Is McEwen Mining a Buy Amidst a Strong Rally in Precious Metals?

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Written By Joel Gbolade

The Q4 earnings season for the precious metals sector has concluded, and McEwen Mining (NYSE: MUX) was among the first to report its results for the fourth quarter and fiscal year 2023.

The company experienced an overall successful year in its managed operations, producing approximately 88,000 gold-equivalent ounces (GEOs), with a significant portion generated in Q4 due to the completion and commissioning of its heap leach pad expansion at the Gold Bar mine.

Additionally, McEwen Mining made substantial progress at its expansive Los Azules copper project in Argentina, significantly reduced its debt to lower finance expenses, and secured additional financing with Nuton (RIO) and Stellantis, valuing McEwen Copper at approximately $800 million.

Q4 & FY2023 Results Overview

The company reported quarterly and annual production of approximately 49,900 GEOs and 154,600 GEOs, respectively.

Credit: DepositPhotos

This marked a 14% increase in production and sales year-over-year, primarily driven by strong performance at the Gold Bar Mine, which produced about 43,700 GEOs compared to approximately 26,600 GEOs the previous year.

The fourth quarter at Gold Bar was particularly strong. About 19,800 GEOs were produced, showcasing higher throughput and processed grades than in previous years. This improvement significantly enhanced the year-over-year operational costs.

Positive Outcoming Despite Missing Annual Guidance

The Fox Complex also reported a productive year with approximately 44,400 ounces produced at reduced costs of $1,351 per ounce compared to $1,465 per ounce in the previous period.

Despite these positive outcomes, McEwen Mining slightly missed its annual guidance due to its non-managed operations, specifically the San Jose mine, operated by Hochschild, which fell short of its guidance midpoint by over 4,000 GEOs.

Financial Performance and Strategic Developments

McEwen Mining’s financial results reflected a 50% increase in revenue, amounting to $166.2 million, with approximately 88,700 GEOs sold at an average price of $1,927 per ounce, compared to about 63,800 GEOs sold at $1,788 per ounce in 2022.

Although the company reported an adjusted net loss of $23.0 million for the year, there was a notable improvement in consolidated average all-in-sustaining costs (AISC) to $1,615 per ounce from $1,688 per ounce in the previous year.

For 2024, McEwen Mining has set a production guidance midpoint of 137,500 GEOs, indicating an approximate 11% decline year-over-year, largely attributable to anticipated lower production at the San Jose silver mine in Argentina.

However, the company expects significant improvements in margins and revenue, particularly from the Gold Bar and Fox operations.

Outlook and Valuation

For 2024, McEwen Mining’s outlook remains cautiously optimistic, with the company guiding for lower production at elevated costs, particularly at the San Jose mine, which continues to be a concern.

Nevertheless, the company expects a substantial improvement in AISC margins at Gold Bar, potentially quadrupling from approximately $100 per ounce to around $450 per ounce, assuming a conservative average gold price of $2,150 per ounce for the year.

Credit: DepositPhotos

The stock’s valuation reflects a significant rise, currently trading around 30% above the fair value estimate previously highlighted.

Despite this increase, McEwen Mining’s valuation might face resistance at higher levels, making the stock more susceptible to a potential correction.

Solid Foundation for Future Growth

McEwen Mining’s performance in 2023 marks a significant step towards operational and financial stability, particularly through the advancements at its managed operations and the strategic progress at Los Azules.

While challenges remain, particularly with the non-managed operations, the company’s efforts in reducing costs and enhancing production efficiency provide a solid foundation for future growth.


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