TORONTO, May 08, 2023 (GLOBE NEWSWIRE) -- McEwen Mining Inc. (NYSE: MUX) (TSX: MUX) today reported its first quarter (Q1) results for the period ended March 31st, 2023.
“This quarter we completed a series of large financing transactions involving shares of our McEwen Copper subsidiary, which has increased the market value attributable to our copper business to $550 million (for 100%) from $257 million at the conclusion of the prior financing round in August 2022. As 52% owner, McEwen Mining shareholders are benefitting from this value accretion, which validates the strategy we set out in July 2021 to surface value from Los Azules by funding it independently,” said Rob McEwen, Chairman and Chief Owner. “Our 100% owned precious metal mines generated a gross profit this quarter, although McEwen Copper expenses obscures our improved performance on a net basis. We continue to invest in exploration as the most cost-effective means to extend the life of our operations with positive results.”
Notice to reader: Under US GAAP, McEwen Mining consolidates 100% of the accounts of its wholly-owned and majority owned subsidiaries in its reported financial results, including McEwen Copper. Entities over which we exert significant influence but do not control, such as Minera Santa Cruz S.A. (“MSC”), are presented as an equity investment on our balance sheet.
Our gross profit in Q1 was $4.4 million and our cash gross profit(1) was $11.3 million, compared to a gross loss of $6.0 million and cash gross loss of $2.3 million in Q1 2022. The increase in gross profit and cash gross profit directly resulted from improvements in productivity across our Fox Complex and Gold Bar mine operations.
Adjusted net loss(1) was $6.4 million, or $0.14 per share in Q1, compared to an adjusted net loss of $13.1 million, or $0.28 per share in Q1 2022. Adjusted net income or loss is a new non-GAAP financial measure intended to provide readers with a metric to evaluate our 100% owned precious metal business, excluding McEwen Copper (52%) and MSC (49%), which owns the San José mine.
We reported a consolidated net loss of $43.1 million, or $0.91 per share in Q1, compared to a net loss of $20.7 million, or $0.45 per share in Q1 2022. The largest contributor to our net loss was $31.9 million spent on exploration at our Los Azules project, which we expensed under US GAAP. We also incurred $5.9 million in exploration expenses at our Fox Complex and Gold Bar mine operations.
Liquidity and Capital Resources
Consolidated cash and equivalents increased to $190.8 million(2) at the end of Q1 with the completion of a primary and secondary offering of common shares in McEwen Copper. These transactions brought in 30 billion Argentine Pesos from FCA Argentina (a subsidiary of Stellantis) and $30 million from Nuton (a Rio Tinto venture).
McEwen Mining received $47.5 million in available funds from the secondary sale of 8.7% of McEwen Copper, which will be used to reduce our senior secured debt, for project development spending and general corporate purposes. The balance of the funds raised from the primary issuance will be used by McEwen Copper for Los Azules project spending, predominantly drilling and other feasibility-oriented work programs to advance the project towards an updated Preliminary Economic Assessment (PEA) in Q2 2023 and a Feasibility Study by the end of 2024.
Total debt was $65 million at the end of Q1. Management intends to reduce this amount by $25 million through the repayment in full of the portion of the senior secured credit facility owed to Sprott Lending.
Gold & Silver Production
Production from our three operating mines was 30,400 gold equivalent ounces (GEOs) (3) in Q1, compared to 25,200 GEOs in Q1 2022. Production guidance remains 150,000-170,000 GEOs for 2023.
Individual Mine Performance (See Table 1):
Fox performed well in the quarter and achieved its budgeted production at costs in-line with our guidance for the year. This is a significant improvement over Q1 last year when the mine struggled with effects of the pandemic and equipment failures. The Fox team’s diligent efforts have resulted in much improved operating performance and cash generation.
Gold Bar continued to ramp-up mining from the Gold Bar South deposit in Q1, and successfully placed 15,000 contained gold ounces on the heap leach pad. Extreme snow and rainfall in the southwestern United States this winter resulted in flooding around Gold Bar, temporarily restricting access to the mine. Despite these challenges the Gold Bar team kept costs under control and remained focused on delivering ore to the heap leach pad and production is steadily increasing. Mining resumed at the Pick pit in April, which will continue to add gold inventory to the heap leach pad, contributing to the increase of production in the balance of the year.
San José usually has a lower production in the beginning of the year because of holidays closure and a planned annual shutdown for maintenance during Q1. This quarter’s production was additionally hindered by negative grade reconciliation to the mine model, which is attributed to variability around the margins of the mined veins. From a financial perspective, lower production in Q1 was offset by higher than budgeted realized gold and silver prices, which allowed the San José team to adjust their plans for 2023 by accelerating development and definition drilling to access new mining areas. McEwen management visited San José in April to review the 2023 plan and exploration activities.
Exploration results from flow-through funded drilling at the Fox Complex were published in a separate press release on May 8th; drilling will continue during the rest of the year, focusing on prospective zones at the Stock property and the Grey Fox property.
Infill and exploration results from Los Azules were published on January 26th, March 6th, April 5th, and May 5th. Drilling at Los Azules is expected to continue until the end of May and then resume in October, after the South American winter.
Gold Bar exploration activities were focused on defining the boundaries of our oxide resources at the Pick deposit, and on testing the Benmark target, located immediately southwest of the leach pad. Drilling at the Cabin South target is expected to be underway shortly. If results are successful in these areas, they each have potential to positively impact the mine plan in the near-term.
San José’s drilling programs to define additional resources and reserves have a long history of success due to a high vein density, aided by good geophysical response from hidden veins. Exploration drilling to discover and extend veins is occurring in several areas with success to the North of the mine, where two potentially economic veins (Maura NW and Maura SW) are returning good results. Drilling at the Telken target in the South of the property, and adjacent to Newmont’s Cerro Negro mine, is planned for Q3.
We own a 52% interest in McEwen Copper Inc., which holds a 100% interest in the Los Azules copper project in San Juan, Argentina, and the Elder Creek exploration project in Nevada, USA.
On February 23, 2023, we closed an ARS $30 billion investment by FCA Argentina S.A., a subsidiary of Stellantis N.V., and on March 15, 2023, we closed a $30 million investment by Nuton LLC, a Rio Tinto Venture and existing McEwen Copper shareholder. Subsequent to these transactions Stellantis and Nuton each own 14.2% of McEwen Copper.
During Q1, McEwen Copper spent $31.9 million to advance a major drilling campaign involving up to 15 rigs, ongoing road maintenance and improvements, hyperspectral scanning of the entire drill core library, technical studies necessary for the updated PEA, environmental baseline work, project optimization and trade-off studies including renewable power supplies and mining methods, and metallurgical test work.
On April 14, 2023, the Los Azules Environmental Impact Report for Exploitation was submitted by McEwen Copper to the Argentinian authorities for review.
Drilling at the Elder Creek project conducted by Kennecott Exploration Company, a subsidiary of Rio Tinto, is expected to begin in May. Kennecott has the option to earn a 60% interest in Elder Creek by investing $18 million over a maximum of seven years.