McEwen Mining Inc. (MUX) Q2 2015 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the McEwen Mining Second Quarter 2015 Financial and Operating Results Conference Call. At the end of the presentation we will take questions from participants on the conference call and the webcast. I would now like to turn the meeting over to Mr. Rob McEwen, Chief Owner. Please go, Mr. McEwen.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to our second quarter 2015 conference call, where we're going to cover our operating and financial results for the quarter. I'd like to start saying we had an excellent quarter, strong productions generated very healthy operating profit from cash flow. And our star performing asset was our El Gallo Mine in Mexico that delivered outstanding production cost per ounce and here with me today to give you the details are Perry Ing, our VP and CFO and Nathan Stubina, our Managing Director. Perry?

Thanks, Rob. Overall as Rob mentioned, we experienced some excellent quarter from production standpoint, which helped to drive down our cost and increase our cash flow and our treasury. Our consolidated gold equivalent production was up 36% to 39,000 ounces in the quarter compared to 29 ounces in the same quarter in 2014. As a result, our earning from mine operations doubled to $13.4 million compared to $6.6 million in the same period of 2014. This strong performance despite a weaker metal price environment is reflected in our growing treasury, as we ended the quarter with cash and gold of $27 million, compared to $17 million at the end of the first quarter and $15 million at the beginning of 2015. I am also pleased to report that with the collection of $6 million in insurance proceeds resulting from the robbery at our mine in Mexico, we collected this balance in July and our cash and gold balanced now stands in excess of $32 million. Looking into the performance from a cost standpoint, we report a consolidated gold equivalent cash cost of $700 an ounce which is $200 less than the prior year and all-in sustaining cost are about 50 ounce which is $350 less from the prior year. This is driven by the exceptional performance at our El Gallo 1 Mine where we produced over 17,000 ounces of gold at a cash cost of $350 an ounce and all-in sustaining cost of $550 an ounce. This compares to production of over 8,000 ounces at a cost of - at a cash cost of 850 and all-in cost of 1250 in the same period in 2014. So therefore you see that the strong production combined with savings and in put cost and recent Mexico peso devaluation are all contributing factors to our low cost. In Argentina, at the San José Mine despite difficult operating conditions our partners have been able to keep cash cost flat at just over $930 an ounce and have been able to decrease all-in sustaining cost by nearly $100 to 1215 an ounce. We are able to report that we received a small dividend of approximately $0.5 million during the second quarter from the San José Mine. Overall looking at our overall financial statements, we did report net loss of $14.5 million or $0.05 a share. However, the majority of this was due to non-cash asset impairments reflecting claims - certain claims that are we dropping in Nevada, which will result in annual savings of $600,000 per year and do not impact any of our mineral resources in Nevada. Our adjusted net income, stripping out the results of this impairment, as well as foreign exchange currency effects, we did report adjusted net income of $1.8 million of $0.01 a share. Couple of other things I'll touch on before I turn the presentation over to Nathan. To enhance our liquidity we did enter a credit facility during the second quarter with a local Mexican bank of approximately $5.5 million secured against our outstanding VAT receivable balance. This facility will be retired as VAT amounts collected during the year. We did announce in July that we were instituting a dividend to shareholder of records as of July 31. This corporate distribution will be payable on August 17th and we would like alert shareholders that this distribution is considered a return of capital, and unless you are 5% shareholder you should not be subject to withholding tax and the distribution would generally be considered a return of capital and would be tax free, although we encourage you to consult with your tax professional. And just touching on our VAT balance. Currently our VAT balance is about $10 million of which $5.5 million is secured by the credit facility. So now I'll turn over the presentation to Nathan Stubina, our Managing Director.

Thank you, Perry. And to all of our callers for the opportunity to review our Q2 and first half results. First of all I am pleased to report a record quarterly production of 39,000 gold equivalent ounces for the quarter. Our consolidated 2015 production guidance remains unchanged at approximately 138,000 gold ounces. Let’s begin with outlook at our plant in Mexico. We produced over 17,000 gold ounces this quarter, this compares quite favorably with the 8000 ounces that we produced during Q2 of last year and 15,000 that were produced in Q1 of this year. The average ore grade processed during Q2 was around 3.7 grams per tonne, this compares to the 1.1 grams per tonne that were treated during the same period in 2014. These higher grades were always in the mine plan and we expect the grades to drop back to the 2 gram per tonne level by early 2016 and remained that way for the remaining of next year. These higher grades explain most of the increase ounces produced during the quarter, but there were other process improvements that also were implemented this year. All of these factors compares contributed to the low all-in sustaining cost of $550 that Perry just mentioned. Now let’s turn our attention to the San José mine in Argentina. Our share of metal production for the quarter was over 11,000 ounces of gold and almost 800,000 ounces of silver, both of these values are an improvement over the same quarter of 2014. Cost have remained level over the past year. For our 49% share of production from Argentina, the forecast for 2015 is maintained at 46,500 ounces of gold and 3.1 million ounces of silver. For the Gold Bar project in Nevada, which is a 100% owned by McEwen Mining. We continue to advance the permitting process for construction and production of the open-pit heap leach project. An updated resource estimate and feasibility study is scheduled to be released in Q3 of this year. As outlined in our press release, we are incorporating several improvements to the project that will positively impact the economics of the project. For the El Gallo 2 silver project in Mexico, we are performing further metallurgical test work aimed at improving silver recoveries, increasing reactions rates and using less reagents. Just a few comments about exploration. We released and exploration update for Mexico on April 21st of this year. Our focus for the remainder of the year is to target near mine - near mine targets. In the six months ending June 20, approximately $2.9 million were spent on exploration in Mexico. Thank you for the opportunity to review our Q2 results. I would like reiterate that our consolidated annual production guidance remains unchanged at 96,500 gold ounces and $3.1 million silver ounces. I would like to conclude by mentioning that in Mexico production during Q3 has been better than expected and I look forward to reviewing these results with you during our next call. Thank you, Perry.

Thank you, Nathan. Just wanted to conclude with a few remarks. First, our dividend distribution will be paid on August 17th and I will be reinvesting my entire dividend back into the McEwen Mining. I believe that’s a very good investment right now. I think we're at the bottom of the gold market. We are starting to see evidence of increasing M&A activity and there was actually blog yesterday, apparent to this blog that was picked by the Wall Street Journal, I am not sure I agree with the wording that he was saying, analyst are widely bullish on gold and any wildly bullish analyst lately. But it was saying they expected higher prices by year end, not of the orders that I like, but - so I have to say that, this was an excellent quarter. Our cash balances went up. Our production went up, our operating cost went down and here we're just delivering on guidance and we're looking forward to producing 138,000 ounces per equivalent at year end and in the many time. So at this point I'd like open the session up for questions.

[Operator Instructions] Your first question is from John Morain, Private Investor. Your line is open.

Hello, Rob.

Hi, John.

I have two questions. One is if the grams per tonne are going to decrease from 3.7 to 2.0, what impact will that have? And the other is, if you're de-listed from New York Exchange what will be the impact of that as well? Thank you.

Thank you, John. We do expect the grade to go down to 2 grams per tonne next year. For the course of this year we'll see the grades going lower, but we'll still be better 2 grams and most of next year will be 2 grams. And we expect next year to be producing about 50,000 ounces of ore at Mexico.

Will that impact the profit that you make next year, the revenue and profits?

Gold price is going to have the biggest bearing but to answer your question, our cost will be a bit higher as a result of producing less gold.

Okay.

The New York, our New York listing, we are working to resolve that situation and we think we'll be able to ensure that we remain listed on the New York Stock Exchange.

Thank you very much.

You're welcome, John. Thank you.

Your next question is from Chris Alan.

I have two questions. What were the Nevada properties that were dropped and why haven’t we've seen more insider buying of McEwen Mining?

Thank you, Chris. Properties dropped, where properties that surrounded some of our existing properties that we felt they were large holding cost and we were reducing our -- some of our operating expenses and we didn’t see -- we hadn’t seen much in a way of prespectivity of those properties at the current prices. And in terms of -- and the Mexico is the same. Inside buying, we have some blackout periods by reinvesting the dividend I will be making a large investment back into the company share and that will be happening in the next few weeks.

And the next question is from -- our next question is from the line of Mark Gaertner, Private Investor. Your line is open.

Thank you. Thank you for this earnings report, Rob. My question is similar to the issue of the de-listing from the New York Stock Exchange, could you share with us like how much time this company have to work out this problem and how are you going about it to work out the problem, would be considering a reverse stock split?

Thank you, Mark. The New York listing is an important part of our strategy, so we are working diligently to get us up backup about the dollar. One consideration although its not a high priority at the moment is looking at a consolidation in terms of timing, we have six months given by the exchange, so that would be in January. However, since we're - if you wanted to do the consolidation that would require a shareholder meeting and done at an annual shareholder meeting and that - we traditional got our annual shareholder meetings in June of the year, right early June. So that will give you some timeframes to consider.

Okay. Thanks.

You're welcome.

And your next question comes from Matthew Galasso [ph].

As MUX mines through the higher grades at EG1, what should investors expect the average grade mine going forward into calendar year 2016 and onwards? At what point in time should investors expect to realize grade to trend towards average grade showing the resource estimate?

Well, as mentioned going into 2016, at the beginning of 2016, the grades will drop to the 2 gram per tonne range, so those fully decrease through this year, it depends on the stock piles and so forth. But for now 2016 it should be around 2 grams per tonne. I am just going to go back and comment on something John mentioned, even though the grade are dropping, lot of the initiatives that we're implementing this year on recoveries and cost will continue through next year. So we expect to have better performance next year from those. Thank you.

And the next question is from Stuart Bailey.

Thank you for your positive attitude during these difficult times for gold and silver investors. At age 71 I can honestly say I had never lost $1 million on taper and never I've I felt, I have made a mistake. Time will prove me right, trusting you with my retirement dollars. And the question is, would McEwen expect a 100 million shares of stock in exchange for a loss renewals, cost to buyer $70 million to 100 million and our outstanding shares would drop to 205 million, please buy MUX on the market just five million shares would send a message, maybe better return on investment that’s drilling right now?

Could you say that again, I am sorry, I didn’t really follow that.

The question was, would McEwen expect 100 million shares of stock in exchange for loss renewals, cost to buyer $70 million to 100 million and our outstanding shares would drop to 205 million?

Let me rephrase that, you're suggesting if we sold losses in less, where we use the proceeds to buyback our shares? At the moment we would - our plan is to develop our pipeline of projects and that would be the first place we will be putting our money, not doing a share buyback.

And the next question is from the line of Brett Reece with Janney Montgomery Scott. Your line is open.

Good morning. Mr. McEwen, could you update us on the political and country risk situation in Argentina and how impacts our investments in the VAC data?

Certainly, Brett. Thank you for the question. Political risk in Argentina comes from the standpoint of them changing the rules of game, imposing higher levels of tax. There is an election this fall in October the current president is at the end of her term and is unable to be re-elected. There are two candidates running - they are both aware that the country needs foreign exchange and foreign investment. So we're expecting to see some changes, including devaluation that would have a positive impact on our operations, particularly our operating expenses that will be in local currency. So you're sighting to see some players in the market, looking at Argentina and seeing how they can position themselves for better days coming ahead. So I don’t see the political risk getting any worse than what it is. I feel that we've - we won’t say we're at the bottom of that, and it’s going to get better as we go forward, quickly it will get better.

Right. I appreciate that. But if the candidate from the present party in power gets reelected, you feel the - the reality of Argentina is such that, that person policies will be more business friendly than the current president?

I do Brett. It’s just - the reality in the situation is they are financially constrained and they have to come out with and invite foreign capital back into the country. So, yes.

Great. Thanks for taking my questions. I appreciate it.

You're welcome.

The next question is from Bob Polus.

Can you give an update on Visible Gold and are you considering a reverse split of MUX?

In terms of Visible Gold its - they're exploring in northern Quebec. We have small investment in that firm and I expect we'll be hearing drill results some time in the fall. In terms of reverse split, we mentioned this earlier on in question period that it’s not something where we'd like to other things before considering reverse split to get our share price up.

The next question is from the line of Mark Latner, Private Investor. Your line is open.

This is a follow up question, actually the previous one, you mentioned did you like to do other things, other than reverse split, possibly consolidation, I am sorry if I am ignorant. So what do you mean consolidation?

Sorry, perhaps I wasn’t clear. A reverse split in the consolidation basically it’s the same thing. So that is - its one of the options on the table, but its ranked quite a bit lower than other options at this moment that we're looking at.

I see. So you're not looking at reverse split, and not you're looking at consolidation?

Correct.

Okay. Thanks for clarifying.

Thank you.

[Operator Instructions] The next question is from the line of Bill Towers, Private Investor. Your line is open.

Yes. Thanks, Rob for hosting this call. I thought the quarter was quite good. So couple of quick questions. I guess, the first one is, as far as moving Gold Bar forward, I know you coming up with a project plan in the next couple of months. But I guess is - do you look forward towards providing some I guess, will you do, be doing another drill program next year or is there - what is the plan to really begin comparing towards, moving that towards production. Then I guess the second question I have is as far as additional cost out there, I saw that you weren’t able to quite push down your overhead cost, vis-à-vis, last year, do you have additional cost that’s in mind, both in Mexico and I guess to a lesser degree in Argentina that will kind of move the needle a little bit further, rather than I know a lot of the gains have been through higher grade, but if you could just talk a little bit about some of those initiatives that be greatly appreciated?

Yes. Thank you, Bill. Regarding Gold Bar, our strategy is to push the permitting forward and then explore after we've got permit in hand. In terms of cost cutting, in Argentina that’s in the hands of our partner Hochschild Mining. They are - they have done a good job this year, containing cost and they hopefully will be able to reduce cost further, although they are high, but they are hoping to bring those down. And in Mexico better than 50% of our cost can be there as a result of the contractors who are using, well - we having discussions with them to see how we can save money with their contract and preserve their profits, but maybe operate more efficiently.

Okay. No, that’s kind of I guess, the other question I have is really as far as an exchange rate, I mean, we've seen Mexican peso go down substantially in the last, really, in the last few weeks, the same thing was Argentinean peso, do you see this having a positive impact on second half of the years result?

Hi, Bill. It’s Perry. Yes, certainly, when we started the year we were budgeting peso exchange rate of about 14.5 I believe and we're now seeing 16 in the quarter to 16.5. So that second leg down was in the recent kind of 3 to 4 weeks. So I do expect you'll see additional cost savings there and we're seeing just in terms of the mining input cost, the typical consumables of cyanide we're starting to see more flexibility there. So I think, we will be pressing all of our suppliers to reduce our input cost so I think you - we will be squeezing every dollar we can on the input cost side.

Okay. Well, thank you so much guys. I appreciate it.

You're welcome, Bill.

Your next question is from Michael Midlash.

Rob, inside of El Gallo 2 and the Gold Bar project, what is the plan to grow production, is MUX clear pursue M&A?

We maintain a fairly active surveillance of the market and looked at a number situations, continue to believe that an M&A transaction would, the right one would improve our presence in the market and our opportunities to grow the company to satisfy our goals of getting into the S&P 500. Next question?

And the next question is from the line of Ralph Wagner [ph] Wagner Investment. Your line is open.

Yes. Good morning. Rob, your last question, partially it answers the question. I've forwarded an email to the company and didn’t get an answer back yet. This whole area of consolidation what's been going on, in Canada especially people like [indiscernible] other people buying and buying to build new companies, allowed them a very small people just like you have gone forward and consolidating companies that might, three or four companies to get into one and have done that before, you have a lot experience. So the question is I have not removed ahead, early or right now some thing more active, without any inside information, I am just trying to get this company off the dollar share?

Thank you. That’s our objective as well Ralph. As I said earlier we've been - looked at a number of situations, we haven’t found the one that we though would best benefit for our shareholders. I am quite confident that we'll see something in the marketplace, really looking for a situation where there might be company with a large shareholder or shareholders that are similarly inclined to our thinking of no debt or low debt, relatively low cost and protecting the share capital. I've observed a number of transaction where people have been very focused on building a project and they finance bottom of the market and diluted their shareholders incredibly and that definitely isn’t in the interest of our shareholders and myself. So it’s looking for likeminded investors in another company that we feel that by combining with ourselves we can build a larger and stronger company.

So you're on that, and just a final follow up just kind of how do you see the next 6 or 18 months kind of, how do you see the gold market emerging?

I see it getting better. There is been a lot of cost reductions and rationalization going on in the industry, exchange rates have played a very big role in the profitability of the industry its appearing and I do think that some where along the way the dollar is going to resume that fall against gold and we'll see a lot - a lot more investors starting to look at gold as a place to have some of their financial assets. And this run when it does start we'll go higher in the last turn. So I think the positive periods for gold.

Great. Thank you very much. Just one comment if I may, any thoughts on this emersion of - the import this gold offering?

It’s another product out there, they've merged with GoldMoney and the fellows who ran GoldMoney, James Turk, a very good fellow and if we saw this is a good place to his money and it’s probably an interesting product to look at.

Okay. Thank you very much.

You're welcome.

Your next question is from the line of Martin Tremblay, Private Investor. Your line is open.

Yes, good morning. Robert, I guess, two questions. You referred to a reverse split as probably at the last result, you said you're looking at other options. Can you give us more details of two, or three other options that you're looking at, can you extend on that a little bit? And my other question is in regards to dividend payment, wouldn’t that been better idea to just repurchase share of the company, it seems to me that that would have been, me as an investor I would have preferred as in getting asset benefit for shares, I understand yet we can reinvest the money in it, but I am afraid its not going make sense on the value of the stock, so those would be my two questions, if you don’t mind, extending on that?

Sure. Alternatives, and this is going to be very broad, one would be an M&A transaction, combining with another company to build something that is more present in the market and more diversified production base. And the other is just continuing to improve o the economics of a project and through exploration. And recognize those are broad terms, but that’s the extent of those alternatives. In terms of the dividend, if we - our first payment is going to be in $1.5 million approximately, that would buy a little less than 2 million shares, I am not sure that would have had much of an impact on market. And the return to shareholders was within our ability and I think it’s a good discipline. There is no tax on the distribution as well. So it’s about the same impact.

Very good. Thank you.

You're welcome, Martin.

There are no further questions at this time. I will now turn the call back over to Mr. McEwen for closing remarks

Thank you very much, operator. I wish to thank everybody who joined us for the call. And good luck with your investments going forward. We're going to see better prices. Thank you.

This concludes today’s conference call. You may now disconnect.