McEwen Mining Inc. (MUX) Q2 2020 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Welcome to McEwen Mining's Q2 2020 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Peter Mah, Chief Operating Officer; and Sylvain Guerard, Senior Vice President of Exploration. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Rob McEwen, Chief Owner.

Thank you, operator. Good morning, fellow shareholders, ladies and gentlemen. It's a great day we have. Price of gold and silver have been climbing over the last couple of months. And I was reminded the other day, someone called up and said, "You said gold was going to $2,000 an ounce." And that was a couple of years back, and they said they thought it was impossible. Now we're just over $2,000 an ounce. Silver is on a real tear. And it looks like given all of the quantitative easing that's been going on in the world and the amount of debt, we're going to see much higher prices. If you take a look at the Indian rupee right now, it's – the price of gold has just taken off over there. And I think that's a good example of what's about to happen to a lot of other currencies and the price of gold in those currencies. Q2 was not a quarter we're proud of from a standpoint of performance, but we are proud of something about Q2, in that we put the health of our employees before profits. We started with the PDAC. And when COVID came along, we said, "There's a risk to our employees being at that conference because of COVID," and we didn't want to contribute to the spread. So we said, "Well, we have a booth, but we're not going to attend. We're not going to – no one in the firm is going to that conference." And early on, after that, we decided to suspend operations at our mines. And that had a very serious impact on our production. The expenses were there, but the ounces weren't produced. And so in this quarter, we see – in the – just past quarter, Q2, we've seen numbers that make me sick when I look at them. But I'm comforted in knowing that we've protected our employees. And it's really important that they be protected because they're the life and the longevity of these operations. Going forward and you'll hear from Peter today that production is picking up at all of our operations, and we expect our cost per ounce numbers to go back to where they're reasonable in the ensuing quarters. We also have got some interesting exploration news that Sylvain will speak to you about. So, at this point, I'd like to turn the presentation over to Peter to talk about our operations.

Thank you, Rob, and good morning, everybody. At Gold Bar, gold produced was 6,100 ounces in Q2, and for the first half of this year, 15,200. Production was impacted by shutdown in April for COVID, and we operated on a single shift during May and June. Getting back on track, we started 24-hour operations towards the end of July and are ramping up towards feasibility levels in Q3. And optimization and improvement plan has been developed, and we are targeting improved costs and throughput. The implementation of that project started in late July and is progressing quite well. Also, work has progressed quite positively on the optimization of mining and processing cost scenarios, and we expect resource and curve update in Q4 this year. Moving on to Black Fox. Gold produced was 2,200 ounces for the quarter and 10,500 for the first half of this year. Again, production was [barely] impacted by the COVID-19 shutdown. We had slower-than-expected ramp-up as the mine resumed normal operations, lower grades from longer stope exposure times that were blasted before the shutdown and delays in development timing that limited our stope access. Going forward in half two, production costs are expected to come in-line with pre-COVID-19 performance. What's new? Pleased to report the West Flank 280W, we got in on the ore development, which is 5 months ahead of schedule, and we encountered high grade that we anticipate will lead to stopeing this year. Froome is on track for first ore in Q2 2020. And we expect commercial production to be reached in Q4 of next year. And the Black Fox complex expansion study, it's out for tender and will be awarded next week. And we expect to complete that first step of that study, the preliminary economic analysis in Q4. A little bit about our gold resources in Canada. We thought we'd just summarize them, you know a total of nearly 3 million ounces in Canada, split kind of equally between our Lexam properties and Timmins, and our Black Fox Complex. Next slide, our organic growth expansion strategy. The main objective of this strategy is to convert resources to near-term total gold equivalent production of greater than 300,000 ounces per year that is sustainable, low-cost and leverages our three operating regions in the Americas. The strategy currently consists of seven projects: the Black Fox Mine, its extensions; Froome; Grey Fox; Stock; Fenix; Gold Bar; and Gold Bar South. And several of our projects are under review, such as the Lexam properties I mentioned in Timmins and the Tonkin oxides. And we'll be reporting on those in the following quarters. The Fenix project is advancing towards feasibility expected in Q4 2020. Based on the preliminary economic analysis, financial model, and using updated metal prices of 1,500 gold and 19 silver and a 22.4 peso exchange rate, the IRR is 44% and the NPV at 5% discount rate is USD 112 million. At spot prices, it improves. Using $2,050 gold and $28 silver, the IRR rises to 97% and the NPV just north of USD 252 million. On the next slide, I'll touch on some highlights for improvements at the Black Fox Mine and give an update on some of our near-term production projects, such as Froome and Grey Fox. This next slide shows Black Fox and the 2020 mine plan areas that we develop towards – it's created some new mining opportunities, and we acted on those in the first half of this year. Gray represents mined-out areas, blue is the 2019 year-end resource, and red is our planned stopeing and development, respectively, the dark red shows the actual development. Two examples of what's different in the upper part of the mine are the 240 East. It's a new stopeing area, which so far has added about 26,000 tons for the 2020 plan. Recently, we got in at – on the 280 level and developed some very nice high-grade areas of that West Flank. And – pardon me, sorry, and in the West Flank, that 300 to 280 area. Both of these examples will increase working phases, result in shorter hauls and more flexibility. All the areas shown on this slide are active development, stopeing and definition drill programs this year. Beyond these opportunities, an assessment will be completed towards the end of 2020 to determine if a bulk low-grade opportunity exists in the future. This next slide shows some of the new West Flank drill targets shown in red, which are in close proximity to Froome declines and could add to production at Black Fox this year. The following slide is the Grey Fox project. It's one of the most exciting opportunities we have in our project pipeline. The company expects it will become a long-life core asset, representing a strong foundation to build our future upon. The inset in this slide shows the conceptual high-grade Grey Fox pit shown in gray. They target the Contact, 147 Northeast, 147 and South Zones. Also shown is the new Whiskey Jack discovery above and to the right of the Contact Zone and the existing Gibson Portal and underground workings towards the left-hand side of the inset. A [stopeing] study and trade-off analysis to assess open-pit and/or underground mining while maximizing the Stock mill capacity will be completed in Q4 2020 this year. On the next slide, this is just an update of where our Froome twin ramp access is overall average about 30% complete. You see on the right-hand side, the Froome decline was colored at the bottom of the Black Fox pit. The red dot shows the location of the ventilation ramp as of July 31, which is a little bit beyond 37% complete, actually around 40%. We expect to reach the ore body by Q2 2021 and to begin a transverse and longitudinal stope development, shown here in light green on the left-hand side of the slide. This forecast includes a conservative estimate of advance through the fault zone shown in the middle of the slide ahead of the red dot. Commercial production is expected in Q4 2021. On the next slide, this slide shows some important advantages of the Froome project compared to Black Fox. It's a shallower deposit suited for low-cost productive bulk mining, and it's not beneath the pit. It has more consistent grades and continuity in a wide disseminated style mineralization, wider expected mining widths ranging from 15 meters to 40 meters for the most of the deposit. Larger stopes equals more efficient underground development and mine sequencing. A lower gradient and a straighter ramp also will help haulage and reduce underground congestion. We're in fair to good ground conditions. And so, we expect positive results with dilution and grade control. That concludes the operational and projects update. I'll hand over to Sylvain to provide the Q2 exploration results.

Thank you, Peter. At Gold Bar, our exploration drilling activities were focused primarily at the Pick West pit and the Gold Bar South satellite deposits. In-pit drilling confirmed significant gold mineralization, grade and width over the West Pick area and provided additional key information to assess reinforcing our model. At the Gold Bar South satellite deposit, which is located at lower elevation, about 3.5 miles southeast of Gold Bar, we are completing a 10,000-meter drill program. Drill last year results have been positive and the program is successfully confirming shallow zones of plus 2-gram gold mineralization. In addition, drill results are extending mineralization towards the south with new drill intersections of about 2.4 gram per ton over 104 feet, 2.2 over 95 feet and 1.2 gram per ton over 125 feet, as well as to the northwest of the deposit area were shallow intersections of 0.7 gram per ton gold over 60 feet and 0.6 over 60 feet were obtained. The 2020 drill program is also significantly reinforcing the geological understanding and control of gold mineralization, which occurs mostly along the stratigraphic contact and at the intersection with northeast-southwest trending fault. The Gold Bar South resource will be updated in Q4 permitting for the development and production from Gold Bar South is progressing, and we expect to start mining the satellite deposit in the second half of 2021. In Timmins now, drilling was mostly devoted to closely spaced definition drilling of gold mineralization within our adjacent of upcoming mining blocks. The BlackRock deposits remain open to the west and [at depth], along two structural control driving the geometry of the mineralized zone or ore shoot, as shown with the yellow arrows on the slide. The level of structural complexity is very important at Black Rock, and we are putting more efforts on understanding the control and geometry of the mining areas as well as we keep advancing our drilling. Several high-grade intercepts were generated from these ore definition holes, including, as highlighted in yellow on the slide, 19.9 gram per ton gold over 3.5 meter. This is infill hole testing, gram mineralization adjacent to circle drifting over the 340 level. 162 gram per ton over 3.2 meter, this include a 1,000 gram per ton intersection over 0.5 meter, and this is coming from the West Flank extension of the mine. Finally, very recent definition drilling in the Deep Central Zone around the 860-meter level return an impressive high-grade intersection of 44.8 gram per ton gold over 5.8 meter, which include 149 meter over 1.5 meter. On this, I will return the call back to Rob. Thank you.

Hi, Sylvain. Thank you. Sorry, a technical glitch. Peter and Sylvain outlined to you what's going to happen in operations, and we're continuing to see excitement in our exploration. Looking forward and when I look into the near term, the next couple of quarters, we're going to see more ounces and better operating costs. That will be followed by economics studies on Grey Fox, Stock, Fenix. Froome will be advancing, getting closer to the ore body. We've been constrained with our capital given the lack of production in the second quarter, but that will be partially addressed by the more ounces. I have to say, I'm really excited about the growth prospects. We've, over the years, been adding properties, and now it's starting to consolidate, and it will become easier for you to see what we have. There's a very significant organic growth pipeline that is concentrated in several regions that I think when you look out and you can see the potential for 300,000 ounces a year coming from a few tightly contained areas, it gets quite exciting. My confidence remains high, although I've been discouraged by some of the setbacks we've experienced, but recently, I bought another 2 million shares, bringing my holdings up to 82 million shares. I believe that we're going to see improving fortunes in the company, but we're – and that's going to be doing – as a result of the work we're doing, but also, the gold and silver price is just beginning to move and the world is starting to think about what is going to happen to our currencies. And we have seen a period most unique. In the past, you would see one country or a region where a number of countries have abused their monetary base, abused their currency by pushing out a lot of money and incurring large amounts of debt. This time with COVID, we have seen a universal response where governments have expanded their money supplies to try to assist their citizens, but this is without precedent and is going to have an explosive impact on the value of gold and silver and other hard assets. And I'd just say to you, add to your positions wherever you are, whatever you're holding in the precious metal space, and you're going to have a great ride. Thank you very much. I'd like to open it up for questions.

[Operator Instructions] Our first question comes from the line of Heiko Ihle with H.C. Wainwright. Your line is open.

Hi guys, thanks for taking my questions. Hope everybody is staying safe.

We are Heiko. Thank you. I hope you are too.

I am indeed. Hey Rob, walk me through the ongoing COVID expenses. I don't know if there is an intelligent way to quantify it mine by mine, but can you just sort of walk us through what additional expenditures you have like this quarter, next quarter, et cetera?

Sure. I'm going to ask VP Finance, Andrew Iaboni, to address your question, Heiko.

Thanks, Rob. Yes. So to address the question, we looked at the COVID expenditures in kind of twofold. Well, I guess there's three ways of really looking at it. One is the direct incremental costs required to improve our safety and security standards as people enter and leave the sites. So those costs related to things like temperature gauges and other thermometers, some increased security at the site and checkpoints, minor changes to workstations. And those costs are really not that significant and not expected to be significant on a go-forward basis. The more significant costs that we incurred were directly related to the shutdown, and those items were disclosed in our financial statements and specifically relate to labor that we continue to retain during that shutdown period. Yes. So keeping our labor force available for that ramp-up was the first big bucket of costs that were incurred. And then the second category of costs that were incurred were really around the idle capacity costs where we're operating below our capacity. And so we're still paying for wages, utilities, overhead. And those costs were all categorized as production costs applicable to sales. And those costs would continue to the extent that we're not back at capacity in the coming months.

Fair enough. But there's no way to quantify it. I mean are we talking about $100,000? Are talking about $1 million, a couple of million bucks?

Well, we've quantified the shutdown costs. Those ones were disclosed in Note 4 of the financial statements. We incurred – I think it was $600,000...

I'm looking at them.

…of shutdown costs, yes, at Black Fox. And then we incurred just around $1.4 million of costs for Gold Bar during that shutdown period.

Fair enough. And if we trend-line that, we're probably doing okay?

What do you mean in terms of trend-lining, like applying that forward? Because those costs were specific to the period of when we were not operating. For those...

Okay. I see what you're saying, okay. So – but you don't have a number for us of what you expect to incur in Q3 and Q4?

Not specifically. I mean we're not – we're back at operations, right, and then we're ramping up operations. So as long as that ramp-up continues, then there shouldn't be any significant COVID-related costs.

Fair enough. Okay. And then, Rob, I guess, questions for you. You mentioned in the release, and I quote, "I can see an exciting organic growth pipeline of projects ahead that could potentially push our production to 300,000 ounces per year." Just to clarify, we're talking about acquisitions here. And if – I don't know how much color you're willing to provide, but is there a time line that did you want to assign to that?

It'd be in the next three to five years, Heiko, and it wouldn't be acquisitions. It'd be all organic. We're looking in the Timmins area, we have the Stock property, Grey Fox and Froome is coming on stream first. And then we do believe that the Black Fox Mine, as you heard Sylvain mentioned some of the drill results we're getting there, it's a shallow mine. We think it goes deeper. And also on the west, we're exploring getting very good results. So, that mine needs more time, more exploration, but we could see it coming back on stream and adding. Also, the Timmins properties, one of the attractions of the Black Fox complex when we bought it was the proximity of the Lexam properties to the mill. And so, we were looking at everything sort of as single assets. And this is – right now, we're looking to integrate all of those. So that's in the Timmins area. They're about four or five areas that we feel can bring that production up and give us a long-life asset, running at better than 100,000 ounces a year. And then you go, Gold Bar had a setback when its ounces were cut back earlier this year, but Gold Bar South is expanding. And some of the results there are quite attractive, long intercepts of good grade for an open pit. And then we go down to Mexico, and the Fenix project is – it's looking like it would provide a very robust feasibility study. But that's all – those are all properties we own 100% of. So, we don't have to go outside. We don't have to acquire any companies to get that growth.

Very good. I appreciate the color there. Thank you guys, very much.

You’re welcome Heiko.

Our next question is from Bhakti Pavani with Alliance Global Partners. Your line is open.

Good morning, guys. Thank you for taking my questions.

Hi, Bhakti.

I would like to dive right into Black Fox. You kind of provided the long-term opportunity at Black Fox. Just kind of curious, specifically talking about the second half of 2020, how do you see the grade profile improving? Because grades have certainly come up from second quarter and comparable to first quarter and with good drilling results near the west flank area. Just kind of wondering, how do you think about the grades there?

Peter, would you like to answer that piece of question?

Sure. Thank you, Bhakti, a very good question. Before answering that, just want to draw a note to a typo correction on Slide 6. It says first ore in Froome in Q2 2020. It's 2021. So, just draw a note to that. Yes, going to Black Fox, yes, I think we're excited. We're seeing some very good high-grade intersections in the west flank and also historically on the Central Zone. These are some of the areas that I reported on here earlier and on Slide 9, and we do expect to see some nice-grade areas. It's early days. We've just gotten access. We're drilling. We are pretty excited about the 280 area. We went and sealed out on that recently and saw some nice grades and significantly higher than our head grade. But it's too early to guide on that, but I can report very encouraging. That's why we're excited about the extensions of those zones up to the Froome decline area, which I showed you those targets, which we do have some drilling on them to give us some confidence. So, I think it bodes well. It's early days. And as Rob said, we need to invest some time and more drilling into these areas in the future. And the story of Black Fox isn't over yet on the west flank and certainly down at 840 and the depths we're sealing out there and have hit some high grade. And we expect to see some extensions of that center zone going down as well.

Got it. Thank you so much for the color. And just from the tonnage standpoint, could you maybe – since we are one month into production for the third quarter, could you maybe provide some more color into how is the tons coming along at Black Fox post the second quarter decline due to COVID?

Yes, the tonnage is trending on plan. And these development accesses, of course, have helped us increase our number of stopes that we have access to. So our mining flexibility has improved tremendously. So we don't see any issue in terms of having available stopes going forward in the second half.

Perfect. Moving on to Froome. Froome is expected to come online in Q4 2021. I know it's kind of preliminary, but could you maybe talk a little bit more about the cost profile there? The grades are slightly lower than the head grade comparison to Black Fox. But just kind of curious, how does it fare in comparison to cost when it – in comparison with Black Fox?

Yes, it's significantly better. We're in the final stages ahead of our feasibility, and we'll be coming out with that soon here in Q3. That's all I – about all I can say about it now. We have a great bulk, chambers, open stopeing kind of deposit that's really suited for low-cost mining, the 5% decline short haul. It's got all the hallmarks of some very good operating costs.

Could – Peter, could you contrast that for Bhakti against what's going on in Black Fox in terms of the mining there as opposed to Froome and why it's -- you feel it's easier and better?

Yes. At Black Fox – thanks, Rob. At Black Fox, we have very small – we're trying to – we call them the Chiclets, taking out these high-grade areas that are maybe 1,000 or 2,000 tons each on average. And so you have to do a lot of setup work, a lot of drilling, a lot of prep work. And then after, we mine them out very quickly to minimize the stand-up time and fill them quickly. Conversely, we go over to Froome. We have very wide intersections, 15 to 40 meters the hanging wall that we can set up transfer stopeing, primary, secondary, really much more contained, bigger stopes, 10,000 to 20,000 ton range we can get up to depending on how our stability works out. So just a whole different type of mining approach. So less – bigger, bigger, more productive stopes and tighter development will translate into better overall costs, including all-in sustaining. But as I said, when we complete the FS final edits, we'll guide on that.

Got it. Thank you so much for the color. Approximately 30% of development has been completed to date. Just kind of curious, from modeling the expense going forward, how much of additional development expense do you expect to incur in the second half of this year?

Yes. Andrew, do you want to take that one?

Sorry, Can you repeat the question?

I said, how much of the development expense are still remaining to be incurred in regards to Froome's development for the second half?

I think for the second half of the year, we are projecting another $10 million of development expenditures for Froome.

Got it. Thank you so much. Moving on to Fenix. In the press release, you did talk about renewing your focus. And given higher metal prices, the project now makes more sense. Just kind of curious, I believe you have everything for – from the permitting front, at least for advancing the deposit post the feasibility study. Just kind of wondering, what additional things do you need to accomplish before you take a production decision there? And could you maybe remind us about the initial capital requirements for the project?

Sorry, was that Froome, Bhakti?

Fenix. Project Fenix.

Oh, Fenix. So Fenix Phase 1 is permitted. That's the gold project. So Phase 1 is the gold. Phase 2 is silver. Phase 1 permitted, that's approximately a $44 million project. And then Phase 2, the silver project is about a $23 million project. We are in the final stages of that feasibility as well as mentioned, and both numbers might change, and we look for improvements on our business case there. But for now, that's -- those are the numbers we're using.

Got it. And when it comes to construction or development time line, what's kind of the tentative time line there if you decide to go ahead and advance into production?

Yes. I mean, it's early stages. We're working on those implementation plans for construction schedules. But our initial estimates are about a 12-month schedule.

Got it. And lastly, what's kind of the dividend expectation from San José? I know COVID has disrupted operations, but just kind of curious.

San José, Bhakti, is having to deal with travel restrictions between provinces in Argentina, and most of the workforce comes from northern provinces. And so it's only operating at about 60% capacity right now. So, it's not generating – it's not realizing the economics as much as it should be. Mind you, half of its production is high-grade silver. So, with the move in silver from $12 in March to $28 today, a little better, it should have a good impact on the economics there, but it's – they hope to get back up to full production, and it's later this year, but the COVID issue is just clouding the picture. So, I can't really quantify. We haven't been able to quantify what we might get out of our interest in San José. But I am – the economics, at least on the silver front, is stable.

Fair enough. Thank you very much for all the color. That’s it from my side.

You’re welcome.

Our next question is from Michael Kozak with Cantor Fitzgerald. Your line is open.

Yeah. Good afternoon everybody. Thanks for hosting the call. A couple of questions from me. First, at Gold Bar, you're saying you're going to be back to mining at full capacity in September. And my question is, what does full capacity mean for gold output at that mine? Like are you still mining in only Pick West? Have you solved the grade reconciliation challenges there? And just like on a follow-on there. I mean guidance was withdrawn earlier this year, but now that you're ramping back up, you clearly have a plan there at Gold Bar. So do you have a production target at Gold Bar in Q3 and Q4?

Peter, would you care to handle that?

Absolutely. There were a number of questions there. Hopefully, I captured them all. So full capacity, what we're meaning there is ramping up to 24 hours operations and targeting our feasibility level production. We've currently, in end of July, increased our crews and ramped up to 24 hours. We are achieving somewhere in the range of 5,000 to 6,000 tons a day. We are targeting 7,000 tons a day and, in our optimization plan, our cost savings of a couple of hundred dollars an ounce cash cost. In Pick West, exactly, that's where we'll be mining throughout 2020 and hence where most of the drilling that Sylvain has spoken about in the past, where we're focused on mining resource estimate coming out in Q3. And then we'll be updating a reserve based on the optimizations that I spoke about earlier in terms of mining and process costs. It's early days for reconciliation versus the model. We're just getting into it now and just starting on that. So we don't have guidance on that. Ore ounces, as you can tell, we're still updating our resource and reserve. So at this stage, no guidance there. But things are trending very well, and we expect to have our fully – our teams fully crewed up and operating in September as normal – as are normally operating pre-COVID.

Okay., thank you.

Mike, if I could jump in there just first. Peter, could you give Mike a reference point for that cost reduction? What are you reducing it from or hope to reduce it from?

Right. So...

It's not Q2 – and it's not from Q2 numbers.

No. The – so, we completed an operational review with implementation engineers. And we looked at our baseline production and costs in the previous nine months to where we are and then projected forward in our 18-month plan and normalized our grades and if we did that and achieved our ore gold production costs at our go-forward ounces. I know it's a bit busy and complicated, but that would have been $1,009 per ounce going forward. And so, we – the improvement – program optimization plan, I talked about targets taking $200 off – an ounce off that projection. It equates to something like $13 million to $17 million savings annually for the life of mine. It's a pretty exciting and compelling project. There's no one magic area. There's a whole bunch of areas where there's opportunity and efficiency improvements with our existing plan. So, this is no CapEx. This is just looking at our efficiencies and how we operate and how we can get better. And we identify sort of seven work streams where we're actively working to improve at the moment.

Okay. So, it sounds like you have a much better handle on what the costs will be, but the ounce profile is still a bit of a question mark until you get the reserve model and the reconciliation issues figured out, correct?

Exactly.

Okay, okay. And then just one more. It's another one for you, Peter. So, you've been at McEwen Mining for four months now. Despite all the travel restrictions and stuff, I'm assuming you've been able to spend a bit of time or quite a bit of time hopefully at Black Fox and Gold Bar. My question is, is there anything at either of those operations, either on the mining side or on the processing side, over the last four months that kind of immediately jumped out to you that needs to be fixed or can be improved over the short-term?

Yes. I mean I think there's always room for improvement. I've spoken a lot about Gold Bar. I think we have similar journeys at both mines. And like any operations, you can find opportunities. We've spoken a lot about the resources and improvements to that and sort of similar approaches at both mines where we get more access, more drilling ahead of ourselves. More information on the geomet, we can understand our key technical and financial drivers way out ahead of mine planning and then plan for success. I think that's the key. It's really back to basics at this stage and then growing from a strong foundation of our understanding of those key drivers.

Okay. Thanks for that. Thanks Rob and team. That’s all from me. Have a good weekend.

Thank you, Mike. You too.

Our next question is from John Tumazos with John Tumazos Very Independent Research. Your line is open.

Thank you and congratulations on all the progress even if it's not in the income statement.

Thank you, John.

I was [doodling] one day, and your 10-Q reports tons in grade and output, but not recovery. So, I solved the equation for recovery. And I noticed that at five of the 11 quarters you've owned Black Fox, the recovery rate derived was 106% to 131%, and the other six quarters, it was 77% to 99%. And the unweighted average was 100.5%, but had I weighted it to 2018 when there was more gold, it would have been higher. And the question is, if you could explain the top-cut procedure at Black Fox, I'm not critical of it. I think it's always better to produce a little more than a little less, but clearly, the recovery suggests the grades hard to estimate.

All right. Sylvain, would you like to comment on that?

More specifically, what's the question?

Tell us about your top cut at Black Fox because some of the quarters, it produces over 100% recovery rate, suggesting the grade sometimes is a little hard to estimate.

Yes. No, that's a good point, John. Top cut is – it's always something that's not necessarily easy to define especially in negative mines like we see at Black Fox. As you know, there is spectacular – [each continuity] is often an issue. We have a resource geologist in-house at site working full time on Black Fox for now over a year. And as we move forward, as we learn about the reconciliation, as we learn about the geological control, and I mentioned that, that we put more efforts having geologists in the sole, understanding and benchmarking back to grade and model, we are actually looking at this top cutting as we speak and refining the way we are modeling the deposit itself. So, it's an ongoing process.

Was the past top cut closer to 30 or closer to 100 or even higher?

It was over – closer to 100, I would say.

Continuing the line of reasoning to Gold Bar, as the tons processed went down, the recoveries went up to 95% derived in the first quarter and 228% in the second quarter, which implies that the leach cycle might be closer to 12 months than three months. What do you think the leach cycle is at Gold Bar? And is it possible that you might have declared defeat prematurely and that the gold is just coming out later?

Peter, do you have some thoughts on that?

Yes. A very technical question, as you know. During the shutdown without mining residual leach, you can see we were recovering ounces, and we were about 50% of production with not a lot of tons stacked up there. Leach is directly obviously related to the time and life of mine. So at the end of the life of mine, if you shorten your life of mine, you're shortening your leach time as well. So, there are a number of factors there. We are looking at how to improve leach time. That's actually part of the optimization plan. And in the past, if the feasibility was designed at, I think, 20-foot stack heights, the operations team had moved to 30-foot, which delays our leach curve. And so, we are actually looking at moving back towards 20 or possibly even 15 to improve our leach curves. We've done a lot of improvements on the side leaching of the stack, and that –you saw that actually come through here in Q2. So there are lots of opportunities to improve leaching and recovery. And that's exactly one of the optimization areas we're looking at.

And if you bear with me one more. At The Black Fox complex, the Grey Fox has 800,000 or 900,000 ounces at just over 7 grams, which looks like money in the bank. I appreciate that Froome was a little more ready to develop and get into production. How much longer would it take to get to Grey Fox and pull out that beautiful 7-gram stuff?

Yes, I'm with you. I think you asked that question last quarter, too. Look, we're moving forward. There are some really nice underground targets there. It's early days. It's all about grade continuity and drilling improving up particularly in underground where you can hang together good stopes. Preliminary look, I like Gibson. I like the South Zone for underground. I like Whiskey Jack, although it's very early days. That could be a pit as well. We've drilled mainly to about 400 meters depth. So, we haven't even looked beneath that. Permitting-wise, we're looking at approximately two years once we lock down our project description. So, hence why we're working feverishly to get the stopeing study done. And the plan is to front-end load that with the quality of information such that we could move right into FS given that we're an operating region, and we have a pretty good understanding of our cost base and what that capital might be once we define it.

With the top cuts at Grey Fox, is there a chance the grade is 0.5 gram or a gram better?

Sylvain, would you like to answer that question?

There's – in the Grey Fox situation, as Peter said, there is upside that resides in some of the zone. We drill Whiskey Jack at the end of the program where we've got new intersections of really high grade that is still early stage. We also have a better understanding of the Gibson area where we need to go back with an orientation of the drilling that will optimize cutting better the key structure that we see there at Grey Fox. It's a large complex, as you know. There's still a lot of room for infill drilling. There's a lot of room for growing a portion of the resources over some of the area. And we are, as Peter said, looking at scenarios, economic scenarios regarding open pit and underground. So there's benchmarking regarding what will be realistic cost considering what we have there as the deposit, the geometry of it and everything, what make more sense as an open pit versus underground. So all of those studies are ongoing as we speak.

Congratulations, and I apologize for asking the technical questions. I admire you taking these difficult challenges.

Thank you, John. I liked your questions. They're the ones that need to be asked that underline what might be the potential for grade being higher than we've shown it or longer to get the gold out at Gold Bar. Good observations.

Our next question is from [Terry Devries], Investor. Your line is open.

Good morning, Rob, good morning gentlemen, how are you today.

Good morning, Terry. Good.

Hi Rob, as you know, I've been with you for quite a long time. And one thing I really have difficulty in understanding that you don't really have to go into it, though, is the massive underperformance, I see, if I put you up against your benchmark, which when I look at it – and I call your benchmark GDXJ if that's fair.

Sure.

And we started really at the beginning of January 2019. It broke down below GDXJ, and this continued down, and I realized you had some problems. This year, that you didn't expect, no great fault of your own, and I understand that these do happen. But when I look at you compared to your benchmark, the underperformance is just staggering. If I would have said in 2016, where the price of McEwen Mining would be when we had $2,000 gold and $28 silver, certainly would have projected multiples beyond this. My question now comes to my concern when you said you're moving towards 300,000 ounces of possible production, but your time line of 3 to 5 years. We're 5 years into a bull market, a bull market that I think all of us knew was coming because of central bank policies. We perhaps have 5 years left to run before the central banks destroy all of our currency. And my concern is I've been waiting for all these years. Are we going to miss this bull market? How long is it going to take to return to even your benchmark or outperforming your benchmark? Thanks very much.

Thank you, [Terry]. Like you, I've been bothered by the underperformance, and I think every one of our shareholders shares the same view. Historically, we were trading about the GDXJ and GDX. So, we've gone south and everybody has gone north. And when I look at it, we're in a transition period right now, and I believe the future is looking brighter, although it's taking its time to show up. The – but the type of performance, if we were just to get back to where the industry was, is a huge bump up. And I think we have to deliver a couple of quarters, good quarters to demonstrate that the turnaround is in progress. We all believe internally that the turnaround is occurring, we can see improvements, but it has to manifest itself in ounces produced and cost so that with the rising gold price, we're participating with it rather than just trading dollars. The size of – go ahead.

No, I'm sorry. I'm sorry to cut you off. So, what I'm understanding is, if I could be patient for 2 to 4 quarters and you're able to produce in-line with your expectations or exceed them, could I expect at least to close the gap significantly on GDXJ?

I would hope that would be the case. I mean we – last year was a huge disappointment for everybody. And a lot of trust was lost and confidence and we have to rebuild that. And as you know, building trust takes a long time, and it's going to be built by demonstrating that we're delivering on our promise. So, I think that is conceivable, and that's what we're working hard to get to, to regain that confidence. And clearly, I'll outline the dynamic of the growth that we have in front of us.

Just a final quick question then. Your long-term goal of qualifying for the S&P 500, can you discuss that?

Yes, sure.

Yes. Sorry.

In some very distant – no, no, no need to apologize. When we – when that goal was first articulated, the threshold to get into the S&P was $3.5 billion. It was subsequently increased several times, and it's now $8 billion. Given our market cap of less than $800 million, 300,000 ounces won't get us there unless they're extraordinarily inexpensive to produce, which I'm not going to say we're going to be able to do. So, there would have to be M&A to get to there. I think the goal is still a very good goal to have because there's only one gold stock in the S&P 500. But – and that would drive a lot of investment dollars towards Newmont, which is the only one in there. I do think we're coming into a market where there will be a lot more investors looking for exposure to gold and gold and silver. So, I think you'll have a strong movement in the sector there. And maybe that index is something that – you'll get the performance without the index in the near term.

Thanks Rob. I wish a great year. Thanks for answering the questions.

You’re welcome.

Our next question is from [Bill Powers], Private Investor. Your line is open.

Hi Rob. Good morning and thank you for talking my call here today. Just had a few questions covering a broad range of subjects, but I guess if we first start with the Slide 9, which is your – an accounting of your measured and indicated, as well as inferred, it looks like it's both Lexam and Black Fox, and it's 3 million in measured and indicated and inferred, another over 1 million. And I guess to me, it sounds like if your goal is to only go to 100,000 ounces, that seems like a lot of resource. It seems like it would take a long time. I guess is there a reason you would not want to go ramp up to mill capacity, which is, I guess, it sounds like it's 200,000 at the stock mills?

Let's say we're trying to err on the side of conservatism and it's early stage. We haven't done all of our economics. We do see room to expand beyond – well beyond 100,000. But for the moment, that's – because of the early stage, that's what we're comfortable saying.

Okay. Fair enough. As far as the – down in Nevada, there seems to be a – you said that you were moving towards production rate at your feasibility study. I guess could you give some more color on what you're expecting on a per month basis for production rate at Gold Bar at least for the rest of this year?

I think Peter may have mentioned that, but sure. Peter, would you like to just say that?

Yes, sure. We're targeting in that – so once we get up to full capacity, that 6,000 to 7,000 ton per day range. So, kind of north of kind of 150,000 tons per month is where we're targeting. Again, we're hesitant again to guide on that until we complete our resource update, reserve and mine plans, but I think the capability and capacity is there. And we worked on the blending. We can get the tons. It then becomes can we deliver them out of the pit and all that scheduling, sequencing stuff.

So [Bill], we during – we didn't produce in May. There was no production at Gold Bar, and there was only one shift per day during May and June. We'll be up at full capacity. We'll be operating 24 hours a day. And as Peter said, we just started 24 hours a day. So that will have a material impact on the amount of material we're moving and – or that we're loading on the pad.

Okay. And I guess are you outside of your – I know you've acquired a number of properties surrounding your Gold Bar outside of just Gold Bar South. Are those – are there any plans to drill off some of those this year? Or is that going to be down the road type of activity?

That will be down the road. We're concentrating on our near mine right now. Our major focus is to expand the resource base near mine. We haven't forgotten about outside. We have a property nearby, our Tonkin property, which has a good-sized resource on it. It's oxides and sulfides. And at some point, that – see if we can incorporate some of that into our Gold Bar production. In the past, it's been treated as a separate property and not really thought about incorporating what it has already outlined there. So, may see some news on that as we go forward.

Okay. Great. And I guess the – really, the last question I would have is, as far as the – as far as Stock, I know there are plan – is this going to be incorporated into the plans for the – I guess, the comprehensive Timmins plan for – that you're working on for later this year?

That's right, yes.

Okay, okay. And then actually, just one more quick question, as far as Argentina goes, it seems as though from at least reading the financial statements that it seemed to be operating at almost a – at a significant loss during the second quarter due to paying – it kind of looks like you guys were paying the salaries of the workers who were staying home. And I guess has the attitude or has at least the environment changed where rather than operating as more of a charity, that the government is now going to be allowing – it seems as though there has been a significant increase in Argentina's overall foreign reserves to take profits out of the country or to at least – if you do generate them, which looks like it'd be a strong possibility at today's prices?

Argentina hasn't reached the point that, say, America or Canada or the European nations have in terms of viewing they want to put some money into the people that are unemployed or sitting at home. Argentina still looks to the corporations to foot the whole bill. And they have travel bans still, and they're – it's still an issue there, but with much higher prices, I think there's a possibility – a good possibility we'll see something out of there later this year.

Okay. That sounds great. Well thank you so much for all your time today. I appreciate it.

Thank you, Bill. Thank you for your questions.

There are no further questions at this time. Mr. Rob McEwen, I turn the call back over to you.

Thank you, everyone, for joining the call. I wish you much success in reinvesting and stay tuned. I think we have more news coming that's good news. Thank you very much. Be well. Stay strong and healthy.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.