McEwen Mining(MUX) - 2020 Q2 - Quarterly Report

Part I Financial Statements This section presents the unaudited consolidated financial statements for the three and six months ended June 30, 2020, along with accompanying notes Consolidated Statements of Operations Highlights (in thousands USD, except per share) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue from gold and silver sales | $18,291 | $36,383 | $49,691 | $51,966 | | Gross (loss) profit | $(8,875) | $4,677 | $(12,560) | $6,105 | | Net loss | $(19,814) | $(13,014) | $(119,005) | $(23,150) | | Basic and Diluted Net loss per share | $(0.05) | $(0.04) | $(0.30) | $(0.07) | Consolidated Balance Sheets Highlights (in thousands USD) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $58,198 | $91,978 | | Total assets | $504,707 | $631,223 | | Total current liabilities | $32,679 | $48,795 | | Total liabilities | $121,995 | $131,744 | | Total shareholders' equity | $382,712 | $499,479 | Consolidated Statements of Cash Flows Highlights (Six months ended June 30, in thousands USD) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Cash used in operating activities | $(20,099) | $(9,152) | | Cash used in investing activities | $(7,916) | $(22,464) | | Cash (used in) provided by financing activities | $(996) | $23,995 | | (Decrease) in cash, cash equivalents and restricted cash | $(28,042) | $(8,004) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial items, highlighting the impact of COVID-19, going concern doubts, an $83.8 million impairment, and debt refinancing - The COVID-19 pandemic led to temporary shutdowns of operations at all mine sites starting in Q2 2020, which adversely impacted the Company's operations, cash flow, and liquidity[24][25] - Due to an expected resource reduction at the Gold Bar mine, operational challenges at Black Fox, and COVID-19 disruptions, there is uncertainty about the Company's ability to generate sufficient operating cash flow and remain in compliance with its financial covenants over the next 12 months, raising going concern issues. Management is evaluating options to raise additional equity and curtail expenditures[31][32] - A non-cash impairment charge of $83.8 million was recorded in Q1 2020, reducing the carrying value of the Gold Bar mine's plant, equipment, and mineral property interests. The impairment was triggered by a reduction in preliminary estimated resources[56] - On June 25, 2020, the Company refinanced its $50 million senior secured term loan facility through an Amended and Restated Credit Agreement (ARCA), which extended scheduled principal repayments by two years[65] - In Q2 2020, the Company secured government relief funds related to COVID-19, including $1.9 million from the US paycheck protection ("PPP") program and $1.5 million from the Canadian Emergency Wage Subsidy program[46] Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operational results, highlighting the significant impact of COVID-19 on production, revenue, and liquidity, alongside going concern uncertainties - Operations were disrupted by temporary shutdowns in late March and early April 2020 to protect the workforce from COVID-19, adversely impacting mine operations, cash flow, and liquidity during Q2 2020[98][99] Q2 2020 vs Q2 2019 Performance Highlights | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Production (Au Eq. oz) | 19,200 | 45,900 | | Revenue (millions USD) | $18.3 | $36.3 | | Net Loss (millions USD) | $(19.8) | $(13.0) | | Cash Gross Loss (millions USD) | $(4.1) | $11.7 (Profit) | - The company's cash balance decreased from $46.5 million at year-end 2019 to $18.4 million at June 30, 2020, reflecting cash used in operations and investments in mineral properties[136] - An impairment charge of $83.8 million was recorded for the Gold Bar mine in H1 2020 due to a reduction in preliminary estimated resources and expected future production[131] Operating and Financial Highlights Q2 2020 performance was significantly impacted by COVID-19 shutdowns, leading to reduced production, a $19.8 million net loss, and lower cash balances - All operations experienced temporary shutdowns during Q2 2020 due to the COVID-19 pandemic[105] Q2 2020 Key Metrics | Metric | Value | | :--- | :--- | | Production | 19,200 Au Eq. oz | | Sales | 22,400 Au Eq. oz | | Revenue (100% owned ops) | $18.3 million | | Net Loss | $19.8 million | | Cash and cash equivalents | $18.4 million | Consolidated Performance The company reported a $19.8 million net loss for Q2 2020, an increase from the prior year, primarily due to lower production and sales volumes caused by COVID-19 shutdowns - The net loss for Q2 2020 was $19.8 million, compared to a $13.0 million loss in Q2 2019, driven by lower production and sales due to COVID-19 operational suspensions[115] Production Comparison (Au Eq. oz) | Operation | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | 100% owned operations | 10,200 | 22,700 | -55% | | San José mine (49% attributable) | 9,000 | 23,200 | -61% | Liquidity and Capital Resources The company's cash balance significantly decreased to $18.4 million by June 30, 2020, raising substantial doubt about its ability to continue as a going concern - Cash and cash equivalents decreased by $28.1 million during the first six months of 2020, ending at $18.4 million[136] - The company refinanced its senior secured term loan in June 2020, extending principal repayments by two years. However, uncertainty remains regarding its ability to generate sufficient cash flow and comply with debt covenants, raising going concern doubts[144][145] Operations Review This section reviews each operating segment, detailing production impacts from COVID-19 shutdowns, an $83.8 million impairment at Gold Bar, and ongoing development at Froome Q2 2020 Production by Segment (Au Eq. oz) | Segment | Production | Note | | :--- | :--- | :--- | | Gold Bar (USA) | 6,100 | Impacted by COVID-19 shutdown | | Black Fox (Canada) | 2,200 | Impacted by COVID-19 shutdown | | El Gallo (Mexico) | 1,900 | Residual leaching | | San José (Argentina, 49%) | 9,000 | Impacted by mandatory quarantine | - An impairment charge of $83.8 million was recorded on the Gold Bar mine in Q1 2020 due to a significant reduction in the resource estimate[153] - Development of the access ramp to the Froome deposit in Canada is proceeding, with commercial production expected in Q4 2021[171] Quantitative and Qualitative Disclosure about Market Risk This section details the company's exposure to market risks, including foreign currency fluctuations, unhedged commodity price volatility, credit risk, and significant inflationary risk in Argentina - The company is exposed to foreign currency risk from the Canadian dollar, Mexican peso, and Argentine peso. In H1 2020, the Argentine peso devalued by 15% and the Mexican peso devalued by 18% against the U.S. dollar[232][233] - The company does not hedge its gold and silver sales, making it fully subject to commodity price risk. A 10% change in gold and silver prices would have impacted H1 2020 revenues by approximately $5.0 million[241][243] - Credit risk exists from $0.8 million in VAT receivables from Mexican tax authorities and $31.3 million in surety bonds for reclamation costs[245][246] - Argentina has been classified as a highly inflationary economy, but this does not change the company's financial reporting methodology as its Argentine subsidiaries use the U.S. dollar as their functional currency[248] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[251] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2020[251] Part II Unregistered Sales of Equity Securities and Use of Proceeds On June 25, 2020, the company issued 2,091,700 common shares valued at $1.875 million to lenders under its ARCA, exempt from registration under Regulation S - On June 25, 2020, the company issued 2,091,700 common shares valued at $1.875 million to lenders under its ARCA[252] - The share issuance was exempt from registration under the Securities Act, relying on the Regulation S exemption for offshore transactions[253] Mine Safety Disclosures This section outlines the company's health and safety management system, noting the Gold Bar mine's regulation by MSHA and required Dodd-Frank Act disclosures - The company's Gold Bar mine is regulated by the Federal Mine Safety and Health Administration (MSHA)[255] - Information required by Section 1503(a) of the Dodd-Frank Act regarding mine safety is included in Exhibit 95 filed with this report[256] Exhibits This section lists the exhibits filed with the Form 10-Q report, including the Amended and Restated Credit Agreement, Sarbanes-Oxley certifications, and mine safety disclosures - The list of exhibits includes the Amended and Restated Credit Agreement dated June 25, 2020, Sarbanes-Oxley certifications, and mine safety disclosures[258]