McEwen Mining Inc
NYSE:MUX
McEwen Mining Inc
NYSE:MUX
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Hello, ladies and gentlemen, and welcome to McEwen Mining's Second Quarter 2024 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; William Shaver, Chief Operating Officer; Perry Ing, Chief Financial Officer; Jeff Chan, Vice President, Finance; Stefan Spears, Vice President, Corporate Development; Michael Meding, Vice President and General Manager of McEwen Copper; and Carmen Diges, General Counsel and Secretary.
[Operator Instructions] I'd now like to turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.
Thank you very much, operator. Good morning, and welcome, ladies and gentlemen. It was a quarter we've all been waiting to see. It was our most profitable quarter since 2016. It was a quarter where our gross profit was $10.8 million and adjusted EBITDA of $7.2 million versus losses recorded in the second quarter of last year. It was a quarter of improved financial liquidity. Our cash was up 77% to $40.7 million. Working capital was up 28% to $29.1 million, and our debt remained unchanged at $40 million since year-end.
It was a quarter when both McEwen Mining and myself increased our investment in McEwen Copper. And based on the last financing of McEwen Copper, the implied value has risen to $947 million, which makes McEwen Mining's 48.3% interest equal to $457 million. On a per share basis, that is $8.45 behind every fully diluted share of McEwen Mining. It's worth noting that this value is greater than our entire market capitalization today. Last night, our closing share price was $8 on the NYSE. And I want to remind you that McEwen Mining also owns a portfolio of 6 royalties, where the largest is 1.25% NSR on Los Azules. And we also own 3 cash flowing gold and silver mines. Management has done an internal calculation for the value of our assets, and it ranges from a low of $20 a share to $50 a share.
Q2 was a quarter when the investment outlook for Argentina improved dramatically. I'll call it Milei magic after the President, Milei. The Argentinian government approved the most important change for foreign direct investment in the country in the last 20 years. It involves lower taxes, removal of exchange controls, financial stability agreements and more for major projects. The impact will be significant on McEwen Copper's Los Azules NPV.
And after the quarter and appearing to take advantage of Argentina's legislative changes, the world's largest mining company, BHP, jumped into Argentina's copper scene in a very big way, leading a $4.4 billion transaction with Lundin Mining to acquire Filo Mining and its Filo del Sol deposit and the Josemaria deposit. Not only is this transaction a tremendous expression of confidence in Argentina, but it also sets a new value for large copper deposits in the country.
Based on the current published resources of Filo del Sol and Josemaria, Los Azules has a deposit that is larger than the combined resources of both of those deposits and a higher copper grade. All 3 of these deposits are located in San Juan province, a jurisdiction that the Fraser Institute ranks as one of the best for mining in South America.
At this point, I'd like to open the call for questions and answers.
[Operator Instructions]
Our first question comes from Jake Sekelsky from Alliance Global Partners.
Rob and team, congrats on the quarter.
Thanks, Jake.
So just starting with the ground conditions at Fox, I'm just curious, is this a one-off at a specific stope or are you seeing this in other areas, underground as well?
No, that's -- thanks for the question, Jake. No, that's -- it's a single area of the upper level of the mine. It's now -- it's along the contact between ore and waste and on the waste side, there was some less competent rock, which basically failed. And once we realized exactly what was going on, we backfilled that area with cemented fill and so it's totally stabilized now. And so the path forward is to define exactly how we're going to recover the rest of that ore, and that will be by using significantly smaller bites or significantly smaller sizes of stopes that we'll have absolute control of. So I don't think we have a big concern about it.
And I guess, the mistake we made was that we didn't recognize that, that rock adjacent to that particular stope being waste was, in fact, as incompetent as it turned out to be. So I think it's a one-off that's now under control. We've had our rock mechanics consultants advising us on how to put, say, more security around what we're doing there. And I guess I'm reasonably comfortable that we're not going to see that again.
Okay. That's helpful. And then just switching over to Gold Bar. You had a strong quarter there and it seems like turnaround efforts have really fully taken hold. Do we expect sub, call it, $1,500 an ounce AISC going forward there? Or were there anything specific to Q2 that drove that major decrease in cost?
Yes. I don't think that there's anything that drove that cost down. It's basically because the production is, I guess, so far has been slightly above our target. So that's helping that. In fact, at the present time, we're doing a significant amount of drilling so far this year, we've done about $5 million of drilling. So that is also included in the cost there. So I think we anticipate that as long as we can move the right amount of material that the cost will stay in that same area or it might move up slightly, but it seems to be predictable at this time based on the data we have.
Our next question comes from Heiko Ihle from H.C. Wainwright.
You talked quite extensively about Argentina in your prepared remarks, which is obviously pretty pertinent. But maybe can you give a little bit of color on your longer-term internal tax outlook, given the special incentives that you had discussed? I mean, I guess, what I'm saying is internally, what are you looking at receiving? And is there a way for us to maybe quantify that?
Mike, do you want to address that question?
Sure. So we have done some interim calculations what the RIGI application means for our loan. And by no means, we would like to invalidate our existing [ VAT. ] But to give you an idea, the after-tax changes with the conservative application of the RIGI would be in the area of about more than 30%, $960 million.
So this makes projects, which is not our case, but which makes other projects that were not that attractive now attractive because what Argentina has done is -- and again, based on companies and management's estimate, has brought Argentina once qualified for the RIGI, which we believe, for example, we do, on similar footing with overall tax burden, such as Chile. It also includes a couple of benefits that help significantly during the construction phase, which is basically fast VAT recoveries. So those are the things that are very, very helpful for projects such as ours.
Yes, the tax rate is going from 35% to 25%, and there are other benefits. As Mike mentioned, VAT refunds accelerated. So -- and customs importation has speeded up. It's a big push for us and others in the country.
Yes. No, a 100%. And I mean, things seem to be actually getting done there from everything you read in the press. Profitability in the quarter was obviously pretty good. What kind of cash flow should we expect additional investments into your asset base beyond what you're currently forecasting? Is there an internal gold price? Is there an internal cash flow metric that you have? Or is it sort of just learning by doing thing where if excess funds are there, we'll figure it out then?
Heiko, it's Perry. I mean obviously, we're constrained in our current environment by permitting. I mean I think that's one of the things that drives our time line. We're only looking at projects that we think we have the balance sheet to execute on. So for us, that is building the ramp back at the stock mine, which is going well, and we've raised the CDE for Mexico. We would like to put back into production, but that's obviously subject to permitting. And as Bill said, at Gold Bar, we're spending money on exploration there. And we're having some tangible results, which we hope we can share in the future. But all these things, we hope, will provide incremental production increases over the coming years.
Our next question comes from Mike Kozak from Cantor Fitzgerald.
Just a couple of questions for me. First, have you guys set a budget yet for the 2024-2025 exploration season at Los Azules or is it going to depend on how much of the $70 million comes in between now and the end of the year?
We've done most of the drilling before the feasibility study. So the big drilling campaign is finished. We will be drilling, looking at that new deposit or new copper showing close to Los Azules, but it won't be anywhere near the type of expenditure we did this year.
Okay. That's helpful. And then the kind of a follow-up I had to that was how much do you have to spend on the technical work related to the feasibility study?
We're looking at about $60 million for that.
$60 million? And of which you all have still in front of you or some has been spent already?
Yes. That's in front of us.
Our next question comes from Allan Barry from Rocks and Stocks.
Every major mining company seems to be interested in getting into copper. The coverage is fairly bare when it comes to copper development projects that rank in the size that a major would be interested in highly. With BHP and the Lundin taken a run at Filo, I think, it gives us some real-world valuation metrics. And I was wondering if you could shine some light on how Los Azules compares to Filo del Sol and what's in the deal?
It compares very favorably. First of all, Los Azules is in lower altitude than either of Filo del Sol or Josemaria. And Los Azules is closer to infrastructure, major power lines and highways. We're -- at least according to a Goldman Sachs study of a PEA, we were in the lowest cost quartile and Josemaria was in the highest. Of course, that might change now that they -- if they consolidate those 2 properties and develop them concurrently, you'll see some reduction in capital.
Los Azules will probably be significantly less capital because we're going to be a heap leach operation as opposed to a conventional milling operation, so much less capital. And from a -- based on the published resources, Filo and Josemaria, we have a larger resource than the combined resources of those 2 deposits and a higher copper grade. That might change with new work coming out of new resource studies out of those two. But at the moment, based on the published resources, we're larger and higher copper grade. So I think we compare very favorably.
My second question was on the gold front. Gold has been a very powerful global market. And today, I think that an argument can be made that really only the largest gold stocks have joined the party. And therefore, it looks like there's some attractive opportunities down the gold stock [ food ] chain. Is there any comments you can make as far as possible strategic investments? Or your thoughts on that -- those kind of opportunities?
Very clearly, the majors have got the most benefit out of the increase in the gold price. You're seeing it in their improved cash flow. A lot of the junior producers and explorers, there'll be a rotation out of the seniors into the intermediates and juniors as the price of gold stays where it is or goes higher. And we're a case in point. We were a high-cost producer and with the higher gold price, our margins started moving up quite smartly. And that's going to happen across the sector. And then the juniors, once the seniors get more flush with cash, they're going to be looking how do they grow their resources and production, and they'll be looking down into the intermediate and junior market. So it's a good time for investors, in my mind, to be looking at the smaller companies right now.
Our next question comes from [ Renne Coffee, ] individual.
This is her husband, David. And we'd like to inquire about the MQMNW, we're involved with that. And we understand that's a new project, and I just wonder if there's going to be any new movement in that direction?
I'm not familiar with that name. MQMW, what's that?
Yes, so MQMNW is an OTC ticker for McEwen Mining Warrants, which are out of the money and last traded for a very low price. So what is your question about those particular warrants?
Just curious if there's any kind of an IPO coming in on a project that was supposedly that involved as a new project, I would assume. And we've been kind of waiting for an IPO for a long time, over a long time.
No. So I think just to maybe clear up some confusion. The warrants were issued some time ago and don't -- aren't related to any particular project. Those -- and as I said, those warrants are out of the money. They expire towards the end of this year in November of 2024. So with regard to new projects though, I mean I can address -- we are in the process of acquiring Timberline Resources. That company has assets in Nevada, which are good synergies with our existing mine there. That acquisition will hopefully close towards the end of this month in August. And we're looking forward to working on those projects. That's the only current acquisition that we have in the pipeline.
So that wouldn't involve the warrant circumstance, would it?
No, not at all.
Our next question comes from [ John Morain, ] individual.
My family and I have been shareholders for over 12 years. My question is why do you think that the McEwen copper hasn't been reflected in the stock price? And what do you think it will take to change that?
It's a good question. We separated the copper and financed it independently starting in -- I guess, we closed the first deal in 2022 September. Since that time, our share price has outperformed the Dow, the NASDAQ, the price of gold, silver, copper, the GDX and the GDXJ. So when we separated the copper was to gain visibility for it.
I do think that the recent transaction with BHP and Lundin Mining on 2 large copper projects in the same province in Argentina as Los Azules, our Las Azules property, will get people thinking about its value. I think we're still beginning. We've done a great deal of drilling, and we'll have a feasibility study out early next year. So I think all of that will be reflected in -- should be a higher price for the value of that project. The copper prices weakened in the last in the last 3 months relative to gold. So it's taken a bit of the value out of the market. I believe we followed a lot of the copper stocks in terms of price direction.
Our next question comes from [ Phil Powers from McEwen Mining. ]
A couple of quick questions. As far as looking at the financials, it appears that San Jose is generating quite a bit of revenue and a fair bit of cash these days. And I was wondering if there's been any update you've gotten from [ Hot Shield ] regarding a dividend? And if so, is this going to be -- are there any plans for regular dividends?
Phil, it's Barry. Thanks for the question. So we did receive a small dividend in the second quarter, but obviously, given where gold and silver prices are, we would want to see a more robust dividend. I would say we've had a very good dialogue with [ Hot Shield. ] We're spending some of the free cash flow generated this year on a mill expansion. So that will take throughput up to 2,000 tonnes per day. So that project is going well, and we should see the benefits of that next year.
And I guess what we've committed to do with [ Hot Shield ] is look at the cash generation this quarter and potentially expect to receive a more sizable dividend in the fourth quarter of this year. So obviously, silver has come off a little bit, but gold is still above $2,400 as of today. So as you said, still generating positive cash flow and the mine seems to be performing quite well.
Yes. And my second question is, I know you -- at least, Bill and maybe a couple of other members of the team went down to Mexico recently, and it looks like you're making some adjustments to the permit. And I was just wondering if you could give us a little more color on some details regarding some of the adjustments to the mine plan as well as if this is going to raise the cost to getting towards a permit and a potentially production.
Yes. So thanks very much for the question. So yes, at this point, we're anticipating receiving the permit. And unfortunately, I guess, as you probably know, recently, there's been elections in Mexico. So the new team is now getting into place. On the government side, we have had some discussions with responsible agents in Mexico about our permitting. And there's an anticipation, I guess, that's been created where we think we might get the permit late in Q3 or early in Q4. But as in all permitting situations, there's not a lot of clarity around when permits are given.
Meanwhile, we're also looking at other opportunities to reduce the capital cost and do some other arrangements in terms of the permitting to make that less onerous on the government. And so I would say, at this point, we're in a state of flux and hope to have some better news for ourselves and for our shareholders later in Q3 and early in Q4.
[Operator Instructions] Our next question comes from [ Patrick Shin, private Investor. ]
Just wanted to find out if there's any updates on the RIGI. From what I could gather through the message boards and some of the Internet research, it's been debated, but it seems very unclear what benefits there are.
There are many. Michael Meding, our VP and General Manager of McEwen Copper could give you a concise statement of that, and we'll be putting out a press release today. In the appendix of it, will be a discussion. It has many, many positive features.
So if I may give you the current state of the RIGI. The RIGI is part of a law package that has been signed into law and it has been discussed in the Lower House, in the Senate and is now enacted. The provinces are in the course of adhering to the law. The law is active. What does it mean to be beneficiary of this law is that the main benefits include corporate income tax reduction from 35% to 25%, so 10 percentage points decrease in corporate tax rates. Accelerated depreciation and unlimited carryforward of losses, no limitations of deduction of interest for 5 years, tax on dividend reduced from 7% to 3.5% and relief of withholding tax on some payments to foreign beneficiaries, which is really important for big infrastructure projects.
Bank tax, transaction tax, which was before 1.2%, will be fully credible against income tax and the municipalities and the provinces adhering to the law will be banned from increasing taxes to the projects. For the construction, it means that the 20% VAT, that in Argentina takes some time to recover, has a new mechanism to be recovered very quickly. The state will issue certificates that can be directly used for tax payments. So if you are interested to learn more about that, please drop a note and we can send you documentation.
But what is also important to note is specifically import and exports are free from licenses and duties. Exports after a certain amount of time at the moment, copper projects have a 4.5% or a 0% to 8% sliding scale export duty, and that will go away with the implementation of the RIGI after a certain amount of time. And it gives you 30 to 40 years of tax stability that you can litigate either in country or outside of the country. So it's very beneficial for mining projects.
Okay. So it sounds like it's a done deal. There's no more debate that needs to be done by the Argentinian government in order to have these benefits.
So what is going to happen now is that the law will be regulated. So the law has been signed into law and has been published in the official gazette. And the regulation should be coming out in the next couple of weeks. The provinces that are interested in adhering to that law, they are adhering via provincial laws.
You know that Argentina is pretty much made after the U.S., so natural resources, for example, belong to the provinces. So there is discussion going on in the different provinces. Some have already adhered. The province where we are, we expect this to be approved relatively soon as well, so that you have a full coverage both on a national as well as provincial and municipal level with the tax stability that I mentioned was from 30 to 40 years with all the benefits mentioned.
We don't have any pending questions. There are no further questions at the moment. Mr. Rob McEwen, I would like to turn the call over to you.
Thank you, operator. And thank you, ladies and gentlemen, for joining us today. As you can see, we're in a good financial position. We've got -- our drilling is delivering results and we've made a number of press releases on our exploration results. In the press release that's going out today on Los Azules, it will be providing additional drill data, infill drilling. And Argentina is open for business. It's been a pariah for a long time. And I'll call it, Milei magic has changed that and been embraced by the government of Argentina. So that, plus our improving financial position, I think, puts us in a very good position going forward to finance our growth plan. Thank you for joining us.
Thank you, everyone, for joining today's call. We hope you have a wonderful day. You may now disconnect.