MUX:CC - McEwen Mining: The Stock Is Now Expensive
2023-07-24 13:57:30 ET
Summary
- McEwen Mining Inc. revenues were $34.75 million, down from $25.54 million in Q1 2022 and up 23.1% sequentially.
- The total cash was $192.21 million at the end of March 2023. Long-term debt is $64.12 million.
- I recommend buying McEwen Mining stock between $8.55 and $8.25, with possible lower support at $7.65.
Introduction
The Toronto-based McEwen Mining Inc. ( MUX ) released its first quarter 2023 results on May 8, 2023.
Note: This article updates my April 21, 2023 article. I have followed MUX on Seeking Alpha since July 2021.
1 - 1Q23 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% ).
MUX Assets Map (MUX Presentation)
McEwen Mining came out with a first-quarter loss of $43.08 million or $0.91 per diluted share, compared to a loss of $20.73 million or $0.45 per share in 1Q22.
Revenues were $34.75 million , down from $25.54 million in 1Q22 and up 23.1% sequentially. Finally, the 1Q23 generic free cash flow from operations was a loss of $33.56 million, compared to a loss of $19.67 million in 1Q22.
MUX produced 30,397 GEOs in 1Q23, including 11,241 attributable GEOs from the San José mine. The increase in gold production came with a decrease in cost per ounce at the Fox and Gold Bar mines.
MUX Production GEO per Mine 1Q22 versus 1Q23 (Fun Trading)
We have gotten our mojo back. From September 1 of last year to last Friday, May 5th, our share pricing has increased by 200%. That represents an increase 4 times greater than the GDX and the GDXJ indices, 11 times greater than the price of gold and 15 times greater than the price of copper, and isn’t it about time and we still have much to regain.
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. However, MUX recovered exceptionally well and is now up 166% from the October lows.
Reminder: The company declared a 1:10 reverse split to stay listed on the NYSE. The reverse split 1:10 was effective starting Tuesday, July 26, 2022 .
CEO Rob McEwen indicated in the conference call:
This outperformance was driven by a number of factors, which you’ll hear in greater detail as we go on today. But the big ones were a ARS30 billion investment in McEwen Copper by Stellantis, who is the world’s fourth largest automobile manufacturer and also an investment by the world’s number two mining company, Rio Tinto, their technology arm. They increased their investment by $30 million to $55 million.
The main copper project is the Los Azules in Argentina. A critical catalyst for the company is its copper subsidiary, McEwen Copper. The company released the PEA for Los Azules in 1Q23. MUX owns a 51.9% interest in McEwen Copper Inc., which holds a 100% interest in the Los Azules copper project in San Juan, Argentina, and the Elder Creek exploration project in Nevada, USA.
MUX Los Azules (MUX Presentation)
It is a critical project for MUX shareholders because it offers significant growth potential. It is an excellent copper project with an initial CapEx between $2.153 billion and $2,462 billion.
I am not sure about how solid MUX is financially. The results look quite disappointing, with large recurring losses in Free Cash Flow that do not justify the stock price, in my opinion.
Thus, trading short-term MUX LIFO and keeping only a tiny core position long term is prudent.
3 - Stock Performance
MUX is up a whopping 166% after a recovery from its lows in October 2022. MUX has significantly outperformed the VanEck Gold Miners ETF (GDX).
MUX - Financial Snapshot History ending 1Q23: The Raw Numbers
Note: Numbers are indicated in US$.
| MUX |
| 1Q22 |
| 2Q22 |
| 3Q22 |
| 4Q22 |
| 1Q23 |
| Total Revenues $ million |
| 25.54 |
| 30.65 |
| 25.99 |
| 28.24 |
| 34.75 |
| Quarterly Earnings in $ million |
| -19.33 |
| -12.45 |
| -10.53 |
| -37.36 |
| -43.08 |
| EBITDA $ million |
| -16.63 |
| -6.88 |
| -4.58 |
| -24.88 |
| -32.11 |
| EPS (diluted) $ Per Share |
| -0.40 |
| -0.26 |
| -0.21 |
| -0.80 |
| -0.91 |
| Operating Cash Flow $ million |
| -15.62 |
| -28.74 |
| -6.20 |
| -8.06 |
| -28.61 |
| CapEx in $ |
| 4.05 |
| 4.21 |
| 8.89 |
| 7.05 |
| 4.95 |
| Free Cash Flow |
| -19.67 |
| -32.94 |
| -15.09 |
| -15.10 |
| -33.56 |
| Total Cash in $ million |
| 66.21 |
| 46.42 |
| 56.31 |
| 40.92 |
| 192.21 |
| Total LT Debt in $ million |
| 63.55 |
| 63.69 |
| 63.83 |
| 63.98 |
| 64.12 |
| Shares Outstanding (diluted) |
| 46.40 |
| 47.43 |
| 50.78 |
| 45.05 |
| 47.43 |
| Gold and Silver Production |
| 1Q22 |
| 2Q22 |
| 3Q22 |
| 4Q22 |
| 1Q23 |
| Quarterly Gold Equivalent Oz GEOs |
| 25,170 |
| 36,100 |
| 35,653 |
| 37,279 |
| 30,397 |
| Quarterly Au Production Oz |
| 20,850 |
| 27,600 |
| 26,200 |
| 28,970 |
| 25,900 |
| Quarterly Silver Production Oz |
| 336.500 |
| 704.600 |
| 853.000 |
| 702,000 |
| 381,200 |
Source: Company 10-K filing .
McEwen Mining - Gold Production and Balance Sheet Details
1 - Revenues and Trends. Revenues were $34.75 million in 1Q23
MUX Quarterly Revenue History (Fun Trading) The first-quarter revenues were $34.75 million , up from $25.54 million in the same quarter a year ago. Net loss was $43.08 million, or $0.91 per diluted share. Adjusted loss was $6.4 million or $0.14 per share, compared to a loss of $13.1 million or $28 per share in 1Q22. Cash from operations was a loss of $28.61 million in 1Q23.
2 - Free cash flow was a loss of $33.56 million in 1Q23
MUX Quarterly Free Cash Flow History (Fun Trading) Note: Generic free cash flow is the cash from operations minus CapEx. It may differ from the company calculation.
Trailing 12-month free cash flow ttm was a loss of $96.69 million , and the free cash flow for the first quarter was a loss of $33.56 million.
3 - Debt situation and the Los Azules copper project
MUX Quarterly Cash versus Debt History (Fun Trading) The total cash was $192.21 million at the end of March 2023. Long-term debt is $64.12 million. However, the company indicated that it reduced the debt by 38% on Friday of this week, and I believe the best is yet to come. In the 10K (emphasis added): Our cash and cash equivalents balance as at March 31, 2023 of $190.8 million increased by $147.2 million, from $39.8 million as at December 31, 2022. The increase in cash and cash equivalents in Q1/23 was primarily driven by the closing of private placements and secondary sales for McEwen Copper, and offset by $39.5 million in advanced projects and exploration expenses incurred. Of our cash balance as at March 31, 2023, a total of $158.8 million is allocated for advancing the Los Azules copper project. MUX Los Azules Financing (MUX Presentation) The Los Azules project ( 59.1% owned by MUX) has been the company's main focus. The 2023 PEA (replacing the 2017 PEA) was published on June 20, 2023, and foresees initial long-life copper cathode production: MUX PEA Highlights (MUX Presentation) Note: The recent PEA includes an updated independent mineral resource estimate, which increased to 10.9 billion lbs. Cu (Indicated, grade 0.40%) and 26.7 B lbs. Cu (Inferred, grade 0.31%): The base case development strategy selected in the 2023 PEA is distinctly different from that presented in the prior PEA published in 2017. In 2017, the strategy was to construct a mine with a conventional mill and flotation concentrator producing a concentrate for export to international smelters. The 2023 PEA proposes a heap leach (leach) project using solvent extraction-electrowinning (SX/EW) to produce copper cathodes (LME Grade A) for sale in Argentina or international markets. McEwen Copper spent $31.9 million in 1Q23.
4 - Gold Equivalent production details. The company produced 30,397 GEOs in 1Q23
4.1 - Production in GEOs
MUX Quarterly Production GEO History (Fun Trading) Gold Equivalent production was 30,397 Au Eq. Oz , up significantly from 25,111 Au Eq. Oz in 1Q22.
4.2 - Production details per mine:
MUX Quarterly Production per Mine History (Fun Trading) 4.3 - All-in Sustaining costs - AISC and gold price received for 1Q23 MUX Quarterly Gold Price and AISC History (Fun Trading) AISC at the San Jose mine was $2,234 per ounce in 1Q23. However, AISC for Gold Bar and Black Fox Mines was $1,446 per GEO .
5 - 2023 Guidance
For 2023, MUX expects a 2023 production of 150K-170K GEOs.
Technical Analysis (short term) and Commentary
MUX TA Chart Short-Term (Fun Trading StockCharts)
MUX forms an ascending wedge pattern, with resistance at $9.25 and support at $8.50. The stock has jumped significantly since early July lows. The RSI is now 66 and considered overbought, reinforcing the idea that MUX is about to retrace potentially to the 50MA at $7.70.
The rising wedge pattern represents a bearish continuation pattern formed after the rising correction. In a bullish trend, price bounces between two slopings begin wide at the bottom and contract as prices increase. After the rising correction, the continuation patterns follow a significant downtrend.
I suggest selling LIFO about 75% of your position between $9.10 and $9.40 with higher resistance at $9.75 and accumulating on any weakness between $8.55 and $8.25 with possible lower support at $7.65.
The strategy buy-sell-rinse-repeat is the best path for this stock, only keeping a small 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.
For further details see:
McEwen Mining: The Stock Is Now Expensive