McEwen Mining Inc. (NYSE:MUX) Q1 2024 Earnings Call Transcript May 9, 2024
McEwen Mining Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, ladies and gentlemen. Welcome to McEwen Mining’s Q1 2024 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Perry Ing, Chief Financial Officer; Jeff Chan, Vice President, Finance; William Shaver, Chief Operating Officer; Stefan Spears, Vice President, Corporate Development; Michael Meding, Vice President and General Manager of McEwen Copper; and Carmen Diges, General Counsel and Secretary. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]. I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.
Robert McEwen: Thank you, operator. Good morning, ladies and gentlemen. Welcome to our first quarter 2024 conference call. A few moments ago, I looked at our share price and thought, well, what happened? We’re down about $2 and I think a lot of it is I think it’s overdone, but it’s probably due a bit to our accounting policies, the difference between accounting treatment in Canada and in the United States of America. And I’d like to ask Perry Ing, our CFO to talk about that difference.
Perry Ing: Good morning, Rob. So we would like to reiterate the fact that as a U.S. GAAP reporting company, we expense all of our attributable expenses related to the Los Azules copper project in Argentina. So given that we own 48% of the company, all of the work going into drilling for that project is being expensed through our income statement. Unlike a lot of our peers, Canadian and Australian listed companies that report under International Financial Reporting Standards, where they may capitalize those costs, and you would not see them reflected in net earnings or loss. So if you look at into more detail into our earnings, we reported a consolidated net loss of approximately $20 million of which $18 million was directly attributable to our investment in McEwen Copper as well as an additional $4 million in general exploration expenses. So again, had we reported under IFRS, we would not be showing a loss of that nature.
Robert McEwen: Thank you, Perry. I started out just saying, we had a good quarter and we’re active on many fronts. We’ve been hitting production guidance, generating positive cash flow from our gold and silver mines. Our exploration is producing encouraging results at our Fox Complex, our San Jose mine and our Los Azules project. In addition, there has been a dramatic political shift that’s occurred in Argentina. Its newly elected President is moving aggressively to make the country attractive to large direct foreign investment of which we have one of those situations. Overall, our consolidated gold equivalent production was up 7% over the first quarter 2023 and costs were in line with guidance. At two of our three mines, we’re making good progress.
At Gold Bar and San Jose, they exceeded guidance by delivering higher production and lower costs. At Gold Bar, production was up 80% and at San Jose, it was up 15%. And while the results at the Fox Complex were disappointing due to mining lower grade and tonnage during the quarter. We’re expecting over the balance of the year that the production will increase and the cost per ounce will fall to be in line with our year-end guidance. From a financial perspective, the news was also positive. During the quarter, our gross profit was $6 million, some 36% higher than the $4.4 million in the first quarter of 2023. And in this quarter, we reported our results also on an adjusted EBITDA basis because we believe it provides a better representation of the performance of our gold and silver mining operations.
Why? Because it removes the impact of our ongoing investment in McEwen Copper. During the quarter, our adjusted EBITDA was $6.3 million and $0.13 a share versus an adjusted EBITDA loss of $2.9 million or $0.06 a share. So when we include the $18 million loss attributable to our investment in McEwen Copper, we reported a consolidated loss of $20.4 million or $0.41 a share. In Argentina, the company’s new President, Javier Milei, who Mike, Carmen, Stefan and I had the great honor to have a one hour meeting with recently has unleashed an infectious mood of great optimism, something that has not existed in that country for many decades. I said to him that Argentina is very much like the story of Sleeping Beauty, who was poisoned by years of populist government policies and fell into a deep sleep, and now he is the Prince whose kiss has awoken her.
Global investors and innovators are starting to take notice. Just two weeks ago, Elon Musk tweeted, It’s time to invest in Argentina. And President Milei’s election coupled with the progress we’re making advancing Los Azules has made this quarter an incredibly exciting time for McEwen Copper and for McEwen Mining. Our other asset in Argentina is our 49% owned San Jose silver and gold mine. Performance in Q1 of this year was much better than the comparable period last year. And as a result, management is considering resuming its dividend later this year. So we’ll be receiving money hopefully from that investment for the first time in a couple of years. We’ve also encountered encouraging exploration results there from two different targets. The best results reported were 12 meters of 12.7 grams gold plus 101 grams silver and the other was 6.2 meters of 23.3 grams gold plus 314 grams silver.
Pretty nice holes. It’s worth noting that the San Jose land package surrounds Newmont Cerro Negro property on three sides. So let’s go back to Los Azules. As the winter begins in the Southern Hemisphere, the 22 drills that were operating there are now being removed having drilled some 69,000 meters this season, which is quite a large program. This drilling has been confirming and upgrading the categories of our estimated resources that were contained in the June 2023 preliminary economic assessment. They were also drilling to precisely define the location of our payback pit, which is calculated to be payback in three years. Through the winter work, we’ll be progressing on delivering a bankable feasibility study for Los Azules in the first half of next year.
So looking ahead, we are now in a position to think about growing and I feel the market conditions are ideal to search out opportunities in anticipation of much stronger markets for gold, silver and copper. And here’s what we’ve been doing. First, we’ve been taking a closer look at the potential opportunities on our existing properties. And we will be very shortly providing you with exploration results from our Fox Complex, Los Azules and San Jose. Second, we’re looking at opportunities that are close to these existing operations. And to that end, we’ve recently made a friendly takeover bid for a company called Timberline Resources, which has property located close to our Gold Bar Mine. And it also has a property adjoining the Q1 Copper’s Elder Creek property, both of which are in Nevada.
And three, I believe there are some interesting situations out there that where we could consider bolstering our management strength, increase our resource base and annual production and provide us with greater leverage to the prices of gold, silver and copper. In Los Azules, we have funds to continue for a while. We are looking at completing the feasibility study and doing the associated engineering. And all the financing for Los Azules has been done in McEwen Copper. We continue to look for opportunities with our principal investors and others to fill that funding. At this point, I’d like to ask Michael Meding, our Vice President, General Manager of McEwen Copper to provide an overview of the political situation in Argentina and some of the changes to regulations that are being promoted and the impact it could have on the value of that asset of ours.
Michael Meding: Thank you so much, Rob. Hello, everybody. Exciting times in Argentina. As Rob said already, we had an exciting quarter with lots of projects at Los Azules. And what we’re looking at, at the moment, while Los Azules has a very strong PEA without further incentives. What we see in Argentina is that there are a lot of projects that could benefit from a better investment incentive scheme. And that has been presented to Congress, to the lower house and a couple of days back and has received approval by the lower house and is now on the Senate for discussion. It’s going through the commissions and the administration is trying to get approval of this new exciting project. It’s called [indiscernible] Assets in Spanish.
It contains something called LIGI [ph], that’s a Large Infrastructure Investment Incentive Machine. Just to give you some ideas what this means if it goes through, and we are cautiously optimistic that it will go through rather shortly is income tax would be reduced from 35% to 25%. Export duty would be reduced from 4.5% to 0%. VAT recovery would be basically instance. And operating bank tax, debit credit tax is 1.2%, would be we would be able to use 100% as an advance for income tax. So this means that this combined with what is included as having the opportunity to ensure access to the capital markets can change the phase of mining projects and other large infrastructure projects in Argentina. We think that this project is a major driver for the Argentine economy going forward.
Back to you, Rob.
Robert McEwen: Thank you, Mike. And as many of you know, there’s a high rate of inflation in Argentina, and we’ve been able to offset that.
Perry Ing: Yes, that’s right, Rob. Overall, after our last financing transaction in McEwen Copper, we were able to invest in a variety of products that essentially fully hedged our exposure to Argentine inflation and devaluation. So I believe at the end of the first quarter, McEwen Copper had a treasury of just over $60 million. Since we’ve deconsolidated McEwen Copper in the fourth quarter of last year, we no longer show McEwen Copper’s cash balance on our balance sheet. It’s set in our part. We only report there are 48% of the earnings and loss in our income statement.
Robert McEwen: Thank you, Perry. I’d now like to open the call to questions.
Operator: Thank you. [Operator Instructions]. And your first question comes from the line of Jake Sekelsky, Alliance Global Partners. Jake, your line is open.
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