CA - McEwen Mining: Gold Is High Time To Take Some Profit

2023-04-21 04:13:40 ET

Summary

• McEwen Mining's fourth-quarter revenues were $28.24 million, down from $34.97 million in the same quarter a year ago.
• Gold Equivalent production was 37,279 Au Eq. Oz, down significantly from 40,150 Au Eq. Oz in 4Q21. MUX sold 36,724 GEOs in 4Q22.
• I recommend buying MUX between $8.35 and $8 with possible lower support at $7.55.

Introduction

The Toronto-based McEwen Mining ( MUX ) released its fourth-quarter and Full-year 2022 results on March 14, 2023.

This article looks at the company's recent history, including the fourth quarter earnings, to find a way to invest profitably in this company through fundamental and technical analysis. All charts in this article give several quarters of history.

Note: This article is an update of my article published on January 5, 2023 . I have followed MUX on Seeking Alpha since July 2021.

Also, I will be using the most recent presentation published on April 12, 2023.

1 - 4Q22 and Full-year 2022 Results Snapshot

McEwen Mining counts three gold and silver-producing mines and one development Project in Mexico. Also, the company owns a subsidiary called McEwen Copper (51.9%).

McEwen Mining came out with a fourth-quarter loss of $37.36 million or $0.80 per diluted share compared to a loss of $20.86 million or $0.46 per share in 4Q21.

Revenues were $28.24 million, down from $34.97 million in 4Q21 and up 8.7% sequentially. Finally, the 4Q22 generic free cash flow from operations was a loss of $15.10 million compared to a loss of $7.55 million in 4Q21.

MUX produced 37,279 GEOs in 4Q22, including 19,417 attributable GEOs from the San José mine, bringing full-year 2022 production to 133,300 GEOs, including 69,129 GEOs from the San José mine. The company sold 36,724 GEOs in 4Q22.

Driving this price improvement is our demonstration of improving operational performance, good exploration results, production growth, and lower cost per ounce, along with the growing recognition that McEwen Copper's Los Azules project is a large copper resource with large strategic shareholders, Rio Tinto, the world's second largest mining company, and Stellantis, the world's fourth largest automobile manufacturer and mobility provider.

2 - Investment Thesis

McEwen Mining had a terrible year in 2022. The company performed a reverse split to avoid delisting and reached a record low in October 2022.

Reminder: The company has been forced to declare a 1 for 10 reverse split to stay listed on the NYSE. The reverse split 1:10 was effective starting Tuesday, July 26, 2022 .

However, MUX turned around significantly and outperformed the GDXJ in one year. The year 2023 is looking much better. CEO Rob McEwen indicated in the conference call:

For 2023, we are looking at a production increase of 12.5% to 27.5% over what we did in 2022, and our costs are expected to decline by about 5%.

The main project is the Los Azules in Argentina. A critical catalyst for the company is its copper subsidiary, McEwen Copper. McEwen Copper owns 100% of the Los Azules and the Elder Creek copper projects.

It is an important project for MUX shareholders because it offers significant growth potential in the not-too-distant future. It is an excellent copper project with an initial CapEx of $2.4 billion that could go much higher with the recent inflationary pressures.

However, the Los Azules McEwen Copper will not significantly affect the current company's fundamentals besides an elevated CapEx. The main business, which comprises three producing mines, is, therefore, crucial and should be the main investment topic.

Thus, trading short-term MUX here and keeping only a tiny core position long-term is prudent.

3 - Stock Performance

MUX is up 3% after a recovery from its lows in October 2022. MUX has significantly outperformed the VanEck Gold Miners Junior ( GDXJ ).

MUX - Financial Snapshot History ending 4Q22: The Raw Numbers

Note: Numbers are indicated in US$.

Source: Company release 10-K filing

McEwen Mining - Gold Production and Balance Sheet Details

1 - Revenues and Trends. Revenues were $28.24 million in 4Q22

2 - Free cash flow was a loss of 15.10 million in 4Q22

Trailing 12-month free cash flow ttm was a loss of $82.80 million, and the free cash flow for the fourth quarter was a loss of $15.10 million.

CapEx for McEwen Copper and other mines has been relatively high and affects the free cash flow. I expect an elevated CapEx in 2023 as well.

3 - Debt situation and the Los Azules copper project

4.1 - Production in GEOs

4.2 - Production details per mine:

4.3 - All-in Sustaining costs - AISC and gold price received for 4Q22

5 - 2023 Guidance

For 2023, MUX expects a production increase of 12.5% to 27.5% over what was produced in 2022. Costs are expected to decline by about 5%.

Technical Analysis (short term) and Commentary

MUX forms an ascending channel pattern with resistance at $10 and support at $8.30. The stock has jumped significantly since the company announced a reverse split to stay compliant with its NYSE listing.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices.

I suggest selling LIFO about 75% of your position between $10 and $10.15 with higher resistance at $10.85 and accumulating on any weakness between $8.35 and $8 with possible lower support at $7.55.

The strategy buy-sell-rinse-repeat is the best path for this stock, only keeping a small long-term position derisked.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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