McEwen - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue of $35.7M missed S&P Global consensus of $39.1M by ~9%; diluted EPS of -$0.12 was roughly in line with consensus of -$0.12, while adjusted EBITDA improved to $8.7M on stronger gold prices. Revenue and EPS consensus values from S&P Global are marked with an asterisk below. Values retrieved from S&P Global.
• Consolidated production fell to 24,131 GEOs (vs. 33,037 in Q1’24) as Gold Bar pre-stripping and Fox labor/weather weighed, driving higher AISC in Q1; management reiterated full-year production guidance (120k–140k GEOs) and expects costs to ease as volumes rise through 2025.
• Liquidity strengthened post the $110M 5.25% 2030 convertible notes (capped call to $17.30), lifting cash to $68.5M and working capital to $61.1M; total debt rose to $130M, but interest expense falls vs prior 9.75% secured facility.
• Catalysts into 2H: (1) Los Azules feasibility study targeted for July 2025 with capitalization of Copper spend expected to improve reported earnings; (2) initial Stock mine output targeted late Q4 2025; (3) potential ongoing San José dividends at current metal prices.

What Went Well and What Went Wrong

What Went Well

• Adjusted EBITDA rose to $8.7M ($0.16/sh) vs $6.3M in Q1’24, reflecting higher realized gold prices and stronger cash gross profit despite lower GEOs.
• Liquidity and capital structure improved: cash to $68.5M, WC to $61.1M; convertible notes reduced cost of debt vs 9.75% secured loan and pushed maturities; capped call mitigates dilution up to $17.30.
• Exploration/permits de-risking Fox growth: Closure Plan Permit for Stock ramp; Grey Fox resource expanded (Indicated +32% to 1.54Moz at 3.64 g/t; Inferred +95% to 0.46Moz at 3.30 g/t); strong intercepts at Gibson and new corridor at depth.

Management quotes:

• “Our income statement is going [to] improve as a major expense item will be eliminated once the Los Azules Feasibility Study is published this summer.”
• “We just received our permit to construct a ramp to the underground at the Stock mine.”
• “We anticipate that we will have the first production from the underground portion of the Stock mine in the last quarter of this year.”

What Went Wrong

• Production headwinds: consolidated GEOs fell to 24,131 (vs. 33,037 in Q1’24); Fox GEOs down 26% YoY due to labor/weather; San José GEOs down 16% with weaker grades/recoveries and seasonality.
• Costs elevated: Gold Bar AISC $2,197/GEO on $7.5M pre-stripping; Fox AISC $2,504/GEO on 33% lower GEOs sold; San José AISC $3,047/GEO on peso strength and lower sales volumes.
• Mixed financial communication: 8-K reports net loss of $6.3M ($0.12/sh) while the press release text also states $3.9M ($0.07/sh); management on the call referenced a $6.3M loss, and noted Q1 would have been positive if Copper spend were capitalized post-FS.

Transcript

Operator (participant)

Welcome to McEwen Mining's First Quarter 2025 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner, William Shaver, Chief Operating Officer, Perry Ing, Chief Financial Officer, Jeff Chan, Vice President Finance, Stefan Spears, Vice President Corporate Development, Michael Meding, Vice President and General Manager of McEwen Copper, and Carmen Diges, General Counsel and Secretary. After the speaker's presentation, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.

Rob McEwen (Chairman and Chief Owner)

Thank you, Operator. Good morning and welcome, fellow shareholders, analysts, and interested investors. Year to date, 2025 has been an eventful year for us, with the higher prices of gold, silver, and copper brightening the outlook for our operations. We've increased our liquidity by using a financial instrument called a Capped call convertible note. This instrument allowed us to reduce potential share dilution by setting an effective conversion price at a 100% premium to our share price at the time of the transaction. The majority of these funds will be used to advance the development of our Fox Complex, and we expect that once this work's completed and the stock in Gray FOX Mines are in production, our consolidated annual production in 2030 could reach as high as 225,000-255,000 oz. This represents an increase of over 80% above our current production.

Let's start with some other good news. It's taken some time, but our 49% interest in the San José mine has once again paid a dividend, and we're expecting more during the balance of the year. During the quarter, we were delighted to see Gold Bar produce 10% more gold than budgeted, at a cash cost 24% below the low end of our annual guidance at $1,146, as opposed to the low end of our guidance of $1,500. However, I expect you will be alarmed when you see Gold Bar's all-in sustaining cost per oz of approximately $2,200 an oz. I want to explain this high number. It was a result of our decision during the quarter to access a gold zone that had been uneconomic at lower gold prices but was quite economic at today's gold prices.

We decided to accelerate the stripping rate in the first half of this year, and so far that's cost us about $7.5 million, in order to increase our production and lower our all-in sustaining cost in the second half of the year. Financially, Q1 2025 compares well to Q1 2024. I'll give you some examples. Our gross profit was up 68% to $10.1 million. Our adjusted EBITDA was up 38%-$8.7 million. Our cash and cash equivalents increased to $68.5 million from $17.5 million. Our consolidated working capital increased to $61 million, as opposed to a negative $6.5 million. Our total debt went up to $130 million from $40 million. Our debt cost of service went from nine and 3/4 to 6%, and our net debt is currently standing at just over $42 million.

Speaking of our Fox Complex, it was a disappointing quarter from an operational perspective because production was lower than budget, and cost per oz were unacceptably higher than budget. However, many of the reasons for the underperformance are expected to be behind us, with production and cost per oz for the balance of the year looking much improved. Speaking of Fox, on a positive note, we just received our permit to construct a ramp to the underground at the Stock mine. This is a key element in our plans for the Stock Complex expansion. We have exploration going on, active programs at both the Fox Complex and at Gold Bar, and we will be releasing updates on that throughout the year.

We just put out a release earlier today on our exploration, showing particularly at the Grey Fox how that resource has been growing quite rapidly, some good grades over nice intercepts. Quite optimistic that this still has quite a bit more room to grow. With that, I'd like to open the session for questions.

Operator (participant)

As a reminder, to ask a question, you will need to press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. We will pause for just a moment. Your first question comes from a line of Mike Kozak from Cantor Fitzgerald. Your line is open.

Mike Kozak (Metal and Mining Analyst)

Yeah, good morning. Hi, good morning, Rob. Good morning, Rob and team. Thanks for hosting the call. I just really had one question. How much cash or cash plus investments is held within the copper subsidiary?

Rob McEwen (Chairman and Chief Owner)

Perry?

Perry Ing (CFO)

Hi, Mike. Currently, the treasury for McEwen Copper is below $10 million currently. Obviously, we expect to announce another financing at some point as we move towards the publication of the feasibility study. Currently, cash balances held at the McEwen Copper level are relatively minimal.

Mike Kozak (Metal and Mining Analyst)

Okay. My follow-up to that is that $10 million, do you think that's enough to get you to get that feasibility study complete? Is it still, I think the schedule is still there for July, ideally?

Perry Ing (CFO)

We will likely need some additional runway to get to July, Mike. I mean, we just finished a geotechnical program at sites. Sites have wound down, so the costs have come down significantly. Ideally, we'd like to complete another round prior to the feasibility study.

Mike Kozak (Metal and Mining Analyst)

Okay. That's it for me. I'll turn it over. Thank you.

Perry Ing (CFO)

Thanks, Mike.

Mike Kozak (Metal and Mining Analyst)

Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from a line of Bill Powers. Private investor, your line is open.

Bill Powers (Private Investor)

Hi, Rob. Thanks for hosting the call. A few quick questions. I guess we'll start with San José. As far as getting a $2.2 million dividend during the quarter, it still seems as though, as I talked about last time, there still seems to be over $80 million of working capital. Have Hochschild given any indication on what they may be paying out? I would imagine, have you talked about regular quarterly dividends with them, or do you know the status?

Perry Ing (CFO)

Sure. I can answer that as well, Bill. No, we're in regular dialogue with Hochschild. There is a focus to extend mine life at San José. It is going to be a balance between reinvesting in the mine, especially with silver prices above $30 and gold prices. Between continued exploration, return to shareholders, and setting aside some funds for rainy day enclosure, it is going to be a balancing act. Right now, in terms of the Argentine peso, it is very strong right now, so that has a negative impact on reported U.S. dollar cash costs. We are optimistic. We think the mill expansion to 2,000 tons per day with the installation of the VertiMill has been performing very well. That allows us to increase throughput and lower unit costs, which effectively lowers our cutoff grade at the mine.

All those things are important to us, but we do expect to receive further dividends this year at these commodity price levels.

Bill Powers (Private Investor)

Okay. Good to hear. I guess one of the things I saw on your updated information sheet regarding the Fox Complex is that it looks like there's about $71 million of spend for development this year. I was wondering how far along, I guess percentage-wise, are you complete before you begin production? Is there any production expected to come from Stock this year, or what would be the status of that?

William Shaver (COO)

Yeah, Bill, I'm Will Shaver here. I'll answer that for you. Yeah, we anticipate that we will have the first production from the underground portion of the Stock Mine in the last quarter of this year. The permit that we got a few days ago allows us to start the drilling and blasting of the ramp. We now have, obviously, the final design of that ramp, and we anticipate that we'll have the ramp down sometime late in the third quarter or early in the fourth quarter. At the same time, we have the shaft now dewatered down below the 400 level, and we're in the midst now of doing the surveying, making sure that all the headings are safe and properly bolted and so on to the standard that's required today.

The plan is to do some exploration-type work, sampling, and so on underground in the old workings because we know that mine was shut down when the gold price was relatively low, and we're confident that there's a certain amount of ore down there that we can extract fairly quickly. As soon as we get the ramp broken through so that we can load trucks from the underground, that'll allow us to go ahead with that work. As we go into next year, we'll ramp Stock up to its full production capability.

Bill Powers (Private Investor)

Okay. That is good to hear. I guess one last question regarding Grey Fox. You guys have done a lot of drilling. Seems to be going well. I guess what is the time frame and what might you envision the cost to put the Gibson Ramp back into production?

William Shaver (COO)

That's a very good question. We're just in the midst of starting a study on that, what the capital costs are going to be, what the operating costs are going to be, and what the exact strategy is for, number one, getting the permit in as timely a manner as possible. Then, number two, what's that going to look like in terms of a mine plan and capital? I guess the opening of the mine, the Grey Fox mine, I mean, right now we're studying which is the best access method. Should we be talking about an underground operation, or should we be talking about a small open pit? Both of those options are viable. Now it's a question of deciding which one is the cheapest and the fastest.

The plan initially for that part of the property, Grey Fox and the associated other ore bodies around there, would be to bring that ore back to the stock mill. It is relatively high grade, and therefore we would establish some cash flow. The next step would be what is the long-term potential of Grey Fox, which we see as pretty robust. We would want to increase the tonnage through a process plant that would be significantly larger than the stock mill. That is another part of this study that we are working on. I guess I see a mine that is running at 3,000-5,000 tons a day. We need a tailings facility and so on.

I guess the major thing we have to think about in terms of the ultimate time frame for putting that together is how long is the permitting going to take. That is something that we are actively working on. As we have all heard from our governments at both federal and provincial levels, they are going to speed up the permitting process. At the present time, based on historical time frames, that would take about three years. We are hoping that might get down to 18 months to two years, which would be, I think, an optimistic view of that. That is kind of what we are hoping for.

Bill Powers (Private Investor)

Okay. No, that's very helpful. Basically, the time frame of getting it would depend on a mine. I'm guessing it would require a fair bit of work since it has not been, I'm guessing, hasn't been active for quite some time.

William Shaver (COO)

That area, in fact, has a ramp there, an exploration ramp that was driven many years ago. To tell you the truth, I do not know exactly when it was, but it is approximately 10 years ago. There is a significant amount of development to bringing a new mine into operation there. The positive thing about that area is the depth of the overburden is insignificant. We have ore right at surface that we understand that we could be mining within months of getting a permit. I think there's are lots of really good things about the ore body that is out at Grey Fox. The drilling that we are doing right now continues to expand the resources that we have there. We have just spent a couple of days up there reviewing the drilling and the exploration program.

We are very, very positive about what is going to happen up there based on our success up to now.

Bill Powers (Private Investor)

Okay. That's great. Thank you so much for all your time today.

Rob McEwen (Chairman and Chief Owner)

Thank you, Bill.

Operator (participant)

As a final reminder, if you would like to ask a question, press star one on your telephone keypad. We'll pause for just a moment.

Rob McEwen (Chairman and Chief Owner)

While we're pausing, operator, one thing I'd like to bring up that I didn't mention in my introductory comment was something that's going to happen to our financials. Our income statement's going to look better once the feasibility study for Los Azules has been published, which will be this summer. It's going to improve because we won't be needing to include the expenses of McEwen Copper and Los Azules in our income statement any longer once the feasibility is published. That expense will be capitalized under accounting standards. It will improve our bottom line. Over the period of the last few years, I think Jeff is going to tell us how much we've had to incorporate in our income statement for the expenses of Los Azules. That will be removed, which I think is a good thing.

We've invested heavily to increase the value of Los Azules, and we've paid the price of showing a negative bottom line for quite a while as a result of those investments.

Jeff Chan (VP of Finance)

Yeah. Just to expand on what Rob just mentioned, at the end of the first quarter, we reported negative $6.3 million in net income. Capitalizing the expenditures of McEwen Copper would have resulted in a positive net income of $2.3 million rather than a negative. If we take a look at the last few years of expenditures since 2021, we've spent over $250 million in McEwen Copper that we could have capitalized onto our books should we have hit feasibility four years ago.

Rob McEwen (Chairman and Chief Owner)

Thank you, Jeff.

Operator (participant)

There are no—my apologies. There are no questions at this time. I will now turn the call back over to you, Rob McEwen, for some final closing remarks.

Rob McEwen (Chairman and Chief Owner)

Thank you, operator. When I look at it, it's been an interesting year so far. I think it's going to get more exciting. From an operational standpoint, we're still not quite there in terms of where we want to be with respect to performance. That is on the right track to be repaired. As I said, from a financial standpoint, we've improved our liquidity. We have the money to advance the project at Fox, and that's going to have a big impact on our future, although a couple of years away. That is moving ahead. Exploration is delivering encouraging results. There will be active news coming out on exploration each quarter. I believe price gold is going higher. For a company such as ourselves, higher gold is a good price for us. Thank you.

Operator (participant)

This concludes today's call. You may now disconnect.