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McEwen Mining Good Progress - Fox Complex sees cash cost/oz fall to their lowest since 2018

Dec 8, 2022

Corporate news items from McEwen Mining, are typically, short, blunt, and remarkably honest. That’s all the more reason that the company’s latest report to shareholders is signalling a reversal of fortunes for the small-cap miner and a big jump in valuation, if chairman Rob McEwen is right.
With three producing mines in favourable jurisdictions, including the Fox Complex near Timmins, McEwen announced positive trends in early November.
“This year has been much better than the previous three! While we still have issues to resolve, such as increasing our treasury by producing more ounces at a lower cost, we can clearly see a brighter future,” said Chairman and Chief Owner Rob McEwen.
“At the Fox Complex, where we have had a history of high operating cost/oz we are making good progress reducing our cost. I am pleased to say that in Q3 our cash cost/oz at Fox fell to $774, our lowest since mid-2018. This is well below the industry average. Our next important area to improve at Fox is the process plant (mill). Specifically, we need to increase the throughput because our mine is now producing more ore than our mill can process.”
As a result, the company has a large surface stockpile of ore equivalent to more than two months of production.
At Gold Bar, McEwen is looking forward to starting the mine Gold Bar South (GBS) deposit this quarter. “We are expecting to have a much lower cost/oz than our YTD cost because we will be mining higher grade ore at GBS, with half the strip ratio and no problematic carbonaceous material.”
In Mexico, we recently acquired a complete process plant on very advantageous terms that will help significantly reduced projected capital requirements for our Fenix project. This acquisition has made Fenix more attractive to build and could provide a new long life mine for McEwen Mining.
The San José mine, where they have a 49% interest, put in a strong quarter and its exploration is continuing to extend its high-grade veins and discover new veins.
“We completed an $82 million financing for McEwen Copper in a very tough equity market. Rio Tinto, the second largest mining company in the world, through its subsidiary Nuton, now owns 9.7% of McEwen Copper, as a result of its investment of $25M. Also, Nuton is testing the Los Azules copper mineralization to see if it can accelerate and increase copper recoveries. Another of Rio Tinto’s subsidiaries, Kennecott Exploration, signed an option to earn 60% interest in McEwen Copper’s other copper project, Elder Creek, by spending $18 million on exploration. Elder Creek is located in Nevada,” added McEwen.
In July, McEwen shares underwent a 10 for 1 consolidation. The company called it an “unfortunate but necessary action” to protect their listing on the NYSE, which is their principal exchange and where trading volume is the highest.
“Value, like beauty, is frequently in the eye of the beholder. I am often asked what I think MUX is worth and I want to share my answer with you,” Chairman Rob McEwen stated.


McEwen Mining “MUX” a great buy
with considerable potential value


“I have arrived at a high/low range of value for MUX by adding up the some of its parts. Here are the parts: MUX has a 68% interest in McEwen Copper, it owns 100% of three gold mines: Fox Complex, Gold Bar and El Gallo/Fenix, a 49% interest in the San José gold/silver mine, a portfolio of five royalties (NSRs) and a collection of exploration properties,” McEwen added.
“The operating challenges we faced in recent years have severely damaged our credibility with our shareholders and the market. As a result, few investors have taken a close look recently at our assets. If they did, I believe some would see the potential value that I see today. Yes, our cash is tight, our costs/oz are high and our mine lives are currently short, but that has been changing for the better.”
Fox Complex

Fox achieved the lowest quarterly cash cost since mid-2018 and they believe there is good potential to further reduce costs and increase production at Fox Complex by increasing mill throughput. They also plan to start crushing at the Froome mine site prior to transportation to the mill, which should relieve stress on the primarily crushing circuit.
In Q3, the company incurred $2.7 million for exploration at Stock and at the Black Fox properties.
“Let me show you my math and how I had arrived at a possible potential value for MUX of $8 to $30/share,” sais McEwen.
“In this valuation estimate I have compared Los Azules to two copper projects, Josemaria and Filo, that are in the same province in Argentina as Los Azules. Compared to Los Azules these projects are located at substantially higher elevations, are at a greater distance from critical infrastructure (highways and power grid), have a smaller published copper resource base and copper grade, and they have public market values. Josemaria was purchased for $485M in April and Filo Mining has a market capitalization of $1.6B. The low end of the range is based on 50% of Josemaria’s purchase price and high end on Filo’s market capitalization.”
McEwen continued, “for the valuation estimate of MUX’s gold and silver mining interests, we compared the average Enterprise Value (EV) per GEO production of five smaller producers. The low end of range is based on 50% of their multiple and the high end at par with their multiple.”

Table Notes:

1.McEwen Mining has 51 million fully diluted shares
2.McEwen Mining owns 68.1% of McEwen Copper which owns 100% of Los Azules and Elder Creek
3.Josemaria purchase price was $485 million ($485M x 50% x 68.1%) / 51M
4.Filo Mining market capitalization $1.6 billion ($1.6B x 68.1%) / 51M
5.Elder Creek value is based on earn-in ($18M / 60%) x 68.1% / 51M
6.Royalties: 1.25% NSR on Los Azules and Elder Creek, plus three other royalties. Est. $35M / 51M
7.Average peer group (Jaguar Mining, Silvercorp, Fortitude, Gold Resource, Endeavour Silver) EV/GEO multiple 2.14x higher than MUX
8.Average peer group EV/GEO x 50%

McEwen Picture


“As you can see, I believe there is considerable potential value in MUX, and that is a big reason why I have a personal financial commitment of $220M in MUX and McEwen Copper. Another way to look at MUX is that its current share price of $3.66 reflects the low end of potential value of the company’s ownership in McEwen Copper and you get all the other assets for free,” said McEwen.


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