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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
(Address of principal executive offices) (ZIP code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
New York Stock Exchange (“ |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☒ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ||
Emerging growth company | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
MCEWEN MINING INC.
FORM 10-Q
Index
2
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
(in thousands of U.S. dollars, except per share)
Three months ended June 30, | Six months ended June 30, | ||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | | |||
Production costs applicable to sales |
| ( |
| ( |
| ( |
| ( | |||
Depreciation and depletion | ( | ( | ( | ( | |||||||
Gross profit (loss) | | ( | ( | ( | |||||||
OTHER OPERATING EXPENSES: | |||||||||||
Advanced projects |
| ( |
| ( |
| ( |
| ( | |||
Exploration |
| ( |
| ( |
| ( |
| ( | |||
General and administrative |
| ( |
| ( |
| ( |
| ( | |||
Loss from investment in Minera Santa Cruz S.A. (Note 9) |
| ( |
| ( |
| ( |
| ( | |||
Depreciation |
| ( |
| ( |
| ( |
| ( | |||
Revision of estimates and accretion of asset retirement obligations (Note 11) |
| ( |
| ( |
| ( |
| ( | |||
Impairment of mineral property interests and plant and equipment (Note 8) | — | — | — | ( | |||||||
Other operating | — | ( | — | ( | |||||||
| ( |
| ( |
| ( |
| ( | ||||
Operating loss |
| ( |
| ( |
| ( |
| ( | |||
OTHER INCOME (EXPENSE): | |||||||||||
Interest and other finance expenses, net |
| ( |
| ( |
| ( |
| ( | |||
Other income (Note 4) | |
| |
| |
| | ||||
Total other income |
| |
| |
| |
| | |||
Loss before income and mining taxes | ( | ( | ( | ( | |||||||
Income and mining tax recovery | | | | | |||||||
Net loss and comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||
Net loss per share (Note 13): | |||||||||||
Basic and Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||
Weighted average common shares outstanding (thousands) (Note 13): | |||||||||||
Basic and Diluted |
| |
| |
| |
| | |||
The accompanying notes are an integral part of these consolidated financial statements.
3
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
MCEWEN MINING INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands of U.S. dollars)
June 30, | December 31, | ||||||
| 2021 |
| 2020 |
| |||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Investments (Note 5) |
| |
| — | |||
Receivables, prepaids and other assets (Note 6) |
| |
| | |||
Inventories (Note 7) |
| |
| | |||
Total current assets |
| |
| | |||
Mineral property interests and plant and equipment, net (Note 8) |
| |
| | |||
Investment in Minera Santa Cruz S.A. (Note 9) |
| |
| | |||
Inventories, long-term (Note 7) | | | |||||
Restricted cash (Note 17) | | | |||||
Other assets |
| |
| | |||
TOTAL ASSETS | $ | | $ | | |||
LIABILITIES & SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | | $ | | |||
Flow-through share premium (Note 12) | | | |||||
Lease liabilities, current portion | | | |||||
Asset retirement obligation, current portion (Note 11) |
| |
| | |||
Total current liabilities |
| |
| | |||
Lease liabilities, long-term | | | |||||
Debt (Note 10) | | | |||||
Debt to related party (Notes 10 and 14) | | | |||||
Asset retirement obligation, long-term (Note 11) |
| |
| | |||
Other liabilities | | | |||||
Deferred income and mining tax liability |
| |
| | |||
Total liabilities | $ | | $ | | |||
Shareholders’ equity: | |||||||
Common shares: | $ | | $ | | |||
Accumulated deficit |
| ( |
| ( | |||
Total shareholders’ equity |
| |
| | |||
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | $ | | $ | | |||
The accompanying notes are an integral part of these consolidated financial statements.
4
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands of U.S. dollars and shares)
Common Stock | |||||||||||
and Additional | |||||||||||
Paid-in Capital | Accumulated | ||||||||||
Three months ended June 30, 2020 and 2021: |
| Shares |
| Amount | Deficit | Total | |||||
Balance, March 31, 2020 |
| | $ | | $ | ( | $ | | |||
Stock-based compensation |
| — | | — | | ||||||
Shares issued for debt refinancing | | | — | | |||||||
Net loss | — | — | ( | ( | |||||||
Balance, June 30, 2020 |
| | $ | | $ | ( | $ | | |||
Balance, March 31, 2021 | | $ | | $ | ( | $ | | ||||
Stock-based compensation |
| — | | — | | ||||||
Net loss |
| — | — | ( | ( | ||||||
Balance, June 30, 2021 |
| | $ | | $ | ( | $ | | |||
Common Stock |
| |||||||||||
and Additional |
| |||||||||||
Paid-in Capital | Accumulated |
| ||||||||||
Six months ended June 30, 2020 and 2021: |
| Shares |
| Amount | Deficit | Total |
| |||||
Balance, December 31, 2019 |
| | $ | | $ | ( | $ | | ||||
Stock-based compensation |
| — |
| |
| — |
| | ||||
Exercise of stock options |
| |
| |
| — |
| | ||||
Shares issued for debt refinancing | | | — | | ||||||||
Net loss | — | — | ( | ( | ||||||||
Balance, June 30, 2020 |
| | $ | | $ | ( | $ | | ||||
Balance, December 31, 2020 | | $ | | $ | ( | $ | | |||||
Stock-based compensation |
| — | | — | | |||||||
Sale of flow-through common shares | | | — | | ||||||||
Sale of shares for cash | | | — | | ||||||||
Net loss |
| — | — | ( | ( | |||||||
Balance, June 30, 2021 |
| | $ | | $ | ( | $ | | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands of U.S. dollars)
Six months ended June 30, | |||||
2021 |
| 2020 | |||
Cash flows from operating activities: | |||||
Net loss | $ | ( | $ | ( | |
Adjustments to reconcile net loss from operating activities: | |||||
Impairment of mineral property interests and plant and equipment (Note 8) |
| — |
| | |
Loss from investment in Minera Santa Cruz S.A., net of amortization (Note 9) |
| |
| | |
Gain on sale of mineral property interests (Note 5) |
| ( |
| — | |
Depreciation and amortization |
| |
| | |
Loss on investments (Note 5) | — | | |||
Unrealized foreign exchange loss (gain) and adjustment to estimate (Note 11) |
| |
| ( | |
Income and mining tax (recovery) |
| ( |
| ( | |
Stock-based compensation |
| |
| | |
Revision of estimates and accretion of asset retirement obligations (Note 11) | | | |||
Change in non-cash working capital items: | |||||
Decrease in other assets related to operations |
| |
| | |
Decrease in liabilities related to operations | ( | ( | |||
Cash used in operating activities | $ | ( | $ | ( | |
Cash flows from investing activities: | |||||
Additions to mineral property interests and plant and equipment | $ | ( | $ | ( | |
Proceeds from disposal of property and equipment (Note 5) | | — | |||
Proceeds from sale of investments, net of investments |
| — |
| | |
Dividends received from Minera Santa Cruz S.A. (Note 11) |
| |
| | |
Cash used in investing activities | $ | ( | $ | ( | |
Cash flows from financing activities: | |||||
Proceeds from sale of shares, net of issuance costs (Note 12) | $ | | $ | — | |
Sale of flow-through common shares, net of issuance costs (Note 12) | | — | |||
Proceeds of exercise of stock options | — | | |||
Payment of finance lease obligations | ( | ( | |||
Cash provided by (used in) financing activities | $ | | $ | ( | |
Effect of exchange rate change on cash and cash equivalents | — |
| | ||
Increase (decrease) in cash, cash equivalents and restricted cash |
| |
| ( | |
Cash, cash equivalents and restricted cash, beginning of period |
| |
| | |
Cash, cash equivalents and restricted cash, end of period (Note 17) | $ | | $ | | |
Supplemental disclosure of cash flow information: | |||||
Cash received (paid) during period for: | |||||
Interest paid | $ | ( | $ | ( | |
Interest received | | | |||
Total cash, cash equivalents, and restricted cash | $ | ( | $ | ( | |
The accompanying notes are an integral part of these consolidated financial statements.
6
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
McEwen Mining Inc. (the “Company”) was organized under the laws of the State of Colorado on July 24, 1979. The Company is engaged in the exploration, development, production and sale of gold and silver and exploration and development of copper.
The Company operates in the United States, Canada, Mexico and Argentina. The Company owns a
The interim consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are unaudited. While information and note disclosures normally included in financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, the Company believes that the information and disclosures included are adequate and not misleading.
In management’s opinion, the unaudited Consolidated Statements of Operations and Comprehensive Loss (“Statement of Operations”) for the three and six months ended June 30, 2021 and 2020, the unaudited Consolidated Balance Sheets as at June 30, 2021 and audited Consolidated Balance Sheets as at December 31, 2020, the unaudited Consolidated Statement of Changes in Shareholders’ Equity for the three and six months ended June 30, 2021 and 2020, and the unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto and the summary of significant accounting policies included in the Company’s annual report on Form 10-K for the year ended December 31, 2020. Except as noted below, there have been no material changes in the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s Form 10-K for the year ended December 31, 2020. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Inter-company accounts and transactions have been eliminated.
7
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
COVID-19
The Company continues to closely monitor and respond, as possible, to the ongoing COVID-19 pandemic. As the situation continues to rapidly change globally, ensuring the health and safety of the Company’s employees and contractors is one of the Company’s top priorities. Many jurisdictions including the United States, Canada, Mexico, and Argentina have varied but continued restrictions to travel, public gatherings, and certain business operations. Unlike the year 2020, there were no suspension mandated or otherwise for the Company’s operations during 2021. In addition, vaccination rates in countries where the Company operates continues to increase.
The Company’s results of operations, financial position, and cash flows were adversely affected in 2020 due to COVID-19. The continuing impact of the COVID-19 pandemic on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak, variants of the COVID-19 virus, the availability and distribution of vaccinations, and government advisories, restrictions, and financial assistance offered. To ensure a safe working environment for the Company’s employees and contractors, and to prevent the spread of COVID-19, the Company continues to reinforce safety measures at all sites and offices including contact tracing, restricting non-essential travel, and complying with public health orders. The impact of COVID-19 on the global financial markets, the overall economy and the Company are highly uncertain and cannot be predicted. Maintaining normal operating capacity is also dependent on the continued availability of supplies and contractors, which are out of the Company’s control. If the financial markets and/or the overall economy continue to be impacted, the Company’s results of operations, financial position and cash flows may be further affected. As the situation continues to evolve, the Company will continue to monitor market conditions closely and respond accordingly.
During the six months ended June 30, 2021, the Company has raised $
8
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Recently Adopted Accounting Pronouncements
Income Taxes: In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740).” ASU 2019-12 simplifies the accounting for income taxes by reducing existing complexity in the accounting standard. The update to the accounting standard is effective for the Company for the fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of ASU 2019-12 in 2021 did not have a material impact on the Company’s financial statements and related disclosures.
NOTE 3 OPERATING SEGMENT REPORTING
The Company is a mining and minerals production and exploration company focused on precious metals in the United States, Canada, Mexico, and Argentina. The Company’s chief operating decision maker (“CODM”) reviews the operating results, assesses performance and makes decisions about the allocation of resources to these segments at the geographic region level or major mine/project where the economic characteristics of the individual mines or projects within a geographic region are not alike. As a result, these operating segments also represent the Company’s reportable segments. The Company’s business activities that are not considered operating segments are included in General and Administrative and other and are provided in this note for reconciliation purposes.
The CODM reviews segment income or loss, defined as gold and silver sales less production costs applicable to sales, depreciation and depletion, advanced projects and exploration costs for all segments except for the MSC segment, which is evaluated based on the attributable equity income or loss. Gold and silver sales and production costs applicable to sales for the reportable segments are reported net of intercompany transactions.
Capital expenditures include costs capitalized in mineral property interests and plant and equipment in the respective periods.
Significant information relating to the Company’s reportable operating segments for the periods presented is summarized in the tables below:
Three months ended June 30, 2021 |
| USA |
| Canada |
| Mexico |
| MSC |
| Los Azules |
| Total | ||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | — |
| ( | |||||||||||
Depreciation and depletion | ( | ( | — | — | — | ( | ||||||||||||
Gross profit (loss) | | | ( | — | — | | ||||||||||||
Advanced projects | | ( | ( | — | — |
| ( | |||||||||||
Exploration | ( | ( | ( | — | ( | ( | ||||||||||||
Income from investment in Minera Santa Cruz S.A. | — | — | — | ( | — |
| ( | |||||||||||
Other operating | — | — | — | — | — | — | ||||||||||||
Segment (loss) income | $ | | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
General and Administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | | — | — | — | $ | | ||||||||||
9
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Six months ended June 30, 2021 |
| USA |
| Canada | Mexico | MSC |
| Los Azules |
| Total | ||||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | $ | — |
| ( | ||||||||||
Depreciation and depletion | ( | ( | — | — | $ | — | ( | |||||||||||
Gross profit (loss) | | | ( | — | — | ( | ||||||||||||
Advanced projects | | ( | ( | — | $ | — |
| ( | ||||||||||
Exploration | ( | ( | ( | — | $ | ( |
| ( | ||||||||||
Impairment of mineral property interests and plant and equipment (Note 8) | — | — | — | — | $ | — | — | |||||||||||
Loss from investment in Minera Santa Cruz S.A. | — | — | — | ( | $ | — |
| ( | ||||||||||
Other operating | — | — | — | — | — | — | ||||||||||||
Segment loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
General and Administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | $ | | $ | — | $ | — | $ | — | $ | | ||||||
Three months ended June 30, 2020 |
| USA |
| Canada |
| Mexico |
| MSC |
| Los Azules |
| Total | ||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | — | ( | ||||||||||||
Depreciation and depletion | ( | ( | ( | — | — | ( | ||||||||||||
Gross (loss) profit | ( | ( | | — | — | ( | ||||||||||||
Advanced projects | ( | ( | ( | — | — | ( | ||||||||||||
Exploration | ( | ( | ( | — | ( | ( | ||||||||||||
Loss from investment in Minera Santa Cruz S.A. | — | — | — | ( | — | ( | ||||||||||||
Other operating | ( | ( | — | — | — | ( | ||||||||||||
Segment loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
General and Administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | $ | | $ | — | $ | — | $ | — | $ | | ||||||
10
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Six months ended June 30, 2020 |
| USA |
| Canada |
| Mexico |
| MSC |
| Los Azules |
| Total | ||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | — | $ | — | $ | | ||||||
Production costs applicable to sales | ( | ( | ( | — | — | ( | ||||||||||||
Depreciation and depletion | ( | ( | ( | — | — | ( | ||||||||||||
Gross (loss) profit | ( | ( | | — | — | ( | ||||||||||||
Advanced projects | ( | ( | ( | — | — | ( | ||||||||||||
Exploration | ( | ( | ( | — | ( | ( | ||||||||||||
Impairment of mineral property interests and plant and equipment (Note 8) | ( | — | — | — | — | ( | ||||||||||||
Loss from investment in Minera Santa Cruz S.A. | — | — | — | ( | — | ( | ||||||||||||
Other operating | ( | ( | — | — | — | ( | ||||||||||||
Segment loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
General and Administrative and other | ( | |||||||||||||||||
Loss before income and mining taxes | $ | ( | ||||||||||||||||
Capital expenditures | $ | | $ | | $ | — | $ | — | $ | — | $ | | ||||||
Geographic Information
Geographic information includes the long-lived asset balances and revenues presented for the Company’s operating segments, as follows:
Long-lived Assets | Revenue (1) | Revenue (1) | |||||||||||||||
June 30, | December 31, | Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2021 |
| 2020 | 2021 |
| 2020 |
| 2021 | 2020 | ||||||||
USA | $ | | $ | | $ | | $ | | $ | | $ | | |||||
Canada | | | | | | | |||||||||||
Mexico | | | | | | | |||||||||||
Argentina (2) | | | — | — | — | — | |||||||||||
Total consolidated | $ | | $ | | $ | | $ | | $ | | $ | | |||||
| (1) | Presented based on the location from which the product originated. |
| (2) | Includes Investment in MSC of $ |
NOTE 4 OTHER INCOME
The following is a summary of other income for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
COVID-19 Relief | $ | | $ | | $ | | $ | | ||||
Unrealized and realized (loss) on investments (Note 5) | — | | — | ( | ||||||||
Foreign currency (loss) gain | ( | | | | ||||||||
Other income, net | | | | | ||||||||
Total other income | $ | | $ | | $ | | $ | | ||||
11
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
During the three and six months ended June 30, 2021, the Company recognized $
During Q2 2021, the Company recognized $
NOTE 5 INVESTMENTS
The following is a summary of the activity in investments for the six months ended June 30, 2021 and 2020:
As at | Additions/ | Disposals/ | Unrealized | Fair value | ||||||||||||||
December 31, | transfers during | Net gain (loss) on | transfers during | (loss) on | June 30, | |||||||||||||
| 2020 |
| period |
| securities sold |
| year |
| securities held |
| 2021 | |||||||
Marketable equity securities | $ | — | $ | | $ | — | $ | — | $ | — | $ | | ||||||
Warrants |
| — |
| |
| — |
| — |
| — |
| | ||||||
Investments | $ | — | $ | | $ | — | $ | — | $ | — | $ | | ||||||
As at | Additions/ | Net | Disposals/ | Unrealized | Fair value | |||||||||||||
December 31, | transfers during | (loss) on | transfers during | (loss) on | June 30, | |||||||||||||
| 2019 |
| period |
| securities sold | year | securities held | 2020 | ||||||||||
Marketable equity securities | $ | | $ | — | $ | ( | $ | ( | $ | — | $ | ( | ||||||
On June 23, 2021, the Company closed the sale of
During the six months ended June 30, 2020, the Company sold marketable equity securities for proceeds of $
During the three months ended June 30, 2020, the Company sold marketable equity securities for proceeds of $
NOTE 6 RECEIVABLES, PREPAIDS AND OTHER ASSETS
The following is a breakdown of balances in receivables, prepaids and other assets as at June 30, 2021 and December 31, 2020:
| June 30, 2021 |
| December 31, 2020 | |||
Government sales tax receivable | | $ | | |||
Prepaids and other assets | | | ||||
Receivables and other current assets | $ | | $ | | ||
Government sales tax receivable includes $
12
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 7 INVENTORIES
Inventories at June 30, 2021 and December 31, 2020 consisted of the following:
| June 30, 2021 |
| December 31, 2020 | |||
Material on leach pads | $ | | $ | | ||
In-process inventory |
| |
| | ||
Stockpiles |
| |
| | ||
Precious metals |
| |
| | ||
Materials and supplies |
| |
| | ||
Inventories | $ | | $ | | ||
Less current portion | | | ||||
Long-term portion | $ | | $ | | ||
During the first quarter of 2021, the inventory of Gold Bar and El Gallo were written down to their net realizable value by $
NOTE 8 MINERAL PROPERTY INTERESTS AND PLANT AND EQUIPMENT
The applicable definition of proven and probable reserves is set forth in the SEC Industry Guide 7. If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are charged to expense based on the units of production method upon commencement of production. The Company’s Gold Bar, Black Fox and San José properties have proven and probable reserves estimated in accordance with SEC Industry Guide 7.
The Company reviews and evaluates its long-lived assets for impairment on a quarterly basis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Once it is determined that impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its estimated fair value.
The evaluation resulted in an impairment charge of $
13
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 9 INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) – SAN JOSÉ MINE
The Company accounts for investments over which it exerts significant influence but does not control through majority ownership using the equity method of accounting. In applying the equity method of accounting to the Company’s investment in MSC, MSC’s financial statements, which are originally prepared by MSC in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, have been adjusted to conform with U.S. GAAP. As such, the summarized financial data presented under this heading is presented in accordance with U.S. GAAP.
A summary of the operating results for MSC for the three and six months ended June 30, 2021 and 2020 is as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||
Minera Santa Cruz S.A. ( | ||||||||||||
Revenue from gold and silver sales | $ | | $ | | $ | | $ | | ||||
Production costs applicable to sales | ( | ( | ( | ( | ||||||||
Depreciation and depletion | ( | ( | ( | ( | ||||||||
Gross profit | | | | | ||||||||
Exploration | ( | ( | ( | ( | ||||||||
Other expenses(1) | ( | ( | ( | ( | ||||||||
Net income (loss) before tax | $ | | $ | ( | $ | | $ | ( | ||||
Current and deferred tax expense | ( | | ( | | ||||||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Portion attributable to McEwen Mining Inc. ( | ||||||||||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
Amortization of fair value increments |
| ( |
| ( |
| ( |
| ( | ||||
Income tax recovery | | | | | ||||||||
Loss from investment in MSC, net of amortization | $ | ( | $ | ( | $ | ( | $ | ( | ||||
(1) Other expenses include foreign exchange, accretion of asset retirement obligations, other finance related expenses, and COVID-19 related expenses of $
The loss from investment in MSC attributable to the Company includes amortization of the fair value increments arising from the initial purchase price allocation and related income tax recovery. The income tax recovery reflects the impact of the devaluation of the Argentine peso against the U.S. dollar on the peso-denominated deferred tax liability recognized at the time of acquisition, as well as income tax rate changes over the periods.
Changes in the Company’s investment in MSC for the six months ended June 30, 2021 and year ended December 31, 2020 are as follows:
June 30, 2021 |
| December 31, 2020 | |||
Investment in MSC, beginning of period | $ | | $ | | |
Attributable net income from MSC | | | |||
Amortization of fair value increments |
| ( |
| ( | |
Income tax recovery | | | |||
Dividend distribution received |
| ( |
| ( | |
Investment in MSC, end of period | $ | | $ | | |
During the three and six months ended June 30, 2021, the Company received $
14
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
A summary of the key assets and liabilities of MSC on a
As at June 30, 2021 | Balance excluding FV increments | Adjustments | Balance including FV increments | ||||||
Current assets | $ | | $ | | $ | | |||
Total assets | $ | | $ | | $ | | |||
Current liabilities | $ | ( | $ | — | $ | ( | |||
Total liabilities | $ | ( | $ | ( | $ | ( | |||
NOTE 10 DEBT
On August 10, 2018, the Company finalized a $
On June 25, 2020, the Company entered into an Amended and Restated Credit Agreement (“ARCA”) which refinanced the outstanding $
| ● | Sprott Private Resource Lending II (Collector), LP replaced Royal Capital Management Corp. as the administrative agent. |
| ● | Sprott Private Resource Lending II (Collector), LP replaced certain lenders. An affiliate of Robert McEwen remains as a lender. |
| ● | Scheduled repayments of the principal were extended by |
| ● | The minimum working capital maintenance requirement was reduced from $ |
| ● | The Company issued |
15
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
The remaining principal terms of the original agreement remain unchanged. The Company was in compliance with all covenants as at June 30, 2021.
A reconciliation of the Company’s long-term debt for the six months ended June 30, 2021 and for the year ended December 31, 2020 is as follows:
| Six months ended June 30, 2021 |
| Year ended | |||
Balance, beginning of period | $ | | $ | | ||
Interest expense |
| |
| | ||
Interest payments |
| ( |
| ( | ||
Bonus Interest - Equity based financing fee | — | ( | ||||
Balance, end of period | $ | | $ | | ||
Less current portion | — | — | ||||
Long-term portion | $ | | $ | | ||
NOTE 11 ASSET RETIREMENT OBLIGATIONS
The Company is responsible for the reclamation of certain past and future disturbances at its properties. The most significant properties subject to these obligations are the Gold Bar and Tonkin properties in Nevada, the Timmins properties in Canada and the El Gallo Project in Mexico.
A reconciliation of the Company’s asset retirement obligations for the six months ended June 30, 2021 and for the year ended December 31, 2020 are as follows:
| June 30, 2021 |
| December 31, 2020 |
| |||
Asset retirement obligation liability, beginning balance | $ | | $ | | |||
Settlements |
| ( |
| ( | |||
Accretion of liability |
| |
| | |||
Adjustment reflecting updated estimates |
| |
| ( | |||
Foreign exchange revaluation | | | |||||
Asset retirement obligation liability, ending balance | $ | | $ | | |||
Less current portion | | | |||||
Long-term portion | $ | | $ | | |||
The Company’s reclamation expenses for the periods presented consisted of the following:
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 | 2021 | 2020 | |||||||
Reclamation adjustment reflecting updated estimates | $ | — | $ | — | $ | | $ | | ||||
Reclamation accretion | | | | | ||||||||
Total | $ | | $ | | $ | | | |||||
16
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 12 SHAREHOLDERS’ EQUITY
Equity Issuances
Amendment to the Articles of Incorporation
On June 30, 2021, the Company filed Articles of Amendment to its Amended and Restated Articles of Incorporation with the Colorado Secretary of State providing for an increase in its authorized capital to increase the number of shares of common stock that the Company can issue from
Equity Financing
On February 9, 2021, the Company completed a registered direct offering of common stock with several existing and new institutional investors and issued
Flow-Through Shares Issuance – Canadian Development Expenses (“CDE”)
On January 29, 2021, the Company issued
The Company is required to spend these flow-through share proceeds on flow-through eligible CDE as defined by subsection 66.2(5) of the Income Tax Act (Canada). As of June 30, 2021, the Company had reached the total $
Flow-Through Shares Issuance – Canadian Exploration Expenditures (“CEE”)
On December 31, 2020, the Company issued an additional
On September 10, 2020, the Company issued
The Company is required to spend these flow-through share proceeds on flow-through eligible CEE as defined by subsection 66.1(6) of the Income Tax Act (Canada). As of June 30, 2021, the Company had incurred a total of $
17
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
All
Stock Options
The Company’s Amended and Restated Equity Incentive Plan (“Plan”) allows for equity awards to be granted to employees, consultants, advisors, and directors. The Plan is administered by the Compensation Committee of the Board of Directors (“Committee”), which determines the terms pursuant to which any award is granted. The Committee may delegate to certain officers the authority to grant awards to certain employees (other than such officers), consultants and advisors. On April 16, 2021, the Board approved an amendment to the Plan which increased the number of shares of common stock reserved for issuance by
Shareholders’ Distributions
Pursuant to the ARCA (Note 11), the Company is prevented from paying any dividends on its common stock, so long as the loan is outstanding.
NOTE 13 NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Potentially dilutive instruments are not included in the calculation of diluted net loss per share for the three and six months ended June 30, 2021 and 2020, as they would be anti-dilutive.
For the six months ended June 30, 2021, all of the outstanding options (
NOTE 14 RELATED PARTY TRANSACTIONS
The Company recorded the following expense in respect to the related parties outlined below during the periods presented:
| Three months ended June 30, |
| Six months ended June 30, | |||||||||
2021 |
| 2020 | 2021 |
| 2020 | |||||||
Lexam L.P. | $ | — | $ | — | $ | | $ | | ||||
REVlaw | | | | | ||||||||
18
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
The Company has the following outstanding accounts payable balances in respect to the related parties outlined below:
June 30, 2021 | December 31, 2020 | |||||||||||
Lexam L.P. | $ | | $ | | ||||||||
REVlaw | | | ||||||||||
An aircraft owned by Lexam L.P. (controlled by Robert R. McEwen, limited partner and beneficiary of Lexam L.P. and the Company’s Chairman and Chief Executive Officer) has been made available to the Company to expedite business travel. As Chairman and Chief Executive Officer of the Company, Mr. McEwen must travel extensively and frequently on short notice. Mr. McEwen is able to charter the aircraft from Lexam L.P. at a preferential rate approved by the Company’s independent board members under a policy whereby only the variable expenses of operating this aircraft for business related travel are eligible for reimbursement by the Company.
REVlaw is a company owned by Carmen Diges, General Counsel of the Company. The legal services of Ms. Diges as General Counsel and other support staff, as needed, are provided by REVlaw in the normal course of business and have been recorded at their exchange amount.
An affiliate of Mr. McEwen participated as a lender in the $
NOTE 15 FAIR VALUE ACCOUNTING
As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Warrants
Upon initial recognition, the warrants received as part of the sale to Nevgold (see Note 5) transaction were fair valued using the Black-Scholes valuation model as they are not quoted in an active market. The warrants received have been accounted for as equity investment at cost. Average volatility of
Assets and liabilities measured at fair value on a recurring basis.
The following table identifies certain of the Company’s assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as at June 30, 2021 and December 31, 2020, as reported in the Consolidated Balance Sheets:
Fair value as at June 30, 2021 |
| Fair value as at December 31, 2020 | ||||||||||||||||
| Level 1 |
| Level 2 |
| Total |
| Level 1 |
| Level 2 |
| Total | |||||||
Marketable equity securities | $ | | $ | — | $ | | $ | — | $ | — | $ | — | ||||||
Total investments | $ | | $ | — | $ | | $ | — | $ | — | $ | — | ||||||
19
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
Marketable equity securities that the Company holds are exchange-traded and are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the investments is calculated as the quoted market price of the marketable equity security multiplied by the number of shares held by the Company.
The fair value of financial assets and liabilities held at June 30, 2021 were assumed to approximate their carrying values due to their historically negligible credit losses.
Debt is recorded at a carrying value of $
Impairment of Mineral Property
During the six months ended June 30, 2021, there were no indicators of impairment for the Company’s long-lived assets and the Company did not record any impairments. During the six months ended June 30, 2020, the Company recorded an impairment of long-lived assets at the Gold Bar mine totaling $
NOTE 16 COMMITMENTS AND CONTINGENCIES
In addition to the commitments for payments on operating and finance leases and the repayment of long-term debt (Note 11), as at June 30, 2021, the Company has the following commitments and contingencies:
Reclamation Obligations
As part of its ongoing business and operations, the Company is required to provide bonding for its environmental reclamation obligations of $
Surety Bonds
As at June 30, 2021, the Company had a surety facility in place to cover all its bonding obligations, which include $
Streaming Agreement
As part of the acquisition of the Black Fox Complex in 2017, the Company assumed a gold purchase agreement (streaming contract) related to production from certain land claims. The Company is obligated to sell
20
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2021
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
The Company records the revenue from these shipments based on the contract price at the time of delivery to the customer. During the three and six months ended June 30, 2021, the Company recorded revenue of $
Flow-through Eligible Expenses
In January 2021, the Company closed a flow-through share issuance to fund the development at the Froome deposit. As of June 30, 2021, the Company incurred the full required spend of $
In 2020, the Company completed
NOTE 17 CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Consolidated Balance Sheets to the amounts disclosed in the Consolidated Statements of Cash Flows:
June 30, 2021 | December 31, 2020 | |||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash - non-current | | | ||||
Total cash, cash equivalents, and restricted cash | $ | | $ | | ||
Restricted cash includes deposits related to the Company’s reclamation obligations and surety facility (Note 16).
NOTE 18 SUBSEQUENT EVENTS
McEwen Copper Inc. (“McEwen Copper”)
On July 6, 2021, the Company announced its wholly-owned subsidiary which holds
21
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 for the foreseeable future. It also analyzes our financial condition at June 30, 2021 and compares it to our financial condition at December 31, 2020. Finally, the discussion analyzes our results of operations for the three and six months ended June 30, 2021 and compares those to the results for the three and six months ended June 30, 2020. 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, 2020.
The discussion contains financial performance measures that are not prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP” or “GAAP”). Each of the following is a non-GAAP measure: cash gross profit, cash costs, cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, average realized price per ounce, and liquid assets. These non-GAAP measures are used by management in running the business and we believe they provide useful information that can be used by investors to evaluate our performance, our ability to generate cash flows and our liquidity. These measures do not have standardized definitions and should not be relied upon in isolation or as a substitute for measures prepared in accordance with GAAP. Cash Costs equals Production Costs Applicable to Sales and is used interchangeably throughout this report.
For a reconciliation of these non-GAAP measures to the amounts included in our Statements of Operations for the three and six months ended June 30, 2021 and 2020 and to our Balance Sheets as of June 30, 2021 and December 31, 2020 and certain limitations inherent in such measures, please see the discussion under “Non-GAAP Financial Performance Measures”, on page 38.
This discussion also includes references to “advanced-stage properties”, which are defined as properties for which advanced studies and reports have been completed indicating the presence of mineralized material or proven and probable reserves, or that have obtained or are in the process of obtaining the required permitting. Our designation of certain properties as “advanced-stage properties” should not suggest that we have or will have proven or probable reserves at those properties as defined by Guide 7.
OVERVIEW
We were organized under the laws of the State of Colorado on July 24, 1979. We are engaged in the exploration, development, production and sale of gold and silver and exploration for copper.
We operate in the United States, Canada, Mexico and Argentina. We own a 100% interest in the Gold Bar mine in Nevada, the Black Fox gold mine in Ontario, Canada, the El Gallo Project and the Fenix silver-gold project in Sinaloa, Mexico, the Los Azules copper deposit in San Juan, Argentina, and a portfolio of exploration properties in Nevada, Canada, Mexico and Argentina. We also own a 49% interest in Minera Santa Cruz S.A. (“MSC”), owner of the producing San José silver-gold mine in Santa Cruz, Argentina, which is operated by the joint venture majority owner, Hochschild Mining plc.
In this report, “Au” represents gold; “Ag” represents silver; “oz” represents troy ounce; “t” represents metric tonne; “gpt” represents grams per metric tonne; “ft.” represents feet; “m” represents meter; “sq.” represents square; and C$ refers to Canadian dollars. All of our financial information is reported in United States (U.S.) dollars, unless otherwise noted. Throughout this Management’s Discussion and Analysis (“MDA”), the reporting periods for the three months ended June 30, 2021 and 2020 are abbreviated as Q2/21 and Q2/20, respectively, and the reporting periods for the six months ended June 30, 2021 and 2020 are abbreviated as H1/21 and H1/20, respectively.
In addition, in this report, gold equivalent ounces (“Au Eq. oz”) includes gold and silver ounces calculated based on a 68:1 silver to gold ratio for the first quarter of 2021, 68:1 silver to gold ratio for the second quarter of 2021, 94:1 silver to gold
21 ratio for the first quarter of 2020 and 104:1 for the second quarter of 2020.
22
Note: We ceased active mining and processing at the El Gallo mine in the second quarter of 2018. We use the term “El Gallo Project” to refer to the ongoing reclamation and residual heap leaching taking place at this formerly producing mine.
Reliability of Information: 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 technical information regarding the San José mine contained herein is, with few exceptions as noted, based entirely on information provided to us by MSC. Our joint venture partner, which is 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 document.
Response to the COVID-19 Pandemic
We are continuing to closely monitor and respond, as possible, to the ongoing COVID-19 pandemic. As the situation continues to rapidly evolve, ensuring the health and safety of the Company’s employees and contractors is one of our top priorities. Many jurisdictions including the United States, Canada, Mexico, and Argentina have varied but continued restrictions to travel, holding public gatherings, and certain business operations.
The long-term impact of the COVID-19 pandemic on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak, variants of the COVID-19 virus, related advisories and restrictions. Management is actively monitoring the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce.
In response to the need of protecting our employees and our company, we formed our COVID-19 Task Team. The Task Team consists of management members from each operating site and office and have coordinated steps to prevent a wider spread of the virus, while exchanging information with associations, governments and industry peers. We have implemented preventative measures to ensure a safe working environment for our employees and contractors and to prevent the spread of COVID-19. These measures include:
| ● | Continuing to reinforce safety measures at all sites and offices, including contact tracing, restricting non-essential travel, and complying with public health orders, |
| ● | Facilitating the access to vaccinations at our sites by coordinating with local health authorities, |
| ● | Performing functions remotely as advised by certain jurisdictions. Our head office in Toronto, Canada was shut down on March 13, 2020. As of June 30, 2021, all corporate employees have continued to perform their functions remotely. |
During Q2/21 and H1/21, we qualified for $1.7 million and $2.8 million, respectively, in COVID-19 relief funds through the Canadian government’s Canadian Emergency Wage Subsidy (“CEWS”) and Canadian Emergency Rent Subsidy (“CERS”) programs.
23
OPERATING AND FINANCIAL HIGHLIGHTS
Highlights for Q2/21 are included below and discussed further under Consolidated Financial Performance:
Operational Highlights & Impacts
| ● | Our operations delivered strong production results in line with our expectations and we expect to meet our 2021 production guidance. |
| ● | Operating costs at our 100% owned operations are trending down; AISC per ounce ($/Au Eq. oz sold)(1) from $1,777/oz in Q1/21 to $1,447/oz in Q2/21. |
| ● | A total of 40,700 gold equivalent ounces were produced in the Q2/21, including 18,200 attributable gold equivalent ounces from the San José mine(2). |
| ● | Mining at Black Fox has transitioned to the Froome mine deposit, with commercial production expected in Q4/21. |
| ● | Subsequent to quarter end, we announced a non-brokered private placement financing of our wholly owned subsidiary which owns the large copper asset Los Azules in the province of San Juan, Argentina. |
Cash Flow and Results of Operations
| ● | Cash, cash equivalents and restricted cash of $45.9 million were reported as at June 30, 2021. |
| ● | Revenues of $40.7 million were reported from the sale of 22,500 gold equivalent ounces from our 100% owned operations at an average realized price(2) of $1,830 per gold equivalent ounce. |
| ● | We reported a cash gross profit(2) of $9.6 million in Q2/21, with a gross profit of $4.1 million. We reported a net loss of $6.0 million, which included $7.7 million invested on exploration and advanced projects. |
| ● | We received dividends of $2.6 million from Minera Santa Cruz S.A (“MSC”) in Q2/21 related to our 49% interest in the San José mine in Argentina. |
Exploration and Reserves
| ● | We spent $7.7 million on exploration and advanced projects in Q2/21, with the primary focus on the Fox Complex expansion. |
| ● | A Preliminary Economic Assessment (PEA) to expand the production from the Fox Complex is expected to be released in H2/21 following additional drilling at the Stock and Grey Fox properties. |
| (1) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. See “Non-GAAP Financial Performance Measures” beginning on page 38. |
| (2) | At our 49% attributable interest. |
25
SELECTED CONSOLIDATED FINANCIAL AND OPERATING RESULTS
The following tables present select financial and operating results of our company for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30, | Six months ended June 30, | |||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
(in thousands, except per share) | ||||||||||||
Revenue from gold and silver sales(1) | $ | 40,706 | $ | 18,291 | $ | 64,446 | $ | 49,691 | ||||
Production costs applicable to sales | $ | (31,132) | $ | (22,354) | $ | (54,721) | $ | (50,741) | ||||
Loss before income and mining taxes | $ | (7,011) | $ | (19,844) | $ | (21,492) | $ | (120,129) | ||||
Net loss(2) | $ | (5,989) | $ | (19,814) | $ | (18,455) | $ | (119,005) | ||||
Net loss per share(2) | $ | (0.01) | $ | (0.05) | $ | (0.04) | $ | (0.30) | ||||
Cash provided by (used in) operating activities | $ | 7,563 | $ | (8,191) | $ | (2,580) | $ | (20,099) | ||||
Cash additions to mineral property interests and plant and equipment | $ | 10,287 | $ | 3,000 | $ | 20,372 | $ | 8,503 | ||||
| (1) | Excludes revenue from the San José mine, which is accounted for under the equity method. |
| (2) | Results for the six months ended June 30, 2020 include an impairment charge of $83.8 million, or $0.21 per share. |
Three months ended June 30, | Six months ended June 30, | |||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
(in thousands, except per ounce) | ||||||||||||
Produced - gold equivalent ounces(1) | 40.7 | 19.2 | 71.3 | 54.2 | ||||||||
100% owned operations | 22.5 | 10.2 | 36.4 | 30.4 | ||||||||
San José mine (49% attributable) | 18.2 | 9.0 | 34.9 | 23.8 | ||||||||
Sold - gold equivalent ounces(1) | 40.6 | 22.4 | 70.8 | 54.9 | ||||||||
100% owned operations | 22.5 | 10.8 | 36.3 | 31.1 | ||||||||
San José mine (49% attributable) | 18.1 | 11.6 | 34.5 | 23.8 | ||||||||
Average realized price ($/Au Eq. oz)(2)(3) | $ | 1,830 | $ | 1,733 | $ | 1,808 | $ | 1,641 | ||||
P.M. Fix Gold ($/oz)(4) | $ | 1,817 | $ | 1,711 | $ | 1,805 | $ | 1,645 | ||||
Cash cost per ounce ($/Au Eq. oz sold):(2) | ||||||||||||
100% owned operations | $ | 1,286 | $ | 2,170 | $ | 1,407 | $ | 1,641 | ||||
San José mine (49% attributable) | $ | 1,105 | $ | 1,280 | $ | 1,097 | $ | 1,207 | ||||
AISC per ounce ($/Au Eq. oz sold):(2) | ||||||||||||
100% owned operations | $ | 1,447 | $ | 2,719 | $ | 1,565 | $ | 2,086 | ||||
San José mine (49% attributable) | $ | 1,500 | $ | 1,476 | $ | 1,418 | $ | 1,535 | ||||
Cash gross profit (loss)(2) | $ | 9,574 | $ | (4,063) | $ | 9,725 | (1,050) | |||||
Silver : Gold ratio(1) | 68 : 1 | 104:1 | 68 : 1 | 100:1 | ||||||||
| (1) | Silver production is presented as a gold equivalent; silver:gold ratio of 68:1 for Q2/21 and 104:1 for Q2/20. See page 22. |
| (2) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. See “Non-GAAP Financial Performance Measures” beginning on page 38. |
| (3) | On sales from 100% owned operations only, excluding sales from our stream. |
| (4) | Average for the Q2/21 period. |
CONSOLIDATED PERFORMANCE
In Q2/21, we reported a net loss of $6.0 million (or $0.01 per share) compared to a loss of $19.8 million (or $0.05 per share) in the quarter ended June 30, 2020. The improvement in Q2/21 is primarily driven by a $13.5 million increase in gross profit due to increased production and sales and a higher average realized gold price.
Cash gross profit (a non-GAAP measure) of $9.6 million for Q2/21 increased by $13.6 million from the $4.1 million Q2/20 cash gross loss. The change is attributed to increased production and sales in Q2/21, higher average realized gold prices and decreased per ounce cash costs as operations at Gold Bar significantly improved and as the Fox Complex ramped up activities at the Froome mine. See “Non-GAAP Financial Performance Measures” for a reconciliation to gross (loss) profit, the nearest GAAP measure.
26
Production from our 100% owned mines of 22,500 gold equivalent ounces (GEOs) in Q2/21 increased by 12,300 GEOs compared to Q2/20. The increases relative to the prior period at the Fox Complex (4,900 more GEOs) and Gold Bar (8,000 more GEOs) operations were in line with our expectations given the transition to Froome production at the Fox Complex and the improvement of operations as a result of increased efficiencies at the Gold Bar mine. The decrease in production at the El Gallo project (600 fewer GEOs relative to Q2/20) is in line with our expectation as residual heap leach operations wind down.
Our share of the San José mine production was 18,200 GEOs in Q2/21 which was 102% higher than the 9,000 GEOs produced in Q2/20.
CONSOLIDATED FINANCIAL REVIEW
Revenue from gold and silver sales in Q2/21 of $40.7 million increased by 123% or $22.4 million compared to Q2/20. The increase reflects 11,700 more GEOs sold from our 100% owned operations. The increase in revenues was also positively impacted by a higher average realized gold price in the quarter compared to Q2/20 ($1,830/oz in Q2/21; $1,733/oz in Q2/20).
The increase in sales in Q2/21 relative Q2/20 includes 8,200 and 4,300 more GEOs sold from Gold Bar and the Fox Complex, respectively.
Revenue from gold and silver sales in H1/21 of $64.4 million increased by 30% compared to revenues of $49.7 million in H1/20. The increase reflects the sale of 5,200 more gold equivalent ounces from our 100% owned mines. The increase in revenues was also positively impacted by a higher average realized gold price in the H1/21 compared to H1/20 ($1,808/oz in H1/21; $1,641/oz in H1/20).
The increase in sales in H1/21 relative to H1/20 includes 6,400 and 1,000 more GEOs from the Gold Bar and Fox Complex operations, respectively, and 2,100 fewer GEOs from El Gallo as operations continue to wind down.
Production Costs applicable to sales in Q2/21 increased by 39% to $31.1 million compared to Q2/20. The increase is driven by an increase in sales production in the quarter partially offset by a decrease in the consolidated cash cost per ounce sold. Refer to the “Results of Operations” sections for further details.
Production Costs applicable to sales in H1/21 increased by 8% to $54.7 million compared to H1/20. Despite the increase in sales volume relative to H1/20, consolidated cost per ounce decreased as a result of improved grades at the Fox Complex and increased efficiencies at Gold Bar.
Advanced projects costs for Q2/21 and H1/21 of $0.8 million and $2.6 million, respectively, decreased from the $2.9 million and $5.4 million, respectively, spent in Q2/20 and H1/20. Costs during Q2/21 included continued spending for the Fox Complex expansion PEA, and the Fenix project in Mexico. Expenditures during H2/20 also included costs related to Froome developments.
Exploration costs of $6.9 million and $11.9 million for Q2/21 and H1/21, respectively, increased by $3.4 million and $4.5 million, compared to the same periods in 2020. Exploration activities ramped up in 2021 following the funding received from our 2020 flow-through share programs. The funds are being used to expand high potential target areas and are incurring eligible Canadian exploration expenditures (“CEE”) in the Timmins region of Ontario. Refer to Note 12 to the Consolidated Financial Statements, Shareholders’ Equity.
Loss from investment in MSC of $1.9 million and $2.4 million in Q2/21 and H1/21, respectively, increased by $0.8 million and decreased by $1.3 million relative to Q2/20 and H1/20, respectively. The Q2/21 change is largely driven by higher than expected costs related to COVID-19, in Q1/21. The change from H1/20 to H1/21 is driven by an increase in attributable net income partially offset by an increase in the fair value amortization.
27
Revision of estimates and accretion of asset retirement obligations of $0.5 million in Q2/21 remained consistent relative to Q2/20. The H1/21 balance of $1.4 million increased by $0.3 million from H1/20 due reclamation adjustments reflecting estimate updates.
Interest and other finance expenses, net of $1.9 million in Q1/21 remained consistent relative to Q1/20. The H1/21 balance decreased by $1.2 million, driven by the amortization of the flow-through premium as eligible CDE and CEE expenditures were incurred.
Other income of $3.8 million and $5.2 million in Q2/21 and H1/21, increased by $0.8 million and $1.3 million compared to the same periods of 2020. The Q2/21 and H1/21 balances relate to proceeds from COVID-19 relief programs in Canada and income from the sale of certain property. Please see Note 5 to the Consolidated Financial Statements, Investments. The Q2/20 and H1/20 balances relate largely to the proceeds received from both the Canadian and U.S. governments for COVID-19 support.
Income and mining tax recovery of $1.0 million and $3.0 million, respectively, for Q2/21 and H1/21, increased compared to $0.1 million and $1.1 million in the same periods of 2020. The increase in the recovery in the 2021 periods is primarily due to the flow-through share premium amortization partially offset by lower recoveries from the weakening Argentine and Mexican pesos against the U.S. dollar, causing fluctuations to the Company’s deferred tax liabilities denominated in the respective foreign currencies.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents balance as at June 30, 2021 of $42.2 million, increased from $20.8 million as at December 31, 2020. The increase in cash and cash equivalents as at June 30, 2021 was primarily due to cash provided from financing activities of $41.8 million, $7.5 million in dividends received from MSC, offset by $8.1 million in cash used in operations, and $20.4 million invested in mineral property, plant and equipment.
Cash from financing activities included gross proceeds of $12.7 million (net proceeds of $12.0 million) from the issuance of Canadian development expenditures (“CDE”) flow-through shares on January 29, 2021 and gross proceeds of $31.5 million (net proceeds of $29.9 million) from a registered direct equity offering on February 9, 2021. We are required to spend the flow-through share proceeds on CDE flow-through eligible as defined by subsection 66.2(5) of the Income Tax Act (Canada). As of June 30, 2021, we have met the CDE spend requirement. For more details on our flow-through share financing refer to Note 12 to the Consolidated Financial Statements, Shareholders’ Equity.
Working capital as at June 30, 2021 of $30.0 million increased by $22.0 million from December 31, 2020. The change is largely attributed to the increase in cash and cash equivalents driven by the financing activities discussed above.
Cash used in operations in H1/21 of $8.1 million decreased from the $20.1 million used in operations in H1/20. The $12.0 million variance is primarily driven by the $16.1 million reduction in net loss versus the same period last year (H1/20 loss; net of Q1/20 impairment charge).
Cash used in investing activities of $12.3 million in H1/21 increased relative to the $7.9 million used in H1/20. The change is largely attributed to the increased capital development costs incurred at the Froome mine deposit at the Fox Complex, as we transition to production in 2021, partially offset by a $7.6 million dividend received from MSC in the H1/21 period.
During H1/21, we spent $20.4 million on mineral property and plant and equipment (an increase of $11.9 million relative to the H1/20 period). The additions were primarily related to capital development costs at the Froome project as we are on schedule to transition to commercial production in Q4/21.
Financing activities provided $41.8 million in cash in H1/21, primarily from $12.0 million provided from the net proceeds from the “CDE” flow-through share raise completed in January 2021 and $29.8 million provided from the February 2021 registered direct common stock offering.
We believe we have sufficient liquidity along with funds generated from ongoing operations, to fund anticipated cash requirements for operations, capital expenditures and working capital purposes for the next 12 months.
28
OPERATIONS REVIEW
U.S.A. Segment
The U.S.A. segment is comprised of the Gold Bar mine and other exploration properties in Nevada, U.S.A.
Gold Bar Mine
The following table sets out certain operating results for the Gold Bar mine for the three and six months ended June 30, 2021 and 2020.
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Operating Results | (in thousands, unless otherwise indicated) | |||||||||||
Mined mineralized material (t) |
| 646 |
| 65 |
| 1,110 |
| 492 | ||||
Average grade (gpt Au) |
| 0.73 |
| 0.82 |
| 0.74 |
| 0.69 | ||||
Processed mineralized material (t) |
| 727 |
| 108 |
| 1,129 |
| 583 | ||||
Average grade (gpt Au) |
| 0.76 |
| 0.77 |
| 0.76 |
| 0.66 | ||||
Gold equivalent ounces: | ||||||||||||
Produced |
| 14.1 |
| 6.1 |
| 21.5 |
| 15.2 | ||||
Sold |
| 14.4 |
| 6.2 |
| 21.7 |
| 15.3 | ||||
Revenue from gold and silver sales | $ | 26,343 | $ | 10,770 | $ | 39,236 | $ | 25,088 | ||||
Cash costs(1) | $ | 21,067 | $ | 11,039 | $ | 34,623 | $ | 28,071 | ||||
Cash cost per ounce ($/Au Eq. oz sold)(1) | $ | 1,463 | $ | 1,772 | $ | 1,598 | $ | 1,840 | ||||
All‑in sustaining costs(1) | $ | 23,314 | $ | 15,336 | $ | 37,374 | $ | 34,985 | ||||
AISC per ounce ($/Au Eq. oz sold)(1) | $ | 1,619 | $ | 2,462 | $ | 1,725 | $ | 2,293 | ||||
Silver : gold ratio |
| 68 : 1 |
| 104 : 1 |
| 68 : 1 |
| 100 : 1 | ||||
| (1) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 38 for additional information. |
2021 compared to 2020
Gold Bar produced 14,064 and 21,479 gold equivalent ounces in Q2/21 and H1/21, respectively. This reflects a 132% and 41% increase from the 6,061 and 15,194 gold equivalent ounces produced in Q2/20 and H1/20, respectively. In H1/21, we improved contractor mining efficiencies, processing optimizations, and ore control. In Q2/20 and H1/20, production results were negatively impacted by COVID-19 related operation suspensions.
Revenue from gold and silver sales of $26.3 million increased in Q2/21 by $15.6 million compared to Q2/20, reflecting a 131% increase in gold equivalent ounces produced and sold. Revenue from gold and silver sales were $39.2 million in H1/21 compared to $25.1 million in H1/20, due to the operation suspensions discussed above.
Production costs applicable to sales of $21.1 million in Q2/21 increased by $10.1 million from $11.0 million in Q2/20. The increase is primarily attributed to the increase in gold equivalent ounces produced and sold. Production costs applicable to sales were $34.6 million in H1/21, compared to $28.1 million in H1/20, reflecting 63% more gold equivalent ounces sold in H1/20 and higher drawdown of gold ounces from our inventories.
Cash cost and AISC per gold equivalent ounce were $1,463 and $1,619 in Q2/21 respectively; and $1,772 and $2,462 in Q2/20, respectively. Cash costs and AISC per GEO decreased by 18% and 35% relative to the 2020 periods. The cost decrease is driven by the increase in production and by the significant operational improvements we have been continuing to work through the past year. We expect to see this trend continue into H2/2021.
Cash cost and AISC per gold equivalent ounce were $1,598 and $1,725 in H1/21 and $1,840 and $2,293 in H1/20. The decrease in cash cost per GEO is driven by the improvement operations discussed above.
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Exploration Activities – Nevada
In Q2/21 and H1/21, we incurred $1.3 million and $1.7 million, respectively, ($1.6 million and $2.0 million in Q2/20 and H1/20, respectively) in exploration expenditures in the Gold Bar mine area. Drilling activities during 2021 were focused primarily on the Ridge deposit located west of the active Pick mine. Exploration efforts focused on de-risking known mineralization and on potential deposit expansion.
Additional exploration activities at the Atlas Pit (formerly Old Gold Bar) are targeting potential unmined mineralization and extending known mineralized structures. Geologic mapping and modelling identified several drill targets for a Phase I program. Activities at the Tonkin property include evaluating regional geology and mineralization controls, outcropping oxide mineralization and collecting samples for metallurgical test work.
Ongoing exploration activities at the Tonkin, East Pick, Cabin, Pot Canyon, and Gold Canyon targets are planned to continue through H2/21.
Exploration at Gold Bar South has successfully advanced the project and is expected to contribute to Gold Bar mine’s future production.
30
Canada Segment
The Canada segment is comprised of the Fox Complex gold assets, which includes the Black Fox underground mine, the Froome underground mine, the Grey Fox and Stock advanced-stage projects, the Stock mill, and other gold exploration properties located in Timmins, Ontario, Canada.
Black Fox mine and Froome mine
Black Fox mine production continues to wind down as production shifts to the Froome mine. Commercial production at the Froome mine is expected to be reached in Q4/21. More underground exploration drilling on the East and West Flanks is planned with the objective of extending the Froome deposit near existing and planned infrastructure. The deposit remains open at depth. Potential exists for echelon mineralization in the hanging-wall and footwall.
In Q2/21, work progressed on efforts to expand the Fox Complex with a PEA examining the potential for increasing gold production and mine life. The PEA will analyze mining from several potential deposits that could be economically processed at the Stock Mill. The results of the PEA are expected to be released in H2/21.
The following table summarizes the operating results for the Black Fox mine for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||||
Operating Results | (in thousands, unless otherwise indicated) | ||||||||||||
Mined mineralized material (t) |
| 57 |
| 32 |
| 104 |
| 72 |
| ||||
Average grade (gpt Au) |
| 3.06 |
| 2.25 |
| 3.14 |
| 3.55 |
| ||||
Processed mineralized material (t) |
| 71 |
| 41 |
| 118 |
| 97 |
| ||||
Average grade (gpt Au) |
| 3.27 |
| 2.15 |
| 3.26 |
| 2.95 |
| ||||
Gold equivalent ounces: | |||||||||||||
Produced |
| 7.1 |
| 2.2 |
| 12.3 |
| 10.5 |
| ||||
Sold | 6.9 | 2.6 | 12.2 | 11.2 | |||||||||
Revenue from gold and silver sales | $ | 12,178 | $ | 4,166 | $ | 20,739 | $ | 16,905 | |||||
Cash costs(1) | $ | 6,331 | $ | 8,150 | $ | 12,987 | $ | 15,357 | |||||
Cash cost per ounce ($/Au Eq. oz sold)(1) | $ | 917 | $ | 3,121 | $ | 1,066 | $ | 1,369 | |||||
All‑in sustaining costs(1) | $ | 7,514 | $ | 8,700 | $ | 15,614 | $ | 20,219 | |||||
AISC per ounce ($/Au Eq. oz sold)(1) | $ | 1,088 | $ | 3,332 | $ | 1,282 | $ | 1,803 | |||||
Silver : gold ratio |
| 68 : 1 |
| 104 : 1 |
| 68 : 1 |
| 100 : 1 | |||||
(1) As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 38 for additional information.
2021 compared to 2020
Production in Q2/21 and H1/21 was 7,073 and 12,300 GEOs, respectively, compared to 2,202 GEOs in Q2/20 and 10,530 GEOs in H1/20. The Froome mine contributed 6,573 GEOs in H1/21 and we expect this to increase throughout H2/21 as we reach commercial production capacity anticipated in Q4/21. In Q2/20 and H1/20, production results were negatively impacted by COVID-19 related operation suspensions.
Revenue from gold sales increased in Q2/21 and H1/21 by $8.0 million and $3.8 million, respectively, compared to Q2/20 and H1/20. The increase reflects more GEOs produced and sold and higher average realized gold price in 2021 versus 2020.
Production costs applicable to sales of $6.3 million decreased from $8.2 million, or by 22% in Q2/21, compared to Q2/20. The decrease in cash cost per GEO in Q2/21 was driven by improved average milled grades and increased mill throughput resulting in more production in Q2/21 as compared to Q2/20.
31
Production costs applicable to sales decreased by $2.4 million, or by 15% in H1/21 compared to H1/20. The decrease in costs is primarily driven by improved average grades as we ramped up production at the Froome mine (only Black Fox was mined in the same period last year), as well as improved contractor cost efficiencies.
All-in sustaining costs decreased in Q2/21 and H1/21 by $1.2 million and $4.6 million, respectively, compared to the same periods in 2020. The decrease in AISC per GEO in the 2021 periods was largely driven by lower cash costs due our improved average grades, mining contractor efficiencies and increased GEOs sold. In addition, there were sustaining capital development costs related to the Black Fox mine in Q2/20 and H1/20, whereas minimal costs were incurred in Q2/21 and H1/21. AISC results were also negatively impacted by COVID-19 related suspensions in 2020.
Froome Mine
The Froome deposit, which is part of the overall Fox Complex, is accessed from two declines at the bottom of the Black Fox pit and situated approximately one-half mile west of the Black Fox mine. As with the ore from the Black Fox mine, Froome ore is hauled approximately 20 miles to the Stock Mine mill for processing.
Underground development successfully reached the Froome ore in Q2/21. Plans remain on schedule to reach commercial production in Q4/21. To date, ore extracted from the Froome mine produced grades that are consistent with the resource model and mine plan. The low-cost and bulk mining method is expected to bridge production while the Grey Fox and Stock projects are advanced towards production. Exploration will continue at Black Fox through 2021.
We are targeting higher production and lower cost profiles at the Fox Complex. We intend to leverage the potential for operational synergies through shared resources and infrastructure, a longer life of mine and expanded production scale for the combined projects.
Exploration Activities
We remain focused on our principal exploration goal of cost-effectively discovering and extending gold deposits adjacent to our existing operations to contribute to near-term gold production. We incurred $3.5 million and $6.3 million in Q2/21 and H1/21, respectively, for exploration initiatives, compared to $0.8 million and $3.2 million of exploration expenditures in Q2/20 and H1/20.
Exploration activities ramped up following the proceeds received from the flow-through share programs in 2020. Exploration efforts were focused around the Stock West and Stock Main (historical mine) targets.
Black Fox mine
In Q2/21, underground drilling at the Black Fox Mine continued to return encouraging high-grade intercepts at 160 West and 130 East targets areas proximal to the main ramp. Underground diamond drilling is being completed to identify additional mineralization adjacent to the Black Fox orebody where mineralization remains unconstrained in multiple directions.
Grey Fox project
Activities at the Grey Fox project included drilling shallow targets which focused on the re-interpretation of local veining trends at the Whiskey Jack and Gibson targets. We expect the resource model to be updated in H2/21 in line with our PEA study.
Stock Property
The Stock exploration area sits adjacent to our Stock mill, which currently processes ore from our Black Fox and Froome mines. This facility processed ore from the historical underground Stock mine, which operated intermittently from the early 1980s until 2004, producing a total of 137,000 ounces of gold.
32
The Stock West mineralized zone was discovered in mid-2019; in 2020 exploration activities were focused on follow-up drilling. Initial results suggest the potential to define a significant new zone of mineralization 1/2 mile (800m) from our Stock processing facility. In Q2/21, four drill rigs were secured at Stock in an effort to infill and expand the known dimensions of the gold mineralization. A total of 65,626 feet (or 20,008 meters) of surface exploration drilling was completed in Q2/21 at Stock West and Stock Main with the primary focus at the Stock West mineralized zone. Two drill rigs also completed 6,106 feet or (1,861) meters to test the depth extension of shoots below the historical underground Stock mine.
Fox Complex Expansion – Economic Study
We have engaged an independent engineering group to complete a Preliminary Economic Assessment (PEA) on the Grey Fox - Black Fox, Froome, Stock and Timmins resources using our existing centralized milling capacity at Stock. The objective of the PEA is to determine a potential low cost, near term business case to increase production and life of mine for the Fox Complex. The PEA activities in H1/21 included ongoing drilling, preliminary modelling of mineralization, baseline work to support permitting, environmental, mine planning and tradeoff studies, metallurgical assessment reviews and process flowsheet assessments, and preliminary cash-flow analyses. The PEA will include resource estimates and an underground design which are expected to be completed in H2/21.
33
Mexico Segment
The Mexico segment includes the El Gallo Project (formerly “El Gallo 1” or “El Gallo Mine”) and the advanced-stage Fenix Project, located in Sinaloa, Mexico.
El Gallo Project
Current activities at the El Gallo Project are limited to residual leaching as part of closure and reclamation plans.
The following table summarizes certain operating results at the El Gallo Project for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Operating Results | (in thousands, unless otherwise indicated) | |||||||||||
Gold ounces: | ||||||||||||
Produced |
| 1.2 |
| 1.9 |
| 2.5 |
| 4.6 | ||||
Sold |
| 1.1 |
| 1.9 |
| 2.4 |
| 4.6 | ||||
Silver ounces: | ||||||||||||
Produced |
| 4.7 |
| 0.5 |
| 4.9 |
| 1.2 | ||||
Sold |
| 4.5 |
| 1.9 |
| 4.5 |
| 1.9 | ||||
Gold equivalent ounces: | ||||||||||||
Produced |
| 1.3 |
| 1.9 |
| 2.5 |
| 4.6 | ||||
Sold |
| 1.2 |
| 1.9 |
| 2.5 |
| 4.6 | ||||
Revenue from gold and silver sales | $ | 2,185 | $ | 3,355 | $ | 4,471 | $ | 7,698 | ||||
Silver : gold ratio |
| 68 : 1 |
| 104 : 1 |
| 68 : 1 | 100 : 1 | |||||
Cash costs and All-in-sustaining costs and Cash cost and AISC per gold equivalent ounce
As the El Gallo Project’s gold production and sales are the result of residual leaching activities, we have ceased relying on and disclosing, cash cost and all-in sustaining cost per gold equivalent ounce as key metrics for the operation. Incremental residual leaching costs included production costs less inventory movements.
Incremental residual leaching costs for the Q2/21 period were $2.7 million, or $2,395 per gold equivalent ounce resulting in a $0.8 million write-down of the heap leach and in-circuit inventory balances. The residual leaching activities at El Gallo are expected to wind down in early 2022.
2021 compared to 2020
Production and revenue, as expected, decreased in Q2/21 and H1/21, compared to Q2/20 and H1/20, as we begin to wind down our operation as a residual heap leach production.
The decrease in revenue, due to a decrease in production, was partially offset by a higher average realized gold price during Q2/21 and H1/21, compared to the same periods of 2020.
Advanced-Stage Properties – Fenix Project
In December 2020, we announced the positive results of a feasibility study for the development of our 100%-owned Fenix Project, which includes the El Gallo Gold and El Gallo Silver deposits.
The study envisions a 9.5-year mine life with an after-tax IRR of 28% using $1,500/oz gold and $17/oz silver, with an estimated initial capital expenditure of $42 million for Phase 1 and $24 million for Phase 2. The project implementation is envisioned in two distinct phases: Phase 1 (years 1 to 6) - gold production from heap leach reprocessing, and Phase 2 (years 7 to 10) - silver production from open-pit mining.
34
The Fenix Project feasibility study was published on February 16, 2021. The feasibility study is available for review on our website and SEDAR (www.sedar.com).
The key environmental permits for Phase 1 were received in 2019, including the approval for an in-pit tailings storage facility and process plant construction.
The Company incurred $0.8 million and $2.1 million in Q2/21 and H1/21, respectively, ($0.5 million and $1.2 million in Q2/20 and H1/20 respectively) on activities required to advance the Fenix Project and is currently evaluating multiple strategic alternatives, including the potential divestiture of our Mexican business unit.
35
MSC Segment, Argentina
The MSC Segment is comprised of a 49% interest in the San José mine, located in Santa Cruz, Argentina.
The following table sets out certain operating results for the San José mine for the three and six months ended June 30, 2021 and 2020 on a 100% basis:
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Operating Results | (in thousands, except otherwise indicated) | |||||||||||
San José Mine—100% basis | ||||||||||||
Mined mineralized material (t) |
| 142 |
| 73 |
| 238 |
| 179 | ||||
Average grade mined (gpt) | ||||||||||||
Gold |
| 4.8 |
| 5.3 |
| 5.2 |
| 6.6 | ||||
Silver |
| 321 |
| 370.1 |
| 338 |
| 449 | ||||
Processed mineralized material (t) |
| 145 |
| 77.5 |
| 246 |
| 162 | ||||
Average grade processed (gpt) | ||||||||||||
Gold |
| 4.7 |
| 5.0 |
| 5.4 |
| 6.4 | ||||
Silver |
| 304 |
| 329 |
| 321 |
| 401 | ||||
Average recovery (%): | ||||||||||||
Gold |
| 87.3 |
| 89.8 |
| 89.0 |
| 89.2 | ||||
Silver |
| 87.4 |
| 89.2 |
| 88.4 |
| 88.8 | ||||
Gold ounces: | ||||||||||||
Produced |
| 19.1 |
| 11.3 |
| 38.4 |
| 29.6 | ||||
Sold |
| 18.8 |
| 15.1 |
| 37.5 |
| 29.7 | ||||
Silver ounces: | ||||||||||||
Produced |
| 1,239 |
| 732 |
| 2,244 |
| 1,858 | ||||
Sold |
| 1,239 |
| 904 |
| 2,236 |
| 1,868 | ||||
Gold equivalent ounces: | ||||||||||||
Produced |
| 37.2 |
| 18.3 |
| 71.3 |
| 48.6 | ||||
Sold |
| 37.0 |
| 23.8 |
| 70.4 |
| 48.6 | ||||
Revenue from gold and silver sales | $ | 70,396 | $ | 47,081 | $ | 123,699 | $ | 84,471 | ||||
Average realized price: | ||||||||||||
Gold ($/Au oz) | $ | 1,903 | $ | 1,893 | $ | 1,757 | $ | 1,796 | ||||
Silver ($/Ag oz) | $ | 27.99 | $ | 20.55 | $ | 25.83 | $ | 16.67 | ||||
Cash costs(1) | $ | 40,888 | $ | 30,402 | $ | 77,256 | $ | 58,718 | ||||
Cash cost per ounce ($/Au Eq. oz sold)(1) | $ | 1,105 | $ | 1,280 | $ | 1,097 | $ | 1,207 | ||||
All‑in sustaining costs(1) | $ | 55,481 | $ | 35,047 | $ | 99,872 | $ | 74,657 | ||||
AISC per ounce ($/Au Eq. oz sold)(1) | $ | 1,500 | $ | 1,476 | $ | 1,418 | $ | 1,535 | ||||
Silver : gold ratio | 68 : 1 |
| 104 : 1 |
| 68 : 1 |
| 98 : 1 | |||||
(1) As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 38 for additional information.
The analysis below compares the operating and financial results of MSC on a 100% basis.
2021 compared to 2020
Gold and silver production both increased by 69% in Q2/21 compared to Q2/20. The increase is attributed to an increase in processed mineralized material slightly offset by lower processed grades. The increase in processed material, in turn, primarily results from reduced interruptions from government-mandated suspensions from COVID-19.
Gold and silver production increased by 30% and 21%, respectively, in H1/21 compared to H1/20. The increase is attributed to an increase in processed mineralized material slightly offset by lower processed grades.
36
Revenue from gold and silver sales increased by 50% and 46% in Q2/21 and H1/21 respectively, compared to Q2/20 and H1/20, reflecting an increase in gold equivalent ounces sold. Significant increases in average realized silver prices contributed to the increase in revenues in the 2021 periods. Revenues on concentrate sales include adjustments from prior sales’ provisional invoice amounts.
Cash costs in Q2/21 and H1/21 increased by $10.5 million, or 34%, and $18.5 million, or 32%, respectively, compared to Q2/20 and H1/20. The change is attributed to increased tons of mineralized material processed and increased gold equivalent ounces produced and sold in the 2021 period. Notwithstanding the aggregate increase, cash costs per ounce decreased slightly due to the diminished impact of COVID-19 interruptions in 2021.
All-in sustaining cost per gold equivalent ounce sold in Q2/21 and H1/21 remained consistent relative to the Q2/20 and H1/20 periods.
Investment in MSC
Our 49% attributable share of operations from our investment in MSC was a loss of $1.9 million and $2.4 million in Q2/21 and H1/21, respectively, compared to a loss of $1.0 million and $3.7 million in Q2/20 and H1/20. The change between Q2/21 and Q2/20 is largely driven by an $0.8 million increase in the fair value amortization. The H1/21 change relative to the H1/20 period is largely driven by the increase in gross profit (due to higher realized metal prices and increased GEOs sold) offset by an increase in other expenditures from financing activities.
We are currently evaluating strategic alternatives for our investment in MSC.
MSC Dividend Distribution (49%)
We received $2.6 million and $7.6 million in dividends from MSC in Q2/21 and H1/21, compared to $0.3 million in dividends received during the same periods in 2020.
Los Azules Segment, Argentina
The Los Azules project is a copper exploration project located in San Juan, Argentina.
On July 6, 2021, the Company announced its wholly-owned subsidiary which holds 100% of the Los Azules Copper project will be raising a financing for the continued development of this project, as well as to fund a modest exploration program for its Elder Creek Copper exploration properties in Nevada. McEwen Copper is seeking to raise up to $80 million in a private offering and Rob McEwen has committed the first $40 million dollars of this financing. A PEA was completed on Los Azules in 2017. Please refer to our website at www.mcewenmining.com for further details.
In H1/21, preliminary engineering work to advance the proposed low altitude all-year access route was completed. Most of the surveying and staking of the mining rights was completed to prepare for consolidation of all the mining rights into a single mining group. Site surveying and staking at the Escorpio IV and Mercedes areas were completed in January 2021.
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NON-GAAP FINANCIAL PERFORMANCE MEASURES
We have included in this report certain non-GAAP financial performance measures as detailed below. In the gold mining industry, these are common performance measures but do not have any standardized meaning and are considered non-GAAP measures. We use these measures in evaluating our business and believe that, in addition to conventional measures prepared in accordance with GAAP, certain investors use such non-GAAP measures to evaluate our performance and ability to generate cash flow. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. There are limitations associated with the use of such non-GAAP measures. We compensate for these limitations by relying primarily on our U.S. GAAP results and using the non-GAAP measures supplementally.
The non-GAAP measures are presented for our wholly-owned mines and the San José mine. The GAAP information used for the reconciliation to the non-GAAP measures for the San José mine may be found in Note 9, Investment in Minera Santa Cruz S.A. (“MSC”) – San José Mine. We do not control the interest in or operations of MSC and the presentations of assets and liabilities and revenues and expenses of MSC do not represent our legal claim to such items. The amount of cash we receive is based upon specific provisions of the Option and Joint Venture Agreement (“OJVA”) and varies depending on factors including the profitability of the operations.
The presentation of these measures, including those for MSC, has limitations as an analytical tool. Some of these limitations include:
| ● | The amounts shown on MSC’s individual line items do not represent our legal claim to its assets and liabilities, or the revenues and expenses; and |
| ● | Other companies in our industry may calculate their cash gross profit, cash costs, cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, average realized price per ounce, and liquid assets differently than we do, limiting the usefulness as a comparative measure. |
Cash Gross Profit or Loss
Cash gross profit or loss is a non-GAAP financial measure and does not have any standardized meaning under GAAP. We use cash gross profit to evaluate our operating performance and ability to generate cash flow; we disclose cash gross profit as we believe this measure provides valuable assistance to investors and analysts in evaluating our ability to finance our ongoing business and capital activities. The most directly comparable measure prepared in accordance with GAAP is gross profit or loss. Cash gross profit is calculated by adding back the depreciation and depletion expense to gross profit or loss.
The following tables present a reconciliation of cash gross profit or loss to the most directly comparable GAAP measure, gross profit or loss:
Three months ended June 30, 2021 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
Gold Bar | Black Fox | El Gallo | Total (100% owned) | Gold Bar | Black Fox | El Gallo | Total (100% owned) | ||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||||||||
Gross profit (loss) | $ | 2,950 | $ | 2,658 | $ | (1,549) | $ | 4,059 | $ | 545 | $ | 1,168 | $ | (2,640) | $ | (927) | |||||||||||||||||||||||
Add: Depreciation and depletion | 2,326 | 3,189 | — | 5,515 | 4,068 | 6,584 | — | 10,652 | |||||||||||||||||||||||||||||||
Cash gross profit (loss) | $ | 5,276 | $ | 5,847 | $ | (1,549) | $ | 9,574 | $ | 4,613 | $ | 7,752 | $ | (2,640) | $ | 9,725 | |||||||||||||||||||||||
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Three months ended June 30, 2020 | Six months ended June 30, 2020 | ||||||||||||||||||||||||
Gold Bar | Black Fox | El Gallo | Total (100% owned) | Gold Bar | Black Fox | El Gallo | Total (100% owned) | ||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||
Gross (loss) profit | $ | (2,834) | $ | (6,168) | $ | 127 | $ | (8,875) | $ | (9,411) | $ | (3,384) | $ | 235 | $ | (12,560) | |||||||||
Add: Depreciation and depletion | 2,565 | 2,184 | 63 | 4,812 | 6,428 | 4,932 | 150 | 11,510 | |||||||||||||||||
Cash gross (loss) profit | $ | (269) | $ | (3,984) | $ | 190 | $ | (4,063) | $ | (2,983) | $ | 1,548 | $ | 385 | $ | (1,050) | |||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
San José mine cash gross profit (100% basis) | (in thousands) | |||||||||||
Gross profit | $ | 19,728 | $ | 9,029 | $ | 29,711 | $ | 10,776 | ||||
Add: Depreciation and depletion | 9,779 | 7,650 | 16,732 | 14,977 | ||||||||
Cash gross profit | $ | 29,507 | $ | 16,679 | $ | 46,443 | $ | 25,753 | ||||
Cash Costs and All-In Sustaining Costs
The terms cash costs, 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 operational efficiencies on an individual mine basis, and believe these measures provide investors and analysts with useful information about our underlying costs of operations.
Cash costs consist 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, but exclude depreciation and amortization, which are non-cash items. The sum of these costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.
All-in sustaining costs consist of cash costs (as described above), plus accretion of retirement obligations and amortization of the asset retirement costs related to operating sites, environmental rehabilitation costs for mines with no reserves, sustaining exploration and development costs, sustaining capital expenditures and sustaining lease payments. Our all-in sustaining costs exclude the allocation of corporate general and administrative costs. Following is additional information regarding our all-in sustaining costs:
| ● | Sustaining operating costs represent expenditures incurred at current operations that are considered necessary to maintain current annual production at the mine site and include mine development costs and ongoing replacement of mine equipment and other capital facilities. Sustaining capital costs do not include costs of expanding the project that would result in improved productivity of the existing asset, increased existing capacity or extended useful life. |
| ● | Sustaining exploration and development costs include expenditures incurred to sustain current operations and to replace reserves and/or resources extracted as part of the ongoing production. Exploration activity performed near-mine (brownfield) or new exploration projects (greenfield) are classified as non-sustaining. |
The sum of all-in sustaining costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.
Costs excluded from cash costs and all-in sustaining costs, in addition to depreciation and depletion, are income and mining tax expense, all corporate financing charges, costs related to business combinations, asset acquisitions and asset disposal, impairment charges and any items that are deducted for the purpose of normalizing items.
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The following tables reconcile these non-GAAP measures to the most directly comparable GAAP measure, production costs applicable to sales; the El Gallo project results are excluded from this reconciliation as the economics of residual leaching operations are measured by incremental revenue exceeding incremental costs. Incremental residual leaching costs for the three and six months ended June 30, 2021 were $2.7 million or $2,395 per gold equivalent ounce sold and $5.3 million or $2,204 per gold equivalent ounce sold, respectively, compared to $2.4 million or $1,262 and $5.2 million or $1,124 per gold equivalent ounce sold in the same periods of 2020.
Three months ended June 30, 2021 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||
Gold Bar | Black Fox | Total | Gold Bar | Black Fox | Total | ||||||||||||||||||||||||||||
(in thousands, except per ounce) | (in thousands, except per ounce) | ||||||||||||||||||||||||||||||||
Production costs applicable to sales - Cash costs (100% owned) |
| $ | 21,067 | $ | 6,331 | $ | 27,398 | $ | 34,623 | $ | 12,987 | $ | 47,610 | ||||||||||||||||||||
Mine site reclamation, accretion and amortization | 159 | 116 | 276 | 316 | 654 | 970 | |||||||||||||||||||||||||||
In‑mine exploration | 775 | 667 | 1,441 | 960 | 1,243 | 2,203 | |||||||||||||||||||||||||||
Capitalized underground mine development (sustaining) | — | — | — | — | 231 | 231 | |||||||||||||||||||||||||||
Capital expenditures on plant and equipment (sustaining) | 421 | 270 | 692 | 543 | 243 | 785 | |||||||||||||||||||||||||||
Sustaining leases | 892 | 129 | 1,021 | 892 | 256 | 1,148 | |||||||||||||||||||||||||||
All‑in sustaining costs | $ | 23,314 | $ | 7,514 | $ | 30,828 | $ | 37,333 | $ | 15,614 | $ | 52,947 | |||||||||||||||||||||
Ounces sold, including stream (Au Eq. oz)(1) | 14.4 | 6.9 | 21.3 | 21.7 | 12.2 | 33.8 | |||||||||||||||||||||||||||
Cash cost per ounce ($/Au Eq. oz sold) | $ | 1,463 | $ | 917 | $ | 1,286 | $ | 1,598 | $ | 1,066 | $ | 1,407 | |||||||||||||||||||||
AISC per ounce ($/Au Eq. oz sold) | $ | 1,619 | $ | 1,088 | $ | 1,447 | $ | 1,723 | $ | 1,282 | $ | 1,564 | |||||||||||||||||||||
| (1) | Total gold equivalent ounces sold for Q2/21 and H1/21 was 22,500 and 36,400 respectively, and includes gold equivalent ounces sold from the operating mines of 21,300 and 33,800, as disclosed above, and 1,200 and 2,500 gold equivalent ounces sold from the El Gallo Project for Q2/21 and H1/21, respectively. |
Three months ended June 30, 2020 | Six months ended June 30, 2020 | |||||||||||||||||
Gold Bar | Black Fox | Total | Gold Bar | Black Fox | Total | |||||||||||||
(in thousands, except per ounce) | (in thousands, except per ounce) | |||||||||||||||||
Production costs applicable to sales - Cash costs (100% owned) | $ | 11,039 | $ | 8,150 | $ | 19,189 | $ | 28,071 | $ | 15,357 | $ | 43,428 | ||||||
Mine site reclamation, accretion and amortization | 156 | 99 | 255 | 507 | 194 | 701 | ||||||||||||
In‑mine exploration | 841 | 191 | 1,032 | 841 | 617 | 1,458 | ||||||||||||
Capitalized underground mine development (sustaining) | — | — | — | — | 3,646 | 3,646 | ||||||||||||
Capital expenditures on plant and equipment (sustaining) | 2,798 | 211 | 3,009 | 4,588 | 261 | 4,849 | ||||||||||||
Sustaining leases | 502 | 49 | 551 | 978 | 144 | 1,122 | ||||||||||||
All‑in sustaining costs | $ | 15,336 | $ | 8,700 | $ | 24,036 | $ | 34,985 | $ | 20,219 | $ | 55,204 | ||||||
Ounces sold, including stream (Au Eq. oz)(1) | 6.2 | 2.6 | 8.8 | 15.3 | 11.2 | 26.5 | ||||||||||||
Cash cost per ounce ($/Au Eq. oz sold) | $ | 1,772 | $ | 3,121 | $ | 2,170 | $ | 1,840 | $ | 1,369 | $ | 1,641 | ||||||
AISC per ounce ($/Au Eq. oz sold) | $ | 2,462 | $ | 3,332 | $ | 2,719 | $ | 2,293 | $ | 1,803 | $ | 2,086 | ||||||
| (1) | Total gold equivalent ounces sold for Q2/20 and H1/20 was 10,800 and 31,000, respectively, and includes gold equivalent ounces sold from the operating mines of 8,800 and 26,500 as disclosed above, and 1,900 and 4,600 gold equivalent ounces sold from the El Gallo Project for Q2/20 and H1/20. |
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Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
San José mine cash costs (100% basis) | (in thousands, except per ounce) | |||||||||||
Production costs applicable to sales - Cash costs | $ | 40,888 | $ | 30,402 | $ | 77,256 | $ | 58,718 | ||||
Mine site reclamation, accretion and amortization | 117 | 111 | 216 | 246 | ||||||||
Site exploration expenses |
| 2,411 | 917 | 5,251 | 3,783 | |||||||
Capitalized underground mine development (sustaining) |
| 6,642 | 2,674 | 11,314 | 9,119 | |||||||
Less: Depreciation | (430) | (344) | (826) | (687) | ||||||||
Capital expenditures (sustaining) |
| 5,853 | 1,287 | 6,661 | 3,478 | |||||||
All‑in sustaining costs | $ | 55,481 | $ | 35,047 | $ | 99,872 | $ | 74,657 | ||||
Ounces sold (Au Eq. oz) | 37.0 | 23.8 | 70.4 | 48.6 | ||||||||
Cash cost per ounce ($/Au Eq. oz sold) | $ | 1,105 | $ | 1,280 | $ | 1,097 | $ | 1,207 | ||||
AISC per ounce ($/Au Eq. oz sold) | $ | 1,500 | $ | 1,476 | $ | 1,418 | $ | 1,535 | ||||
Average realized price
The term average realized price per ounce used in this report is also a non-GAAP financial measure. We prepare this measure to evaluate our performance against market (London P.M. Fix). Average realized price is calculated as gross sales of gold and silver, less streaming revenue, divided by the number of net ounces sold in the period, less ounces sold under the streaming agreement.
The following table reconciles the average realized prices to the most directly comparable U.S. GAAP measure, revenue from gold and silver sales. Ounces of gold and silver sold for the San José mine are provided to us by MSC.
Three months ended June 30, | Six months ended June 30, | |||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
Average realized price - 100% owned | (in thousands, except per ounce) | |||||||||||
Revenue from gold and silver sales | $ | 40,706 | $ | 18,291 | $ | 64,446 | $ | 49,691 | ||||
Less: revenue from gold sales, stream | 214 | 179 | 569 | 681 | ||||||||
Revenue from gold and silver sales, excluding stream | $ | 40,492 | $ | 18,112 | $ | 63,877 | $ | 49,010 | ||||
Gold equivalent ounces sold | 22.5 | 10.8 | 36.3 | 31.1 | ||||||||
Less: gold ounces sold, stream | 0.4 | 0.3 | 1.0 | 1.2 | ||||||||
Gold equivalent ounces sold, excluding stream | 22.1 | 10.5 | 35.3 | 29.9 | ||||||||
Average realized price per Au Eq. oz sold, excluding stream | $ | 1,830 | $ | 1,733 | $ | 1,808 | $ | 1,641 | ||||
Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Average realized price - San José mine (100% basis) | (in thousands, except per ounce) | |||||||||||
Gold sales | $ | 35,728 | $ | 28,499 | $ | 65,947 | $ | 53,337 | ||||
Silver sales | 34,668 |
| 18,582 | 57,752 |
| 31,134 | ||||||
Gold and silver sales | $ | 70,396 | $ | 47,081 | $ | 123,699 | $ | 84,471 | ||||
Gold ounces sold |
| 18.8 |
| 15.1 | 37.5 |
| 29.7 | |||||
Silver ounces sold |
| 1,239 |
| 904 | 2,236 |
| 1,868 | |||||
Gold equivalent ounces sold |
| 37.0 |
| 23.8 | 70.4 |
| 48.6 | |||||
Average realized price per gold ounce sold | $ | 1,903 | $ | 1,893 | $ | 1,757 | $ | 1,796 | ||||
Average realized price per silver ounce sold | $ | 27.99 | $ | 20.55 | $ | 25.83 | $ | 16.67 | ||||
Average realized price per gold equivalent ounce sold | $ | 1,903 | $ | 1,982 | $ | 1,757 | $ | 1,737 | ||||
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Liquid assets
The term liquid assets is also a non-GAAP financial measure. We report this measure to better understand our liquidity in each reporting period.
Liquid assets is calculated as the sum of the Balance Sheet line items of cash and cash equivalents, restricted cash, investments, and receivables plus ounces of doré held in precious metals inventories valued at the London PM Fix spot price at the corresponding period. The following table summarizes the calculation of liquid assets as at June 30, 2021 and 2020:
June 30, | ||||||
| 2021 |
| 2020 | |||
(in thousands) | ||||||
Cash and cash equivalents | $ | 42,232 | $ | 18,410 | ||
Restricted cash | 3,625 | — | ||||
Investments | 1,777 | — | ||||
Trade receivables | - | 882 | ||||
Receivables from marketable securities sales | - | 960 | ||||
Precious Metals valued at market value (1)(2) | 1,306 | 592 | ||||
Total liquid assets | $ | 48,940 | $ | 20,844 | ||
| (1) | As at June 30, 2021 and 2020 we held 761 and 335 gold equivalent ounces in inventory, respectively, net of our streaming agreement, valued at $1,763 and $1,768 per ounce, respectively. |
| (2) | Precious metals valued at cost, inclusive of ounces to be delivered under the streaming agreement, equals $1,696. |
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CRITICAL ACCOUNTING POLICIES
Critical accounting policies and estimates used to prepare our financial statements are discussed with our Audit Committee as they are implemented and on an annual basis.
The were no significant changes in our Critical Accounting Policies since December 31, 2020. For further details on the Company’s accounting policies, refer to the December 31, 2020 10-K.
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, costs and feasibility of production, production estimates, receipt of permits or other regulatory or government approvals and plans for the development of our properties; |
| ● | statements regarding the potential impacts of the COVID-19 pandemic, government responses to the continuing pandemic, and our response to those issues; |
| ● | statements regarding strategic alternatives that we are, or may in the future, evaluate in connection with our business; |
| ● | 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. Many of these statements can be found 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.
We caution you not to put undue reliance on these forward-looking statements, which speak only as of the date of this report. Further, the forward-looking 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
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 other reports filed with the SEC, and the following:
| ● | our ability to raise funds required for the execution of our business strategy; |
| ● | the effects of pandemics such as COVID-19 on health in our operating jurisdictions and the worldwide, national, state and local responses to such pandemics; |
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| ● | 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 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; |
| ● | changes in federal, state, provincial and local laws and regulations; |
| ● | 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; |
| ● | uncertainty relating to title to mineral properties; |
| ● | changes in relationships with the local communities in the areas in which we operate; and |
| ● | decisions by third parties over which we have no control. |
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.
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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, credit risk, interest rate risk and inflationary 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 result in a decrease in our percentage of ownership.
Foreign Currency Risk
In general, the devaluation of non-U.S. dollar currencies with respect to the U.S. dollar has a positive effect on our costs and liabilities which are incurred outside the U.S. while it has a negative effect on our assets denominated in non-U.S. dollar currency. Although we transact most of our business in U.S. dollars, some expenses, labor, operating supplies and property and equipment are denominated in Canadian dollars, Mexican pesos or Argentine pesos.
Since 2008, the Argentine peso has been steadily devaluing against the U.S. dollar by 10% to 40% on an annual basis. During the six months ended June 30, 2021, the Argentine peso devalued 12% compared to a devaluation of 15% in the same period of 2020.
During the six months ended June 30, 2021, the Mexican peso devalued by 0.1% compared to a devaluation of 18% against the U.S Dollar in the same period in 2020.
The Canadian dollar experienced a 3% appreciation against the U.S. dollar for the six months ended June 30, 2021, compared to a 5% depreciation in the comparable period of 2020.
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 $1.7 million (C$2.0 million) at June 30, 2021, a 1% change in the Canadian dollar would result in a gain/loss of less than $0.1 million in the Consolidated Statements of Operations. We also hold negligible portions of our cash reserves in Mexican and Argentina pesos, with the effect that a 1% change in these respective currencies would result in gains/losses immaterial for disclosure.
Further, we are also subject to foreign currency risk on the fluctuation of the Mexican peso on our VAT receivable balance. As of June 30, 2021, our VAT receivable balance was Mexican peso 12,732,326, equivalent to approximately $0.6 million, for which a 1% change in the Mexican peso would have resulted in a gain/loss of less than $0.1 million in the Consolidated Statements of Operations.
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 or other equity securities. 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 equity securities 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 valuation.
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Commodity Price Risk
We produce and sell gold and silver, therefore changes in the market price of gold and silver have and could in the future significantly affect our results of operations and cash flows. Change in the price of gold and silver could materially affect our revenues. Based on our revenues from gold and silver sales of $64.4 million for the six months ended June 30, 2021, a 10% change in the price of gold and silver would have had an impact of approximately $6.4 million on our revenues. Changes in the price of gold and silver can also affect the provisionally priced sales that we make under agreements with refiners and other purchasers of our products. At June 30, 2021, we had no gold or silver sales subject to final pricing.
We have in the past and may in the future hold a portion of our treasury in gold and silver bullion, where the value is recorded at the lower of cost or market. Gold and silver prices may affect the value of any bullion that we hold in treasury.
We do not hedge any of our sales and are therefore subject to all changes in commodity prices.
Credit Risk
We may be exposed to credit loss through our precious metals and doré sales agreements with Canadian financial institutions and refineries if these customers 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 that any of the financial institutions or refineries will default on their obligation. As of June 30, 2021, 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 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 $0.6 million as at June 30, 2021.
In Nevada and Ontario, Canada we are required to provide security to cover our projected reclamation costs. As at June 30, 2021, we have surety bonds of $32.4 million in place to satisfy bonding requirements for this purpose. The bonds have an annual fee of 2.3% of their value and require a deposit of 11% of the amount of the bond. Although we do not believe we have any significant credit exposure associated with these bonds or the deposit, we are exposed to the risk that the surety may default in returning our deposit or 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.
Interest rate risk
Our outstanding debt consists of various equipment leases and the senior secured credit facility. As the debt is at fixed rates, we consider our interest rate risk exposure to be insignificant at this time.
Inflationary Risk
Argentina has experienced a significant amount of inflation over the last ten years and has been classified as a highly inflationary economy. ASC 830 defines a hyperinflationary economy as one where the cumulative inflation rate exceeds 100% over the last three years preceding the reporting period. In this scenario, ASC 830 requires companies to change the functional currency of its foreign subsidiaries operating in a highly inflationary economy, to match the company’s reporting currency. In our case, the functional currency of all our Argentine subsidiaries has always been our reporting currency, the U.S. dollar. As such, we do not expect the classification of Argentina’s economy as a highly inflationary economy to change our financial reporting methodology.
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Item 4. CONTROLS AND PROCEDURES
(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 June 30, 2021, 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) | There were no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that materially affected or are reasonably likely to materially affect, our internal controls over financial reporting. |
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PART II OTHER INFORMATION
Item 4. MINE SAFETY DISCLOSURES
At McEwen Mining, safety is a core value, and we strive for superior performance. Our health and safety management system, which includes detailed standards and procedures for safe production, addresses topics such as employee training, risk management, workplace inspection, emergency response, accident investigation and program auditing. In addition to strong leadership and involvement from all levels of the organization, these programs and procedures form the cornerstone of safety at McEwen Mining, ensuring that employees are provided a safe and healthy environment and are intended to reduce workplace accidents, incidents and losses, comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety.
The operation of our Gold Bar mine is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our Gold Bar mine on a regular basis and may issue citations and orders when it believes a violation has occurred under the Mine Act. While we contract a majority of the mining operations at Gold Bar to an independent contractor, we may be considered an “operator” for purposes of the Mine Act and may be issued notices or citations if MSHA believes that we are responsible for violations.
We are required to report certain mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, and that required information is included in Exhibit 95 filed with this report.
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Item 6. EXHIBITS
The following exhibits are filed or incorporated by reference with this report:
3.1.1 |
| |
3.1.2 | ||
3.1.3 | ||
3.2 | ||
10.1* |
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31.1 | ||
31.2 | ||
32 | ||
95 | ||
101 | The following materials from McEwen Mining Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 are filed herewith, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Unaudited Consolidated Statements of Operations and Comprehensive (Loss) for the three and six months ended June 30, 2021 and 2020, (ii) the Unaudited Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, (iii) the Unaudited Consolidated Statement of Changes in Shareholders’ Equity for the three and six months ended June 30, 2021 and 2020, (iv) the Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020, and (v) the Unaudited Notes to the Consolidated Financial Statements. | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBLR and contained in Exhibit 101. | |
* | Compensatory plan or arrangement |
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SIGNATURES
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: August 4, 2021 | By: Robert R. McEwen, |
Chairman and Chief Executive Officer | |
/s/ Anna Ladd-Kruger | |
Date: August 4, 2021 | By: Anna Ladd-Kruger, |
Chief Financial Officer |
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