McEwen Mining(MUX) - 2020 Q3 - Quarterly Report

Part I FINANCIAL INFORMATION Financial Statements For the nine months ended September 30, 2020, McEwen Mining reported a $128.8 million net loss, driven by an $83.8 million Gold Bar mine impairment, decreased revenue, and reduced cash reserves Consolidated Statements of Operations Highlights (in thousands USD, except per share) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue from gold and silver sales | $27,395 | $32,691 | $77,086 | $84,657 | | Gross (loss) profit | ($701) | $1,619 | ($13,261) | $7,724 | | Operating loss | ($10,075) | ($17,780) | ($130,554) | ($39,527) | | Net loss | ($9,778) | ($11,465) | ($128,783) | ($34,615) | | Basic and Diluted Net loss per share | ($0.02) | ($0.03) | ($0.32) | ($0.10) | Consolidated Balance Sheet Highlights (in thousands USD) | Asset/Liability | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $7,954 | $46,452 | | Total current assets | $57,546 | $91,978 | | Non-Current Assets | | | | Mineral property interests and plant and equipment, net | $330,202 | $418,791 | | Total Assets | $506,180 | $631,223 | | Current Liabilities | $35,983 | $48,795 | | Total Liabilities | $125,379 | $131,744 | | Total Shareholders' Equity | $380,801 | $499,479 | Consolidated Statements of Cash Flows Highlights (Nine months ended Sep 30, in thousands USD) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Cash used in operating activities | ($25,273) | ($21,916) | | Cash used in investing activities | ($7,756) | ($18,778) | | Cash provided by financing activities | $8,260 | $23,608 | | (Decrease) in cash, cash equivalents and restricted cash | ($24,758) | ($17,415) | Significant Accounting Policies (COVID-19 & Going Concern) COVID-19 shutdowns in Q2 2020 impacted operations and liquidity, but management concluded no material going concern doubt exists for the next 12 months, contingent on capital access and expenditure control - All of the company's mine sites experienced temporary shutdowns in Q2 2020 due to COVID-19, which adversely impacted operations, cash flow, and liquidity[23][25] - Uncertainty exists regarding the company's ability to generate sufficient cash flow to fund operations and comply with debt covenants over the next 12 months due to operational challenges and the impact of COVID-19[28] - Management is evaluating options such as accessing capital markets, asset sales, and expenditure reductions to ensure sufficient liquidity and has concluded that these plans mitigate substantial doubt about the company's ability to continue as a going concern[29] Operating Segment Reporting The USA segment reported the largest loss of $100.5 million for the nine months ended September 30, 2020, primarily due to an $83.8 million impairment at the Gold Bar mine, with other segments also incurring losses Segment Loss for Nine Months Ended September 30, 2020 (in thousands USD) | Segment | Segment Loss | | :--- | :--- | | USA | $(100,480) | | Canada | $(14,931) | | Mexico | $(3,219) | | MSC | $(1,139) | | Los Azules | $(1,629) | | Total Segment Loss | $(121,398) | - The USA segment's significant loss was primarily due to an $83.8 million impairment charge on mineral property interests and plant and equipment at the Gold Bar mine[38] Mineral Property Interests and Plant and Equipment (Impairment) A non-cash impairment charge of $83.8 million was recorded on the Gold Bar mine's long-lived assets in Q1 2020, following a discounted cash flow analysis indicating the carrying value exceeded fair value - The company recorded a non-cash impairment charge of $83.8 million on the long-lived assets of the Gold Bar mine during Q1 2020[52] - The impairment was triggered by indicators that the carrying amounts of the assets might not be recoverable. The fair value was estimated using a discounted cash flow method based on a life-of-mine plan with preliminary estimated resources[50][52] Investment in Minera Santa Cruz S.A. (MSC) – San José Mine The 49% interest in San José mine (MSC) showed improved Q3 2020 income of $2.6 million, reducing the nine-month net loss to $1.1 million, despite a significant drop in dividends received Income (Loss) from Investment in MSC (in thousands USD) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three months ended Sep 30 | $2,582 | ($328) | | Nine months ended Sep 30 | ($1,139) | ($6,775) | - Dividends received from MSC for the nine months ended September 30, 2020, were $0.3 million, a sharp decline from $4.0 million received in the same period of 2019[59] Debt The company refinanced its $50 million senior secured term loan in June 2020, extending principal repayments to August 2022 and reducing working capital requirements, with 2.1 million shares issued as bonus interest - The company refinanced its $50 million senior secured term loan in June 2020, extending principal repayments by two years to begin in August 2022[62] - The amended agreement reduced the minimum working capital requirement from $10.0 million to $0 at June 30, 2020, and to $2.5 million from March 31, 2021, to the end of 2021[62] - As part of the refinancing, 2,091,700 shares valued at $1.875 million were issued to lenders as bonus interest[64] Shareholders' Equity In September 2020, the company raised $10.4 million gross proceeds from a flow-through common share issuance to fund Canadian exploration, with $9.8 million net proceeds classified as restricted cash for 2021 expenditures - On September 10, 2020, the company issued 6,298,166 flow-through common shares for gross proceeds of $10.4 million to fund Canadian exploration[67] - The net proceeds of $9.8 million from the flow-through issuance are classified as restricted cash and must be spent on eligible Canadian exploration expenditures, which the company expects to fulfill in 2021[67] Management's Discussion and Analysis of Financial Condition and Results of Operations Q3 2020 saw 30,400 gold equivalent ounces produced and a $9.8 million net loss, impacted by COVID-19 shutdowns and tightened liquidity, though management believes going concern risks are mitigated by strategic plans and project advancements - Q3 2020 production was 30,400 gold equivalent ounces, with 14,500 ounces from 100% owned properties and 15,900 attributable ounces from the San José mine[108] - Reported a net loss of $9.8 million in Q3 2020, compared to a net loss of $11.5 million in Q3 2019. The nine-month net loss was $128.8 million, including an $83.8 million impairment charge[112][114][117] - Operations were adversely impacted by temporary COVID-19 shutdowns, and the San José mine continued to operate below normal capacity due to travel restrictions[101][102][108] - Completed a flow-through financing in Q3, providing $10.4 million in gross proceeds for exploration in the Timmins region[112] Consolidated Financial Review Q3 2020 revenue decreased 16% to $27.4 million due to lower sales volume, despite higher gold prices, while the net loss narrowed to $9.8 million due to reduced exploration expenses, but the nine-month loss widened to $128.8 million from the Gold Bar mine impairment - Q3 2020 revenue fell 16% to $27.4 million due to a 36% decrease in gold equivalent ounces sold, although the average realized price increased by $447/oz to $1,925/oz[124] - Production costs for Q3 2020 were flat at $23.5 million compared to Q3 2019, despite significantly lower sales volume, leading to higher unit costs[126] - Exploration costs for Q3 2020 decreased by 68% to $4.4 million compared to the same period in 2019[132] - The nine-month results include a significant $83.8 million impairment charge on the Gold Bar mine[136] Liquidity and Capital Resources Liquidity tightened with cash and restricted cash falling to $18.1 million at September 30, 2020, driven by $25.3 million in cash used for operations, though management believes mitigation plans address going concern uncertainties - Cash and current restricted cash decreased by $28.4 million to $18.1 million as of September 30, 2020, from year-end 2019[142] - Cash used in operations for the first nine months of 2020 was $25.3 million, an increase from $21.9 million in the same period of 2019[145] - Management identifies a going concern uncertainty due to expected resource reduction at Gold Bar, operational challenges, and COVID-19 impacts, but believes mitigation plans are in place[150][151] Operations Review Q3 2020 operational performance varied, with Gold Bar and Black Fox mines producing 6,800 and 5,800 gold equivalent ounces respectively at high AISC, while San José production fell 35% due to COVID-19, despite improved financial contribution from higher metal prices Q3 2020 Production and Costs by Mine | Mine | Production (Au Eq. oz) | AISC per oz sold ($) | | :--- | :--- | :--- | | Gold Bar (USA) | 6,800 | 1,769 | | Black Fox (Canada) | 5,800 | 1,644 | | El Gallo (Mexico) | 2,000 | 1,505 (incremental cost) | | San José (49% attributable) | 15,900 | 1,538 | - A new reserve estimate and feasibility study update for the Gold Bar mine are expected by the end of 2020[155][163] - Development of the underground access to the Froome deposit in Canada is 47% complete, with production expected to begin in Q4 2021[174] Quantitative and Qualitative Disclosure about Market Risk The company faces significant market risks from unhedged commodity price volatility, foreign currency fluctuations in Canada, Mexico, and Argentina, and credit risk related to a $0.7 million VAT receivable in Mexico - The company does not use derivative instruments to hedge its exposure to commodity price risk. A 10% change in gold and silver prices would have impacted nine-month 2020 revenues by approximately $7.7 million[251][253] - Significant foreign currency risk exists due to operations in multiple countries. In the first nine months of 2020, the Argentine peso devalued by 21% and the Mexican peso by 15% against the U.S. dollar[242][243] - The company faces credit risk on the collection of its $0.7 million VAT receivable from Mexican tax authorities[255] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective[261] - No material changes were made to the company's internal control over financial reporting during the third quarter of 2020[261] Part II OTHER INFORMATION Unregistered Sales of Equity Securities and Use of Proceeds On September 10, 2020, the company completed an unregistered, offshore sale of 6,298,166 common shares to institutional investors, generating $10.4 million in gross proceeds under Regulation S - The company sold 6,298,166 shares of common stock for gross proceeds of $10.4 million on September 10, 2020[263] - The sale was an unregistered, offshore transaction conducted under the exemption provided by Regulation S of the Securities Act[264] Mine Safety Disclosures The company prioritizes safety, with its Gold Bar mine regulated by MSHA, and provides required Dodd-Frank Act mine safety disclosures in Exhibit 95 of this report - The Gold Bar mine's operations are subject to regulation and regular inspection by the Federal Mine Safety and Health Administration (MSHA)[266] - Mine safety disclosures required by Section 1503(a) of the Dodd-Frank Act are provided in Exhibit 95 filed with this Form 10-Q[267] Other Information Anna Ladd-Kruger was appointed Chief Financial Officer effective September 29, 2020, with an annual salary of CAD $320,000, performance bonus eligibility, and severance benefits including change of control protections - Anna Ladd-Kruger was appointed as Chief Financial Officer with an annual salary of CAD $320,000[268][269] - Her employment agreement includes severance benefits, with 12 months' pay in lieu of notice if terminated without cause in the first year, and an amount equal to 18 months of salary plus target bonus if terminated without cause following a change in control[270][272] Exhibits This section lists all exhibits filed with the Form 10-Q, including the CFO's employment agreement, Sarbanes-Oxley certifications, mine safety disclosures, and iXBRL financial statements - A list of exhibits filed with the report is provided, including corporate governance documents, certifications, and financial data files[275]