce ($/Au Eq. oz sold) | $ | 1,618 | $ | 1,423 | $ | 1,539 | $ | 1,685 | $ | 1,339 | $ | 1,555 | ||||||
| (1) | Total gold equivalent ounces sold for Q3/21 was 21,100 and includes gold equivalent ounces sold from the operating mines of 20,400, as disclosed above, and 700 gold equivalent ounces sold from the El Gallo Project for Q3/21. |
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Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
San José mine cash costs (100% basis) | (in thousands, except per ounce) | |||||||||||
Production costs applicable to sales - Cash costs | $ | 48,930 | $ | 47,911 | $ | 130,231 | $ | 125,166 | ||||
Mine site reclamation, accretion and amortization | 25 | 116 | 213 | 333 | ||||||||
Site exploration expenses |
| 1,961 | 2,711 | 6,788 | 8,492 | |||||||
Capitalized underground mine development (sustaining) |
| 10,051 | 6,725 | 27,758 | 18,039 | |||||||
Less: Depreciation | (476) | (498) | (1,491) | (1,324) | ||||||||
Capital expenditures (sustaining) |
| 1,998 | 6,890 | 8,630 | 13,551 | |||||||
All‑in sustaining costs | $ | 62,489 | $ | 63,855 | $ | 172,130 | $ | 164,256 | ||||
Ounces sold (Au Eq. oz) | 40.0 | 43.5 | 100.2 | 114.0 | ||||||||
Cash cost per ounce ($/Au Eq. oz sold) | $ | 1,223 | $ | 1,100 | $ | 1,300 | $ | 1,098 | ||||
AISC per ounce ($/Au Eq. oz sold) | $ | 1,562 | $ | 1,466 | $ | 1,718 | $ | 1,441 | ||||
Average realized price
The term average realized price per ounce used in this report is also a non-GAAP financial measure. We prepare this measure to evaluate our performance against the market (London P.M. Fix). The average realized price for our 100% owned properties is calculated as gross sales of gold and silver, less streaming revenue, divided by the number of net ounces sold in the period, less ounces sold under the streaming agreement.
The following table reconciles the average realized prices to the most directly comparable U.S. GAAP measure, revenue from gold and silver sales. Ounces of gold and silver sold for the San José mine are provided to us by MSC.
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Average realized price - 100% owned | (in thousands, except per ounce) | |||||||||||
Revenue from gold and silver sales | $ | 25,988 | $ | 37,129 | $ | 82,177 | $ | 101,575 | ||||
Less: revenue from gold sales, stream | 426 | 326 | 1,237 | 895 | ||||||||
Revenue from gold and silver sales, excluding stream | $ | 25,562 | $ | 36,803 | $ | 80,940 | $ | 100,680 | ||||
Gold equivalent ounces sold | 15.4 | 21.1 | 46.3 | 57.4 | ||||||||
Less: gold ounces sold, stream | 0.7 | 0.6 | 2.2 | 1.6 | ||||||||
Gold equivalent ounces sold, excluding stream | 14.7 | 20.5 | 44.1 | 55.9 | ||||||||
Average realized price per Au Eq. oz sold, excluding stream | $ | 1,742 | $ | 1,793 | $ | 1,833 | $ | 1,802 | ||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Average realized price - San José mine (100% basis) | (in thousands, except per ounce) | |||||||||||
Gold sales | $ | 32,851 | $ | 35,698 | $ | 96,300 | $ | 101,540 | ||||
Silver sales | 32,427 |
| 36,400 | 80,508 |
| 94,258 | ||||||
Gold and silver sales | $ | 65,278 | $ | 72,098 | $ | 176,808 | $ | 195,797 | ||||
Gold ounces sold |
| 20.1 |
| 21.6 | 54.7 |
| 59.1 | |||||
Silver ounces sold |
| 1,788 |
| 1,605 | 3,868 |
| 3,841 | |||||
Gold equivalent ounces sold |
| 40.0 |
| 43.5 | 100.2 |
| 114.0 | |||||
Average realized price per gold ounce sold | $ | 1,632 | $ | 1,656 | $ | 1,759 | $ | 1,718 | ||||
Average realized price per silver ounce sold | $ | 18.14 | $ | 22.68 | $ | 20.81 | $ | 24.54 | ||||
Average realized price per gold equivalent ounce sold | $ | 1,632 | $ | 1,656 | $ | 1,765 | $ | 1,718 | ||||
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Liquid assets
The term liquid assets is also a non-GAAP financial measure. We report this measure to better understand our liquidity in each reporting period.
Liquid assets are calculated as the sum of the Balance Sheet line items of cash and cash equivalents, restricted cash, current investments, and trade receivables plus ounces of doré held in precious metals inventories valued at the London PM Fix spot price at the corresponding period. The following table summarizes the calculation of liquid assets as at September 30, 2022 and 2021:
September 30, | ||||||
| 2022 |
| 2021 | |||
(in thousands) | ||||||
Cash and cash equivalents | $ | 54,882 | $ | 63,144 | ||
Restricted cash | - | 6,175 | ||||
Investments | 1,431 | 1,798 | ||||
Trade receivables | - | — | ||||
Receivables from marketable securities sales | - | — | ||||
Precious Metals valued at market value (1) | 851 | 1,612 | ||||
Total liquid assets | $ | 57,164 | $ | 72,729 | ||
| (1) | Please see Note 7 of the Consolidated Financial Statements |
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CRITICAL ACCOUNTING POLICIES
Critical accounting policies and estimates used to prepare our financial statements are discussed with our Audit Committee as they are implemented on an annual basis.
The were no significant changes in our Critical Accounting Policies since December 31, 2021. For further details on the Company’s accounting policies, refer to the December 31, 2021 10-K/A.
FORWARD-LOOKING STATEMENTS
This report contains or incorporates by reference “forward-looking statements”, as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:
| ● | statements about our anticipated exploration results, costs and feasibility of production, production estimates, receipt of permits or other regulatory or governmental approvals and plans for the development of our properties; |
| ● | statements regarding the potential impacts of the COVID-19 pandemic, government responses to the continuing pandemic, and our response to those issues; |
| ● | statements regarding strategic alternatives that we are, or may in the future, evaluate in connection with our business; |
| ● | statements concerning the benefits or outcomes that we expect will result from our business activities and certain transactions that we contemplate or have completed, such as receipt of proceeds, increased revenues, decreased expenses and avoided expenses and expenditures; and |
| ● | statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. |
These statements may be made expressly in this document or may be incorporated by reference to other documents that we will file with the SEC. Many of these statements can be found by looking for words such as “believes”, “expects”, “anticipates”, “estimates” or similar expressions used in this report or incorporated by reference in this report.
Forward-looking statements and information are based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties, risks and contingencies, and there can be no assurance that such statements and information will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements and information.
We caution you not to put undue reliance on these forward-looking statements, which speak only as of the date of this report. Further, the forward-looking information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any time and without notice, based on changes in such facts or assumptions. Readers should not place undue reliance on forward-looking statements.
Risk Factors Impacting Forward-looking Statements
Important factors that could prevent us from achieving our stated goals and objectives include, but are not limited to, those set forth in the “Risk Factors” section in our report on Form 10-K for the year ended December 31,2021 and other reports filed with the SEC, and the following:
| ● | our ability to raise funds required for the execution of our business strategy; |
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| ● | the effects of pandemics such as COVID-19 on health in our operating jurisdictions and the worldwide, national, state and local responses to such pandemics, and direct and indirect effects of Covid-19 or other pandemics on our business plans and operations; |
| ● | our ability to secure permits or other regulatory and government approvals needed to operate, develop or explore our mineral properties and projects; |
| ● | our ability to maintain an on-going listing of our common stock on the New York Stock Exchange or another national securities exchange in the U.S; |
| ● | decisions of foreign countries, banks and courts within those countries; |
| ● | national and international geopolitical events and conflicts, and unexpected changes in business, economic, and political conditions; |
| ● | operating results of MSC; |
| ● | fluctuations in interest rates, inflation rates, currency exchange rates, or commodity prices; |
| ● | timing and amount of mine production; |
| ● | our ability to retain and attract key personnel; |
| ● | technological changes in the mining industry; |
| ● | changes in operating, exploration or overhead costs; |
| ● | access and availability of materials, equipment, supplies, labor and supervision, power and water; |
| ● | results of current and future exploration activities; |
| ● | results of pending and future feasibility studies or the expansion or commencement of mining operations without feasibility studies having been completed; |
| ● | changes in our business strategy; |
| ● | interpretation of drill hole results and the geology, grade and continuity of mineralization; |
| ● | the uncertainty of reserve estimates and timing of development expenditures; |
| ● | litigation or regulatory investigations and procedures affecting us; |
| ● | changes in federal, state, provincial and local laws and regulations; |
| ● | local and community impacts and issues including criminal activity and violent crimes; |
| ● | accidents, public health issues, and labor disputes; |
| ● | our continued listing on a public exchange; |
| ● | uncertainty relating to title to mineral properties; |
| ● | changes in relationships with the local communities in the areas in which we operate; and |
| ● | decisions by third parties over which we have no control. |
We undertake no responsibility or obligation to update publicly these forward-looking statements, except as required by law and may update these statements in the future in written or oral statements. Investors should take note of any future statements made by or on our behalf.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our exposure to market risks includes, but is not limited to, the following risks: changes in foreign currency exchange rates, equity price risks, commodity price fluctuations, credit risk, interest rate risk and inflationary risk. We do not use derivative financial instruments as part of an overall strategy to manage market risk.
Further, our participation in the joint venture with Hochschild for the 49% interest held at MSC creates additional risks because, among other things, we do not exercise decision-making power over the day-to-day activities at MSC; however, implications from our partner’s decisions may result in us having to provide additional funding to MSC or result in a decrease in our percentage of ownership.
Foreign Currency Risk
In general, the devaluation of non-U.S. dollar currencies with respect to the U.S. dollar has a positive effect on our costs and liabilities which are incurred outside the U.S. while it has a negative effect on our assets denominated in non-U.S. dollar currency. Although we transact most of our business in U.S. dollars, some expenses, labor, operating supplies and property and equipment are denominated in Canadian dollars, Mexican pesos or Argentine pesos.
Since 2008, the Argentine peso has been steadily devaluing against the U.S. dollar by 10% to 53% on an annual basis. During the three months ended September 30, 2022, the Argentine peso devalued 13.1% compared to a devaluation of 5.13% in the same period of 2021.
During the three months ended September 30, 2022, the Mexican peso decreased 1% compared against the U.S Dollar in the same period in 2021.
The Canadian dollar experienced a 2% depreciation against the U.S. dollar for the three months ended September 30, 2022, compared to a 2.6% appreciation in the comparable period of 2021.
The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency exchange rates. Appreciation of non-U.S. dollar currencies results in a foreign currency gain on such investments and a depreciation in non-U.S. dollar currencies results in a loss. We have not utilized material market risk-sensitive instruments to manage our exposure to foreign currency exchange rates but may do so in the future. We hold portions of our cash reserves in non-U.S. dollar currencies.
Our Canadian cash balance was $0.23 million (C$0.3 million) at September 30, 2022. We also hold negligible portions of our cash reserves in Mexican and Argentina pesos, with the effect that a 1% change in these respective currencies would result in gains/losses that are immaterial for disclosure.
Further, we are also subject to foreign currency risk on the fluctuation of the Mexican peso on our VAT receivable balance. As of September 30, 2022, our VAT receivable balance was Mexican peso 16,264,078 equivalent to approximately $0.8 million, for which a 1% change in the Mexican peso would have resulted in a gain/loss of less than $0.05 million in the Consolidated Statements of Operations.
Equity Price Risk
We have invested and may continue to invest in shares of common stock of other entities in the mining sector. Some of our investments may be highly volatile and lack liquidity caused by lower trading volumes. As a result, we are inherently exposed to fluctuations in the fair value of our investments, which may result in gains or losses upon their valuation.
We have in the past sought and will likely in the future seek to acquire additional funding by sale of common stock or other equity securities. Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to sell equity securities at an acceptable price to meet future funding requirements.
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Commodity Price Risk
We produce and sell gold and silver. Changes in the market price of gold and silver have and could in the future significantly affect our results of operations and cash flows. Change in the price of gold and silver could materially affect our revenues. Based on our revenues from gold and silver sales of $26.0 million for the three months ended September 30, 2022, a 10% change in the price of gold and silver would have had an impact of approximately $2.6 million on our revenues. Changes in the price of gold and silver can also affect the provisionally priced sales that we make under agreements with refiners and other purchasers of our products. At September 30, 2022, we had no gold or silver sales subject to final pricing at our 100% owned operations.
We have in the past and may in the future hold a portion of our treasury in gold and silver bullion, where the value is recorded at the lower of cost or market. Gold and silver prices may affect the value of any bullion that we hold in treasury.
We do not hedge any of our sales and are therefore subject to all changes in commodity prices.
Credit Risk
We may be exposed to credit loss through our precious metals and doré sales agreements with Canadian financial institutions and refineries if these customers are unable to make payment in accordance with the terms of the agreements. However, based on the history and financial condition of our counterparties, we do not anticipate that any of the financial institutions or refineries will default on their obligation. As of September 30, 2022, we do not believe we have any significant credit exposure associated with precious metals and our doré sales agreements.
In Mexico, we are exposed to credit loss regarding our VAT receivable if the Mexican tax authorities are unable or unwilling to make payments in accordance with our monthly filings. Timing of collection on VAT receivables is uncertain as VAT refund procedures require a significant amount of information and follow-up. The risk is mitigated to the extent that the VAT receivable balance can be applied against future income taxes payable. However, at this time we are uncertain when, if ever, our Mexican operations will generate sufficient taxable operating profits to offset this receivable against taxes payable. We continue to face risks on the collection of our VAT receivables, which amount to $0.8 million as at September 30, 2022.
In Nevada and Ontario, Canada we are required to provide security to cover our projected reclamation costs. As at September 30, 2022, we have surety bonds of $40.137 million in place to satisfy bonding requirements for this purpose. The bonds have an annual fee of 2.3% of their value and require a deposit of 11% of the amount of the bond. Although we do not believe we have any significant credit exposure associated with these bonds or the deposit, we are exposed to the risk that the surety may default in returning our deposit or that the surety bonds may no longer be accepted by the governmental agencies as satisfactory reclamation coverage, in which case we would be required to replace the surety bonding with cash.
Interest rate risk
Our outstanding debt consists of various equipment leases and the senior secured credit facility. As the debt is at fixed rates, we consider our interest rate risk exposure to be insignificant at this time.
Inflationary Risk
Argentina has experienced a significant amount of inflation over the last ten years and has been classified as a highly inflationary economy. ASC 830 defines a hyperinflationary economy as one where the cumulative inflation rate exceeds 100% over the last three years preceding the reporting period. In this scenario, ASC 830 requires companies to change the functional currency of their foreign subsidiaries operating in a highly inflationary economy to match the Company’s reporting currency. In our case, the functional currency of all our Argentine subsidiaries has always been our reporting currency, the U.S. dollar. As such, we do not expect the classification of Argentina’s economy as a highly inflationary economy to change our financial reporting methodology.
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Item 4. CONTROLS AND PROCEDURES
(a) | We maintain a system of controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported, within time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of September 30, 2022, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective. |
(b) | There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that materially affected or are reasonably likely to materially affect our internal controls over financial reporting. |
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PART II OTHER INFORMATION
Item 5. MINE SAFETY DISCLOSURES
At McEwen Mining, safety is a core value, and we strive for superior performance. Our health and safety management system, which includes detailed standards and procedures for safe production, addresses topics such as employee training, risk management, workplace inspection, emergency response, accident investigation and program auditing. In addition to strong leadership and involvement from all levels of the organization, these programs and procedures form the cornerstone of safety at McEwen Mining, ensuring that employees are provided a safe and healthy environment and are intended to reduce workplace accidents, incidents and losses, comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety.
The operation of our Gold Bar mine is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our Gold Bar mine on a regular basis and may issue citations and orders when it believes a violation has occurred under the Mine Act. While we contract a majority of the mining operations at Gold Bar to an independent contractor, we may be considered an “operator” for purposes of the Mine Act and may be issued notices or citations if MSHA believes that we are responsible for violations.
We are required to report certain mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, and that required information is included in Exhibit 95 filed with this report.
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Item 6. EXHIBITS
The following exhibits are filed or incorporated by reference with this report:
3.1.1 |
| |
3.1.2 | ||
3.1.3 | ||
3.2 | ||
10.1 |
| |
10.2 | ||
10.3 | ||
31.1 | ||
31.2 | ||
32 | ||
95 | ||
101 | The following materials from McEwen Mining Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 are filed herewith, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Unaudited Consolidated Statements of Operations and Comprehensive (Loss) for the three and nine months ended September 30, 2022 and 2021, (ii) the Unaudited Consolidated Balance Sheets as of September 30, 2022 and Audited Consolidated Balance Sheet as at December 31, 2021, (iii) the Unaudited Consolidated Statement of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021, (iv) the Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, and (v) the Unaudited Notes to the Consolidated Financial Statements. | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL and contained in Exhibit 101. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MCEWEN MINING INC. | |
/s/ Robert R. McEwen | |
Date: November 4, 2022 | By: Robert R. McEwen, |
Chairman and Chief Executive Officer | |
/s/ Perry Ing | |
Date: November 4, 2022 | By: Perry Ing, |
Chief Financial Officer |
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