McEwen Mining(MUX) - 2021 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited consolidated financial information for the company, covering financial statements, management's discussion, market risk, and controls Item 1. Financial Statements This section presents the unaudited consolidated financial statements for McEwen Mining Inc. for the three months ended March 31, 2021 and 2020, including statements of operations and comprehensive loss, balance sheets, changes in shareholders' equity, and cash flows, along with detailed notes explaining the company's operations, accounting policies, segment reporting, and specific financial accounts Consolidated Statements of Operations and Comprehensive Loss This statement details the company's financial performance, including revenue, production costs, and net loss, for the three months ended March 31, 2021 and 2020 Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (in thousands of U.S. dollars, except per share) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Revenue from gold and silver sales | $23,740 | $31,400 | | Production costs applicable to sales | $(23,589) | $(28,387) | | Depreciation and depletion | $(5,137) | $(6,698) | | Gross loss | $(4,986) | $(3,685) | | Operating loss | $(15,384) | $(99,345) | | Loss before income and mining taxes | $(14,481) | $(100,285) | | Net loss and comprehensive loss | $(12,466) | $(99,191) | | Net loss per share (Basic and Diluted) | $(0.03) | $(0.25) | | Weighted average common shares outstanding (thousands) | 441,794 | 400,370 | - Net loss significantly decreased from $(99.2) million in Q1 2020 to $(12.5) million in Q1 2021, primarily due to the absence of a large impairment charge seen in the prior year[11] Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and shareholders' equity, as of March 31, 2021, and December 31, 2020 Consolidated Balance Sheets (Unaudited) (in thousands of U.S. dollars) | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $47,402 | $20,843 | | Total current assets | $81,012 | $53,497 | | TOTAL ASSETS | $528,180 | $499,936 | | Total current liabilities | $45,733 | $45,554 | | Total liabilities | $134,431 | $134,608 | | Total shareholders' equity | $393,749 | $365,328 | | TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | $528,180 | $499,936 | - Cash and cash equivalents increased significantly from $20.8 million at December 31, 2020, to $47.4 million at March 31, 2021, contributing to a rise in total current assets and total assets[14] Consolidated Statements of Changes in Shareholders' Equity This statement outlines the changes in the company's shareholders' equity, including common stock, accumulated deficit, and total equity, for the period ended March 31, 2021 Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (in thousands of U.S. dollars and shares) | Metric | Balance, Dec 31, 2020 | Stock-based compensation | Sale of flow-through common shares | Sale of shares for cash | Net loss | Balance, Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock and Additional Paid-in Capital (Amount) | $1,548,876 | $227 | $10,785 | $29,875 | — | $1,589,763 | | Accumulated Deficit | $(1,183,548) | — | — | — | $(12,466) | $(1,196,014) | | Total Shareholders' Equity | $365,328 | $227 | $10,785 | $29,875 | $(12,466) | $393,749 | | Common Shares (thousands) | 416,587 | — | 12,601 | 30,000 | — | 459,188 | - Total shareholders' equity increased from $365.3 million at December 31, 2020, to $393.7 million at March 31, 2021, primarily driven by equity issuances totaling $40.7 million (flow-through shares and cash sales), partially offset by a net loss of $12.5 million[17] Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2021 and 2020 Consolidated Statements of Cash Flows (Unaudited) (in thousands of U.S. dollars) | Cash Flow Activity | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Cash used in operating activities | $(10,143) | $(11,908) | | Cash used in investing activities | $(5,101) | $(5,391) | | Cash provided by (used in) financing activities | $41,833 | $(493) | | Increase (decrease) in cash, cash equivalents and restricted cash | $26,589 | $(17,678) | | Cash, cash equivalents and restricted cash, end of period | $51,027 | $28,822 | - Cash provided by financing activities dramatically increased to $41.8 million in Q1 2021 (from $(0.5) million in Q1 2020), primarily from share issuances, leading to a significant increase in cash, cash equivalents, and restricted cash by $26.6 million[20] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, segment information, and specific account balances NOTE 1 Nature of Operations and Basis of Presentation This note describes the company's primary business activities, geographic operations, and the basis for preparing its financial statements - McEwen Mining Inc. is engaged in the exploration, development, production, and sale of gold and silver, and exploration for copper, operating in the United States, Canada, Mexico, and Argentina[22] - The company owns 100% interest in Gold Bar (Nevada), Black Fox (Ontario), El Gallo Project and Fenix (Mexico), Los Azules (Argentina), and a 49% interest in Minera Santa Cruz S.A. (MSC), owner of the San José mine in Argentina[23] NOTE 2 Significant Accounting Policies This note outlines the key accounting principles and judgments applied in the preparation of the consolidated financial statements, including recent accounting pronouncements and operational updates - The company continues to monitor and respond to the COVID-19 pandemic, reinforcing safety measures and noting no government-mandated shutdowns in Q1 2021, unlike 2020[27][28] - In Q1 2021, the company raised $12.7 million through a Canadian Development Expenses (CDE) flow-through common share issuance and $31.5 million through an equity financing, to mitigate potential capital market access risks due to economic downturns[29] - An illegal blockade at the El Gallo project in Mexico on March 15, 2021, was successfully resolved by March 29, 2021, with a new 10-year agreement providing additional community support[30] - The adoption of ASU 2019-12 'Income Taxes (Topic 740)' in 2021 did not have a material impact on the company's financial statements[31] NOTE 3 Operating Segment Reporting This note provides financial information disaggregated by the company's operating segments, including revenue, loss, and capital expenditures, for management's evaluation - The company's reportable segments are based on geographic regions or major mines/projects: USA, Canada, Mexico, MSC (Argentina), and Los Azules (Argentina)[32] Segment Revenue and Loss (Three months ended March 31, 2021, in thousands of U.S. dollars) | Segment | Revenue from gold and silver sales | Segment loss | Capital expenditures | | :--- | :--- | :--- | :--- | | USA | $12,893 | $(3,353) | $757 | | Canada | $8,561 | $(5,547) | $9,567 | | Mexico | $2,286 | $(2,191) | $— | | MSC | $— | $(574) | $— | | Los Azules | $— | $(650) | $— | | Total | $23,740 | $(12,315) | $10,324 | Segment Revenue and Loss (Three months ended March 31, 2020, in thousands of U.S. dollars) | Segment | Revenue from gold and silver sales | Segment loss | Capital expenditures | | :--- | :--- | :--- | :--- | | USA | $14,317 | $(91,557) | $1,807 | | Canada | $12,739 | $(687) | $3,729 | | Mexico | $4,344 | $(1,010) | $— | | MSC | $— | $(2,676) | $— | | Los Azules | $— | $(576) | $— | | Total | $31,400 | $(96,506) | $5,536 | - Total revenue from gold and silver sales decreased from $31.4 million in Q1 2020 to $23.7 million in Q1 2021. Segment loss significantly improved from $(96.5) million in Q1 2020 to $(12.3) million in Q1 2021, largely due to the absence of the impairment charge in the USA segment[34][36] NOTE 4 Other Income This note details the components of other income, including COVID-19 relief funds, investment gains/losses, and foreign currency impacts Summary of Other Income (Three months ended March 31, in thousands of U.S. dollars) | Category | 2021 | 2020 | | :--- | :--- | :--- | | COVID-19 Relief | $1,111 | $— | | Unrealized and realized (loss) on investments | $— | $(898) | | Foreign currency (loss) gain | $291 | $1,808 | | Other income, net | $10 | $27 | | Total other income | $1,412 | $937 | - Total other income increased to $1.4 million in Q1 2021 from $0.9 million in Q1 2020, primarily due to $1.1 million in COVID-19 relief funds from the Canadian government[39] NOTE 5 Investments This note provides information on the company's investment holdings, including marketable equity securities - As of March 31, 2021, the company held no marketable equity securities, compared to $875 thousand at March 31, 2020, after selling $0.1 million in Q1 2020[40] NOTE 6 Receivables, Prepaids and Other Assets This note details the composition of current assets such as government sales tax receivables, prepaids, and other current assets Receivables, Prepaids and Other Assets (in thousands of U.S. dollars) | Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Government sales tax receivable | $1,502 | $1,810 | | Prepaids and other assets | $4,198 | $3,880 | | Receivables and other current assets | $5,700 | $5,690 | - Government sales tax receivable decreased from $1.8 million at December 31, 2020, to $1.5 million at March 31, 2021, with $0.6 million of Mexican VAT collected in Q1 2021[41] NOTE 7 Inventories This note provides a breakdown of the company's inventory balances, including material on leach pads, in-process inventory, stockpiles, and materials and supplies Inventories (in thousands of U.S. dollars) | Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Material on leach pads | $21,200 | $21,003 | | In-process inventory | $3,377 | $3,922 | | Stockpiles | $2,537 | $635 | | Precious metals | $1,560 | $1,344 | | Materials and supplies | $4,235 | $4,845 | | Total Inventories | $32,909 | $31,749 | | Less current portion | $27,910 | $26,964 | | Long-term portion | $4,999 | $4,785 | - Total inventories increased to $32.9 million at March 31, 2021, from $31.7 million at December 31, 2020, primarily due to an increase in stockpiles[42] - Inventory write-downs for Gold Bar and El Gallo totaled $2.1 million in Q1 2021, included in production costs applicable to sales and depreciation and depletion[42] NOTE 8 Mineral Property Interests and Plant and Equipment This note details the company's investments in mineral properties, plant, and equipment, including any impairment assessments - The company did not identify any indicators of impairment for its long-lived assets in Q1 2021, unlike Q1 2020 which saw an $83.8 million impairment at Gold Bar[45][83] NOTE 9 Investment in Minera Santa Cruz S.A. ("MSC") – San José Mine This note provides financial and operational details regarding the company's 49% equity investment in the San José mine through Minera Santa Cruz S.A MSC Operating Results (100% basis, Three months ended March 31, in thousands of U.S. dollars) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue from gold and silver sales | $53,303 | $37,390 | | Gross profit | $9,983 | $1,747 | | Net income (loss) | $582 | $(3,287) | | Portion attributable to McEwen Mining Inc. (49%) - Net income (loss) | $285 | $(1,611) | | Loss from investment in MSC, net of amortization | $(574) | $(2,676) | - MSC's revenue from gold and silver sales increased significantly to $53.3 million in Q1 2021 from $37.4 million in Q1 2020, leading to a net income of $0.6 million (vs. a loss of $3.3 million in Q1 2020)[48] - The company received $5.0 million in dividends from MSC in Q1 2021, compared to none in Q1 2020[49] NOTE 10 Debt This note outlines the company's debt obligations, including the senior secured term loan and its terms and conditions - The company's $50.0 million senior secured term loan was refinanced on June 25, 2020, extending principal repayments by two years, with monthly repayments starting August 31, 2022[52][54] - The minimum working capital maintenance requirement was reduced to $2.5 million at March 31, 2021, increasing to $10.0 million by September 30, 2022[54] Long-term Debt Reconciliation (in thousands of U.S. dollars) | Metric | Three months ended March 31, 2021 | Year ended December 31, 2020 | | :--- | :--- | :--- | | Balance, beginning of year | $48,160 | $49,516 | | Interest expense | $1,368 | $5,394 | | Interest payments | $(1,202) | $(4,875) | | Balance, end of year | $48,326 | $48,160 | NOTE 11 Asset Retirement Obligations This note details the company's obligations related to the retirement of long-lived assets, including reclamation and remediation costs Asset Retirement Obligations Reconciliation (in thousands of U.S. dollars) | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Beginning balance | $34,000 | $32,201 | | Settlements | $(80) | $(267) | | Accretion of liability | $487 | $1,901 | | Adjustment reflecting updated estimates | $425 | $(54) | | Foreign exchange revaluation | $152 | $219 | | Ending balance | $34,984 | $34,000 | | Current portion | $3,817 | $3,232 | | Long-term portion | $31,167 | $30,768 | - Total asset retirement obligations increased to $35.0 million at March 31, 2021, from $34.0 million at December 31, 2020, primarily due to accretion and updated estimates[57] NOTE 12 Shareholders' Equity This note provides information on the components of shareholders' equity, including common stock issuances, stock-based compensation, and accumulated deficit - In Q1 2021, the company completed a registered direct offering of 30 million common shares for net proceeds of $29.9 million and issued 12.6 million flow-through common shares for net proceeds of $12.0 million, primarily to fund the Froome deposit development and strengthen the balance sheet[58][59] - The company is required to spend flow-through share proceeds on eligible Canadian Development Expenses (CDE) and Canadian Exploration Expenditures (CEE) by the end of 2022, having incurred $7.9 million in CDE and $4.3 million in CEE as of March 31, 2021[60][63] - No stock options were exercised in Q1 2021, and the company is prevented from paying dividends on common stock while the senior secured loan is outstanding[73][74] NOTE 13 Net Loss Per Share This note explains the calculation of basic and diluted net loss per share, including the treatment of potentially dilutive instruments - Potentially dilutive instruments (options and warrants) were excluded from diluted net loss per share calculation for Q1 2021 and Q1 2020 as they would be anti-dilutive[75][76] NOTE 14 Related Party Transactions This note discloses transactions and balances with related parties, including key management personnel and entities under common control - The company incurred $11 thousand in expenses to Lexam L.P. (controlled by CEO Robert R. McEwen) and $35 thousand to REVlaw (owned by General Counsel Carmen Diges) in Q1 2021 for services like aircraft use and legal services[77][78] - An affiliate of Mr. McEwen, a lender in the $50.0 million term loan, received $0.6 million in interest payments in Q1 2021, on the same terms as non-affiliated lenders[79] NOTE 15 Fair Value Accounting This note provides information on the fair value measurements of financial instruments and other assets and liabilities - The company held no marketable securities at December 31, 2020, and the fair value of financial assets and liabilities at March 31, 2021, approximated their carrying values[81] - No impairment of mineral property was recorded in Q1 2021, contrasting with an $83.8 million impairment at the Gold Bar mine in Q1 2020[83] NOTE 16 Commitments and Contingencies This note details the company's contractual obligations, environmental reclamation bonds, streaming agreements, and other potential liabilities - The company has environmental reclamation bonding obligations of $20.1 million in Nevada and $11.9 million in Canada, covered by surety bonds with an 11% deposit ($3.6 million restricted cash)[84][85] - Under a streaming agreement, the company is obligated to sell 8% of Black Fox gold production and 6.3% from Pike River to Sandstorm Gold Ltd. at a discounted price until 2090, generating $0.3 million in revenue in Q1 2021[88][89] - The company is committed to spending $12.7 million in CDE and $18.3 million in CEE from flow-through share issuances by 2022, having incurred $7.9 million in CDE and $4.3 million in CEE as of March 31, 2021[90][91] NOTE 17 Cash, Cash Equivalents and Restricted Cash This note provides a reconciliation of cash, cash equivalents, and restricted cash balances Cash, Cash Equivalents, and Restricted Cash (in thousands of U.S. dollars) | Category | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $47,402 | $20,843 | | Restricted cash - non-current | $3,625 | $3,595 | | Total cash, cash equivalents, and restricted cash | $51,027 | $24,438 | - Total cash, cash equivalents, and restricted cash increased significantly to $51.0 million at March 31, 2021, from $24.4 million at December 31, 2020[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and future outlook, updating the plan of operation and analyzing performance for Q1 2021 compared to Q1 2020. It includes an overview of operations, key highlights, detailed financial review, liquidity assessment, and a review of individual segment performance, along with discussions on non-GAAP measures, critical accounting policies, and forward-looking statements Overview This section provides a general introduction to the company's business, operations, and the impact of the COVID-19 pandemic - McEwen Mining Inc. is a gold, silver, and copper exploration, development, and production company with operations in the US, Canada, Mexico, and Argentina, including 100% owned mines and a 49% interest in the San José mine[99][100] - The company continues to monitor and respond to the COVID-19 pandemic, implementing safety measures and noting no government-mandated shutdowns in Q1 2021, unlike 2020[106][108] - In Q1 2021, the company received $1.1 million in COVID-19 relief funds from the Canadian government (CEWS and CERS programs)[109] Operating and Financial Highlights This section summarizes the key operational and financial achievements and metrics for the reporting period - Total gold equivalent ounces produced in Q1 2021 was 30,600, including 16,700 attributable ounces from the San José mine[113] - Cash, cash equivalents, and restricted cash totaled $51.0 million as of March 31, 2021, bolstered by $12.0 million from flow-through shares and $29.9 million from an equity offering[113] - The company reported a cash gross profit of $0.2 million and a net loss of $12.5 million in Q1 2021, which included $6.8 million spent on exploration and advanced projects[113] - Dividends of $5.0 million were received from Minera Santa Cruz S.A ("MSC") in Q1 2021[113] - Mining at Black Fox is transitioning to the Froome deposit, with commercial production expected in Q4 2021, and a Preliminary Economic Assessment (PEA) for the Fox Complex expansion is expected by the end of Q2 2021[113][117] Selected Consolidated Financial and Operating Results This section presents a summary of the company's key financial and operational performance indicators for the reporting periods Selected Consolidated Financial Results (Three months ended March 31, in thousands, except per share) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue from gold and silver sales | $23,740 | $31,400 | | Production costs applicable to sales | $(23,589) | $(28,387) | | Net loss | $(12,466) | $(99,191) | | Net loss per share | $(0.03) | $(0.25) | | Cash (used in) operating activities | $(10,143) | $(11,908) | | Cash additions to mineral property interests and plant and equipment | $10,085 | $5,503 | Selected Consolidated Operating Results (Three months ended March 31, in thousands, except per ounce) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Produced - gold equivalent ounces (Total) | 30.6 | 35.1 | | Produced - gold equivalent ounces (100% owned) | 13.9 | 20.2 | | Produced - gold equivalent ounces (San José mine 49% attributable) | 16.7 | 14.9 | | Sold - gold equivalent ounces (Total) | 30.2 | 32.5 | | Average realized price ($/Au Eq. oz) | $1,763 | $1,591 | | Cash cost per ounce ($/Au Eq. oz sold) (100% owned) | $1,611 | $1,375 | | AISC per ounce ($/Au Eq. oz sold) (100% owned) | $1,777 | $1,768 | | Cash gross profit | $151 | $3,013 | - Net loss significantly decreased from $99.2 million in Q1 2020 to $12.5 million in Q1 2021, largely due to the absence of an $83.8 million impairment charge in the prior year[119] - Total gold equivalent ounces produced decreased from 35.1 thousand in Q1 2020 to 30.6 thousand in Q1 2021, while the average realized price per gold equivalent ounce increased from $1,591 to $1,763[120] Consolidated Performance This section analyzes the overall financial performance of the company, highlighting significant changes in net loss and cash gross profit - Net loss decreased significantly to $12.5 million in Q1 2021 from $99.2 million in Q1 2020, primarily due to the absence of an $83.8 million impairment charge and a reduced loss from the MSC investment[122] - Cash gross profit decreased by $2.8 million to $0.2 million in Q1 2021, driven by lower production and revenues, partially offset by decreased production costs at Gold Bar[123] - Production from 100% owned mines decreased by 6,300 gold equivalent ounces (GEOs) in Q1 2021 compared to Q1 2020, while the San José mine's attributable production increased by 12% to 16,700 GEOs[126][127] Consolidated Financial Review This section provides a detailed analysis of the company's revenue, production costs, exploration expenses, and other income components - Revenue from gold and silver sales decreased by 24% ($7.7 million) to $23.7 million in Q1 2021, due to 6,500 fewer gold equivalent ounces sold from 100% owned mines, partially offset by higher average realized gold prices ($1,763/oz vs. $1,591/oz)[128] - Production costs applicable to sales decreased by 17% to $23.6 million in Q1 2021, despite a 19% decrease in ounces sold, due to lower pre-strip costs and stockpile buildup at Gold Bar, partially offset by higher costs at Black Fox[130] - Exploration costs increased by $1.2 million to $5.0 million in Q1 2021, driven by ramped-up activities funded by flow-through share programs, focusing on the Timmins region[132] - Loss from investment in MSC decreased by $2.1 million to $0.6 million in Q1 2021, benefiting from increased attributable net income[133] - Other income increased to $1.4 million in Q1 2021, largely due to Canadian federal COVID-19 relief programs[137] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations, including cash position, financing activities, and working capital - Cash and cash equivalents increased from $20.8 million at December 31, 2020, to $47.4 million at March 31, 2021, primarily due to $42.0 million from financing activities[139] - Financing activities in Q1 2021 included $12.7 million (gross) from flow-through shares and $31.5 million (gross) from a registered direct equity offering[140] - Working capital increased by $27.4 million to $35.3 million at March 31, 2021, driven by the increase in cash[141] - Cash used in investing activities of $5.1 million in Q1 2021, with $10.1 million spent on mineral property and plant and equipment, mainly for the Froome deposit development, offset by a $5.0 million dividend received from MSC[143][144] - The company believes it has sufficient liquidity to fund anticipated cash requirements for the next 12 months[145] Operations Review This section provides a detailed review of the operational performance and key developments across the company's various mining segments U.S.A. Segment This section reviews the operational and financial performance of the Gold Bar mine in the USA segment, including production, revenue, and costs - Gold Bar mine produced 7,415 gold equivalent ounces in Q1 2021, a 19% decrease from Q1 2020, due to winter weather and lower leach pad ounces[150] - Revenue from Gold Bar decreased by $1.4 million to $12.9 million in Q1 2021, reflecting lower production, partially offset by higher gold prices[151] - Cash cost per ounce at Gold Bar was $1,865 in Q1 2021, comparable to Q1 2020, while AISC per ounce improved to $1,934 due to decreased sustaining capital[152] - Exploration activities in Nevada focused on the Ridge deposit for resource data and Gold Bar South, with mining scheduled to begin in Q2 2022, pending permits[153][155] Canada Segment This section details the operational performance of the Black Fox mine and exploration activities in the Canada segment, including the transition to the Froome deposit - Black Fox mine production decreased by 37% to 5,227 gold equivalent ounces in Q1 2021, as operations transition to the Froome deposit, expected to reach commercial production in Q4 2021[160] - Cash cost per ounce at Black Fox increased to $1,262 in Q1 2021 (from $838 in Q1 2020) due to lower average grade and expensing underground development costs as mine life winds down[162] - All-in sustaining costs at Black Fox decreased by $3.3 million (29%) in Q1 2021 due to significantly lower in-mine operational expenses and capitalized underground mine development[163] - Underground development successfully reached the Froome deposit in Q1 2021, with plans on schedule for Q4 2021 commercial production[165] - Exploration spending in Timmins increased to $3.4 million in Q1 2021, focusing on Stock West and Stock Main targets, with a Preliminary Economic Assessment (PEA) for the Fox Complex expansion expected by Q2 2021[167][172][174] Mexico Segment This section covers the operational status of the El Gallo Project and the development of the Fenix Project in the Mexico segment - El Gallo Project's gold equivalent production decreased to 1,300 ounces in Q1 2021 (from 2,700 in Q1 2020) as activities are limited to residual leaching and are expected to wind down in 2021[177][180] - Mining operations at El Gallo were temporarily suspended for two weeks in Q1 2021 due to an illegal blockade, which was resolved with a new ten-year agreement with local communities[179] - The Fenix Project feasibility study, published in February 2021, envisions a 9.5-year mine life with a 28% after-tax IRR, with initial capital expenditure of $42 million for Phase 1 (gold production) and $24 million for Phase 2 (silver production)[182][183][184] - The company incurred $1.3 million in Q1 2021 to advance the Fenix Project and is evaluating financing alternatives, including potential divestiture of its Mexican business unit[185] MSC Segment, Argentina This section reviews the operational and financial performance of the San José mine, in which the company holds a 49% interest through MSC San José Mine Operating Results (100% basis, Three months ended March 31, in thousands, except otherwise indicated) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Gold equivalent ounces Produced | 34.1 | 30.3 | | Gold equivalent ounces Sold | 33.4 | 24.9 | | Revenue from gold and silver sales | $53,303 | $37,390 | | Average realized price: Gold ($/Au oz) | $1,585 | $1,697 | | Average realized price: Silver ($/Ag oz) | $23.62 | $13.03 | | Cash cost per ounce ($/Au Eq. oz sold) | $1,088 | $1,138 | | AISC per ounce ($/Au Eq. oz sold) | $1,328 | $1,592 | - San José mine's gold and silver production increased slightly in Q1 2021, with revenue from sales increasing by 43% to $53.3 million due to higher gold equivalent ounces sold and significant increases in average realized silver prices[190] - Cash cost per ounce and AISC per ounce sold at San José were lower in Q1 2021 compared to Q1 2020, primarily due to increased gold ounces sold[193] - The company's 49% attributable share of MSC operations resulted in $0.3 million in net income in Q1 2021, a significant improvement from a $2.7 million loss in Q1 2020, driven by increased gross profit[195] - McEwen Mining received $5.0 million in dividends from MSC in Q1 2021 and is evaluating potential divestiture of its investment in MSC[196][197] Los Azules Segment, Argentina This section provides an update on the Los Azules copper project in Argentina, including preliminary engineering and strategic alternatives - Work continued on preliminary engineering and cost estimates for a low-altitude access route for the Los Azules copper project, with site surveying and staking completed in January 2021[200] - The company is evaluating strategic alternatives for Los Azules, including a joint venture with a senior mining company or spinning out the asset into a new public company, while also identifying opportunities to improve project economics[202] Non-GAAP Financial Performance Measures This section defines and reconciles non-GAAP financial measures used by management to evaluate the company's performance and liquidity - The report includes non-GAAP measures like cash gross profit, cash costs, all-in sustaining costs, average realized price per ounce, and liquid assets, used by management to evaluate performance and liquidity, but these do not have standardized definitions and should not be used in isolation[205][207][210][219][222] Cash Gross Profit Reconciliation (Three months ended March 31, 2021, in thousands) | Segment | Gross (loss) profit | Add: Depreciation and depletion | Cash gross (loss) profit | | :--- | :--- | :--- | :--- | | Gold Bar | $(2,405) | $1,741 | $(664) | | Black Fox | $(1,490) | $3,395 | $1,905 | | El Gallo | $(1,091) | $1 | $(1,090) | | Total (100% owned) | $(4,986) | $5,137 | $151 | | San José mine (100% basis) | $9,983 | $6,953 | $16,936 | Cash Costs and AISC Reconciliation (100% owned, Three months ended March 31, 2021, in thousands, except per ounce) | Metric | Gold Bar | Black Fox | Total | | :--- | :--- | :--- | :--- | | Production costs applicable to sales - Cash costs | $13,557 | $6,656 | $20,213 | | All-in sustaining costs | $14,061 | $8,232 | $22,293 | | Ounces sold (Au Eq. oz) | 7.3 | 5.3 | 12.5 | | Cash cost per ounce ($/Au Eq. oz sold) | $1,865 | $1,262 | $1,611 | | AISC per ounce ($/Au Eq. oz sold) | $1,934 | $1,560 | $1,777 | Average Realized Price Reconciliation (100% owned, Three months ended March 31, 2021, in thousands, except per ounce) | Metric | 2021 | | :--- | :--- | | Revenue from gold and silver sales | $23,740 | | Less: revenue from gold sales, stream | $465 | | Revenue from gold and silver sales, excluding stream | $23,275 | | Gold equivalent ounces sold, excluding stream | 13.2 | | Average realized price per Au Eq. oz sold, excluding stream | $1,763 | Liquid Assets (in thousands) | Metric | March 31, 2021 | March 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $47,402 | $28,774 | | Restricted cash | $3,625 | $— | | Investments | $— | $875 | | Precious Metals valued at market value | $1,493 | $1,323 | | Total liquid assets | $52,520 | $30,972 | Critical Accounting Policies This section discusses the accounting policies that require significant judgment and estimation, and any changes thereto - There were no significant changes in the company's Critical Accounting Policies since December 31, 2020[225] Forward-Looking Statements This section provides cautionary statements regarding the forward-looking nature of certain information in the report, highlighting inherent uncertainties and risks - The report contains forward-looking statements regarding anticipated exploration results, production estimates, development plans, impacts of COVID-19, strategic alternatives, and expected financial outcomes[226] - These statements are based on estimates and assumptions subject to significant business, economic, and competitive uncertainties, risks, and contingencies, and actual results could differ materially[228] - Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the report date, and the company undertakes no obligation to update them except as required by law[229][233] Risk Factors Impacting Forward-Looking Statements This section outlines the key risk factors that could materially affect the company's future performance and the accuracy of its forward-looking statements - Key risk factors include the ability to raise funds, impacts of pandemics (COVID-19), securing permits, decisions of foreign countries, fluctuations in commodity prices and exchange rates, timing of mine production, and changes in business strategy[230][234] - Other risks involve retaining key personnel, technological changes, operating costs, access to resources, exploration results, uncertainty of reserve estimates, litigation, regulatory changes, community impacts, and continued listing on public exchanges[230][234] Item 3. Quantitative and Qualitative Disclosure about Market Risk This section details McEwen Mining Inc.'s exposure to various market risks, including foreign currency exchange rates, equity price fluctuations, commodity price volatility (gold and silver), credit risk, interest rate risk, and inflationary risk. It explains how these risks could impact the company's financial condition and results of operations, noting that the company does not use derivative financial instruments to manage market risk Foreign Currency Risk This section discusses the company's exposure to fluctuations in foreign currency exchange rates, particularly for Canadian dollars, Mexican pesos, and Argentine pesos - The company is exposed to foreign currency risk from expenses, labor, and assets denominated in Canadian dollars, Mexican pesos, and Argentine pesos[237] - In Q1 2021, the Argentine peso devalued 9% (vs. 7% in Q1 2020), the Mexican peso devalued 3% (vs. 20% in Q1 2020), and the Canadian dollar appreciated 1% (vs. 8% depreciation in Q1 2020) against the U.S. dollar[238][239] - A 1% change in the Canadian dollar would result in a gain/loss of less than $0.1 million on the $4.5 million Canadian cash balance at March 31, 2021[241] - The company faces foreign currency risk on its Mexican VAT receivable of $0.7 million, where a 1% change in the Mexican peso would result in an immaterial gain/loss[242] Equity Price Risk This section addresses the risk associated with potential volatility in the company's common stock price and its investments in other entities - The company faces equity price risk due to potential volatility in its common stock price, which could affect its ability to raise future funding through equity sales[243] - Investments in other mining sector entities expose the company to fluctuations in fair value, potentially leading to gains or losses[244] Commodity Price Risk This section explains the significant impact of gold and silver market price changes on the company's revenues and cash flows, given its unhedged sales - Changes in gold and silver market prices significantly affect the company's results and cash flows; a 10% change in prices would impact Q1 2021 revenues by approximately $2.4 million[246] - The company does not hedge its sales, making it fully exposed to commodity price changes, and holds no gold or silver sales subject to final pricing as of March 31, 2021[248][246] Credit Risk This section outlines the company's exposure to credit risk from sales agreements, receivables, and surety bonds for reclamation obligations - The company is exposed to credit risk from precious metals sales agreements with financial institutions and refineries, though no significant credit exposure is anticipated[249] - Credit risk also exists for the $0.7 million Mexican VAT receivable, due to uncertain collection timing and the possibility that Mexican operations may not generate sufficient taxable profits to offset it[250] - The company has $32.4 million in surety bonds for reclamation obligations in Nevada and Ontario, carrying a risk that the surety may default or bonds may no longer be accepted, requiring cash replacement[251] Interest Rate Risk This section assesses the company's exposure to changes in interest rates, noting that its outstanding debt is primarily at fixed rates - The company considers its interest rate risk exposure insignificant as its outstanding debt, including equipment leases and the senior secured credit facility, is at fixed rates[252] Inflationary Risk This section addresses the potential impact of inflation, particularly in Argentina, on the company's financial reporting and operations - Argentina's classification as a highly inflationary economy (cumulative inflation exceeding 100% over three years) does not change the company's financial reporting methodology, as its Argentine subsidiaries' functional currency has always been the U.S. dollar[253] Item 4. Controls and Procedures This section confirms that McEwen Mining Inc.'s management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of March 31, 2021, concluding they were effective. It also states that there were no material changes in internal control over financial reporting during the quarter - As of March 31, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[256] - There were no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2021[256] PART II OTHER INFORMATION This section provides additional information not covered in Part I, including details on equity sales, mine safety, and a list of exhibits Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports the sale of 12,600,600 common shares in an unregistered transaction on January 28, 2021, to institutional investors for gross proceeds of $12.7 million. The sale was conducted offshore under Rule 903 of Regulation S and was not offered or sold to a 'U.S. Person' - On January 28, 2021, the company sold 12,600,600 common shares in an unregistered transaction to institutional investors for gross proceeds of $12.7 million[258] - The sale was made in reliance on the exemption provided by Rule 903 of Regulation S, conducted offshore, and not offered or sold to a 'U.S. Person'[259] Item 4. Mine Safety Disclosures This section outlines McEwen Mining's commitment to safety through its health and safety management system, which includes employee training, risk management, and compliance with mining regulations. It notes that the Gold Bar mine is subject to MSHA regulation, and the company may be cited for violations even when using independent contractors. Required mine safety information is included in Exhibit 95 - McEwen Mining prioritizes safety with a comprehensive health and safety management system, including training, risk management, and compliance with mining regulations[260] - The Gold Bar mine is regulated by MSHA, and the company may be considered an 'operator' and issued citations for violations, even with independent contractors[261] - Required mine safety violation information under Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95[262] Item 6. Exhibits This section lists all exhibits filed or incorporated by reference with the report, including articles of incorporation, bylaws, various agreements, certifications (Sarbanes-Oxley Act), mine safety disclosure, and XBRL formatted financial statements - Exhibit 3.1.1 and 3.1.2 refer to the Second Amended and Restated Articles of Incorporation and Articles of Amendment, respectively, filed in January 2012[264] - Exhibit 10.1 and 10.2 relate to the Placement Agency Agreement and Form of Securities Purchase Agreement from February 2021[264] - Certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002 for Robert R. McEwen (CEO) and Anna Ladd-Kruger (CFO) are included as Exhibits 31.1, 31.2, and 32[264] - Exhibit 95 contains mine safety disclosure, and Exhibit 101 includes iXBRL formatted financial statements[264] SIGNATURES This section formally attests to the accuracy and completeness of the report through the signatures of the company's principal executive and financial officers - The report was signed on May 7, 2021, by Robert R. McEwen, Chairman and Chief Executive Officer, and Anna Ladd-Kruger, Chief Financial Officer, pursuant to the Securities Exchange Act of 1934[268]