McEwen Mining Inc. (MUX, Financial) closed at $1.93 per share on the New York Stock Exchange on Thursday, flat from the previous close.
The stock is expected to rise over the following days on the heels of the announcement that the construction of the Gold Bar Mine is near completion, with the possibility of being operational in the first quarter.
This is important news since the Nevada-based mine is expected to buffer the company's annual production with approximately 63,000 ounces of gold at a cash operating cost of $770 per ounce. That is 50% of the total gold output McEwen is projecting for full fiscal 2018. Since the company also produces silver, the Gold Bar Mine will account for more than 35% of the total annual production of equivalent gold. The ratio is 75 ounces of silver to one ounce of gold.
The Gold Bar Mine will extract the ore through an open-pit source and the metal will be produced through heap leaching. The mill facility will be supplied with 8,000 tons of ore per day. Since the mine already has some existing infrastucture, the initial capital expenditure will not be exorbitant.
The Gold Bar Mine hosts 484,000 ounces of gold in proven and probable reserves. The volume yields an eight-year mine life, which can be considerably extended. That potential is nestled in 730,000 ounces of measured and indicated gold resources.
The average gold grade is on par with the industry. That is one gram of gold per ton of mineral. The internal rate of return of the metallic project ranges between 23% and 32% depending on the gold price per ounce. The range is $1,250 to $1,350 per troy ounce.
The payback period of the project is about three years. The after-tax net present value is $54 million in the most conservative case according to a 5% discount rate. The net present value per share is far below the market price at close on Sept. 27, considering the company has 337.28 million shares outstanding.
The company also has mineral assets in Canada, Mexico and Argentina.
The stock is trading below the 200-, 100- and 50-day simple moving average lines. The share price at market close on Thursday was a few cents off the 52-week low of $1.82 and over 30% below the 52-week high of $2.55.
Other indicators on McEwen Mining:
- The market capitalization is $650.9 million.
- The 14-day relative strength index is 45.61.
- The price-book ratio is 1.29, versus an industry median of 1.74.
- The EV-to-EBITDA ratio is 8.321, versus an industry median of 9.3.
- The trailing 12-month EBITDA margin is 68%, versus an industry median of 23%.
- GuruFocus has assigned a financial strength rating of 8 out of 10.
The recommendation rating, which is the average of two estimates, is 2 out of 5. The average target price is $3.46 per share. That is a nearly 80% growth.
During the second quarter, Chuck Royce (Trades, Portfolio) and Jim Simons (Trades, Portfolio) closed their positions
The institutional ownership accounts for 27.91% of total shares outstanding. Insiders hold 1.57%. Robert McEwen, the company's chairman and CEO, holds 24%.
Among the top fund holders, Van Eck Associates Corp. has the largest position with 11.27% of total shares outstanding. Global X Management CO LLC has 1.25%, Bank of Montreal holds 0.9% and UBS Group AG has 0.71%.
Disclosure: I have no positions in any securities mentioned in this article.
