Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC
McEwen Mining, Inc. (MUX on NYSE & TSX) Achieves Positive Improvements in Silver and Gold Production and Cash Flow in Mexico, a new pro mining government in Argentina and Getting Ready to build Gold Bar in Gold Rich Nevada
I met with Rob McEwen, founder of Goldcorp, and founder, Chairman and Chief Owner of McEwen Mining (MUX on NYSE & TSX) during the PDAC Conference in Toronto. McEwen Mining is doing very well. Production, Cash Flow and the Treasury are increasing and costs are decreasing.
“Let me first tell you about my view of the gold market and then about McEwen Mining.”
“After 4 ½ years of a falling gold price, we appear to have bottomed and are now in an uptrend. It is very important to note that gold is now moving up in all major currencies. The last time this happened was in 2005, 2006 after which gold, silver and all mining projects entered a major bull market.”
“Gold has been the best performing asset class year to date and this fact is going to compel an increasing number of investors to move into gold and gold shares. Already we have seen a big spike in the buying of gold ETFs and gold shares. I believe there is considerable upside on gold” said Mr. McEwen.
Mr. McEwen, Founder of McEwen Mining Inc. at PDAC 2016
McEwen Mining is a young company with big ambition. It was created in January 2012 by the merger of two companies, US Gold and Minera Andes. The plan was to use the cash flow from Minera Andes’ San Jose mine to fund the development projects of US Gold. Unfortunately, these plans were frustrated by the falling prices of gold and silver, the subsequent and effective closing of the capital markets for mining companies and the misguided and destructive actions of the late government of Argentina.
Fortunately, during the period 2012 through 2015, we were able to build a gold mine in Mexico for a small amount of capital and increase the mine’s production while dropping the production cost. This resulted in 2015 being a great year for McEwen Mining: Record gold equivalent production of 154,000 ozs., low all-in production costs of under $1,000, a growing treasury, making our first capital distribution and in January 2016 becoming debt free.
McEwen Mining is an asset rich, debt free, positive cash flowing gold and silver mining company with big dreams. Our goal is to qualify for inclusion in the S&P 500. McEwen Mining is a Colorado incorporated company that owns two mines. It owns 100% of a gold mine in Mexico and a 49% interest in a gold and silver mine in Argentina. In addition, it has a good growth pipeline with two development projects: a gold deposit, Gold Bar, in Nevada that is forecast to be in production in 2018 and a silver deposit, El Gallo Silver, in Mexico that is permitted to build. However, management is holding out for a higher silver price before making a production decision. Plus, it owns a very large copper deposit in Argentina. Share owners of McEwen Mining have exposure and optionality to the prices of gold, silver and copper.
McEwen Mining trades on the NYSE and the TSX under the symbol MUX. Some ninety percent of the trading occurs on the NYSE. It has good trading liquidity with an average daily share volume of 1.8 million shares (past 3-month average).
Besides having a solid operating foundation of gold and silver production that is generating strong operating cash flow today, McEwen Mining has no debt on its balance sheet and its treasury is more than $37 million.
A unique feature of McEwen Mining is the very high level of insider ownership. Rob McEwen (Founder, Chairman and Chief Owner) has invested $127 million of his own money to own 75 million shares representing 25% of the company. Clearly this level of ownership has aligned Rob McEwen with his fellow share owners. The alignment is even greater when you consider he takes no salary, receives no bonus, stock options or other equity incentives. He will only make money the same way as his shareholders do, through a higher MUX share price!
The management of McEwen Mining is committed to making sure that the company and its share owners can realize the full benefit of higher gold, silver and copper prices. And as such, it does not sell royalties or metal stream on its properties, nor does it hedge its production.
We forecast production in this year and next to be between 140-145,000 ounces of gold with all-in costs/oz of under $1,000. In 2017 we expect to build our Gold Bar mine and have it producing in 2018. Once in production, the addition of Gold Bar’s production will lift our total production to 200,000 oz/year.
One area where the company expects increased profitability is Argentina. Mr. McEwen said, “We have two large properties there: a producing silver, gold mine, San Jose, and a very large copper deposit, Los Azules.” Rob McEwen views the recent changes made by the Argentinian government as very positive for his gold, silver and copper projects.
Recent steps taken by the newly elected government in Argentina to remove taxes on the export of metals and the realignment of their currency exchange rate will have a positive impact on McEwen Mining’s operating profits.
The San Jose mine is a high grade underground mine with a resource grade of 445 grams of silver and 6.25 grams of gold per ton. It is very leveraged to the silver price. Because of its high silver grade, the economics of the mine are very sensitive to changes in the silver to gold ratio. Should the ratio shrink from the current 79/oz. of silver equals 1 oz. of gold to say 60:1 then the mine’s cash flow will increase dramatically.”
We have two development projects. One is the Gold Bar project, next to Barrick’s biggest gold mine and discovery, which we hope to get permitted in January of next year and start construction shortly afterwards and be in production in 2018. At that point our annual production is forecast to be 200,000 gold equivalent ounces (gold and silver). We also have a silver project in Mexico that is fully permitted and ready to build once the silver price climbs above $18/oz. We are asset rich and have no pressure on the balance sheet.”
In Mexico, we have a project, El Gallo Silver, that is fully permitted to build but and we have chosen not to build it until the silver price is higher. Silver needs to be above $18/oz before we would decide to build it. We want to see a 20% rate of internal return with a payback of less than three years and a low capex before building a mine.”
In conclusion, Mr. McEwen said, “I have invested a lot of personal money, $127 million, in this company with the objective of significantly increasing its value to our share owners and myself. I do not take a salary, nor do I receive a bonus so I will only make money the same way my fellow share owners do with an increasing share price.
Today, we have a strong balance sheet, $37 million in cash, no debt, a growing treasury, no immediate need for additional funds, so there is no pressure on our balance sheet. We haven’t sold any royalties or metal streams. I am pleased to say that while many mining companies who have utilized these financial instruments have effectively sacrificed their future profits, we have not! We have retained all the future upside that will result from higher gold, silver and copper prices for our share owners!
Life is getting very exciting around here, better gold and silver prices, a new business oriented government in Argentina, preparing for the construction of Gold Bar next year along with copper starting to come back to life. We are well positioned to advance towards our goals of a better share price and the S&P 500.”
Some stockholders greatly appreciate making money the same way as Mr. McEwen in McEwen Mining. He has an amazingly successful track record in the mining industry.
The Alper family owns McEwen Mining stock.
Head Office: McEwen Mining
150 King Street West
Toronto, Ontario. Canada
toll Free: 1-866-441-06901-866-441-0690 FREE
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