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Alberto Abaterusso
Alberto Abaterusso
Articles (577) 

McEwen Mining Reports Quarterly Production

The miner is building up several assets for future growth

July 14, 2017 | About:

McEwen Mining Inc. (NYSE:MUX) released its operating results for the second quarter of fiscal 2017 on July 13.

The results for gold and silver production as well as the production of gold equivalent – according to a gold-silver ratio of 1:75 – are shown in the chart below:

Source: McEwen Mining

The mid-tier miner currently generates its income from two producing assets: the Argentinian San José Mine (49% owned), which contributes 70% of the company’s total production of gold equivalent, and the Mexican El Gallo Mine (100% owned) contributes 30% of production.

My concern about this company is whether its current operations can guarantee, without issuing equity or taking on debt, enough financial resources to fund exploration activities at San José and to fund economic improvement at the El Gallo silver project. At El Gallo, McEwen hopes to lower the level of funds needed to improve the economics of the project, which was initially $178 million based on a feasibility study released in 2012.

At San José, underground mining techniques guarantee silver and gold production for another five to seven years with reserves of 412,000 ounces of gold and 27.2 million ounces of silver. The mine has the potential of doubling its life through exploration activities that will increase its reserves to 815,000 ounces of gold and 54.5 million ounces of silver – as measured and indicated on Dec. 31, 2016.

For full fiscal 2017, the company forecasts to produce 50,000 ounces of gold and 3.3 million ounces of silver for a total volume of 94,000 ounces of gold equivalent, according to a gold-silver ratio of 1:75. The total cash cost per ounce of gold equivalent is estimated to be $780, while the all-in sustaining cost is estimated to be $990 per ounce.

At El Gallo Mine, open-pit mining activities can guarantee production, through crushing and heap leaching mining processes, for another two to four years at an annual rate of 49,700 ounces of gold and 24,000 ounces of silver. These are the production volumes McEwen forecasts for full fiscal 2017, leading to a total volume of 50,000 ounces of gold equivalent based on a gold-silver ratio of 1:75. One ounce of gold equivalent is expected to be produced at a total cash cost of $760 and an all-in sustaining cost (AISC) of $900 in 2017.

McEwen Mining is currently engaged in other metallic projects as well. 

The Gold Bar project in Nevada is considered one of the most prolific sources of mineral. A 2015 feasibility study report targets to build an open-pit mine where gold will be produced through heap leaching processes for an average annual production of 65,000 ounces at a cash cost of $728 per ounce of gold. The project has an internal rate of return (IRR) of 20% based on a gold price of $1,150 per ounce and 36% based on a gold price of $1,300 per ounce. The company estimates to invest initial capital of $60 million to develop the project into a producing asset.

About three miles away from the Gold Bar project, McEwen is advancing the Gold Bar South project into a satellite source of gold for the future production of the main Gold Bar project.

For 2017, McEwen has allocated approximately $2 million for the completion of the permitting activities, which are expected to be obtained sometime between the third and fourth quarters. The company expects to start building activities at Gold Bar at the end of this year, for which it has allocated approximately $37.2 million.

At Los Azules, an undeveloped high-grade open-pit copper project in Argentina, McEwen is exploring further potential for the deposit. According to the most recent report, it is expected to produce an average of 377 million pounds of copper every year over a span of 35 years. The cash operating cost is $1.08 per pound of copper. The after-tax internal rate of return is 14.3%. McEwen has estimated $3.9 billion is needed to build the mine and the plant to process the metal. 

McEwen holds four projects in Timmins, one of the world’s largest gold districts in Canada. There, the company has tested - at a price of $1,200 per ounce of gold - the economics of producing gold from open pits. Studies found the company can produce approximately 45,000 ounces of gold per year at a cash operating cost of $860 per ounce. The mine life is estimated to be 6.5 years. The initial investment required to build the mine is estimated to be 58 million Canadian dollars ($45.8 million).

McEwen has to satisfy all the capital requirements to extend the life of the San José mine, to fund the improvement of the El Gallo silver project’s economics and to proceed with the development of its other projects. As of March 31, the company had $44 million in cash and securities and operating cash flow of $25 million.

In early August, McEwen will release its financial results report for the second quarter of fiscal 2017. The report will also contain the figures concerning the operating costs sustained during the period.

McEwen Mining is currently trading around $2.66 per share on the New York Stock Exchange with a market capitalization of $804.96 million, a price-book (P/B) ratio of $1.75, a price-earnings (P/E) ratio of $151.76, a price-sales (P/S) ratio of $14.90 and an EV/Ebitda ratio of -652.39.

McEwen has 621,000 ounces of gold and 13,328,000 ounces of silver in proven and probable reserves, equating to 798,707 ounces of gold equivalent.

The company has an enterprise value of $782.25 million. When dividing that figure by 798,707 ounces of gold equivalent, it yields an EVO of $979.40.

Disclosure: I have no positions in any stock mentioned in this article.

About the author:

Alberto Abaterusso
Alberto Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds a MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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