At $2.07 per share, McEwen Mining Inc. (MUX, Financial) was flat on Monday, April 16. The New York Stock Exchange was cold on results of 2018 operations in the first quarter.
McEwen reported to have produced 35,069 ounces of gold and 695,651 ounces of silver.
Gold output was 74.5% higher than the prior-year quarter while the production of the grey metal declined 3.8% from the comparable of fiscal 2017.
The decline in the production of silver was mainly due to orderly maintenance activities at San José Mine (49%) in Argentina.
When 75 ounces of silver are converted into one ounce of gold - the ratio is the result of the average market price of the two metals over the reporting period - the total volume of equivalent gold was 44,344 ounces. That led to a 49% increase compared to a year ago.
The company said that each mine is on track for McEwen to meet full 2018 production guidance of either 109,500 ounces of gold and 3,337,000 ounces of silver, or 154,000 ounces of gold equivalent (GEO).
The below chart illustrates the trend in McEwen’s first quarter production over the last 5 fiscals:
McEwen is trading cheaply because the share price is underneath the 200, 100 and 50-SMA lines, as shown by the chart of GuruFocus.
Furthermore, the current market value is only 25 cents off the 52-week low of $1.82 and at 52% to the 52-weeks high of $3.15 per share.
The market value of 337.05 million shares outstanding is approximately $697.77 million. The price-book (P/B) ratio is 1.33 times versus an industry median of 2.06.
The EV-to-Ebitda ratio is negative or -33.44 times versus an industry median of 9.9 times. However, as of April 2018, the concensus of two analysts is for a Buy approach. The recommendation rating is 2 out of 5.
The average target price is $3.58 per share. That is a mean of three estimates ranging from $2.50 to $5 per share and represents a 73% growth from the current share price.
For the next trading months of 2018, investors should keep an eye on these catalysts:
- The quarterly drilling results from the $12 million exploration program at Black Fox Mine in Canada are expected to be released before the end of the month. The drillings may significantly impact the market value. According to an Oct. 31 report, the Black Fox Mine hosts 113,000 ounces of gold in 395,000 tons of mineral. The average grade of probable reserves of gold is 8.88 grams per ton of ore.
- McEwen expects a general contraction in the company’s production cost as a result of the conclusion of mining activities at El Gallo mine’s open pits in Mexico. The only ongoing heap leaching will determine a cut in the production of equivalent gold over the following three years. However, investors shouldn’t be concerned of that because the decline will be gradually counterbalanced with the production that will come from the Black Fox Mine. McEwen acquired the Canadian Black Fox Mine last year October. For full fiscal 2018, the company expects to produce 48,000 ounces of equivalent gold (GEO) at Black Fox and 32,000 ounces of GEO at El Gallo Mine.
- Because of the scheduled maintenance activities, San José Mine in Argentina should deliver a 14.5% increase in the production of gold and a 22% increase in the production of silver in the second-quarter of 2018. Second-quarter production of GEO should also be nearly 4% higher than the prior-year quarter.
From the third quarter of 2018 onwards:
- On a year-over-year basis, San Jose’ Mine should produce a lower volume of GEO with reference to the third and last quarters of 2018. Those declines may negatively impact the share price, creating a new buying opportunity. At that time, investors may want to consider this gold stock. Gold Bar (100% ownership of McEwen in U.S.), where the mine is under construction, will be online in 2019. From Gold Bar mine, McEwen expects to produce a volume of 55,000 ounces of gold in the first production year, 74,000 ounces in 2020 and 68,000 ounces in 2021.
(Disclosure: I have no positions in any stock mentioned in this article.)
