McEwen Mining Inc. (MUX) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to the McEwen Mining Fourth Quarter and Full-Year 2012 Financial Results Conference Call. I would now like to turn the meeting over to Mr. Rob McEwen, Chief Owner. Please go ahead, Mr. Rob McEwen.

Thank you, operator, and good afternoon, ladies and gentlemen. Thank you for joining us today. Today there will be three speakers, myself; Perry Ing, our Chief Financial Officer; and Ian Ball, our Senior Vice President. I would just like to start off by saying that gold market has been a rough ride for everybody but we have been here before, in terms of the gold cycles. It's an unpleasant place to be but it will pass and McEwen Mining is on course to deliver what we - our production and construction plans. We have made good progress in Mexico which Ian will talk about and we have a good financial position at the moment. So I will ask Perry to start right now with a brief overview of our financial position.

Sure, thanks Rob. We ended the year 2012 with cash and liquid assets balance of approximately $79 million, which reflects the $60 million rights offering that was completed in December. The company remains debt free and over the next 12 months we expect to have sufficient liquidity to develop all of our assets with the exception of El Gallo Phase 2 which is still in the permitting process. We expect to receive permits by the third quarter of this year. In order to develop El Gallo Phase 2, we will either look to monetize the Los Azules copper project in Argentina or we may consider alternative forms of debt or equity as needed to raise the capital required.

Thank you, Perry, and Ian, could you give an update on Mexico, Argentina and Nevada?

Certainly, Rob. As you would have seen in our fourth quarter release, the commissioning in Mexico went smoothly. We declared commercial production on January 1. The important thing to take away is that the cost assumptions that we use for mining and the processing have been coming in line with the budget and we are able to deliver enough ore to the plant and in fact we been, over the course of January, February and March, delivering 20% over the designed specs for the crushing plants. So that has gone well. We have also been in the process of upgrading our management team. In December we announced that Fernando Aguilar came to us from Goldcorp and who is running the Peñasquito operation and we have been continuing to move people up the chain in terms of our supervisory roles in Mexico which is going to really benefit us as we move into the second phase as we will need high skill sets, especially on the metallurgy and on the processing and so we are in the process of getting those people today. On the exploration side, we’ve had good success drilling around the Phase 1 area and although it’s been a few months since we published the result from that specific drilling, we are putting those in the coming weeks and we will have a new resource update for Phase 1 by the end of the second quarter. So we are quite pleased how things are going in Mexico and we feel it has been a great stepping stone as we embark on the second phase. For El Gallo Phase 2, right now we are funding our engineering as our final engineering is on track according to the schedule as been set out by our ECPM contractor M3. As Perry mentioned, we will be submitting permits at the end of Q1, at the end of March and expect or hope to receive approval by the end of the third quarter. At that point we will have a decision to proceed with the Phase 2. Right now we have been putting in long lead-time order for the ball mill and filter presses and we are finding that the cost, although early in the process, are coming in line with the feasibility studies. So we are quite happy to see that as well. So right now we think Phase 1 has been a really good experience for us. It allows us to raise our confidence level as we now get ready to proceed with Phase 2. On San José, things are going as planned. The mine, in 2012, it increased production for the fifth consecutive year. 2013 is expected to be another record year for the operation as we completed a 10% expansion at year-end. The team down there did, I think, a remarkable job keeping costs down. The cost for Q3 and Q4 were less than Q1 and Q2. So I think the team down there has done an exceptional job in a very difficult environment with higher inflation. Just to reiterate what we have put in our news release this morning, we’re going to be coming out with a new reserve resource estimate and that will include a substantial amount of drilling, 110,000 meters of drilling that [would be most] [ph] of the mine's history in 2012 and we expect to have the results from that in the coming weeks. With that, Rob, I will turn it back to you.

Thank you, Ian. As I said, we have been here before. We have gone through these cycles. For us, looking forward, to construct El Gallo 2, the environment has improved from the standpoint of cost control. I believe there is excess capacity appearing in the industry. Most of the service providers and manufacturers for the industry, our lead times, I believe, will be improving. The cost inflation that we have seen, I think, it is settling down. So there is a better chance of when one makes a forecast of achieving it on budget and on time. We are keeping our part of this conference call short so that can leave an adequate time for questions and answers. But as Ian said, our fourth quarter and year-end results were issued today this morning and all the details are in there and we did not feel like restating those. So at this point, I would like to ask the operator to enter into our question-and-answer period, please.

Thank you. We will now take questions from the telephone lines. (Operator Instructions) We thank you for your patience. Our first question comes from Chris (inaudible), who is private investor. Please go ahead.

I have a question on Nayarit. About a year ago there was a press release showing some of the early exploration work that you had done on that property. And since then we haven’t really heard much. I was just wondering if there is an update on that.

I will ask Ian to answer the question, Chris. Thank you.

I would be happy to answer that question, Chris. We did have some very early signs down there of some good grades of gold and silver. We did do small drill program last year with, I would say, minimal success. There was some okay grades of silver and gold but really not over the type of (inaudible) that we would warrant us going back in there and drilling. We have done work after that to reevaluate the area and continue to work on it but there is no future drilling plans right now.

All right. And next question is on the Grass Valley. In the last conference call, I think I asked the question, I guess there was preliminary work in geophysics and perhaps you had more geochemistry on the property in January and then after that you were going to be doing some drilling. Just wanted some update on that.

Right now we are waiting for some additional seismic work to come in from the upper portion of that property. So we are waiting for that and that will be evaluated. Right now Grass Valley is one of many targets that we are evaluating. We think it is quite prospective based on its location next to Cortez, the Cortez mine of Barrick. But we are continuing to evaluate it. It is expensive drilling and we have not okayed that drilling for the season yet. But we do think it is very prospective and we are currently defining the targets.

Is there any other areas in Nevada that are currently budgeted for exploration drilling?

Right now, for pure exploration, Grass Valley is the only one that’s receiving our attention.

Okay, all right. Thank you very much.

Thank you. (Operator Instructions) The following question comes from Craig Stanley from Stifel Nicolaus. Please go ahead. Craig Stanley - Stifel Nicolaus & Company: Thanks. Hi guys, just a couple of quick questions. Firstly, you do mention in the MD&A about the potential for royalties in Mexico. I was wondering if you can elaborate a bit more and specifically if you heard if there is any specific levels. Secondly, just on Los Azules, I was just wondering how the process is going and if any potential acquirers have been down on site yet?

Well, I will handle the first question, Craig, on Mexico and the royalties and since we last spoke, there has really been no change that we have heard come out other than there has been discussion surrounding the Mexican government putting in a royalty. In what form? We do not know. Whether it will proceed? We do not know. But we continue to hear that it could be not a traditional royalty where it could be something more along the lines of something that gets directed towards the community. And that’s something that we have always been doing is providing assistance to the community. So if was to go down that path, we do not expect that it will effect us but on the other hand, we just don’t know what the final outcome, if there will be one, on these royalties. It is important to note that this is something that had came up four years ago and ended up with no royalty. So we are just waiting back and keeping our ears to ground to see what comes out of it. Craig Stanley - Stifel Nicolaus & Company: Thanks.

Craig, this is Andrew Elinesky speaking. With regards to your question on the Los Azules sale process, we haven’t had any site visits done so far but we can say we are in the process as we expected and are continuing down that path. Craig Stanley - Stifel Nicolaus & Company: Okay, thank you.

Thank you. We have no further questions registered at this time. Please go ahead, Mr. McEwen.

Thank you very much, ladies and gentlemen. As I said we have exploration and we have some development plans. Our operations are going well. This will be a very significant year for us. So stay tuned. We are going to keep pushing ahead. Thank you very much.

Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.