Q3 2020 McEwen Mining Inc Earnings Call
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Hello, Ladies and gentlemen, welcome to Mcewen mining fourth quartile Trina <unk> person on financial results Conference call.
Present from the company today are well, what you won chairman and chief owner.
I Love Cougar, Chief Financial Officer.
<unk> Chief operating officer.
I've got just because they've been Shawn Yeah, Weve you question on competition.
He would like to ask a question. During this time seem to be pretty well followed by the number one on the telephone keypad.
If you would like to draw your system right Tom.
I will now turn the call a bottom for Rob Mcewen Chief Omar. Please go ahead Sir.
Thank you operator.
Good morning, and welcome.
To begin with an update on how we are managing our business in cogan.
At the onset of the pandemic, we temporarily suspended all four of our operation.
Other than that.
An abundance of caution in order to prevent the possible spread.
At the moment, the black box gold bar and El Gato.
Our ups and operating.
In Argentina government imposed travel restrictions being.
Being that San Jose is still operating below its capacity.
And ER losses on this project is.
Just emerging from the South American winter and being reactivated.
During Q3, our gold bar and Black Fox mine started to turn around and performance improved.
And then Peter will speak about this in the next few minutes.
One thing that has my attention is the large gap in share price performance between Mcewen mining and our peers.
Investment capital is in the early stages of moving into the precious metal space.
And some companies appear to have considerable upside.
Let her being ignored at the moment.
I believe Mcewen mining is one of those companies the share price has a lot of catching up to do.
To address this we have added key members to senior management in head office and at the mine sites, who are focusing on improving operating efficiencies and profit margin.
Over the next several quarters, we expect to deliver better operating results along with exploration news that we hope will start to close the price performance gap.
I would like to introduce our new Chief Financial Officer, and OLED Krueger, who joined Mcewen mining.
A month ago.
And that was previously the Chief Financial Officer, and Vice President corporate development for extra long resources and before that she was the chief financial Officer of trip Valley mining, where she was part of the team who grew the company from a micro cap to a mid tier base metal producer.
Welcome Ana.
Could you provide an overview of our Q3 financial results.
Thank you Bob.
It's a pleasure to be here good morning, everyone.
Let me start and turnaround operation progressed, while during the third quarter.
We ended Q3 with 18.8 million in cash on the asphalt.
On a positive working capital of 21.6 million.
Financing activity during the quarter.
We did a private placement of coaxing share up 10.4 million.
Which was completed at $1.65 per share a 21% premium to buy.
Prior day share price.
These funds are already being deployed to accelerate generative exploration independent regions and we are already seeing positive results.
Revenue from gold and silver sales were 27.4 million.
Reflecting 14500 gold equivalent ounce sold a 100% owned operation.
At an average realized gold price for the quarter per ounce of 1925.
For Q3, we reported a gross loss of 700000.
On a net loss of 9.8 million.
Or two cents per share.
Primarily due to a half million dollar spent on exploration.
I'll check that.
Our required to expense under us GAAP.
Each of our operation had positive operating margin during the quarter, we reported a GAAP cash gross profit, which is a non-GAAP measure.
Our 3.9 million for the quarter compared to a cash gross loss of 4.1 million in the prior quarter.
We are continuing to manage our operating margin by reducing capital expenditures.
Material contract management system and procurement synergy between operations.
Overall financial performance is improving at a gold bar.
And Black Fox mine after a challenging second quarter, we had a very busy fourth quarter already in progress and exciting growth pipeline milestones expected to be net.
We look forward to the next without exploration drill program.
I will now turn the call to Pete.
Thank you Anna and good morning all.
I was going to mention though we are in turnaround process.
We've started to overcome our near term operational challenges and are continuing to grow a stellar pipeline of resources and discovery source organically from our current assets.
Production of 30000 gold equivalent ounces for Q3 was on target for where we plan to be in the ramp up of operations.
Approving shutdown.
Consolidated production guidance for Q4 is a little higher.
31500.
34000 gold equivalent ounces.
Our costs are projected to continue to trend lower.
At Blackrock the operational is benefiting from additional develop more development work.
Completed during Q2, the increase mining flexibility.
We expect mining from Black box to continue into Q1 2021, while we transition to monitoring the froome deposit.
Underground drilling at Black box per definition, and delineation purposely around the 240 and 280 new levels in the central and West part of the Black Fox mine.
I recently returned impressive grades such as PD 1.5 grams per tonne gold over 4.8 meters.
Leading 218.8 over one point either.
19.3 grams of gold.
Per tonne.
Over three meters, including 71.6 over 0.8 meters.
Strong results like these in close proximity proximity.
The underground development and mining.
Provide opportunities to increase mine planning inventory.
We continue to evaluate these opportunities on an ongoing basis.
The firm deposit will extend the life of the Black Fox mine by approximately two and a half years.
Goldman of the underground access to the deposit is about halfway complete.
We plan to reach occurring in Q2, 2021 and expect to achieve commercial production in Q4 2021.
Broom offers several benefits compared to block purchase was greater more efficient all agree.
And wider more consistent mineralization that is amenable to low cost coal mining methods.
We are targeting an average annualized production rate.
Of between 40 to 45000 gold equivalent ounces.
Our year from Palm.
In the medium term.
We envision our plan to grow annual production from the Fox complex from 100 to 150000 ounces of gold.
Cash cost of $800, an ounce and all in sustaining cost a little over $100.
The objectives envision increasing mine life to over 10 years and the start of production ramp up.
In 2022.
To support our vision, we have engaged an independent engineering group to complete a preliminary economic assessment.
Complex expansion.
It includes the great Hawk Black Fox stock and left some resources.
Synergies are expected from utilizing our central milling capacity of stock and the P.A. will study.
Potential expand expansions on the mill.
No.
The P.A. results are expected to be available in late Q4 2020.
To support the optimal business case in which to complete a feasibility study in 2021.
Operations at Gold bar continued to ramp up during September and savings from operational improvement initiatives are taking effect.
Give you a tangible example, the mining cost per total time of material move.
Creep from $3.42 per tonne in Q2 to $2.45 a ton in Q3 for.
For 28% decrease quarter on quarter.
We expect operational improvement to continue in future quarters.
The valuation of the gold or gold bar resource estimate progressed in Q3.
Results of the recently completed 28 or drill program designed to upgrade some of the pit deposit mineral resources.
The inferred category indicated appear positive.
Pick resource model updates are underway and expected in Q core anyway.
A new reserve estimate and feasibility study update could go bar are also expected to be announced towards the end of Q4 this year.
In Mexico, an updated feasibility study to the Phoenix per bit is being finalized we anticipate releasing results in Q4 this year.
On the exploration front.
As part of the Fox complex, we're drilling two exciting discoveries we made during the 2018 2019 exploration campaign.
Namely the whiskey Joc and southwest deposit.
Whiskey Joc is an exciting target in the grey Fox area that returned a wide drill intercept of 53 grams per tonne.
Over 6.2 meters of.
6.7 meters of estimated through it.
15 follow up calls have been completed since starting since starting the current program in September and eight of those contained visible.
And as well as some exceptional actually results, including 20 grams per tonne over 6.7 meters.
31.2 grams per tonne were 2.7 years.
12.7 grams per tonne over 11.2 meters.
All of these results are within estimated true width.
In summary during Q3 all of our operations returned to generating positive operating margin after the cold at 19 stoppage.
This quarter.
Our operations were focused on ramping up production increasing efficiencies.
Capital allocation and adapt and grow the.
The turnaround of our operations delivering tangible results.
Which will become more prominent in the following quarter.
We have a very busy Q4 underway that include engineering milestones planned as well as ongoing exploration results.
That concludes our presentation well now open the call to questions.
I see a reminder to ask a question you didn't need to first Tom was followed by the number one on your telephone sales.
So we draw your question press the pound key.
The first question comes from the line of Jake Sikorsky of Alliance Global Partners. Your line is open.
[noise], Hey, Robyn thanks for taking my questions.
Reinject.
Just looking at the Q4 production guide are you able to provide any color on the breakdown on a per month basis.
It would you like to answer them.
Yes.
We are estimating boat.
50%.
The production.
Split sort.
Equally between.
Fox and.
And gold bar.
The.
Good old Guy Oh, we're in the range of.
2000 ounces to 3000.
So if you take that off.
Often told all the split will come from Black Fox and gold bar at MFC, We've estimated about.
15000 to 15500 output.
Gold equivalent.
Okay. That's helpful.
And then just for room, obviously, it looks like development there is on schedule.
You see low hanging fruit on the exploration side at that deposit to potentially extend the mine life beyond the two and a half years are targeting right now.
Yes.
A good question Jake Yes, definitely there you heard us speak before the Footwall zone, which we havent drilled off and were not quite in a position yet to drill it off from our underground drill cuttings, but we will be doing that as we go land.
And then as well there was a intercepts that release prior lower end to the west of the deposit.
Which which haven't been drilled so we anticipate trying to lay some of our underground development to take advantage of.
Opportunities.
Okay and the topic those are probably 2021.
Initiatives.
That's correct.
Okay.
And then just lastly on on broader exploration in the major focus right now and with activity kind of picking up across the sector. I'm. Just curious if you've seen any upward pressure in rates or rig availability in either Canada.
Or in Nevada.
Yeah, we have especially in Canada, but our partners Fortunately had the drill rigs available.
So we didnt experience delays.
Wrapping up we have four rigs turning right now.
At the stock West infill drill program.
Over in Nevada.
Actually engaged with a number of companies who who are also.
Earmarking rigs for us over there and our future program, so that things are picking up.
But we've we've been.
Been fortunate to attract some good partner.
Okay. That's good to hear and saw my end, thanks, again, and looking forward to a busy fourth quarter.
Thank you Jay.
Your next question comes from the line of high Cool I need of H.C. Wainwright.
Okay.
Hey, guys. This is mark as Cheney, calling in on behalf of HEICO. Thanks for taking my questions.
No again.
My first question is whether there's been any cold weather related delays in the development of access to Froome and then Additionally, you guys have any idea.
So good asset and how much you'll spend there quarter by quarter until you hit production late next year.
Hey, there's much can you take that question.
Yes.
The first question, we did not experience any delays due to colder the contractor eyewear.
Works recorded.
And so things are progressing well in that respect.
On the funding costs.
Sure and maybe you could share.
Sure the breakdown, but we are looking at ways to improve our productivity.
Lower costs are there so we're right in the middle of that budget time HEICO too.
Try and look at improved ways to.
Yeah, we don't have to break down.
By car.
Quarter at the moment.
Like when you're actually just in the middle of going through our 2020 months.
By chip in quite a lot of T. telco risk so by doing that so we can come back to you on that.
And they have more definitive camping at current rates.
Yeah, No worries and then.
Lastly, do you have any more clarity on timing in regards to the new resource and reserve estimates and then updated feasibility study for gold bar should we expect publication say right before the holidays or maybe sometime in mid November.
Yes. So this is Peter here.
The results of the gold Bar Reserve resource reserve and feasibility or all coalescing.
To be completed towards the end of Q4, we anticipate reducing results.
In Q4 late Q4 and the report.
40, 311 record update following shortly after that January February is the target.
All right perfect. That's all for me thanks for taking my questions. Thanks much.
Your next question comes from the line of Joe century song of Roth Capital Partners.
Line Okay.
Hey, Robin team, thanks for taking the questions and congrats on the start of a turnaround here.
Thank you Jim.
So I guess a lot of things I want to ask about already touched on but.
Thinking big picture.
Are there any assets you guys have that you feel are less important to the future of the company and that you you would be open to selling.
Just show up the balance sheet, maybe provide some capital for some of the growth initiatives you have over the next couple of years.
So we had.
Editing some joint venture.
Situations.
In Nevada, where there are some properties that are.
Others can fund and we're also.
Looking at a number of alternatives for surfacing value.
And there are lots of service property in one of those is there.
Possible spin out into a.
Separate company.
Yeah.
Heading into launches analysts and Nevada properties and as the large copper showing.
Definitely I sent off we're looking at there.
Okay.
And then.
You don't have what is the corporate plan otherwise to two fun things like Phoenix for the Black Fox Fox expansion.
We will be.
With our feasibility studies as sales later this quarter.
We think some of the projects have very.
Very robust economics.
So we would hope to.
Look to ways to finance that when they get to that point.
Okay Fair enough and then.
As far as you know an outlook to next year can you give us any initial expectations for what a full year of current operations might look like next year.
Sure Peter would you like to jump in there.
Yes, sorry could you repeat that.
Oh I was just looking for kind of like an initial like rough guide on what next year might look like on across the company basis.
Oh right.
Uh huh.
As you heard Anna we're right in the middle of that budget time.
So we're we're not in a position at this point could guide, but we do anticipate towards the end of the year, we'll have the approved 2021 budget and life of mine at this point.
Mhm.
Would it be fair to say that taking Q4 and multiplying it by four would be kind of a very conservative view of next year.
Yes.
Yeah.
That's a good question.
Oh I think.
Each region is dependent on a number of factors you know.
Gold bar, the turnarounds going well and Trent trending upward.
We expect results to improve.
And production to continue to improve we are working through.
All those objectives and finishes how to do that what it looks like so we are still working on on that process, but things are positive.
At Black Fox, we expect production to continue into Q1.
And.
And we are working to accelerate pressure in project and looking at ways to improve and accelerate the.
Development, So we can pull forward there.
Commercial production that you can.
In the current so lot lots of positive an issue there.
I mean that.
That Phoenix.
I will go remain on residual each so not a lot of change is happening there the anticipation that we do have.
The economics as Rob shared and.
Next year.
Of course financing dependent would be a build year for Phoenix. So hope that helps you a little bit.
Yes sounds like we are where we get a lot of answers by year end, so ill turn it over thanks guys.
Yes take care.
Digging to ask a question you will need to press star followed by the number one on the phone.
Your next question comes from the line of Mike Kozak of Cantor Fitzgerald Your line.
Lines open yes morning.
Morning, Robin team couple of questions from me.
First one is I mean, we're going into November here in Argentina still has as I understand it the province to province travel restrictions.
I mean do you have any idea how long that that may last Phil.
Phil I mean by my estimate is adding somewhere between 200 and $300 sales your costs there.
Are you hearing anything down in Argentina on on when those restrictions might be at least you used.
No we haven't.
And.
And.
Okay, they still having issues.
Okay.
And then my my second question sort of Froome ramp development, you're seeing is 47% done.
What is the cumulative spend been so far on driving those sales declines those ramps.
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And of that $6 million on the frame.
Chairman.
Okay, and and I, we just started at capital liking.
That is file like asset class.
Ken and pro rata, but year to date is about 6 million got it. Okay. Thanks very much that's it from me.
Thank you.
Good night.
Your next question comes from Bill Paula.
Sorry to keep that in.
Your line is open.
Yes, good morning, guys. Thanks for taking my unit.
A few questions I guess, we'll start with black Fox.
And the reconciliations between the grades that are coming out of the graph and grades are and what you're seeing being actually produced and they didn't quote had they were being where do you stand on X. I know you've tried to make some improvements there.
They didn't residuals ABS.
Absolutely.
Yes. Thanks for the question from some good improvements in trends towards September.
As we reported before the increased abella.
Provided access for our grade control team to get in there to do tighter drilling.
We drilled on five meter centers for proven in 10 meter centers for.
Indicated.
Cutting previous drilling.
Facings in half more than half.
Hello.
In September we started getting close your reconciliation.
Through July and August we were still using Spok from these older models, you can imagine that transition take sometime in September so.
Paul It's positive improvements there we are getting closer to our new model.
But there is still work to do.
Okay, and staying flat box as far as I know there's been discussions of.
Making some changes to the mine can be produced after 2021, I guess could you I know you had put out the steady at that yet, but can you give us some insights into it seems as though you seem to be hitting some good good grade exploration wise, there and kind of what your thoughts are as far as how to extend that.
Unlike out past the middle of next year.
Yeah.
Great question, we are currently or are working on Q1.
And we have extended out combining into Q1 night and mentioned that in my summary.
Summary today.
That's a really positive thing I don't I think personally black Fox is it's early days for black box.
And the West blank discovery that was made earlier.
We started mining on that up to 80.
That that area extends up enough room decline, we're actively drilling in Q3 out of the cream decline on that last plank extension.
Some of the drilling results, you're hearing or in and around old workings.
And currently active development and stoping area. So I don't think all of you sort of the ore has been found in the upper part of the mine and we're learning a lot more.
As we get more detailed information better access.
The the Black Fox deep, which is still a very good target and the 48 to 10 area or is that active mine area.
We have been extending mineralization drilling there is still that we mined in Q.
Q.
Turned out very well, we cable bulk of it and we were able to take hold.
I think for the first time.
The.
Walt along the one of the very successful dilution control program.
I am very bullish.
On extending.
Black box and what we need to be the strategy is to get over to prune relieve the pressure.
From production on Black Hawk to allow our mine exploration team.
Get in there and the time to do the work and drill out ahead and understand the ore body and identify can reverse that potentially.
Mining, but we can add back into the mine plan along with sprint.
Okay.
Moving over to Scott I know there was.
I think I recently read that there was a plan to deepwater stock tomorrow.
And I guess can you just give us some insight into where you stand in that process or the part that going forward.
Yes, absolutely another very exciting project.
We're in the process of amending the permits to come.
De water the.
The mine and react re access that so that's going quite well.
We're also RFP and tendering.
Scenarios of how to get in there and the water that.
We we Havent, obviously set dates were trying to get that information cold cold off a bit on that Scott.
The schedule certainty and permit certainty.
But like strategically tenants, who we are looking to try and target.
Next year to start that de watering access.
Of the mine and would that take about six months or so or what's your or would it be a lot shorter.
A lot shorter historically it was de watered once before and one of our employees was was on that project and is on the project now for the previous de watering.
It's not really the dewatering the the.
The longer lead item, it's more checking all be the guides the shaft guide lining the ground support making sure it's safe going down.
But we're obviously getting quotes on that and timing.
To to see how it you know it.
All fits together you know putting you got to put a new head per employees, there's a number of steps.
But.
You know roughly in in our initial estimates were somewhere in the six to nine months range from from what we know now.
Okay. Just a couple of questions left here as far as Nevada goes on I know that you've mentioned that gold bar challenges in the permitting process I guess.
Just kind of a two part.
When do you expect to I guess move.
And to be fully permitted down there and then I guess the other ones would be when do you expect that to be mining to begin at gold bar South.
Yes priority.
Yeah. The plan of operations have been submitted a number of hoops to jump through as you know.
We're expecting the permit to come in in the last half and start mining in Q4.
Okay, Yes, Q4, this year or next year.
Next year.
Okay. Okay.
And then as far as moving to Mexico, there seems to be.
Quite a big jump in and costs in business written in Q3 I guess.
Compared to Q2, and and I guess, where these.
It's just the way some of the costs were.
Where were you.
Or signed or is this capitalizing some costs versus expensing. Some costs can you just give some insight into it.
I guess, the cash cost seem to go up quite a bit vis-a-vis where they were previously.
Yes, there were two main to main variances.
<unk> was quoted and obviously the delayed until the government allowed us to get back in there and then we experienced some co bid.
Cases that site, where we had to isolate employees and then crop we had cross functionally trained employees and contractors on standby if we had.
Sort of gaps in resource reversing our work if you will.
Responding to co branding coded cases, what that Ben had a knock on wood.
Affect the timing of our small scale mining, which was going to place some fresh.
E.
Pressure on the heap.
And keep our ounce profile.
Which was the basis or cost.
Cost per ounce so those those two factors.
Then that that delay in mining.
Moved us into the rainy season.
Which as Mark added added costs than we had originally planned to do the mining in the dry season. So those are factors increase.
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Go down to that later carried over it.
Next year, Okay. Okay. So you would expect to see training costs and their neighbor.
Back to you, maybe not where they were.
Last year, but close or is that kind of where you are on a go forward basis there.
Yeah.
Mentioned, we're still running through that in a budget time here.
Okay.
Things are you know, we responded to that and mining progressing in our stacking.
For sure Okay.
And then finally getting to Argentina.
The production from Argentina was similar to what it was in Q1 of this year.
And but the costs were on a completely different scale and I.
I guess is our.
Partnership funding a lot of I guess additional social programs that are that seem to be.
Accounting for these costs, but it just seems to be a very difficult thing to me.
As far as nothing seems to have changed.
From an operation standpoint that the costs are now drastically higher on a.
Per ounce produced basis is there why there was a lot of onetime items in there or is this something that.
Is that it's going to carry on it at these at these higher levels.
So a lot of those costs are.
They laid the two co badge and something our main Argentina.
Doubled mambo by the government.
You know whether or not.
The workers sharp collect books work.
They still have to pull ins called.
So on that.
Alluded to you before about our kitchen in general is pretty tough on there's still quite a lot of restriction. So bottom team. The people you know the local stock right.
Back so.
The positive result, I'm sort of going forward in Q4.
The M. A C has negotiated with the women there that they will.
And going up to 75%.
The wage has cut those that aren't able to go to site and they also had some in a mechanized mining so we do expect.
From everything we know that our options.
Okay cool.
Org.
And is there any.
Potential for dividends.
Dividends from NFC this year or is that going to the board for today.
I think 21, yeah, I think that could pop up more likely going to be at 2021 at that time.
Ken.
Get money out of friendships and argued exchange on unity is quite expensive.
We do know that Pam, yes, it will likely be.
2021.
Okay and then.
Okay. Thank you and then just a couple of quick questions for Bob.
I know you talked about in returning capital to shareholders.
Potentially paying a dividend and whatnot.
I guess you know given that your current loan agreement there is a restriction on paying dividends and.
I know other companies have now instituted.
I guess or either formally or informally returning capital to shareholders.
As the buybacks and returning a percentage of ounces of.
Of an ounce produced say $250 per ounce produced.
She will be a share buybacks given that you are valued at.
The gesture ounces in the ground at $10 an ounce in Canada on an all in basis I mean to me it seems as though that will be.
The accretive there.
In some discussion around doing something along those lines.
Bill you brought up the loan and there are provisions again until the loans repaid.
Loan matures in 2023.
Okay.
Until we retire that if we had the early retirement, possibly consider it but.
Right now, we're not able to do that.
He has been talking about here.
Our.
Earnings from production.
Great large enough to do that at the moment and fund our future development.
Okay.
And then as far as I guess as far as.
Getting out and getting more corporate development I know, there's a 58 million short position right now which is I think the all time high for me Kieran.
Yes, it has and I know unfortunately.
Yeah Yeah.
Dividends or buybacks are kind of off the table I guess as far as.
Doing well.
Yes, trying to get your story out I guess I had there been any initiatives that you think you think there are new potentially.
This year I know you you you've paid some of the bankers.
The financing fees I guess, what are they what if you could give us some ideas of the corporate development plans that you have to kind of get the turnaround story out would be great to hear.
Well clearly its.
Returning the sites to profitable operations.
And just.
Just addressing what happened last year.
Poor operational results and delivering.
Hi, guys on our guidance.
As one another area, we're looking at and I mentioned was how do we best surface the value.
Lots of newness and.
That is a possible spin out combining with another property that we had another copper price.
Inject and creating a dedicated copper.
Yeah.
Because I don't think losses illnesses.
Really appreciated are valued in our.
Portfolio.
You were to look at it maybe a trend.
We have a reach but if you put it on a gold equivalent basis.
The resource space, but the conversion but.
The copper and the sales or any.
Turning to gold equivalent.
You'd be looking at an indicated resource.
18 million ounces gold equivalent at.
On an incurred an additional 37 million ounce gold equivalent.
It's a large deposit and if you look at it that way it.
This is an interesting vehicle I think that the people that.
Would prefer just to have a copper project or a copper company rather than copper.
Gold and silver.
Okay, Okay that will.
And.
No I appreciate that.
I guess.
Are there any so anyway as far as doing a.
Was there any plans to potentially a technical update later this year once the.
Feasibility studies have come out.
Yes, well there are number of deliverables that doesn't happen this quarter.
Or Phoenix Black box.
And gold bars.
Right.
All right.
Well, thank you I will certainly.
Be paying attention.
Thank you Bill.
There are no further questions at this time this paralleled monkey when I turn the call back over to you.
Thank you operator.
And we thank everybody for joining us today.
And the continued had much success in their investment.
Like.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now.
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