MUX - McEwen Mining: It Is All About The Los Azules Project

2023-10-12 05:04:58 ET

Summary

• McEwen Mining released its second quarter 2023 results on August 10, reporting a loss of $21.63 million and revenues of $34.40 million.
• On October 10, 2023, the company secured a $10.0 million investment from Nuton LLC, decreasing ownership of McEwen Mining to 47.7%.
• The Los Azules copper project in Argentina is progressing, with McEwen Mining investing $130 million since 2021 in exploration and securing partnerships with Rio Tinto and Stellantis.
• I recommend buying MUX between $6.65 and $6.40 with possible lower support at $6.00.

Introduction

The Toronto-based McEwen Mining Inc. (MUX) released its second quarter 2023 results on May 8, 2023.

Also, on October 11, 2023, McEwen Mining Inc. announced a binding agreement for an additional $10.0 million investment by Nuton LLC, a Rio Tinto Venture and existing McEwen Copper shareholder.

After closing, Nuton will own 14.5% of McEwen Copper on a fully diluted basis, and McEwen Mining will own 47.7% .

Note: This article updates my July 24, 2023 article. I have followed MUX on Seeking Alpha since July 2021.

1 - 2Q23 Results Snapshot

McEwen Mining operates three gold and silver-producing mines and one development Project in Mexico.

Also, the company owns a subsidiary called McEwen Copper (47.7%) after the closing of Nuton LLC. Recent transaction indicated above.

McEwen Mining posted a second-quarter loss of $21.63 million or $0.46 per diluted share, compared to a loss of $12.45 million or $0.26 per share in 1Q22.

Revenues were $34.40 million , up from $30.65 million in 2Q22 and unchanged sequentially. Finally, the 2Q23 generic free cash flow from operations was a negative $29.16 million, compared to a negative $40.92 million in 2Q22.

MUX produced 35,625 GEOs in 2Q23, including production from the San José mine.

As many of you are aware, our gold and silver assets had a weak start for the year. While activities at McEwan Copper's Los Azules project we're running at a rapid pace. I'm pleased to say that our mines delivered better results in Q2 than Q1 and the outlook for the second half of the year is significantly better.

2 - Investment Thesis

McEwen Mining had a terrible year in 2022 that culminated in July 2022 with a painful reverse split 1:10 to avoid delisting and a record-low stock price in October 2022. MUX recovered exceptionally well from this dire situation and is now up 109% on a one-year basis.

3 - The Los Azules Project in Argentina is Advancing

One important topic regarding MUX is its main copper project, the Los Azules in Argentina. A critical catalyst for the company is its copper subsidiary, McEwen Copper. The project is amongst the world's largest copper deposits.

The company has invested $130 million in exploration since 2021 and secured two key strategy partners/sponsors , Rio Tinto and Stellantis.

Note: McEwen Mining released the PEA for Los Azules in June 2023.

MUX now owns a 47.7% interest in McEwen Copper Inc., which holds a 100% interest in the Los Azules copper project in San Juan, Argentina, and the early-stage Elder Creek exploration project in Nevada, USA.

It is a critical project for MUX shareholders, offering significant growth potential. It is an excellent copper project with an initial CapEx between $2.153 billion and $2,462 billion.

Thus, trading short-term MUX LIFO (about 75%) and keeping only a medium core position long-term is recommended.

4 - Stock Performance

MUX is up a whopping 73% after a recovery from its lows in October 2022. MUX has significantly outperformed the VanEck Vectors Gold Miners ETF ( GDX ).

MUX - Financial Snapshot History Ending 2Q23: The Raw Numbers

Note: Numbers are indicated in US$.

Source: Company 10-Q filing .

McEwen Mining - Gold Production and Balance Sheet Details

1 - Revenues and Trends. Revenues were $34.40 million in 2Q23

2 - Free cash flow was negative $29.16 million in 2Q23

Trailing 12-month free cash flow TTM was negative $84.93 million , and the free cash flow for the second quarter was negative $29.16 million.

3 - Debt situation and the Los Azules copper project

4.1 - Production in GEOs

4.2 - Gold Production details per mine:

Gold production was 28,700 Au ounces in 2Q23.

5 - 2023 Guidance

For 2023, MUX expects a 2023 production of 150K-170K GEOs.

Technical Analysis (Short Term) and Commentary

MUX forms an ascending channel pattern, with resistance at $7.60 and support at $6.55. The RSI is now 60 and elevated, reinforcing that MUX is about to reach a resistance of $7.60.

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, but only after a downside penetration of the lower trend line.

I suggest selling LIFO about 75% of your position between $7.42 and $7.80 with higher resistance at $8.30 and accumulating on any weakness between $6.65 and $6.40 with possible lower support at $6.00.

The strategy buy-sell-rinse-repeat is the best path for this stock, only keeping a small/medium long-term position you have de-risked with your short-term gains.

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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