McEwen Mining Inc. (MUX) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the McEwen’s Fourth Quarter and Year End Financial Results Conference Call. [Operator Instructions] And as a reminder, this conference may be recorded. I would now like to turn the conference over to Mr. Rob McEwen, Chairman and Chief Owner. Sir, you may begin.

Thank you very much, operator. Good morning, fellow shareowners and investors. Today we’ll be discussing our 2017 year end results, financial and operational. And we’ll also be sharing our plans for 2018. During 2017 we invested in our future growth as part of our strategy for growth we focused on advancing in two of the most prolific gold neighborhoods in the world. These advancements will not only shape 2018, but bring us to qualifying for inclusion in the S&P 500 Index. We did this on a number of fronts. First, we acquired a significant presence in one of the world’s primer gold districts Timmins, Canada, at a very attractive price. Second, after three years of perseverance, we secured our permits to build and operate our Gold Bar mine in Nevada, in November. Site preparation and construction activities started immediately thereafter and production is scheduled to start in 2019. Third, our large copper project, Los Azules, displayed its robust economics in the new preliminary economic assessment released in September. It’s a long-life, short payback, low cost project. Fourth our high grade silver and gold joint venture in Argentina our San José mine has completed its tenth year of production, which I think is quite remarkable. And it's showing every indication that it will be going strong for at least another ten years. We have stepped up our exploration, advanced our growth pipeline and funded the push of long lead time capital assets to ready ourselves for a timely start of production at Gold Bar. As a result of these developments we are reporting a loss for the year. Entering 2018 we remain debt free. And we have steadfastly resisted utilizing the sale of royalties, metal streams or putting hedges in place on our future production. All of this has been done in order to maximize our future revenue. Financing growth with these financial instruments that many companies have done can seriously impair a company’s performance. And I don't believe it’s worth the risk. For 2018 we remain focused on building our pipeline of future growth by expanding both production and our resources, which we believe will ultimately create value for shareholders. I will now ask Andrew Elinesky, our Chief Financial Officer to discuss our financial results for 2017 and our planned expenditures for 2018.

Thank you, Rob, good morning everyone. Thank you for taking the time to join us today. It's busy earnings season so we appreciate everyone joining us. Further to Rob’s opening remarks the fourth quarter was a strong finish for what it ended up being a very busy year for the company. From an operating perspective our performance came in just under our budget for the year. While from a financial perspective, we did expect to report a loss for the year, consistent with the first three quarters of the year. However, the net loss that we reported was larger than planned in the quarter due to a much lower level of profit at our San José mine in Argentina. In addition, the fourth quarter was the first one that included production from our newly acquired Black Fox mine, it also included a financing of flow through shares which we did to fund the exploration activities at that complex. In November, we received or acquired permits, as Rob said, for the construction of the Gold Bar mine in Nevada. And within 24 hours of the receipt of these permits site works commenced. Regarding our overall operating results the company had consolidated production of just under 61,000 gold equivalent ounces for the quarter. That brought our full year production to just over 152,000 ounces for the full year. This record quarter was due to the El Gallo Mine in Mexico recovering from its earlier weaker performance in the year and producing almost 20,000 ounces on its own, San José having its usual strong fourth quarter and the addition of the ounces for the Black Fox mine. While we continue to report solid operating margins in Mexico and Argentina, both the cash costs and all-in sustaining costs were not as close to the budget as we were aiming for. In addition to lower than planned operating margins, there also was a loss of the provincial export and credit scheme in Argentina, as well as increased tax charges recorded at San José. This meant that we reported no income on investment for the full year there. When you combine these factors with a higher exploration and development expenses across the company, as well as increase in expenses for our corporate activities that we had for the first three quarters of the year, the company reported a net loss before tax of $26 million or $0.08 per share. This loss was partially offset by a sizable tax recovery of $15 million for the year, leaving the company with a final net loss of $10.6 million or $0.03 per share. And while I won't dwell too long on the tax items I do feel that a sizable amount is worth touching on just the bit. As this tax recovery was due to reduction in U.S. tax rates, introduced as part of the new U.S. tax legislation towards the end of 2017. We also saw a sizable reduction in our deferred tax liabilities for our assets both in the U.S. and in Argentina. And while I am on the topic of the U.S. tax legislation, I would like to highlight once again that these changes meant that our two returns of capital made in 2017 will now be considered dividends. As a result, shareholders who received the return of capital during the year should receive new tax slips from their broker or our transfer agent, which will indicate that these distributions were dividends. Moving on to the outlook for 2018, as Rob mentioned earlier, we're entering a time of growth at McEwen. We will be commissioning our first mine in Nevada. We're also going to be increasing our production profile with having Black Fox be under our control and ownership for a full year. However, in Mexico we will see a decline in mining activities as we deplete the remaining oxide material. We do plan on seeing our production increase by just over 12% and reach 171,000 gold equivalent ounces for the year. This strong production base is going to allow us to continue to invest in all of our assets with a particular emphasis on commissioning Gold Bar and improving the Black Fox Complex. And, as Rob mentioned earlier, we're talking about two of the premier mining jurisdictions in the world. However, we will need to raise additional capital to complete our objectives for the year. And, as Rob had said before, we will be opportunistic in this area, as we have started the year with just over $68 million in liquid assets. And as of yesterday we still are at just over $60 million. The remaining spend at Gold Bar is in the region of $67 million to $68 million and we will look to fund this with a mix of our operating cash flows, equipment financing, equity and debt. As Rob stated at the start of the call, 2017 was a very busy year for us. We continue to invest in all our assets as well as adding a producing mine in a number of development projects in Canada’s prolific Timmins region. 2018 will be no less busy for us, as we continue with our work to increase our production profile to over 200,000 ounces of gold per year starting in 2019. And obviously we always aim to get our costs as low as possible, as our ultimate goal is to increase our shareholder returns, as well as we can do. At this point I'd like to thank you again for taking the time to join us today. And I'll hand the call over to our VP of Exploration, Sylvain Guerard.

Thank you, Andrew. 2017 key exploration highlights include the acquisition of Black Fox and the reactivation of exploration at Gold Bar in Nevada. Both, the Black Fox and Gold Bar properties, are located in some of the best mining regions in North America. The acquisition of Black Fox gave us over one million ounces in mineral resources. It also finished currently upgrading our exploration portfolio. Black Fox holds multiple, positive exploration criteria, our reason why we like the property. The property is located on the regional flexure along the Destor-Porcupine Fault which hosts multiple gold mine deposit in Canada. The property has high gold endowment and includes multiple, high grade mineralization and the deposits are located also not just on the one prospective trend, but parallel structure. In addition, for the style of mineralization, we have at least three styles of mineralization at Black Fox and various type of host rock. All of those are important criteria that make us believe that the upside potential is very good. A key criteria is also the level of maturity. We believe that Black Fox remains under explored and there is room for additional discoveries. The 2018 exploration goals of Black Fox are to expand existing resources, as well as known zones of mineralization. In addition, we are going to drill test multiple target based on geology and geophysics for new discoveries. We have currently 10 drill rigs at our site at Black Fox and our exploration budget is over $10 million. In Nevada, similar situation, our properties are very well located along the trend, at the South East of very large gold deposits. Drilling resumed at Gold Bar in Q4 of 2017 after obtaining the permits to advance the Gold Bar mine development. Our prime exploration goal at Gold Bar is to extend existing resources around our pits. We have two drill rigs currently drilling and intersecting significant mineralization, proximal to the existing pit and we also are going to complete the 60 hole drill program. In addition, a wider scale on our large land position and more specifically around Gold Bar, we are developing new exploration targets for drilling in the second half of 2018. Back to Rob.

Thank you, Sylvain. Thank you, Andrew. Last year was a year of building, as well 2018 and, I suspect 2019, as we move forward towards our goal of qualifying for inclusion in the S&P 500. I'd like now like to talk about gold for a moment. And as many of you know I've been optimistic about gold for quite a while. And there are several reasons why I think now is a very opportune time to be either establishing the position, if you don't have one, or adding to one. First of all, as an asset class gold is extremely under-owned. Let me illustrate for a moment. If we look at the public markets in America and add up the market capitalizations of all the publicly listed equities in America, we get a total of $31 trillion. Now the S&P 500 represents 85% of that $31 trillion, which works out to just under $25 trillion. It's important to understand that there is only one gold producer in the S&P 500, and that is Newmont. And its market capitalization is $21 billion. So, if you take the $21 billion and divide it by just the S&P 500’s total Cap – that equals eight one hundredth of 1%. Now if you said you wanted a 1% waiting in your portfolio, or save the S&P 500 you would need to 11 additional Newmonts in order to get to 1%. There is a gentleman out there that's done very well in the market, Ray Dalio, who runs Bridgewater Associates. In last August he felt, because of the geopolitical issues and economic issues around the world, it would be prudent to add some gold to your portfolio and he used a number of 5% to 10% of your portfolio allocated to gold. And that would probably be mixed between gold bullion, gold coins and gold equity. So, should we see a movement even to 1% weighting in gold there would be a tsunami coming at the market. So why might people want to do that? I mean, gold doesn't seem that exciting right now, it is up in some currencies. If you're in America it's down 30% from a tie since September 2011. But if you go to another part of the world, say, you go to Tokyo, and bought gold in yen back in 2011 at the high, you'd only be down 2% rather than 30% here, if you're sitting anywhere in America. So part of the world is saying gold isn't performing badly against the market. And we saw something like this back in 2000 – between 2001 and 2005, gold was moving higher in dollar terms, but not in most of the other major currencies. And after 2005 it started moving in the other major currencies in the world. And then gold was moving up in all those currencies, the gold market became alive and the gold shares started running quite strongly. And I think we're going to see that again. So it's under owned, it's also very cheap relative to equities today. In fact, it’s at a 45-year low - there's a ratio, if you take that Goldman Sachs Commodity Index and divide it by the S&P 500 Index, this is the lowest point it's been in 46 years. So, for some people, it might be viewed we're at near or just past the bottom of the gold mark. But I’d say the downside risk is small. Collaborating that statement is [that] in the past 75 years there have been eight bear markets in the gold share market as measured by the Barron's Gold Mining Index. And the last one was the longest that we've seen and one of the deepest. It ended on January 2016. During that period there have been also seven bull markets in gold and you might argue you don’t feel we are in a bull market, but this new one started back in January 2016. And there were six of them before, 75% of those them went up 600% from the low to the high. The one we're in right now is a little less than it’s double. So you [can] say there's a 75% probability that we could have a three-fold move from where we are today. And just looking at if you wanted to move like that and you felt you wanted exposure to gold, you might want to consider McEwen Mining, as in a very advantageous position. According to Bloomberg we have a beta of 2.7, meaning that our shares should move 2.7 times more than gold. And if you had a three times move on that, you could see an eight-fold increase in our share price in that type of market scenario. Something else I wanted you to think about - when we had the crash about two weeks ago, it wasn’t probably a crash, it was a 5% correction in the market, but a lot of people got excited about that, but we seem to continue on. But there were a few derivatives out there, that I think you should take note of. One was run by Credit Suisse it was an exchange traded note; the other was run by Nomura. [For] both of those funds their sponsors have said they're closing those funds. Credit Suisse situation lost 95% of its value in that one day. It lost $1.5 billion and that was on a 5% move in the market. It was a low volatility instrument. And I think we look at the market and we don't consider the risk that’s sitting out there in the derivative side and I think it behooves everyone to be looking at that and taking some protection. It may be the start of something, it may be just an event that's not important, but it's certainly something to look at because the derivatives are huge multiples above the size of the stock market and any other asset class in the world. So, with that said, I'd like to move now to the question and answers. We have a couple of questions that have come in online and we'd like to start with those and we’ll alternate between the questions online and the questions on the phone. So, Andrew, would you like to deal with the first question? A –Andrew Elinesky: Sure, thank you Rob the first question came from Jason Cooper. The question was: for the nine months ended September 30, 2017 to the year ended December 31, line under cash flows from operating activities entitled cash paid to suppliers and employees went from $59.9 million to $95.9 million. This represents $36 million increase in cash spent for the quarter which was offset by an increase in cash generated from gold and silver sales, coupled with an increase in inventory. And the question is, can we provide some insight as to why cash paid to suppliers, employees increased so much quarter-on-quarter and year-on-year basis? Jason, thank you for the question. Firstly, the biggest movement was due to the addition of Black Fox. So, it was the first quarter including their costs for the year, and obviously it was only for the first quarter or for the first quarter of the year as well. So you see a sizable increase when you compare quarter-on-quarter and not so sizable increase year-on-year. So that was an addition of about $15 million in payments made to suppliers and employees. We also have the year-to-date spend at Los Azules earlier on in the year, which is about $8 million. And then we had our increase in Mexican cost for the full year of about $7 million and same with Gold Bar, for about $3 million and corporate also for another $3 million, and that adds up to the difference of the $36 million difference year-on-year. You also asked about, there's additional question about viewing our inventory management versus our cash burn. As Jason said, he believes you have a history of accumulating inventory when you believe the price is too low. And, Jason, you are correct with our excess cash balance, particularly in December we saw that the price of gold dropped and it got below the level that we were comfortable selling at. So we held off on our sales, as you can see in our sales numbers, and that's particularly was minimal or zero activity in December. And what you're going to see in the first quarter for this year is, as the gold price did shoot up over $1,300, as it's been up to $1,350 we have been getting caught up on those sales. So you're going to see an increase level of sales versus production in Q1 of 2018 as we do that catch up. Second question from Jason is about what does the initial CapEx plan for 2018 look like? Gold Bar obviously is the largest amount of CapEx that we have planned for the year which is about $71 million for the full year. Black Fox and Timmins, we are budgeting currently $5 million for our development and projects there. We also have additional projects that we're continuing to evaluate and that's not included in that $5 million. And then Mexico, our capital is dropping to under $1 million for the year as we wind down our activities there. There’s a third question from Jason, which is what was your impression of the initial Black Fox exploration project and when might we get an update on additional exploration? Perhaps, may I pass this one over to Rob to give you his initial thoughts on it and answer about our potential for updates during the year.

Thanks Andrew. Black Fox, the exploration, it's a very interesting exploration target, it’s at a juncture in the major Destor-Porcupine Fault that one would expect to find considerable gold. If you look at the history of the Black Fox mine, there were many, many intercepts of multi ounce good intercept playing grades. And they have been mining it down to 800 meters. The drilling is confirming that mineralization is there. So far we've been going laterally, we have had some difficulty drilling deeper because the ground is broken, but we're continuing to do that. As Sylvain said we have ten rigs on the property, we’re going to be hitting the property hard this year. There are multiple geophysical targets that we want to follow-up on, in addition to the resources we already have there, that we believe we’ll be able to extend. So, first impressions, very favorable. A –Andrew Elinesky: And then updates.

Updates - you should expect to see quarterly updates coming out through the year not only on Black Fox, but coming out of Nevada as well. Less out of San Jose, that's more determined by our partner, but they have a good exploration program going on the San Jose property. A –Andrew Elinesky: Shall we take the first question?

We’ll take the first question, operator.

Thank you. [Operator Instructions] And the first question will come from the line of Mike Kozak with Cantor Fitzgerald. Your line is now open.

Hey guys, Mike Kozak here. Thanks for hosting the call. A few questions from me. Could you just give us give me a little bit more detail on how construction is going at Gold Bar, how many people are on site, what the critical path items might be and if you're still kind of targeting Q1 next year for first gold pour?

Thanks Mike, I'd like to turn that question over to Simon Quick, who is our Project Manager to answer to your questions on Gold Bar.

Thank you for the question. I’d say currently there's 50 individuals from Highmark Construction kick-starting heap leach pad. As far as first critical path elements, that will be the completion and commissioning of the ADR plant in Q4 of this year, which will allow us to have a gold pour and production in Q1 of 2019.

Okay, good stuff. Thanks for that. And then I just wanted to confirm also. I think you reported $27 million cash outflow in Q4 at Black Fox. Just to clarify, that's related to that environmental closure bond you guys inherited, is that right? A –Andrew Elinesky: Oh sorry, you’re referring to the acquisition of $27.5 million?

Yes. A –Andrew Elinesky: Yes, so that's the net purchase price that we agreed upon with Primero. So the agreed price was $35 million and then there was closing adjustments of $7.5 million which took the net cash outflow payment to Primero to $27.5 million.

Okay, got you, okay thanks. And then, a couple of them have already been answered, but the last one: at Black Fox maybe you could go over it in a little bit more detail after the exploration efforts, maybe some of the operational improvements you're trying to undertake there in 2018. As I understand it, this year is kind of an operational turnaround days for Black Box. A –Andrew Elinesky: Right, and right now what we've been looking at primarily is trying to ease up having to go to such great depths and effectively, as Rob likes to describe it, a dog chasing its own tail. So, what we've been focusing on is obviously the exploration for lateral extensions those for reevaluation of the resource, which is in process now. And we'll have an updated tech report in about a month's time. In terms of projects, what we're looking at primarily is obviously Froome and Tamarack, as they are near mine and we can be driving off existing Black Fox infrastructure. And then, obviously continue on with our evaluations of the Lexam projects and Grey Fox, but they would be coming likely after our evaluations of Tamarack and Froome.

I can add to add Mike, it’s Rob. The Black Fox mine to us is more an exploration project than a production project. Most of the development done on the property was following the high grade to depth and there wasn't much lateral development. As a result, you have a ramp that goes down to about 800 meters and time to travel either down or up is an hour each way. There is congestion underground. There hadn’t been a lot of development work done in alternative working phases. So what we're doing is trying to get rid of the congestion, find ways that we can shorten those transit times by focusing more on the upper levels of the mine right now, while drilling throughout the mine, so we can gain much better understanding of the geology, which would permit us to put a mine plan on that would give us at least four, five years to look ahead on that production. So this year is a lot and almost like to look at this very much like when I was running Goldcorp in the Red Lake mine that you had a mine that was high cost, it didn't have a long mine life. Let’s say what it means was exploration first and then putting on inefficient mine plan. We are looking at some technologies that might allow us to get the order surface faster and cheaper. We’re blessed the mine has a fiber optic in it, but it doesn't have many devices that it's using to gather data. So that's high on our list of priorities this year.

Okay that's great, thanks very much for the clarity and for hosting the call guys. A –Rob McEwen: You’re welcome. And thank you, Mike. The next question that was sent in was from Hal Melenbacher. And first he made a comment about copper that it was the number one commodity so far. And since we have a copper deposit how might we capitalize on this upbeat market. He further went on to say that he thought the gold market wasn't going to do much for the next 12 to 18 months. And that we had an opportunity possibly to capitalize on our copper deposit and use the cash to advance our silver and gold properties. I just want to say about Los Azules, we've been pushing it forward to try to increase its value. We've been looking at different access routes one from Chile, which is less snow covered. We think we have an alternative route that may come in that might avoid the snow altogether, from Argentina. We have been in discussions with one or two groups about an interest in the property, pursuing a joint venture. And in our joint venture discussions it's always included a upfront cash payment each year and a residual interest in the property. Obviously nothing has been consummated. And so, we believe copper is going to continue to increase in price and this is an extremely valuable asset that will only increase in time as the price of copper goes up. But we are looking at opportunities to find some funds. Next question on phone, operator?

Thank you. And the next question will come from the line of Heiko Ihle with H.C. Wainright. Your line is now open.

Hey guys, thanks for taking my question. A –Rob McEwen: You’re welcome. A –Andrew Elinesky: Nice talking to you, Heiko. How are you?

Always great, always great. So, for Gold Bar, and this is a bit related to the first phone question that you feel is here. Obviously the feasibility study was quite a positive and you expect to start commercial production here in early 2019. Just in a roundabout way, just approximately, can you just walk us through the capital spend on the project quarter-by-quarter, just so we can model out cash flow, please.

Right, what you're seeing, Heiko, is not a lot of cash flow in the first quarter of this year because it's obviously still the winter season it was still, the site clearance and just long lead items. And then, what you have is the capital being focused, ramping up in the second quarter, and then peaking in the third quarter and then obviously declining, hopefully to a minimal level in Q4 as we're commissioning. So what that looks like in total breakdown is about 12 million in Q1, 26 million Q2 and 27 million in Q3, with a remaining balance of 4 million during commissioning.

Got it. Okay, so thanks for the detailed answer. El Gallo down in Mexico, good guidance obviously for 2018, you're looking at 32,000 gold equivalent ounces here. And $650 to $715 cash cost estimates. So, you were at $791 for 2017, but that includes the crusher failure. So just hyperboling, take off the crusher failure and assuming that never happened, can you just give us an estimate of what you think cash costs would have been for 2017 excluding that? I’m just trying to see the year-over-year changes there.

I can understand what you’re coming from, trying to do a like-for-like comparison. I'll introduce another wrinkle to that, but I'll answer your question first. And first and foremost, if we didn't have the crusher failure, we would have probably just been under guidance, probably by about 3%. Only thing now when you are going to compare to our guidance for 2018, 2018 is going to be a more profitable year, as there is a reduction in mining cost when we get into residual leaching for the second half of the year. So you start getting more profitable ounces as they are coming out because we have that major cost center being removed.

Okay.

But 2017 you're correct, we saw a bit of increase in cost from a peso perspective, but a lot of our costs are already denominated in U.S. dollars so it doesn't have as big of the impact and it really was down to that crusher failure and decreased recovery rates as a result.

Got it. Okay, excellent. Thank you very much.

Thank you, Heiko.

You're welcome Heiko. Our next question – came in online, is from Tim Harry. And he was asking about how do you see 2018 financing programs for Gold Bar, exploration and other potential M&As? Is there a limit to the level of anticipated share dilution? I'd like to start by saying having a 24% interest in the company is somewhat of a limiter on it. Having a 24% interest and receiving a salary of a $1 a year makes [that] the only way I'm going to make any money in the future is not through a higher salary, but through a higher share price. And I'm very cognizant of dilution. There are some projects that are important to our future cash flow. And getting those up, and going and cash flowing our priorities we do have a goal to get into the S&P 500, so we're going to try to do that. We tend to look at distressed assets rather than fully priced assets. And we're looking for a higher share price. It's not going to come any other way, but I think there's a real advantage to being in the S&P 500. And if you look at the only gold stock there, Newmont, it has a very stable shareholder base, it has one of the lowest cost of capital in the industry. So it has a high multiple on its net asset value. And after Newmont there's Coeur, Hecla and ourselves are the three largest American producers. And you have to be an American producer, an American company to get into the S&P 500. So 99% of all of the precious metal producers in the world can't get into the S&P 500, because they're Canadian, Australian, South African, British and other. But dilution is right at the top of my list and it’s there. Given I'm the largest shareholder in the company I feel the largest pain every time we issue a share. Okay. Operator, next question please.

Thank you. And the next question will come from the line of Jake Sekelsky with Roth Capital Partners. Your line is now open.

Hey, guys, thanks for taking my questions.

Happy to, Jake.

With oxides running out at El Gallo right now can you just kind of walk us through where the evaluation of a new facility there stands on the priority list? I mean, obviously, you guys have a lot on your plate right now. I'm just trying to get a sense of is there something that's purely exploration dependent or how should we be looking at that?

Jake, we’ve had a silver project at El Gallo that was permitted in 2015. And since 2015 we've been looking at alternative ways to bring that on. We're now looking at it and saying, can we combine that with El Gallo? Even though it's only five miles away, it was viewed as a separate development and right now we're going through the exercise of can we combine the two sites? We’ll have something out to share owners in the second quarter based on those studies. When we look at any project we're looking at a certain investment criteria it has to satisfy before we want to put a shovel in the ground. And that is looking for an after tax return of greater than 20% and a payback period of less than three years and a relatively low upfront capital requirement. Depending on the rate of return and the capital required, that will move priorities. Right now, our priority is getting Gold Bar up and running. If the next project in Mexico can be done with a small amount of capital and possibly financed through our cash flow from Gold Bar, then we'll be looking at. But if we don't hit something put in front, so it's something to watch, but it's not a priority yet.

Perfect, perfect and then just one more thing in that vein, I mean again you guys have a los on your plate right now. I'm just trying to gauge the growth trajectory beyond Gold Bar and Black Fox. I mean, are you guys still out there evaluating assets that are – or is not kind on pause right now, given that you just took on Black Fox and you’re building out Gold Bar?

We’re very opportunistic. So, if a situation where to rise that fits our criteria, we adjust with that. It is a belief that the gold market, the gold price is going to go up and the gold share market is going to improve, that there is going to be a lot more people looking for gold and are holding in their portfolio than there is today. And therefore, there's an imperative to move as fast as we can, but as prudently as possible to get to our goal of getting into the S&P 500, or qualifying for getting into.

Got it.

If you have a project that you think would be very complementary to us, we'd be happy to hear about.

Got it, perfect. Thank you so much, guys.

You’re welcome. Next question? Andrew will.

I'll take that, thank you Rob. This question was a writing question from Mr. Bob Polis [ph]. I’ll read it verbatim. For a company which professes to be transparent, why is it that you calculate reserves in accordance with Canadian standards and not pursuant to Industry Guide 7 standards? Thank you for the question, Mr. Polis. I just like to clarify, we do have Guide 7 reserves for the Gold Bar project, the Black Fox mine and the San José mine. They also have seen compliance with Canadian 43-101 standards, but we do feel we have reached the criteria to have them to be compliant with Guide 7 as well. We do have some projects that don't meet the Guide 7 criteria. El Gallo was a mine that was restarted from a brownfield site and as such never had a feasibility study done on it. So that precludes it from being Guide 7 compliant. El Gallo II did have a feasibility study, but it was done at much higher prices so that feasibility study is now updated, so makes it non-compliant. And Los Azules being a large copper porphyry project, it will not be at a reserve stage until the feasibility study could be completed and a permit is either in hand or the process is well underway. So that explains the reasons for these three projects that are non-Guide 7 compliant, but our two main operating mines being Black Fox in San José and our next mines for 2019 are all Guide 7 compliant. So hopefully that answers the question for Mr. Polis. Operator, we could take the next call over the phone please.

Thank you. And the next question will come from the line of Bill Power [ph]. Your line is now open.

Okay, thanks for taking my call and hosting today’s conference call. But I've actually two questions. The first one would be are there any plans to move the Black Fox mill up to closer to its capacity because my understanding it's about a 200,000 ounce per year capacity and that you're producing at about a little over a quarter of it for next year or at least for 2018. I know in the past there has been talk about potential doing tolling arrangement, or can just expand on what your thought process is as far as getting more out of that asset at this point?

Right, thank you Bill for the question. Yes, obviously we would love to see the mill at full capacity. I don't think there's any mine that doesn't want more ore. However, we are running at less than 15% or just under 15% capacity. And as we were talking about earlier in terms of how the Black Fox mine is operating, chasing its own tail or not having enough phases to operate. We're looking at all the ways that we can increase those. We do have one toll mill agreement in place and are running that on a semi-regular basis. And we will look to see if there are other toll milling opportunities for us in the area, but the biggest priority for us is to increase the amount of tonnage coming from Black Fox and/or our other projects in the area.

Okay. And the second question I guess could be more directed towards Rob would be as far as the dividend goes, I know there's been a change in the tax structure or the way the dividends are being considered under the new laws. At the same time, it sounds like McEwen is going out to potentially the equity markets later this year. And that really has not been that favorable to the share price in at least the most recent past. Would there be consideration at least temporary suspending the dividend, given that you will be in need of financing later this year and potentially resuming it at a later point. A – Rob McEwen: There is consideration of that.

Okay. Thank you. A – Rob McEwen: You're welcome.

The next question is from Mr. Wang. He's saying that gold prices have been stable to up slightly even as expectations of interest rate hike bloomed the reaction is against past precedent. I wonder if Rob might have a comment on this issue.

There's no real correlation, positive correlation between gold and interest rates. We've seen back in the late 70s we had gold prices going up quite strongly. And so our interest rates, they peaked at close to 20% before stopping the gold price from going any further. Right now we have interest rates moving up. I think interest rates could have a short-term negative rate but higher interest rates are suggesting something is going on in the economy. Either more inflation or greater concern about the viability of certain institutions that are borrowing money. I would say I wouldn't be too concerned about interest rates and the price of gold right now. There’s also a question on digital currencies. There's been a lot of discussion about digital or crypto currencies replacing gold in the market as a speculative vehicle. I'd say the digital currencies, they've grown very quickly. They're in an unregulated market, they're nontransparent and they’re collecting a lot of the speculative money that’s out there, attracting it. I think the crypto currencies and their price movements are reflecting the enormous amount of money that's in the system. And if you look across there's a bubble there, as there is a bubble in the stock market, housing market, collectible items, contemporary art, cars. You look at all sorts of areas where people have been putting money with the expectations going higher. I do not see a link between digital currencies and gold. Operator, next question please.

Thank you. And the next question will come from the line of John Tumazos with John Tumazos Very Independent Research. Your line is now open.

Thank you. The Primero acquisition’s big addition was the mill that even can process the former VG Gold assets. Do you think there are other projects like that to be acquired, or do you think that $130 million deal is just too good to duplicate? A –Andrew Elinesky: That’s a good point John. It is a tough deal to duplicate. But we're obviously looking at how we can achieve that, because we do think there are number of opportunities in the region. We feel fortunate that we have number of opportunities with Lexam VG properties, as you pointed out. But obviously we’re always looking to see what we can do to add, particularly in closer proximity to the mill or the infrastructure of Black Fox. But it's a tough price to be replicating, particularly when you take the mill into account, as well in terms of replacement value for that alone. One way that we’re actually looking at this well is, maybe not acquiring something but investing in exploration at the Stock mine, which is where the mill is located. It's the site of a previously operating underground mine and we're commencing with exploration work there in the next week or so.

Thank you. A –Rob McEwen: Thanks, John. There is a question on line from Roland Stearns. It's a very long statement. His first question was dealing with shares outstanding, which we've already covered off. One of the control mechanisms is my 24% interest, which I should just highlight my cost, based on that, is $133 million. And I really don't have any intention of seeing that value drop, I want it to go up. A –Andrew Elinesky: Mr. Stearns is also asking about the dividend which we had addressed in the earlier question from Bill Power’s. And obviously the suspension of that is, is up for evaluation, but it is a small token as Rob describes it as a rental payment to the shareholders.

And if people are sending questions in on line if they could rather than putting an editorial before it just make it a simple question. Just reading it is complex. But it had to do with issuance of shares, we covered that. Andrew said dividends. And I hope I'm not cutting this off, but the bigger picture is to qualify for that select group in the S&P 500. We are going to be opportunistic in our growth. We are going to be very aware of our shares outstanding and try to minimize the number that we have to issue, keeping in mind that the market doesn't always do what you want it to do, when you want it to do it. So there are some times when you have to finance. I can say, by the way of example, our El Gallo Silver project, which received government approval to start construction back in 2015, we opted not to do that. We felt that it was better to leave the silver in the ground. It was a large capital requirement. It came when silver was well below our threshold for generating an adequate return and our share price was quite low. And the thought of raising a lot of capital when your share price is very low and incurring excessive solution was unpalatable. And, we said, just leave the silver in the ground. We're comfortable that the prices are going up in the future and the cost of holding isn’t that large. And I throw that out as an illustration of how we approach the market. I can say that sometimes we provide items that maybe not everyone agrees have a lot of value. In the case of Black Fox, it’s a project with a history of significant high grade occurrences, variable production that needs exploration and looks a lot like Red Lake in my mind, in my former Goldcorp days. So we're going to put money into exploration there, we're going to try to maximize our revenue, we're going to look at ways of increasing that revenue, looking for areas on the Black Fox properties and that are not subject to the stream that came with the property and emphasizing those over where there is a stream and looking for ways to reduce our costs, increase our treasury and extendi or reduce the amount of capital where needed to build our projects. I hope, Mr. Stearns, that covers off most of your question. Operator, could we have our next question.

Thank you. And the next question comes from the line of David Wright. Your line is now open. Q –David Wright: Hey, guys. Thanks for taking my call. I am long time investor, around seven years. I have three questions. My first question. In the retail gold bug investment community, is it a ubiquitous belief that gold prices are manipulated heavily on a daily basis through naked shorting on the COMEX exchange. I'm wondering if you could share your thoughts on whether that is seemingly accurate. And, if so, why don't mining executives do something more publicly vocal to end this kind of manipulative price movement by these banks and other capital formations that don't want gold to go higher? My second question is can you be any more specific on this timeframe of the interest you mentioned with Los Azules JV partners. My third question is in that Black Fox area, rather just 3.5 questions. The Inventus company, Stefan Spears on board, who is also part of your company, they've been trucking some material to the Black Fox for their bulk sampling. How feasible is that in the future or possibly McEwen to have a more interest in that property and use the Black Fox mill? And the half question that was in the summer AGM, you want to create a link for a while discussing Rubicon next year performance et cetera. I consider you’re a founder of that company in a lot of ways. They have attracted properties in Nevada, Colorado in addition to them they have two deposits. It seems like the mineralizations are getting figured out there. Is that a distressed asset that you might revisit at some point? Thanks for your time. I appreciate it. Good luck.

Thanks, David. Dealing with your first question, manipulation. There's a lot of paper gold out there. The derivative market is very large, much larger than the real market and that's where prices can move around. The gold industry can't control the securities industry. It's much larger than it. And one can protest, but it doesn't have much impact on people trading paper and derivatives. What does control it is the failure of these instruments. And I spoke earlier on the Credit Suisse volatility exchange traded notes and Nomura’s that blew up recently. I believe in the not too distant future, we're going to see similar situations happening elsewhere in the derivative market and the gold market could be just that. I suppose the gold industry could hold back all its gold, but in the last four years the gold industry hasn't been healthy enough, hasn't had strong enough treasuries to even contemplate that. It's been getting rid of debt that it accumulated in the boom years and selling off assets to try to lower its cost of production. I don't think the industry – we can protest it and highlight it, but it's more going to come from failure of the derivative market that's going to drive that manipulation away. On your second question about timeframe, why don’t we're going to have a joint venture side up and in above on Los Azules? I don't know. That's depending on… Q –David Wright: No, no. My question was about you mentioned there was interest you had discussions with possible suitors. I was wondering what the timeframe was on those discussions when you have those?

They’ve been ongoing. They have – I'd say in the last six months when the copper prices started coming alive.

Okay, thanks.

You're welcome. Regarding Black Fox- Inventus, yes there's been some bulk samples done at the mill. It's about 350 kilometers away. So it's not with any easy trucking distance. It might be easier to put it on a train. At that distance, it probably warrants its own mill or processing plants and reducing whatever the mineral gets out of the ground into a smaller quantity that can be shipped economically. It's still looking to determine what it has on the property. It's worth watching. And on Rubicon, it has been a distressed asset, it disappointed the market. There are a number of distressed assets in the market and they present opportunity to investors who are patient and can see a turnaround. Thank you, David.

Thank you, thank you.

You are welcome.

Thanks. The next question comes online from a Mr. Ernesto Vargas Truqui. Apologies if I’ve mispronounced your last name. It's a question related to the government just auctioned off a copper property for $400 million and 3% of royalties. This is a $2 billion project of 200,000 tons per year and 0.63% copper grade with a life of 25 years. How does this compare to the Los Azules project and what is a fair price for the property? This news just came up this morning, the newswire items are reporting on it. So we haven't had a chance to really dive into it too much. But at first blush it seems to be a reasonable valuation and a fair price for the project previously owned by Anglo, but given back to the government of Peru. I think back in 2014 or 2015, it was an exploration stage project at that point, so I am not entirely certain if the government of Peru advanced it in the intervening years. But at first blush, as I said, it compares favorably to the project and I believe it is a fair price for the property.

Just on valuation, we have someone on the phone perhaps still John Tumazos. John are you still on the line? Okay. Anyhow, he had a comment on it and it was $400 million plus the 3% royalty, so you have to come up with what’s value on that? Maybe it’s $800 million to $900 million gross value. It’s a higher grade than ours, it’s about 50% higher. We’re 0.45, its 0.63, it’s close to that, not quite 50, a third higher, its resource life is shorter. It was drilled off. It had already community involvement. It was further advanced, but it takes one big copper project off the table. Los Azules is considered one of the largest undeveloped higher grade deposits out there not owned by a major. So anyone who's getting excited about copper, there's fewer viable copper projects out there and we happen to own one of them. So is it a fair price? Not sure. But is it good for Los Azules? I would say yes. Operator, next question please.

Thank you. And the next question comes from the line of Patrick Retzer with Retzer Capital. Your line is now open.

Good morning, gentlemen. Thanks for the great work in 2017. I had a question you have mentioned on the call and in the past several times the goal of qualifying for an inclusion in the S&P 500. It seems to that would be several years and several acquisitions off in the future. Do you have any idea of a timeline for that?

I think your summation is right on the mark. It's several acquisitions and several years away.

Okay, all right. Thank you.

You’re welcome. A –Andrew Elinesky: We’ll take the last written question that we have currently from Mr. Mike Mydlach. The cash flow from El Gallo Gold coming to an end soon. The overall all-in sustaining cost may be going higher. There is a second question there too. Rob, where do you think the price of gold needs to be to get us into the S&P 500 and is there a minimum price that we're looking for? So with regards to the cash flow from El Gallo Gold indeed, the weighting of those lower cost ounces could cause our all-in sustaining costs on an overall basis to drift higher. That will be partially compensated by the commencement of mining at Gold Bar, which may have a higher all-in sustaining costs versus the mine in Mexico. It compares favorably to the Black Fox Mine and the San Jose Mine. I believe Rob has already talked about the S&P 500. Any thoughts on the price of gold, Rob?

Well, this ties into the question, which is asked previously by Patrick. To get to the S&P 500, it's not only the price of gold because I don't think our assets are large. We don't have a large enough base to get us up to the point where we get into the S&P 500 just on a price of gold. Mind you, if we went to $2,500 an ounce, we’d be getting a lot closer. At $5,000 where I think gold is going and we'd be through this threshold. but that might take a little while. I believe we're going to have to build our production base to at least 600,000 ounces and have some good exploration news and a pipeline that would allow us to be looking at 800,000 - 900,000 ounces of annual production to be firmly qualifying for the S&P 500. In terms of the price of gold, I think the direction is going high. It's heading higher. We seem to pass the bottom and gone in an uptrend right now. It won't be straight up, it's going to have corrections along the way, but there's enough to carry it well past $2,000 and ultimately past $5,000. Operator any other questions on the phone?

Thank you and I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Rob McEwen for closing remarks.

Thank you, operator. Ladies and gentlemen, thank you very much for your share ownership, your interest and best wishes for a stronger gold market and great success in seeing human mining and other mining stocks go higher. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone have a great day.