Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the following discussion, “McEwen Mining”, the “Company”, “we”, “our”, and “us” refers to McEwen Mining Inc. and as the context requires, its consolidated subsidiaries.
The following discussion updates our plan of operation as of November 2, 2017, for the foreseeable future. It also analyzes our financial condition at September 30, 2017 and compares it to our financial condition at December 31, 2016. Finally, the discussion analyzes our results of operations for the three and nine months ended September 30, 2017 and compares those to the results for the three and nine months ended September 30, 2016. With regard to properties or projects that are not in production, we provide some details of our plan of operation. We suggest that you read this discussion in conjunction with MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and our audited consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2016.
The discussion also presents certain Non-GAAP financial performance measures, such as earnings from mining operations, total cash costs, total cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, and average realized price per ounce, that are important to management in its evaluation of our operating results and which are used by management to compare our performance to what we perceive to be our peer group of mining companies and relied on as part of management’s decision-making process. Management believes these measures may also be important to investors in evaluating our performance. For a detailed description of each of the Non-GAAP financial performance measures and certain limitations inherent in such measures, please see the discussion under “
Non-GAAP Financial Performance Measures
” below, on page 37.
Reliability of Information: Minera Santa Cruz S.A. (“MSC”), the owner of the San José Mine, is responsible for and has supplied to us all reported results from the San José Mine. The financial and technical information contained herein is, with few exceptions as noted, based entirely on information provided to us by MSC. Our joint venture partner, a subsidiary of Hochschild Mining plc, and its affiliates other than MSC do not accept responsibility for the use of project data or the adequacy or accuracy of this information.
Overview
We were organized under the laws of the State of Colorado on July 24, 1979. Since inception, we have been engaged in the exploration for, development of, production and sale of gold and silver, and with the acquisition of the Los Azules project in 2012, exploration for copper. We own and operate the producing El Gallo 1 mine in Sinaloa, Mexico. We own a 49% interest in MSC, owner and operator of the producing San José Mine in Santa Cruz, Argentina. We also own the Gold Bar Project in Nevada, United States; the Los Azules Project in San Juan, Argentina, the Black Fox Complex and other projects in Timmins in Ontario, Canada, and a portfolio of exploration properties in Argentina, Mexico and the United States.
In this report, “Au” represents gold; “Ag” represents silver; “oz” represents troy ounce; “gpt” represents grams per metric tonne; “ft.” represents feet; “m” represents meter; “km” represents kilometer; “sq.” represents square; and C$ refers to Canadian dollars. All our financial information is reported in United States (U.S.) dollars, unless otherwise noted.
Index to Management’s Discussion and Analysis
Operating and Financial Highlights
Highlights for the third quarter of 2017 are included below and discussed further in Results
of Consolidated Operations and elsewhere in this MD&A:
|
·
|
|
Following the end of the quarter, on October 6, 2017, we announced the completion of the acquisition of the Black Fox Complex, enhancing our growth strategy in the Timmins region, that started with the acquisition of Lexam earlier in 2017.
|
|
·
|
|
On September 22, 2017, we completed a financing for gross proceeds of $46.6 million primarily for the purpose of funding the acquisition of Black Fox.
|
|
·
|
|
We continue to advance the permitting process at Gold Bar, with substantial advance as of quarter-end, as planned, with the expectation to begin its development by the end of 2017.
|
|
·
|
|
We completed a Preliminary Economic Assessment (“PEA”) for the Los Azules Project, estimating robust economics and the expectation for a high margin, rapid pay-back, and long-life open pit mine at current copper, gold and silver prices.
|
|
·
|
|
We reported $13.4 million in gold and silver sales from the sale of 10,580 gold equivalent ounces by our El Gallo 1 mine.
|
|
·
|
|
We realized average prices of $1,269 and $17.46 per ounce of gold and silver, respectively, sold by the El Gallo 1 mine, and $1,281 and $16.70 per ounce of gold and silver, respectively, sold by the San José mine.
|
|
·
|
|
The El Gallo 1 mine produced 7,213 gold equivalent ounces, comprised of 7,189 ounces of gold and 1,789 ounces of silver.
|
|
·
|
|
The San José mine produced 44,560 gold equivalent ounces, comprised of 24,208 ounces of gold and 1,526,449 ounces of silver, based on a 100% basis; or 21,834 gold equivalent ounces, represented by 11,862 ounces of gold and 747,960 ounces of silver, based on the 49% basis attributable to us.
|
|
·
|
|
The El Gallo 1 mine realized total cash costs of $832 and all-in sustaining costs of $946 per gold equivalent ounce, respectively.
|
|
·
|
|
The San José mine realized total cash costs of $850 and all-in sustaining costs of $1,065 per gold equivalent ounce, respectively.
|
|
·
|
|
We reported a net loss of $8.1 million, or $0.03 per share for the quarter.
|
|
·
|
|
The loss from our investment in MSC was $0.5 million, and we received $2.3 million in dividends during the three months ended September 30, 2017.
|
|
·
|
|
As of September 30, 2017, we reported $82.3 million in cash, investments and precious metals valued at the London P.M. Fix spot price and no indebtedness
(1)
.
|
|
(1)
|
|
For a reconciliation of precious metals valued at the London P.M. Fix spot price and cost, please see the discussion under “Non-GAAP Financial Performance Measures” below, on page 37.
|
Selected Financial and Operating Results
The following table summarizes selected financial and operating results of our Company for the three and nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, unless otherwise indicated)
|
|
Gold and silver sales
|
|
$
|
13,430
|
|
$
|
13,423
|
|
$
|
43,373
|
|
$
|
49,226
|
|
(Loss) income on investment in MSC, net of amortization
|
|
$
|
(462)
|
|
$
|
4,693
|
|
$
|
(535)
|
|
$
|
13,789
|
|
Net (loss) income
|
|
$
|
(8,072)
|
|
$
|
4,208
|
|
$
|
(12,800)
|
|
$
|
25,546
|
|
Net (loss) income per common share
|
|
$
|
(0.03)
|
|
$
|
0.01
|
|
$
|
(0.04)
|
|
$
|
0.09
|
|
Consolidated gold ounces
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
19.1
|
|
|
24.3
|
|
|
61.3
|
|
|
81.1
|
|
Sold
|
|
|
21.9
|
|
|
23.0
|
|
|
69.1
|
|
|
75.7
|
|
Consolidated silver ounces
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
750
|
|
|
916
|
|
|
2,252
|
|
|
2,465
|
|
Sold
|
|
|
735
|
|
|
968
|
|
|
2,304
|
|
|
2,637
|
|
Consolidated gold equivalent ounces
(1)(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
29.0
|
|
|
36.5
|
|
|
91.4
|
|
|
114.0
|
|
Sold
|
|
|
31.7
|
|
|
35.9
|
|
|
99.8
|
|
|
110.8
|
|
Silver : gold ratio
(2)
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
(1)
|
|
Includes the portion attributable to us from our 49% interest in the San José Mine.
|
|
(2)
|
|
Silver production is presented as a gold equivalent.
|
Consolidated Performance
For the three months ended September 30, 2017, we reported a net loss of $8.1 million, or $0.03 per share, compared to net income of $4.2 million or $0.01 per share for the third quarter in 2016. The decline in operations period over period was mainly due to the $0.5 million net loss from our investment in MSC, compared to $4.7 million income reported in the comparable period of 2016, coupled with a $2.2 million increase in production costs applicable to sales from our El Gallo 1 mine, and a $1.5 million increase in general and administrative expenses incurred in the 2017 quarter.
During the three months ended September 30, 2017, MSC reported a net loss of $0.5 million, compared to net income of $4.7 million in 2016. The net loss reported in the third quarter of 2017 was mainly driven by the 18% decrease in the number of gold equivalent ounces sold by MSC in that period. Despite the net loss, MSC paid us a dividend of $2.3 million in the quarter.
During the nine months ended September 30, 2017, our net loss was $12.8 million or $(0.04) per share, compared to net income of $25.5 million or $0.09 per share for the same period in 2016. The net loss in 2017 was the result of lower number of gold ounces sold at higher production costs, mainly from an increased strip ratio of waste to ore mined and the higher volume of waste mined, when compared to the prior period. Further, processing costs increased from the mechanical failure on the crushing circuit at El Gallo 1 mine. In addition, the $8.3 million increase in exploration expenses incurred mainly at our Los Azules project and the loss reported by MSC in the period further contributed to the consolidated net loss reported in 2017.
Results of Consolidated Operations
Three months ended September 30, 2017 compared to 2016
Revenue
.
Gold and silver sales for the quarter ended September 30, 2017 remained at $13.4 million, unchanged from the 2016 period, with a 5% increase in gold equivalent ounces sold being offset by a 5% and 10% decrease in the average realized prices of gold and silver, respectively, at our El Gallo 1 mine.
Production costs applicable to sales
.
Production costs applicable to sales at the El Gallo 1 mine increased to $8.6 million in the three months period ended September 30, 2017, compared to $6.4 million in 2016. Processing costs increased during the quarter due to an increased strip ratio of waste to ore, and a higher number of tonnes of waste moved in 2017. Furthermore, additional costs were incurred to bring the crushing circuit back to operations after the mechanical failure which occurred at the end of July. Production costs also increased as a result of the 3% increase in the number of tonnes processed during the period. Further, production costs denominated in Mexican peso have increased in line with the appreciation of the Mexican peso against the U.S. dollar, during the 2017 period.
Operating income (expenses)
Mine development costs, which relate to engineering and development expenditures incurred at our advanced-stage properties, increased to $1.4 million for the three months period ended September 30, 2017 from $0.9 million in the 2016 period, in line with our continuing our activities to develop Gold Bar into a producing property.
Exploration costs in the third quarter of 2017 increased to $2.4 million from $2.2 million in 2016. The slight increase is due to exploration activities at the recently acquired Timmins project. For a detailed discussion on exploration costs, please refer to the each of the segments sections below.
General and administrative expenses increased to $4.7 million in 2017 from $3.2 million in 2016, mainly as a result of costs associated with the Black Fox acquisition, coupled with expenses associated with higher personnel costs. The appreciation of the Canadian dollar against the U.S. dollar in the third quarter of 2017 also contributed to the increase in general and administrative expenses when compared to 2016.
MSC reported net loss of $0.5 million in the three months ended September 30, 2017, compared to net income of $4.7 million in 2016 due to the 18% decrease in the number of gold equivalent ounces sold in the quarter, coupled with the 3% and 17% decrease in the average realized prices of gold and silver, respectively, when compared to 2016. Please refer to the section
Results of Operations – MSC
below, for further details.
Other (expenses) income
During the three months ended September 30, 2017, we reported other expense of $1.9 million compared to other income of $0.6 million in the prior period. The decline was the result of $0.7 million increase in unrealized loss on derivatives, $0.4 million increase in loss from foreign exchange, and $0.4 write-off of marketable securities recognized in the quarter.
Income tax recovery
In the three months ended September 30, 2017, we reported income tax recovery of $0.6 million unchanged from the same period of 2016, as a combined result of fluctuations in tax benefits related to exploration spending at Los Azules, the
Argentine peso devaluation and the unrealized gains in the value of our investments recorded through Other Comprehensive (Loss) Income during the period.
Nine months ended September 30, 2017 compared to 2016
Revenue
.
Gold and silver sales for the nine months ended September 30, 2017 decreased to $43.4 million, from $49.2 million in 2016 due to a 13% decrease in gold equivalent ounces sold during the nine month period at our El Gallo 1 mine, partially offset by a 1% and 4% increase in the average realized prices of gold and silver, respectively. The decrease in the number of gold equivalent ounces sold was in line with the decrease in production reported in the period. Based on our mine plan, we expect production to increase in the final quarter of 2017.
Production costs applicable to sales
.
Production costs applicable to sales at the El Gallo 1 mine increased to $24.2 million in the nine months ended September 30, 2017, compared to $21.2 million in 2016. Despite the 13% decrease in gold equivalent ounces sold in the period, production costs were higher as a result of the higher number of tonnes processed coupled with the lower average grades processed and a higher strip ratio of waste to ore being mined. Further, the effect of the appreciation of the Mexican peso against the U.S. dollar over the peso denominated balances during 2017, along with the malfunction of the crushing system previously mentioned also contributed to the increase in the production costs in the period.
Operating Income (Expenses)
Mine development costs increased to $3.2 million for the nine months ended September 30, 2017 from $2.9 million in the 2016 period, due to $0.7 million increase in expenditures in Nevada partly offset by a $0.4 million decrease in expenditures at the El Gallo 2 project. Please refer to each of the segments sections below for a complete discussion on these costs.
Exploration costs in the period ended September 30, 2017 increased by $8.3 million to $13.9 million from $5.6 million in 2016. The increase is mainly due to $6.5 million higher exploration expenditures incurred at the Los Azules project, coupled with $1.5 million higher exploration costs incurred in Mexico.
General and administrative expenses increased to $13.1 million in 2017 from $8.6 million in 2016, due to higher regulatory and compliance fees, acquisition costs and a higher personnel costs, when compared to the 2016 period.
In the nine months ended September 30, 2017, we recognized a net loss of $0.5 million from our investment in MSC, compared to net income of $13.8 million in the same period in 2016 due to a decrease in revenue from lower gold and silver ounces sold at lower average realized prices, coupled with higher production costs applicable to sales from the increase in labor expenditures associated with additional labor. Please refer to the section
Results of Operations – MSC
below, for further details.
Other income (expenses)
Other income decreased to $1.0 million in the nine months ended September 30, 2017 from $2.1 million in the same period of 2016, mainly due to a $1.3 million decrease in the unrealized gain on derivatives reported during the period.
Income tax recovery
We recovered $3.1 million in income tax in the nine months ended September 30, 2017, compared to $3.3 million in 2016, as a result of fluctuations in tax benefits related to increased exploration spending at Los Azules, the Argentine peso devaluation and the unrealized gains in the value of our investments recorded through Other Comprehensive (Loss) Income during the period.
Liquidity and Capital Resources
As of September 30, 2017, we had working capital of $82.7 million, consisting of $108.5 million of current assets and $25.8 million of current liabilities. Our cash balance increased from $37.4 million at December 31, 2016 to $69.0 million at September 30, 2017, mainly as a result of the $43.2 million net proceeds received from the equity offering closed on
September 22, 2017. The purpose of the offering was to secure funding for the acquisition of the Black Fox Complex, previously announced for an initial price of $35.0 million. On October 6, 2017, we closed the acquisition with a cash payment of $27.5 million, after certain price adjustments. The remaining funds from the financing supplement our treasury for future capital projects, exploration at Black Fox, and general corporate purposes.
We believe that our working capital at September 30, 2017 is sufficient to satisfy obligations due in the next 12 months, and to fund ongoing operations and corporate activities over that period.
The Company continues to evaluate capital and development expenditure requirements to advance Gold Bar, Black Fox, our other Timmins projects, and El Gallo 2, as well as exploration expenditures for all our operations and projects. If we make a positive decision to pursue one or more of these initiatives, the expenditures incurred may significantly exceed our working capital. In such case, we would explore several financing methods, which may include incurring debt, issuing additional equity, equipment leasing, and other forms of financing.
For the nine months ended September 30, 2017, net cash used in operations was $9.2 million compared to net cash provided by operation of $24.4 million for the same period in 2016. The significant change resulted from:
|
·
|
|
Increase in cash paid to suppliers and employees to $60.0 million, compared to $37.4 million in 2016, from higher exploration and production costs, compared to the prior period;
|
|
·
|
|
$43.4 million cash received from gold and silver sales in the nine months ended September 30, 2017, compared to $48.3 million in the same period of 2016;
|
|
·
|
|
Decrease in collection of VAT in Mexico to $1.6 million in the nine months ended September 30, 2017, compared to $9.5 million in the same period of 2016; and
|
|
·
|
|
Decrease in dividends received from our investment in MSC to $7.2 million in 2017, compared to $13.3 million in 2016.
|
Cash provided by investing activities was $0.4 million for the nine months period of 2017, compared to cash used in investing activities of $8.1 million in the same period of 2016, mainly due to:
|
·
|
|
No mineral property acquisitions for the 2017 period, for which the consideration was payable in cash, compared to $6.0 million spent in the 2016 period;
|
|
·
|
|
$2.2 million proceeds from the sale of marketable securities during the nine months ended September 30, 2017, compared to $0.5 million in 2016;
|
|
·
|
|
No investments in marketable securities, compared to $2.5 million used for investing in 2016, and
|
|
·
|
|
$0.8 million incurred in the acquisition of Lexam, completed in 2017, compared to $nil in 2016.
|
Cash provided by financing activities was $40.2 million in 2017, compared to cash used in financing activities of $3.5 million in 2016, primarily as a result of:
|
·
|
|
Gross proceeds of $42.5 million received from the issuance of shares and an additional $4.1 million from issuing warrants in connection with the equity offering completed on September 22, 2017; the cost associated to the issuance of shares and warrants was $3.4 million;
|
|
·
|
|
$nil repayment of the bank credit facility obtained by our Mexican subsidiary, compared to $3.4 million repaid in 2016;
|
|
·
|
|
$nil share repurchase for the nine months ended September 30, 2017, compared to $0.6 million in share repurchases in the same period of 2016; and
|
|
·
|
|
$0.1 million proceeds from stock options exercised in 2017, compared to $3.5 million proceeds from options exercised in 2016.
|
We continued our shareholders distributions in 2017, in the form of a return of capital, paying $0.01 per share in the nine months ended September 30, 2017 and 2016, respectively.
Mexico Segment
The Mexico Segment includes the El Gallo 1 mine, the El Gallo 2 advanced-stage project, and exploration properties neighboring the El Gallo area.
El Gallo 1 mine
El Gallo 1 mine is an operating mine, 100% owned by us. The mine is located in Sinaloa, Mexico.
The El Gallo 1 mine is a mature operation, of which we have mined and depleted various pits during its operating life. The current operations are producing from higher waste stripping deeper, sulfide transitional deposits typical of late stage operations. Exploration work is ongoing in an effort to replace production and extend the asset life beyond 2018.
Overview
The following table sets out production and sales totals, total cash and all-in sustaining cash costs (on a gold equivalent basis) for the El Gallo 1 mine for the three and nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, unless otherwise indicated)
|
|
Tonnes of mineralized material mined
|
|
|
170
|
|
|
193
|
|
|
789
|
|
|
702
|
|
Average grade gold (gpt)
|
|
|
2.70
|
|
|
0.83
|
|
|
1.57
|
|
|
1.42
|
|
Tonnes of mineralized material processed
|
|
|
278
|
|
|
270
|
|
|
904
|
|
|
787
|
|
Average grade gold (gpt)
|
|
|
2.53
|
|
|
1.40
|
|
|
1.78
|
|
|
2.42
|
|
Gold ounces:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
7.2
|
|
|
11.8
|
|
|
26.6
|
|
|
47.3
|
|
Sold
|
|
|
10.5
|
|
|
10.0
|
|
|
34.5
|
|
|
39.5
|
|
Silver ounces:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
1.8
|
|
|
7.2
|
|
|
12.5
|
|
|
21.4
|
|
Sold
|
|
|
6.0
|
|
|
4.0
|
|
|
22.0
|
|
|
16.6
|
|
Gold equivalent ounces
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
7.2
|
|
|
11.8
|
|
|
26.8
|
|
|
47.6
|
|
Sold
|
|
|
10.6
|
|
|
10.1
|
|
|
34.7
|
|
|
39.7
|
|
Net sales
|
|
$
|
13,430
|
|
$
|
13,423
|
|
$
|
43,373
|
|
$
|
49,226
|
|
Average realized price ($/ounce)
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
$
|
1,269
|
|
$
|
1,335
|
|
$
|
1,248
|
|
$
|
1,238
|
|
Silver
|
|
$
|
17.46
|
|
$
|
19.25
|
|
$
|
17.41
|
|
$
|
16.69
|
|
London average price ($/ounce):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.M. Fix Gold
|
|
$
|
1,278
|
|
$
|
1,335
|
|
$
|
1,251
|
|
$
|
1,260
|
|
Fix Silver
|
|
$
|
16.84
|
|
$
|
19.61
|
|
$
|
17.16
|
|
$
|
17.12
|
|
Silver : gold ratio
(1)
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
(1)
|
|
Silver production is presented as a gold equivalent.
|
|
(2)
|
|
Average realized price is a non-GAAP financial performance measure with no standardized definition under U.S. GAAP. See “Non-GAAP Financial Performance Measures”, on page 37 for additional information, including definitions of this term.
|
Gold and silver production
|
·
|
|
Production for the quarter ended September 30, 2017 decreased to 7,213 gold equivalent ounces, from 11,849 gold equivalent ounces in the comparable period in 2016, primarily due to a serious mechanical failure at the end of July that removed the crushing circuit from operation for most of the month of August. As a result, we were unable to crush and place fresh ore on the leach pad, for most of August.
|
|
·
|
|
For the nine months ended September 30, 2017, El Gallo 1 mine produced 26,800 gold equivalent ounces, compared to 47,590 gold equivalent ounces in the same period of 2016. The decrease in production was expected, as we commenced mining from the higher stripping deeper pits, with an increased amount of sulfide transitional mineralization during 2017. However, the operational issues affecting the crushing circuit during the third quarter of 2017 resulted in production being lower than initially forecasted. Accordingly, we have added a portable crusher to increase the normal crushing capacity available for the remainder of the year, to compensate for the production shortfall during the fourth quarter of 2017.
|
|
·
|
|
Tonnes mined represent tonnes of ore extracted, while tonnes processed represent tonnes of ore crushed and placed on the leach pads. The difference between tonnes mined of 788,573 and tonnes processed of 903,730 correspond to ore previously mined which was consumed from the stockpiled inventory. Due to long process cycles, actual recoveries from the heap are difficult to measure and may fluctuate significantly based on the timing, quantity and metallurgical attributes of new mineralized material placed on the leach pads, among other variables. The cumulative recovery rate realized for gold production from September 1, 2012 (start of production at the El Gallo 1 mine) to September 30, 2017 is estimated at 58%.
|
Gold and silver sales
|
·
|
|
Revenue from the sale of gold and silver at our El Gallo 1 mine remained at $13.4 million in the third quarter of 2017 compared to the same period in 2016, due to a 5% increase in the number of gold equivalent ounces sold, offset by a 5% and 10% decrease in the average realized prices of gold and silver, respectively.
|
|
·
|
|
For the nine months period ended September 30, 2017, revenue from sale of gold and silver at the El Gallo 1 mine decreased by 12% to $43.4 million, from $49.2 million in the same period of 2016, due to a 13% decrease in gold eq
uivalent ounces sold in 2017, slightly offset by a 1% and 4% increase in average realized prices of gold and silver, respectively, when compared to 2016.
|
Total Cash Costs and All-In Sustaining Costs
The following table presents a summary of our total cash cost, cash cost per ounce, all-in sustaining costs and all-in sustaining costs per ounce of gold equivalent at the El Gallo 1 mine:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
(in thousands, unless otherwise stated)
|
|
Total cash costs
(1)
|
|
$
|
8,799
|
|
$
|
6,008
|
|
$
|
24,134
|
|
$
|
19,210
|
|
Total cash cost per gold equivalent ounce sold ($/ounce)
(1)(2)
|
|
$
|
832
|
|
$
|
598
|
|
$
|
695
|
|
$
|
483
|
|
All
‑
in sustaining costs
(1)
|
|
$
|
10,008
|
|
$
|
6,837
|
|
$
|
28,248
|
|
$
|
22,203
|
|
All
‑
in sustaining cost per gold equivalent ounce sold ($/ounce)
(1)(2)
|
|
$
|
946
|
|
$
|
680
|
|
$
|
813
|
|
$
|
559
|
|
Silver : gold ratio
(2)
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
(1)
|
|
Total cash cost, total cash cost per ounce, all-in sustaining costs, and all-in sustaining costs per ounce are non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 37 for additional information, including definitions of this term.
|
|
(2)
|
|
Silver production presented as a gold equivalent. Gold equivalent ounces calculations are based on prevailing spot prices at the beginning of the year.
|
Total cash costs per gold equivalent ounce for the quarter ended September 30, 2017 were $832 compared to $598 for the same period in 2016. The increase in total cash costs per gold equivalent ounce is the result of a higher strip ratio of waste to ore, higher volume of waste moved and additional costs incurred to bring the crushing circuit back to operations after the mechanical failure which occurred at the end of July, and the addition of a second contract crushing circuit to increase crushing capacity for the remainder of the year, coupled with the 3% increase in the number of tonnes processed during
the period. On an aggregate basis, total cash costs at the El Gallo 1 mine increased to $8.8 million in 2017 from $6.0 million in the 2016 period. Further, production costs denominated in Mexican peso have increased in line with the appreciation of the Mexican peso against the U.S. dollar, when compared to 2016.
Total cash costs per gold equivalent ounce for the nine months ended September 30, 2017 were $695 compared to $483 for the nine months period of 2016. On an aggregate basis, total cash costs at the El Gallo 1 mine increased by 26% to $24.1 million in the nine months of 2017, compared to $19.2 million in the nine months of 2016. Higher total cash costs per gold equivalent ounce were the result of the decrease in average grades processed, increase in the strip ratio of waste to ore, and the increase in the number of tonnes processed which overall increased the processing cost incurred in the period. Further, costs from mining the Central 2 and Lupita pits are higher since they are located at a greater distance than Samaniego pit. In addition, the increase in peso denominated production costs from the appreciation of the Mexican peso against the U.S. dollar also contributed to the higher total cash costs reported, when compared to 2016.
All-in sustaining costs for the quarter ended September 30, 2017 were $946 per gold equivalent ounce, compared to $680 per gold equivalent ounce in the same period in 2016. On an aggregate basis, all-in sustaining costs increased to $10.0 million for the three months period ended September 30, 2017 from $6.8 million in the 2016 period. In addition to higher production costs discussed above, all-in sustaining costs also increased due to higher on-site exploration and capital expenditures incurred in the quarter as part of the plan to extend the mine life of the El Gallo 1 mine.
During the nine months ended September 30, 2017, the El Gallo 1 mine reported all-in sustaining costs of $813 per gold equivalent ounce, compared to $559 in the same period of 2016. Aggregate all-in sustaining costs from the El Gallo 1 mine for the nine months period in 2017 also increased, to $28.2 million from $22.2 million in 2016, due to higher exploration and capital expenditures incurred in Mexico, from our initiatives to extend the life of the mine, noted above.
For 2017, we budgeted a total of $3.3 million for sustaining and capital expenditures activities, from which we have spent $1.1 million during the nine months ended of 2017.
Advanced-stage Properties - El Gallo 2
El Gallo 2 Project
During the third quarter of 2017, we spent $0.3 million on studies for the advancement of feasibility and development of the El Gallo 2 project. These studies are designed to identify opportunities to reduce initial capital investment required to start the project and to reduce operating costs while minimizing the impact on production. Potential changes include different mill configurations, mine plans, and tailings deposition methods.
A review of the $180.0 million capital expenditures estimated in the El Gallo 2 initial feasibility study is currently underway. The revised feasibility study is expected to be completed by December 2017.
Our 2017 budget for the El Gallo 2 is approximately $4.9 million, including $2.0 million for exploration and $2.9 million for the advancement of feasibility and development. During the three and nine months ended September 30, 2017 we have incurred $0.1 million and $1.2 million in exploration, respectively; and $0.3 million and $0.6 million in the advancement of feasibility and development of the El Gallo 2, respectively.
Exploration Activities – Mexico
El Gallo area, Sinaloa, México
The El Gallo area is being explored to extend life of mine, to assess and expand known zones of mineralization and to generate new drill targets within the district for significant new discoveries.
During the three months ended September 30, 2017, a multi-element soil geochemical survey was carried out over two large high priority target areas, which were identified based on results of all available geo-information including new spectral study completed at the end of the second quarter. Drilling continued around the mine site, focusing on the north-west extension of the Samaniego open pit and on the Lupita-Central trend. Additionally, the reverse-circulation drilling
was in operation around the mine site and on new targets identified from the soil geochemical survey in the area surrounding El Gallo 2.
For 2017, a total of $4.2 million has been budgeted for exploration, including near-mine and district scale exploration. For the three and nine months ended September 30, 2017, $1.1 million and $3.0 million have been spent on exploration in the El Gallo Complex area, respectively.
Results of Operations - MSC
The MSC segment is composed of the San José mine, located in Argentina.
MSC
(on a 100% basis)
The following table sets out production and sales totals, total cash and all-in sustaining costs (on a co-product and gold equivalent basis) for the San José Mine on a 100% basis for the three and nine months ended September 30, 2017 and 2016. Also, included at the bottom of the table are the production figures reported on a 49% attributable basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, except otherwise stated)
|
|
San José Mine—100% basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tonnes of ore mined
|
|
|
135
|
|
|
140
|
|
|
375
|
|
|
387
|
|
Average grade (gpt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
|
7.2
|
|
|
6.7
|
|
|
7.0
|
|
|
6.7
|
|
Silver
|
|
|
496
|
|
|
522
|
|
|
479
|
|
|
520
|
|
Tonnes of ore processed
|
|
|
138
|
|
|
140
|
|
|
388
|
|
|
389
|
|
Average grade (gpt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
|
6.4
|
|
|
6.4
|
|
|
6.5
|
|
|
6.3
|
|
Silver
|
|
|
406
|
|
|
469
|
|
|
425
|
|
|
454
|
|
Average recovery (%):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
|
86.3
|
|
|
87.9
|
|
|
87.2
|
|
|
88.2
|
|
Silver
|
|
|
85.1
|
|
|
87.6
|
|
|
86.1
|
|
|
87.8
|
|
Gold ounces:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
24.2
|
|
|
25.6
|
|
|
70.8
|
|
|
69.1
|
|
Sold
|
|
|
23.2
|
|
|
26.5
|
|
|
70.7
|
|
|
73.8
|
|
Silver ounces:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
1,526
|
|
|
1,855
|
|
|
4,570
|
|
|
4,987
|
|
Sold
|
|
|
1,489
|
|
|
1,967
|
|
|
4,657
|
|
|
5,347
|
|
Gold equivalent ounces
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
44.6
|
|
|
50.3
|
|
|
131.8
|
|
|
135.6
|
|
Sold
|
|
|
43.1
|
|
|
52.7
|
|
|
132.8
|
|
|
145.1
|
|
Net sales
|
|
$
|
52,722
|
|
$
|
72,116
|
|
$
|
161,900
|
|
$
|
182,769
|
|
Gross average realized price ($/ounce)
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
$
|
1,281
|
|
$
|
1,323
|
|
$
|
1,259
|
|
$
|
1,287
|
|
Silver
|
|
$
|
16.70
|
|
$
|
20.13
|
|
$
|
17.02
|
|
$
|
17.96
|
|
London average price ($/ounce):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.M. Fix Gold
|
|
$
|
1,278
|
|
$
|
1,335
|
|
$
|
1,251
|
|
$
|
1,260
|
|
Fix Silver
|
|
$
|
16.86
|
|
$
|
19.61
|
|
$
|
17.16
|
|
$
|
17.12
|
|
Silver : gold ratio
(1)
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
McEwen Mining—49% basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ounces produced:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
|
11.9
|
|
|
12.5
|
|
|
34.7
|
|
|
33.8
|
|
Silver
|
|
|
748
|
|
|
909
|
|
|
2,239
|
|
|
2,444
|
|
Gold equivalent
(1)
|
|
|
21.8
|
|
|
24.7
|
|
|
64.6
|
|
|
66.4
|
|
|
(1)
|
|
Silver production is presented as a gold equivalent.
|
|
(2)
|
|
Average realized price is a non-GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non-GAAP Financial Performance Measures”, on page 37 for additional information, including definitions of these terms.
|
Gold and silver production
|
·
|
|
The 11% decrease in gold equivalent production at the San José Mine for the three months ended September 30, 2017 was driven by slightly lower number of tonnes mined and processed as well as lower average grades of silver obtained for the ore processed, when compared to 2016. In addition, unusual lower temperatures during July affected the mine to stockpile surface ore haulage and processing of the stockpile, creating deficiencies at
|
the plant and reducing the tonnes processed and with it the number of gold and silver ounces produced in the quarter.
|
|
·
|
|
For the nine months ended September 30, 2017, gold equivalent production at San Jose Mine decreased 3% when compare to the 2016 period, due to the decrease in average grades of silver processed partly offset by the increase in the average grades of gold processed during the period.
|
|
·
|
|
Using a silver to gold ratio of 75:1, the San José Mine produced 44,560 and 131,762 gold equivalent ounces in the three and nine months ended September 30, 2017, respectively. This compares to 50,301 and 135,550 gold equivalent ounces in the three and nine months ended September 30, 2016, respectively.
|
Gold and silver sales
|
·
|
|
For the three months ended September 30, 2017, net sales decreased by 27% as a result of decreases of 12% and 24% in the number of ounces of gold and silver sold in the third quarter of 2017, respectively. The decrease in net sales was also the result of lower average realized prices of gold and silver obtained during the period in 2017, when compared to 2016.
|
|
·
|
|
For the nine months ended September 30, 2017, net sales decreased by 11%, as a result of the decrease of 4% and 13% in the number of ounces of gold and silver sold in the nine months period of 2017, coupled with a 2% and 5% decrease in average realized prices of gold and silver, during the period, respectively.
|
Total Cash Costs and All‑In Sustaining Costs
The following table presents a summary of the total cash cost, cash cost per ounce, all-in sustaining costs and all-in sustaining costs per ounce of gold equivalent at the San José mine, on a 100% and 49% basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, unless otherwise indicated)
|
|
San José mine - 100% basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash costs
(1)
|
|
$
|
36,625
|
|
$
|
37,276
|
|
$
|
118,968
|
|
$
|
111,674
|
|
All
‑
in sustaining costs
(1)
|
|
|
45,889
|
|
|
44,775
|
|
|
147,157
|
|
|
137,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San José mine - 49% basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash costs
(1)
|
|
$
|
17,948
|
|
$
|
18,264
|
|
$
|
58,294
|
|
$
|
54,720
|
|
Total cash costs per ounce sold ($/ounce)
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
$
|
868
|
|
$
|
797
|
|
$
|
900
|
|
$
|
760
|
|
Silver
|
|
$
|
11.05
|
|
$
|
8.23
|
|
$
|
11.89
|
|
$
|
10.40
|
|
Gold equivalent
(2)
|
|
$
|
850
|
|
$
|
707
|
|
$
|
896
|
|
$
|
770
|
|
All
‑
in sustaining costs
(1)
|
|
$
|
22,487
|
|
$
|
21,941
|
|
$
|
72,106
|
|
$
|
67,457
|
|
All
‑
in sustaining costs per ounce sold ($/ounce)
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
|
|
$
|
1,088
|
|
$
|
957
|
|
$
|
1,113
|
|
$
|
937
|
|
Silver
|
|
$
|
13.85
|
|
$
|
9.88
|
|
$
|
14.71
|
|
$
|
12.81
|
|
Gold equivalent
(2)
|
|
$
|
1,065
|
|
$
|
850
|
|
$
|
1,109
|
|
$
|
949
|
|
Silver : gold ratio
(2)
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
75 : 1
|
|
|
(1)
|
|
Total cash costs, total cash cost per ounce, all‑in sustaining costs, and all-in sustaining costs per ounce are non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 37 for additional information, including definitions of these terms.
|
|
(2)
|
|
Silver production is presented as a gold equivalent. Gold equivalent ounces calculations are based on prevailing spot prices at the beginning of the year.
|
On a 100% basis, total cash costs per gold equivalent ounce sold by MSC in the third quarter of 2017 increased by 20% to $850 from $707 in the same period of 2016, as the net result of a lower number of ounces sold and higher production costs applicable to sales due to higher labor costs, higher on-site general and administration costs, and the impact of inflation, partly offset by the devaluation of the Argentina peso against the U.S. dollar.
On an aggregate basis, total cash costs decreased by 2% to $36.6 million in 2017 from $37.3 million in the third quarter of 2016, as the net result of the 18% decrease in gold equivalent ounces sold in the quarter, offset by the overall increase in production costs applicable to sales for the reasons previously described.
For the nine months ended September 30, 2017, on a 100% basis, total cash costs per gold equivalent ounce sold by MSC increased by 16% to $896 from $770 in the nine months period of 2016, due to higher production costs applicable to sales due to higher labor costs, partly offset by the decrease in commercial discounts and refining, smelting and transportation costs. In addition, during the nine months of 2017, MSC sold a lower number of gold equivalent ounces, which also contributed to the increase of the per ounce cost, when compared to 2016.
On an aggregate basis, total cash costs increased by 7% to $119.0 million in the nine months ended September 30, 2017, from $111.7 million during the nine months period in 2016. Despite the 9% decrease in gold equivalent ounces sold, total cash costs for the nine months period of 2017 increased as a result of higher production costs applicable to sales driven by higher labor costs and the impact of inflation, partly offset by the devaluation of the Argentina peso against the U.S. dollar. Labor costs are higher in 2017 due to the combined effect of salary increases and additions to the labor force at the mine added early in the year. Further, higher total cash costs were also the result of the increase in on-site general and administrative expenses, partly offset by lower commercial discounts and lower refining, smelting and transportation costs, compared to the 2016 period.
For the quarter ended September 30, 2017, on a per ounce basis, all-in sustaining costs increased to $1,065 per gold equivalent ounce, compared to $850 per gold equivalent ounce in the same period in 2016. On an aggregate basis, all-in sustaining costs increased from $44.8 million to $45.9 million, due to higher capital expenditures and on-site exploration expenses, partly offset by a decrease in capitalized stripping and underground mine development costs incurred in the period.
For the nine months ended September 30, 2017, on a per ounce basis, all-in sustaining costs also increased to $1,109 per gold equivalent ounce, compared to $949 per gold equivalent ounce in the same period in 2016. On an aggregate basis, all-in sustaining costs increased from $137.7 million to $147.1 million in 2017, due to higher on-site exploration expenses aligned with MSC’s program to extend the life of the mine, partly offset by a decrease in capitalized stripping and underground mine development costs incurred in the period.
MSC Dividend Distribution
(49%)
During the three and nine months ended September 30, 2017, we received $2.3 million and $7.1 million in dividends from MSC, respectively, compared to $7.9 million and $13.3 million in dividends received during the same period in 2016. On October 26, 2017, we received a $2.5 million dividend payment from MSC.
For more details on our Investment in MSC, refer to Note 5 to the Consolidated Financial Statements,
Investment in Minera Santa Cruz S.A. (“MSC”) — San José Mine.
USA Segment
The USA segment is comprised of the Gold Bar project, an advanced-stage property located in Nevada, U.S. and other early stage exploration properties. During the three and nine months ended September 30, 2017, we spent $0.4 million and $1.3 million in early stage exploration activities such as field mapping and geochemical reconnaissance work in various areas in Nevada where we consider that exploration potential exists.
Advanced-stage Properties – Gold Bar Project
During the three and nine months ended September 30, 2017, we spent $1.3 million and $2.9 million on engineering and environmental works required to progress the permitting process and prepare for project construction, respectively.
Key developments at Gold Bar during the nine months ended September 30, 2017 included:
|
·
|
|
Approval of critical state permits from the Nevada Division of Environmental Protection (“NDEP”) has been received from the Bureau of Air Pollution Control for the Mercury Operating Permit to Construct, the Class I Air Quality Permit to Construction/Operating Permit, the Class II Air Quality Operating Permit. In addition, the Water Pollution Control Permit and Reclamation Permit from the NDEP Bureau of Mining Reclamation and Regulation are expected early in the fourth quarter of 2017 following the conclusion of the regulatory appeal period.
|
|
·
|
|
Awarded key contracts to the principal General Contractor, for major earthworks, as-well as the project Engineer of Record; and
|
|
·
|
|
Awarded key purchase orders for long-lead critical items, such as the ADR process plant equipment and power generation units.
|
On October 6, 2017, we received a Notice of Availability of the Final Environmental Impact Statement, issued by the Environmental Protection Agency (“EPA”). We expect the Record of Decision (“RoD”) to be published during early in the fourth quarter of 2017, once the regulated 30-day review waiting period is completed. Development of the Gold Bar project will begin upon receipt of the RoD. We expect to award contracts for the remaining capital equipment in the fourth quarter of 2017.
Los Azules Segment
The Los Azules segment is composed of the Los Azules project, a copper exploration project located in San Juan, Argentina.
We had budgeted $9.6 million for the 2016-2017 exploration season at Los Azules, at which we spent $7.1 million during the first half of 2017, and an additional $0.4 million during the three months ended September 30, 2017. During the third quarter of 2017 we completed the Preliminary Economic Assessment (“PEA”), results of which were announced on September 7, 2017. The complete PEA is available electronically at our website at www.mcewenmining.com.
Timmins Segment
The Timmins segment is composed of the recently acquired Black Fox Complex and other gold exploration properties located in Timmins, Ontario, Canada.
Timmins Properties
On April 26, 2017, we completed the acquisition of Lexam. With this strategic acquisition, we added several assets including the Fuller, Davidson-Tisdale, Buffalo Ankerite, and Paymaster projects, bringing the potential for development expansion through exploration.
Evaluation work and trade-off studies are currently underway to prioritize exploration work on the properties.
Black Fox Complex
On October 6, 2017, we announced the completion of the acquisition of the Black Fox Complex, which consists of the fully operational Black Fox gold mine, the Black Fox-Stock mill, and the Grey Fox and Froome advanced-stage exploration projects.
The Black Fox underground gold mine was initially operated from 1997 to 2001. It was re-commissioned in 2009 and has operated continuously since then, producing a total of 821,000 ounces of gold initially from an open pit, now depleted, and subsequently from the underground mine. The Black Fox property is located along a prime 4.5 mile (7 km) section of the Destor-Porcupine Fault, which is host to many world-class gold deposits. The property is already well-endowed with
gold mineralization and has very attractive geological potential. We are evaluating potential synergies between the Black Fox Complex and our other Timmins properties.
Underground exploration and definition drilling programs are currently underway with the objective to upgrade and expand resources in the Deep Central, High Quartz Vein, Far West and Far East Zones, at depths ranging from approximately 1,640 ft. to 2,788 ft. (500 m to 850 m).
Planned exploration drilling will also focus on expanding the gold resources to depth at the Black Fox mine and the Froome deposit, which is located 800 m West of the mine. The Froome deposit is currently drilled to a depth of 1,148 ft. (350 m) and remains open at depth. Multiple other exploration targets exist on the Black Fox and Stock properties. These targets will be ranked during the fourth quarter of 2017, to begin drilling in 2018.
Non-GAAP Financial Performance Measures
In this report, we have provided information prepared or calculated according to U.S. GAAP, as well as some Non-U.S. GAAP (“Non-GAAP”) financial performance measures. Because the Non-GAAP performance measures do not have any standardized meaning prescribed by U.S. GAAP, they may not be comparable to similar measures presented by other companies. These measures should not be considered in isolation or as substitutes for measures of performance prepared in accordance with U.S. GAAP. There are material limitations associated with the use of such Non-GAAP measures. Since these measures do not incorporate, among other things, changes in working capital and non-operating cash costs, they are not necessarily indicative of operating profit or loss, or cash flow from operations as determined in accordance with U.S. GAAP.
Earnings from Mining Operations
The term Earnings from Mining Operations used in this report is a Non-GAAP financial measure. We use and report this measure because we believe it provides investors and analysts with a useful measure of the underlying earnings from our mining operations. We define Earnings from Mining Operations as Gold and Silver Sales from our El Gallo 1 mine and our 49% attributable share of the San José mine’s Net Sales, less their respective Production Costs Applicable to Sales. To the extent that Production Costs Applicable to Sales may include depreciation and amortization expense related to the fair value increments on historical business acquisitions (fair value paid in excess of the carrying value of the underlying assets and liabilities assumed on the date of acquisition), we exclude this expense in order to arrive at Production Costs Applicable to Sales that only include depreciation and amortization expense incurred at the mine site level. The San José mine Net Sales and Production Costs Applicable to Sales are presented, on a 100% basis, in Note 5 of the accompanying financial statements.
The following table presents a reconciliation of Earnings from Mining Operations to Gross Profit, a GAAP financial measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
El Gallo 1 Mine earnings from mining operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold and silver sales
|
|
$
|
13,430
|
|
$
|
13,423
|
|
$
|
43,373
|
|
$
|
49,226
|
|
Production costs applicable to sales
|
|
|
(8,649)
|
|
|
(6,409)
|
|
|
(24,193)
|
|
|
(21,239)
|
|
Depreciation of mining related assets
|
|
|
(155)
|
|
|
(137)
|
|
|
(599)
|
|
|
(346)
|
|
Gross profit
|
|
|
4,626
|
|
|
6,877
|
|
|
18,581
|
|
|
27,641
|
|
Add: Amortization related to fair value increments on historical acquisitions included in Production Costs Applicable to Sales
|
|
|
449
|
|
|
701
|
|
|
1,514
|
|
|
1,845
|
|
El Gallo 1 Mine earnings from mining operations
|
|
|
5,075
|
|
|
7,578
|
|
|
20,095
|
|
|
29,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San José earnings from mining operations (49% basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
25,834
|
|
|
35,337
|
|
|
79,331
|
|
|
89,557
|
|
Production costs applicable to sales
|
|
|
(21,362)
|
|
|
(24,179)
|
|
|
(65,028)
|
|
|
(61,693)
|
|
San José earnings from mining operations
|
|
|
4,472
|
|
|
11,158
|
|
|
14,303
|
|
|
27,864
|
|
Total Cash Costs and All‑In Sustaining Costs
The terms total cash costs, total cash cost per ounce, all‑in sustaining costs, and all‑in sustaining cost per ounce used in this report are non‑GAAP financial measures. We report these measures to provide additional information regarding operating efficiencies on an individual mine basis (San José mine and El Gallo 1 mine), and believe these measures provide investors and analysts with useful information about our underlying costs of operations. For the San José mine, we exclude the share of gold or silver production attributable to the controlling interest.
Total cash costs consists of mining, processing, on‑site general and administrative expenses, community and permitting costs related to current operations, royalty costs, refining and treatment charges (for both doré and concentrate products), sales costs, export taxes and operational stripping costs, and exclude depreciation and amortization. The sum of these costs is divided by the corresponding gold equivalent ounces sold during the period to determine a per ounce amount.
All‑in sustaining costs consists of total cash costs (as described above), plus environmental rehabilitation costs and amortization of the asset retirement costs related to operating sites, sustaining exploration and development costs, and sustaining capital expenditures. Our all-in sustaining costs exclude the allocation of corporate general and administrative costs. The sum of these costs is divided by the corresponding gold equivalent ounces sold during the period to determine a per ounce amount.
Costs excluded from total cash costs and all‑in sustaining costs are income tax expense, all financing charges, costs related to business combinations, asset acquisitions and asset disposal, and any items that are deducted for the purpose of normalizing items.
For MSC, co‑product total cash costs and all‑in sustaining costs are calculated by dividing the respective proportionate share of the total cash costs and all‑in sustaining costs for each metal sold for the period by the ounces of each respective metal sold. The respective proportionate share of each metal sold is calculated based on their pro‑rated sales value. Approximately 53% of the value of the sales in the nine months of 2017 was derived from gold and 47% was derived from silver, which compared to 47% and 53%, respectively, for the same period in 2016.
The following tables reconcile these non‑GAAP measures to the most directly comparable GAAP measure, Production Costs Applicable to Sales. Total cash costs, all‑in sustaining costs, and ounces of gold and silver sold for the San José mine are provided to us by MSC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, except per ounce)
|
|
El Gallo 1 mine cash costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales
|
|
$
|
8,649
|
|
$
|
6,409
|
|
$
|
24,193
|
|
$
|
21,239
|
|
Less: Depreciation
|
|
|
(449)
|
|
|
(701)
|
|
|
(1,514)
|
|
|
(1,845)
|
|
Less: Pre
‑
stripping costs for future pit access
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,346)
|
|
On
‑
site general and administrative expenses
|
|
|
589
|
|
|
289
|
|
|
1,435
|
|
|
1,140
|
|
Property holding costs
|
|
|
10
|
|
|
11
|
|
|
20
|
|
|
22
|
|
Total cash costs, El Gallo 1 mine
|
|
$
|
8,799
|
|
$
|
6,008
|
|
$
|
24,134
|
|
$
|
19,210
|
|
Gold equivalent ounces sold:
|
|
|
10,580
|
|
|
10,053
|
|
|
34,743
|
|
|
39,747
|
|
El Gallo 1 mine cash costs per gold equivalent ounce sold
|
|
$
|
832
|
|
$
|
598
|
|
$
|
695
|
|
$
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, except per ounce)
|
|
San José mine cash costs (49% basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales
|
|
$
|
21,408
|
|
$
|
23,472
|
|
$
|
65,073
|
|
$
|
61,693
|
|
Less: Operating site reclamation accretion and amortization
|
|
|
(168)
|
|
|
(441)
|
|
|
(471)
|
|
|
(1,232)
|
|
Depreciation
|
|
|
(6,432)
|
|
|
(7,264)
|
|
|
(16,302)
|
|
|
(19,125)
|
|
On
‑
site general and administrative expenses
|
|
|
1,021
|
|
|
995
|
|
|
3,178
|
|
|
2,873
|
|
Refining, smelting, and transportation
|
|
|
818
|
|
|
1,912
|
|
|
2,441
|
|
|
4,611
|
|
Commercial discounts
|
|
|
1,264
|
|
|
(466)
|
|
|
4,251
|
|
|
5,769
|
|
Community costs related to current operations
|
|
|
37
|
|
|
56
|
|
|
124
|
|
|
131
|
|
Total cash costs
|
|
$
|
17,948
|
|
$
|
18,264
|
|
$
|
58,294
|
|
$
|
54,720
|
|
McEwen's share of San José mine gold equivalent ounces sold
|
|
|
21,110
|
|
|
25,823
|
|
|
65,048
|
|
|
71,099
|
|
Total cash costs, MSC
|
|
$
|
850
|
|
$
|
707
|
|
$
|
896
|
|
$
|
770
|
|
Reconciliation of All-In Sustaining Costs to Total Cash Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, except per ounce)
|
|
El Gallo 1 mine all-in sustaining costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash costs
|
|
$
|
8,799
|
|
$
|
6,008
|
|
$
|
24,134
|
|
$
|
19,210
|
|
Operating site reclamation accretion and amortization
|
|
|
81
|
|
|
277
|
|
|
244
|
|
|
724
|
|
On
‑
site exploration expenses
|
|
|
1,121
|
|
|
209
|
|
|
3,051
|
|
|
580
|
|
Capital expenditures (sustaining)
|
|
|
7
|
|
|
343
|
|
|
819
|
|
|
343
|
|
Pre
‑
stripping costs for future pit access
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,346
|
|
All
‑
in sustaining costs, El Gallo 1 mine
|
|
$
|
10,008
|
|
$
|
6,837
|
|
$
|
28,248
|
|
$
|
22,203
|
|
Gold equivalent ounces sold
|
|
|
10,580
|
|
|
10,053
|
|
|
34,743
|
|
|
39,747
|
|
El Gallo 1 mine all-in sustaining cost per gold equivalent ounce sold
|
|
|
946
|
|
|
680
|
|
|
813
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, except per ounce)
|
|
San José mine all-in sustaining costs (49% basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash costs
|
|
$
|
17,948
|
|
$
|
18,264
|
|
$
|
58,294
|
|
$
|
54,720
|
|
Operating site reclamation accretion and amortization
|
|
|
168
|
|
|
442
|
|
|
471
|
|
|
1,232
|
|
On-site exploration expenses
|
|
|
701
|
|
|
298
|
|
|
2,268
|
|
|
689
|
|
Capitalised stripping & underground mine development
|
|
|
2,940
|
|
|
3,833
|
|
|
8,801
|
|
|
9,545
|
|
Less: depreciation
|
|
|
(325)
|
|
|
(1,608)
|
|
|
(984)
|
|
|
(1,608)
|
|
Capital expenditures (sustaining)
|
|
|
1,055
|
|
|
712
|
|
|
3,256
|
|
|
2,879
|
|
All
‑
in sustaining costs
|
|
$
|
22,487
|
|
$
|
21,941
|
|
$
|
72,106
|
|
$
|
67,457
|
|
McEwen's share of San José mine gold equivalent ounces sold
|
|
|
21,110
|
|
|
25,823
|
|
|
65,048
|
|
|
71,099
|
|
San José mine all-in sustaining cost per gold equivalent ounce sold
|
|
$
|
1,065
|
|
$
|
850
|
|
$
|
1,109
|
|
$
|
949
|
|
The following table summarizes the consolidated number of gold equivalent ounces sold:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Gold equivalent ounces sold at El Gallo 1 Mine
|
|
10,580
|
|
10,053
|
|
34,743
|
|
39,747
|
|
McEwen’s share of MSC gold equivalent ounces sold
|
|
21,110
|
|
25,826
|
|
65,048
|
|
71,083
|
|
Consolidated gold equivalent ounces sold (including McEwen’s share of MSC)
|
|
31,690
|
|
35,879
|
|
99,791
|
|
110,830
|
|
Silver : gold ratio
|
|
75 : 1
|
|
75 : 1
|
|
75 : 1
|
|
75 : 1
|
|
Average realized prices
The term average realized price per ounce used in this report is also a non‑GAAP financial measure. We report this measure to better understand the price realized in each reporting period for gold and silver.
Average realized price is calculated as gross sales of gold and silver (excluding commercial deductions) divided by the number of net ounces sold in the period (net of deduction units).
The following table reconciles this non‑GAAP measure to the most directly comparable U.S. GAAP measure,
Sales of Gold and Silver
. Ounces of gold and silver sold for the San José mine are provided to us by MSC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(in thousands, except ounce and per ounce figures)
|
El Gallo 1 mine average realized prices
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold sales
|
|
$
|
13,325
|
|
$
|
13,346
|
|
$
|
42,990
|
|
$
|
48,949
|
Silver sales
|
|
|
105
|
|
|
77
|
|
|
383
|
|
|
277
|
Gold and silver sales
|
|
$
|
13,430
|
|
$
|
13,423
|
|
$
|
43,373
|
|
$
|
49,226
|
Gold ounces sold
|
|
|
10,500
|
|
|
10,000
|
|
|
34,450
|
|
|
39,526
|
Silver ounces sold
|
|
|
6,000
|
|
|
4,000
|
|
|
22,000
|
|
|
16,600
|
Gold equivalent ounces sold
|
|
|
10,580
|
|
|
10,053
|
|
|
34,743
|
|
|
39,747
|
Average realized price per gold ounce sold
|
|
$
|
1,269
|
|
$
|
1,335
|
|
$
|
1,248
|
|
$
|
1,238
|
Average realized price per silver ounce sold
|
|
$
|
17.46
|
|
$
|
19.25
|
|
$
|
17.41
|
|
$
|
16.69
|
Average realized price per gold equivalent ounce sold
|
|
$
|
1,269
|
|
$
|
1,335
|
|
$
|
1,248
|
|
$
|
1,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(in thousands, except ounce and per ounce figures)
|
San José mine average realized prices (49% basis)
|
|
|
|
|
|
|
|
|
|
|
Gold sales
|
|
$
|
14,586
|
|
$
|
17,167
|
|
$
|
43,593
|
|
$
|
46,526
|
Silver sales
|
|
|
12,179
|
|
|
19,404
|
|
|
38,845
|
|
|
47,055
|
Gold and silver sales
|
|
$
|
26,765
|
|
$
|
36,571
|
|
$
|
82,438
|
|
$
|
93,581
|
Gold ounces sold
|
|
|
11,383
|
|
|
12,976
|
|
|
34,625
|
|
|
36,150
|
Silver ounces sold
|
|
|
729,491
|
|
|
963,778
|
|
|
2,281,730
|
|
|
2,619,993
|
Gold equivalent ounces sold
|
|
|
21,110
|
|
|
25,826
|
|
|
65,048
|
|
|
71,083
|
Average realized price per gold ounce sold
|
|
$
|
1,281
|
|
$
|
1,323
|
|
$
|
1,259
|
|
$
|
1,287
|
Average realized price per silver ounce sold
|
|
$
|
16.70
|
|
$
|
20.13
|
|
$
|
17.02
|
|
$
|
17.96
|
Average realized price per gold equivalent ounce sold
|
|
$
|
1,268
|
|
$
|
1,416
|
|
$
|
1,267
|
|
$
|
1,317
|
Cash, investments and precious metals
The term cash, investments and precious metals used in this report is also a non‑GAAP financial measure. We report this measure to better understand our liquidity in each reporting period.
Cash, investments and precious metals is calculated as the sum of cash, investments and ounces of doré held in inventories with precious metals valued at the London PM Fix spot price at the corresponding period. The following table summarizes the calculation of cash, investments and precious metals amounts shown in this report:
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
|
(in thousands)
|
Cash
|
|
$
|
68,962
|
|
$
|
38,812
|
Investments
|
|
|
9,225
|
|
|
7,056
|
Precious Metals
(1)
|
|
|
4,134
|
|
|
16,613
|
Total cash, investments and precious metals
|
|
$
|
82,321
|
|
$
|
62,481
|
|
(1)
|
|
Precious Metals is calculated using the number of ounces held in inventory at the end of the period, and valued at the London PM Fix spot
|
A reconciliation between precious metals valued at cost and precious metals valued at market value is described in the following table:
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
|
(in thousands, except ounces and per ounce)
|
Precious Metals (note 3 of the Consolidated Financial Statements)
|
|
$
|
2,328
|
|
$
|
4,975
|
Number of ounces of doré in inventory
|
|
|
3,222
|
|
|
12,557
|
London PM Fix, per ounce
|
|
|
1,283
|
|
|
1,323
|
Precious Metals valued at market value
|
|
$
|
4,134
|
|
$
|
16,613
|
Off-Balance Sheet Arrangements
As of September 30, 2017, we did not have any off-balance sheet arrangements (as that phrase is defined by SEC rules applicable to this report) which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.
Contingencies
We have surety bonds outstanding to provide bonding for our environmental reclamation obligations in the United States. These surety bonds are available for draw down in the event we do not perform our reclamation obligations. When the specific reclamation requirements are met, the beneficiary of the surety bonds will cancel and/or return the instrument to the issuing entity. As of September 30, 2017, no liability has been recognized for our surety bonds of $19.9 million.
Subsequent to the quarter, pursuant to the Black Fox acquisition, the Company increased its surety bond obligations by an additional $16.5 million (C$20.6 million). No liability has been recognized for these surety bonds.
Critical Accounting Policies
Critical accounting policies and estimates used to prepare the financial statements are discussed with our Audit Committee as they are implemented and on an annual basis.
There have been no significant changes in our Critical Accounting Policies since December 31, 2016.
Forward-Looking Statements
This report contains or incorporates by reference “forward‑looking statements”, as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:
|
·
|
|
statements about our anticipated exploration results, cost and feasibility of production, receipt of permits or other regulatory or government approvals and plans for the development of our properties;
|
|
·
|
|
statements concerning the benefits or outcomes that we expect will result from our business activities and certain transactions that we contemplate or have completed, such as receipt of proceeds, increased revenues, decreased expenses and avoided expenses and expenditures; and
|
|
·
|
|
statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.
|
These statements may be made expressly in this document or may be incorporated by reference to other documents that we will file with the SEC. You can find many of these statements by looking for words such as “believes”, “expects”, “anticipates”, “estimates” or similar expressions used in this report or incorporated by reference in this report.
Forward‑looking statements and information are based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties, risks and contingencies, and there can be no assurance that such statements and information will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements and information.
On an annual basis, we develop a consolidated budget, based on standalone budgets for each operating mine. In developing the mine production portion of the budget, we evaluate a number of factors and assumptions, which include, but are not limited to:
|
·
|
|
gold and silver price forecasts;
|
|
·
|
|
average gold and silver grade mined, using the resource model;
|
|
·
|
|
average grade processed by the crushing facility (El Gallo 1 mine) or milling facility (San José mine);
|
|
·
|
|
expected tonnes moved and strip ratios;
|
|
·
|
|
available stockpile material (grades, tonnes, and accessibility);
|
|
·
|
|
estimates of ore extraction efficiency and non-mineralized material diluting the ore being extracted from the orebodies;
|
|
·
|
|
estimates of in process inventory (either on the leach pad or plant for the El Gallo 1 mine, or in the mill facility for the San José mine);
|
|
·
|
|
estimated leach recovery rates and leach cycle times (El Gallo 1 mine);
|
|
·
|
|
estimated mill recovery rates (San José mine);
|
|
·
|
|
dilution of material processed;
|
|
·
|
|
internal and contractor equipment and labor availability; and
|
|
·
|
|
seasonal weather patterns, particularly in Mexico.
|
Actual production results are sensitive to variances in any of the key factors and assumptions noted above. As a result, we frequently evaluate and reconcile actual results to budgeted results to determine if key assumptions and estimates require modification. Any changes will, in turn, influence production guidance.
We caution you not to put undue reliance on these statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any time and without notice, based on changes in such facts or assumptions. Readers should not place undue reliance on forward‑looking statements.
Risk Factors Impacting Forward-Looking Statements
The important factors that could prevent us from achieving our stated goals and objectives include, but are not limited to, those set forth in the “Risk Factors” section in our report on Form 10-K and the following:
|
·
|
|
our ability to raise funds required for the execution of our business strategy;
|
|
·
|
|
our ability to secure permits or other regulatory and government approvals needed to operate, develop or explore our mineral properties and projects;
|
|
·
|
|
decisions of foreign countries, banks and courts within those countries;
|
|
·
|
|
unexpected changes in business, economic, and political conditions;
|
|
·
|
|
operating results of MSC;
|
|
·
|
|
fluctuations in interest rates, inflation rates, currency exchange rates, or commodity prices;
|
|
·
|
|
timing, quality of ore and amount of mine production;
|
|
·
|
|
our ability to retain and attract key personnel;
|
|
·
|
|
technological changes in the mining industry;
|
|
·
|
|
changes in operating, exploration or overhead costs;
|
|
·
|
|
access and availability of materials, equipment, supplies, labor and supervision, power and water;
|
|
·
|
|
results of current and future exploration activities;
|
|
·
|
|
results of pending and future feasibility studies or the expansion or commencement of mining operations without feasibility studies having been completed;
|
|
·
|
|
changes in our business strategy;
|
|
·
|
|
interpretation of drill hole results and the geology, grade and continuity of mineralization;
|
|
·
|
|
the uncertainty of reserve estimates and timing of development expenditures;
|
|
·
|
|
litigation or regulatory investigations and procedures affecting us;
|
|
·
|
|
local and community impacts and issues including criminal activity and violent crimes;
|
|
·
|
|
accidents, public health issues, and labor disputes;
|
|
·
|
|
our continued listing on a public exchange;
|
|
·
|
|
adverse significant weather events affecting operations;
|
|
·
|
|
uncertainty relating to title to mineral properties;
|
|
·
|
|
negotiations with aboriginal groups affecting our efforts to explore, develop or produce gold and silver deposits in Ontario, and
|
|
·
|
|
changes in relationships with the local communities in the areas in which we operate.
|
We undertake no responsibility or obligation to update publicly these forward‑looking statements, except as required by law and may update these statements in the future in written or oral statements. Investors should take note of any future statements made by or on our behalf.
Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Our exposure to market risks includes, but is not limited to, the following risks: changes in foreign currency exchange rates, equity price risks, commodity price fluctuations and credit risk. We do not use derivative financial instruments as part of an overall strategy to manage market risk.
Further, our participation in the joint venture with Hochschild for the 49% interest held at MSC creates additional risks because, among other things, we do not exercise decision-making power over the day-to-day activities at MSC; however, implications from our partner’s decisions may result in us having to provide additional funding to MSC or in a decrease in our percentage of ownership.
Foreign Currency Risk
While we transact most of our business in U.S. dollars, some expenses, including labor, operating supplies and property and equipment, are denominated in Canadian dollars, Mexican pesos or Argentina pesos. As a result, currency exchange fluctuations may impact our operating costs. The appreciation of non-U.S. dollar currencies against the U.S. dollar increases costs and the cost of purchasing property and equipment in U.S. dollar terms in Canada, Mexico and Argentina, which can adversely impact our operating results and cash flows. Conversely, a depreciation of non-U.S. dollar currencies usually decreases operating costs and property and equipment purchases in U.S. dollar terms in foreign countries.
Between 2008 and 2015, the Argentina peso steadily devaluated against the U.S. dollar by 10%-30% on an annual basis. Subsequently, the Argentina peso has continued devaluating however at a lower rate. In 2016 the peso devalued by 22%; while during the three and nine months ended September 30, 2017, the Argentina peso devalued by 4% and 9% against the US dollar, respectively.
Further, we are also subject to foreign currency risk on the fluctuation of the Mexican peso on our VAT receivable balance. As of September 30, 2017, our VAT receivable balance was Mexican peso 143,615,840, equivalent to approximately $7.9 million, for which a 1% change in the Mexican peso would have resulted in a gain/loss of $0.1 million in the Consolidated Statement of Operations and Comprehensive (Loss) Income.
During the three months ended September 30, 2017, the Mexican peso did not fluctuate significantly, whereas for the nine months period ended September 30, 2017, it appreciated 14% against the US dollar.
The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency exchange rates. Appreciation of non-U.S. dollar currencies results in a foreign currency gain on such investments and a depreciation in non-U.S. dollar currencies results in a loss. We have not utilized material market risk-sensitive instruments to manage our exposure to foreign currency exchange rates but may do so in the future. We hold portions of our cash reserves in non-U.S. dollar currencies. Based on our Canadian cash balance of $2.6 million (C$3.2 million) at September 30, 2017, a 1% change in the Canadian dollar would result in a gain/loss of $0.03 million in the Consolidated Statement of Operations and Comprehensive (Loss) Income. We also hold negligible portions of our cash reserves in Mexican and Argentina pesos.
Equity Price Risk
We have in the past sought and will likely in the future seek to acquire additional funding by sale of common stock. Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to sell common stock at an acceptable price to meet future funding requirements.
We have invested and may continue to invest in shares of common stock of other entities in the mining sector. Some of our investments may be highly volatile and lack liquidity caused by lower trading volumes. As a result, we are inherently exposed to fluctuations in the fair value of our investments, which may result in gains or losses upon their disposal.
Commodity Price Risk
Changes in the price of gold and silver have in the past and could in the future significantly affect our results of operations and cash flows. We have in the past and may in the future hold a portion of our treasury in gold and silver bullion, which is recorded at the lower of cost or market. Gold and silver prices may fluctuate widely from time to time. Based on our revenues from gold and silver sales of $43.4 million for the nine months ended September 30, 2017 (exclusive of our
investment in MSC), a 10% change in the spot prices of gold and silver during the period would have had an impact of approximately $4.3 million on our revenues.
Credit Risk
We may be exposed to credit loss through our precious metals and doré sales agreements with Canadian financial institutions if these institutions are unable to make payment in accordance with the terms of the agreements. However, based on the history and financial condition of our counterparties, we do not anticipate any of the financial institutions to default on their obligation. As of September 30, 2017, we do not believe we have any significant credit exposure associated with precious metals and our doré sales agreements.
In Mexico, we are exposed to credit loss regarding our VAT taxes receivable if the Mexican tax authorities are unable or unwilling to make payments in accordance with our monthly filings. Timing of collection on VAT receivables is uncertain as VAT refund procedures require a significant amount of information and follow-up. The risk is mitigated to the extent that the VAT receivable balance can be applied against future income taxes payable. However, at this time we are uncertain when, if ever, our Mexican operations will generate sufficient taxable operating profits to offset this receivable against taxes payable. We continue to face risk on the collection of our VAT receivables, which amount to $7.9 million as at September 30, 2017.
In Nevada and Canada, we are required to provide security to cover our projected reclamation costs. As at September 30, 2017, we have surety bonds of $19.9 million in place to satisfy bonding requirements for this purpose. Although we do not believe we have any significant credit exposure associated with these bonds, there is also the risk the surety bonds may no longer be accepted by the governmental agencies as satisfactory reclamation coverage, in which case we would be required to replace the surety bonding with cash.
In Ontario, Canada, pursuant to the Black fox acquisition, we are also required to provide security to cover our projected reclamation costs. As a result, subsequent to quarter end we increased our surety obligations by an additional $16.5 million (C$20.6 million) in place to satisfy bonding requirements in Ontario. Although we do not believe we have any significant credit exposure associated with these bonds, there is the risk that the surety bonds may no longer be accepted by the governmental agencies as satisfactory reclamation coverage, in which case we would be required to replace the surety bonding with cash.
Item 4. CONTROLS AND PROCEDURE
S
(a)
We maintain a system of controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported, within time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of September 30, 2017, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
(b)
Changes in Internal Controls. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017 that materially affected or are reasonably likely to materially affect, our internal controls over financial reporting.
PART I
I OTHER INFORMATION
Item 1A. RISK FACTOR
S
There have been no material changes from the risk factors disclosed in Part I, Item 1A, of our Form 10-K for the year ended December 31, 2016.
Item 6. EXHIBIT
S
The following exhibits are filed with this report:
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Robert R. McEwen.
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Andrew Elinesky.
|
32
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert R. McEwen and Andrew Elinesky.
|
101
|
|
The following materials from McEwen Mining Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2017 and 2016, (ii) the Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016, (iii) the Unaudited Consolidated Statement of Changes in Shareholder’s Equity for the nine months ended September 30, 2017 and 2016, (iv) the Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (v) the Unaudited Notes to the Consolidated Financial Statements.
|
SIGNATURE
S
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
MCEWEN MINING INC.
|
|
|
|
/s/ Robert R. McEwen
|
Date: November 2, 2017
|
By Robert R. McEwen,
|
|
Chairman and Chief Executive Officer
|
|
|
|
/s/ Andrew Elinesky
|
Date: November 2, 2017
|
By Andrew Elinesky,
|
|
Senior Vice President and Chief Financial Officer
|
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