McEwen Mining Reports Q1 2020 Results

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Overig advies 19/05/2020 19:55
TORONTO, May 19, 2020 (GLOBE NEWSWIRE) -- McEwen Mining Inc. (NYSE: MUX) (TSX: MUX) today reported its first quarter (Q1) results for the period ended March 31, 2020.
•Production was 29,200 gold ounces and 553,200 silver ounces, or 35,100 gold equivalent ounces(1) (GEOs)(see Table 1), at the average gold:silver price ratio for the quarter of 94:1.

•A non-cash impairment charge for the Gold Bar mine of $83.8 million was recorded during Q1. The write down is necessary because a change in the geological interpretation resulted in a substantial reduction in expected gold production over the life of mine (see the Gold Bar Mine section below for further details).

•A consolidated net loss of $99.2 million, or $0.25 per share, primarily due to a $83.8 million impairment adjustment for the Gold Bar mine and $6.3 million spent on exploration and advanced projects. Before the impairment adjustment the net loss is $15.4 million.

•The Grey Fox Indicated gold resource estimate has increased by 43% to 888,000 gold ounces at 7.1 g/t, with an additional 173,000 gold ounces at 6.6 g/t in the Inferred category.

•Each of our mine sites are navigating the impacts of the COVID-19 pandemic. Black Fox, Gold Bar, and San José mines were temporarily suspended at the onset of emergency measures imposed in Ontario, Nevada, and Argentina. Black Fox and San José have now restarted operations, and Gold Bar has started to ramp-up operations with limited mining and stockpile processing during May. Production and cost guidance for 2020 has been withdrawn until the situation normalizes.

•Our quarterly webcast will take place today at 11 am EDT. Details are provided below.

Operations Update COVID-19
All our operations have implemented rigorous health and safety measures to prevent the spread of the COVID-19 virus. Fortunately, none of our employees have been infected.

San José Mine, Argentina (49% Interest)

Our attributable production from San José in Q1 was 9,000 gold ounces and 551,900 silver ounces, for a total of 14,900 GEOs. For Q1, total cash costs(2) and all-in sustaining costs (AISC)(2) were $1,138 and $1,592 per GEO, respectively.

Mining was temporarily suspended on March 20, 2020 due to a nationwide mandatory quarantine imposed in Argentina to combat the spread of COVID-19. Mining has restarted at San José around April 14, but government-imposed travel restrictions mean that it will take some time before full production is achieved. As a result, 2020 production guidance has been withdrawn until the situation stabilizes.

Black Fox Mine, Canada (100% Interest)

Production from Black Fox in Q1 was 8,300 GEOs at a total cash costs and AISC of $838 and $1,339 per GEO, respectively. The Black Fox mine was temporarily suspended due to the COVID-19 pandemic on March 26, 2020 and resumed normal operation on April 14, 2020.

The mineral resource estimate for Grey Fox deposits has been updated with drilling completed in late 2019. The estimated Indicated and Inferred resources increased by 43% and 30%, respectively, compared to the mid-2019 update published in March 2020. The updated resource estimate contains 888,000 gold ounces at 7.1 g/t in the Indicated category, and 173,000 gold ounces at 6.6 g/t in the Inferred category.

The Grey Fox resource has grown rapidly through focused exploration that we initiated in 2018. For the first time, the Grey Fox resource update includes a resource for the Gibson area. In addition, it includes a major reinterpretation of the Grey Fox South area, with updates to the 147, 147 NE and Contact zones.

Open pit and underground mining scenarios are being evaluated for the development of the Grey Fox deposits and environmental studies are in progress to allow access to the area for potential bulk sampling and initial open pit mining. In addition, we are also exploring and advancing economic studies of the Stock East gold deposit and of the recent Stock West Zone discovery at the Stock Property. Further information about economic development and mining scenarios will be provided later in 2020.

Development of underground access to the Froome ore body is proceeding towards production.

Gold Bar Mine, USA (100% Interest)

Gold Bar produced 9,100 GEOs in Q1 at cash costs and AISC of $1,887 and $2,177 per GEO, respectively. Both cash cost and AISC included the impact of $4.5 million spent for pre-stripping at the Gold Pick West pit, or $495 per ounce which cannot be capitalized under US GAAP. Excluding the impact of the $4.5 million spend on pre-stripping, cash cost per gold equivalent ounce in Q1 was $1,392, which is 9% or $111 per ounce higher than the cash cost per ounce in the fourth quarter of 2019.

The latest updated feasibility study for the Gold Bar mine was published in February 2018 (2018 FS). The study estimated that 485 thousand gold ounces were contained in the reserve pits designed at that time. In November 2018, permits to build the mine were received and construction commenced based on the 2018 FS. At year end 2018, the resource and reserve estimates were updated, which at that time had increased primarily because of additional drilling to 524 thousand gold ounces contained in the reserve pits (2018 Reserve Estimate). Pre-commercial mining commenced in December 2018, the first gold was poured in February 2019, and commercial production was declared in May 2019. The majority of material mined at Gold Bar between December 2018 and the end of 2019 was from the Cabin Creek ore body, which exhibited positive overall gold reconciliation to the 2018 Reserve Estimate.

After transitioning to mining the upper benches of the Gold Pick West ore body we started to experience poor reconciliation, contrary to our experience to this point. Our mining returned lower ore tons, gold grade and contained ounces compared to the block model. This is interpreted to occur because of greater structural control and less bedding control of the mineralization than was previously modeled by our external consultant SRK Consulting (U.S.) in the 2018 FS and 2018 Reserve Estimate. In light of the change in geologic interpretation, and control and distribution of the gold mineralization, supported by our observations while mining, the future mine plan is currently being re-evaluated. Preliminary updated resource estimates for the Gold Pick deposit were completed in Q1 and in-pit and near-pit drilling is currently taking place to further validate the results. Preliminary revised mine plans indicate that a reduction in contained ounces at the Gold Pick deposit in the order of 25-35% relative to the 2018 Reserve Estimate is likely.

As a result, during Q1, we recorded an impairment charge of $83.8 million, reducing the carrying value of the Gold Bar mine mineral property interests and plant and equipment. The impairment calculation was primarily based on the discounted cash flow technique, using a long-term gold price of $1,430 per ounce, a discount rate of 9%, and USA inflation index of 2%.

Evaluation of the resource estimate is continuing with a drilling program initiated in late-March 2020 and extending into the second quarter of 2020. This new drilling information will be incorporated into a revised resource model and a new mine plan is expected to be completed for implementation by the end of the second quarter or early in the third quarter of 2020.

On March 26, 2020 we made the decision to temporary scale back operations at the Gold Bar mine due to concerns related to COVID-19 and maintaining social distancing requirements. Mining was suspended on April 1, 2020, with downstream activities continuing, such as heap leaching and process plant operation.

We have recently resumed stripping to access the next ore benches in the Gold Pick West deposit and processing of stockpiled mineralized material. We continue evaluating the next stages to resume normal operating capacity. 2020 production guidance has been withdrawn until the situation stabilizes.

El Gallo Project, Mexico (100% Interest)

Production from El Gallo in 2019 was 2,700 GEOs from residual leaching of the heap leach pad. Beginning with Q4 2019, we have ceased relying on, and disclosing, cash costs and AISC per GEO as key metrics for El Gallo because those measures include the expensing of accumulated heap leach pad inventory costs, which are not informative when assessing the current economics of residual leaching. We estimate that residual leaching will continue for as long as incremental revenue exceeds incremental costs. Incremental residual leaching costs for Q1 was $2.8 million, or $1,025 per GEO.

On April 1, 2020, the Mexican government ordered the temporary closure of all non-essential businesses, including mining, to combat the spread of COVID-19. While this order limits some activities at El Gallo, it is not expected to have a significant effect on residual leaching.

NYSE Listing

We previously reported that notice from the NYSE was received on March 24, 2020 regarding the $1.00 minimum share price listing standard. Effective April 21, 2020, the SEC and NYSE has provided temporary relief from the $1.00 minimum share price standard, providing the Company until December 3, 2020 to regain compliance.

Table 1 below provides production and cost results for Q1 2020 and 2019.
Q1 2019 2020
Consolidated Production
Gold (oz) 26,900 29,200
Silver (oz) 703,200 553,200
GEOs(1) 36,300 35,100
Gold Bar Mine, Nevada (3)
GEOs(1) (5) 9,100
Cash Costs ($/GEO)(1) - 1,887
AISC ($/GEO)(1) - 2,177
Black Fox Mine, Canada
GEOs(1) 8,900 8,300
Cash Costs ($/GEO)(1) 805 838
AISC ($/GEO)(1) 1,454 1,339
El Gallo Mine, Mexico
GEOs(1) 5,400 2,700
Cash Costs ($/GEO)(1) 967 (6)
AISC ($/GEO)(1) 989 (6)
San José Mine, Argentina (49%)
Gold production (oz)(4) 10,600 9,000
Silver production (oz)(4) 701,300 551,900
GEOs(1)(4) 19,900 14,900
Cash Costs ($/GEO)(1) 749 1,138
AISC ($/GEO)(1) 1,115 1,592

'Gold Equivalent Ounces' are calculated based on a 75:1 gold to silver price ratio for periods up to and including Q1 2019 and 94:1 for Q1 2020.
Cash gross profit, cash costs per ounce, all-in sustaining costs (AISC) per ounce, and liquid assets are non-GAAP financial performance measures with no standardized definition under U.S. GAAP. For definition of the non-GAAP measures see "Non?GAAP Financial Measures" section in this press release; for the reconciliation of the non-GAAP measures to the closest U.S. GAAP measures, see the Management Discussion and Analysis for the year ended December 31, 2019 filed on Edgar and SEDAR.
Gold Bar started commercial production on May 23, 2019.
Represents the portion attributable to us from our 49% interest in the San José Mine.
Pre-commercial production at Gold Bar during Q1 2019 was 2,030 GEOs.
Both cash costs and AISC per GEO no longer represent key metrics used by management to evaluate residual leaching at the El Gallo Project. For this reason, the Company has ceased relying on, and disclosing, cash costs and all-in-sustaining costs per ounce as a key metric.

For the SEC Form 10-Q Financial Statements and MD&A refer to:

see &

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