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MUX > SEC Filings for MUX > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for MCEWEN MINING INC.



Quarterly Report


In the following discussion, "McEwen Mining", "we", "our", and "us" refers to McEwen Mining Inc. and as the context requires, its consolidated subsidiaries.

The following discussion updates our plan of operation as of November 7, 2013 for the foreseeable future. It also analyzes our financial condition at September 30, 2013 and compares it to our financial condition at December 31, 2012. Finally, the discussion analyzes our results of our operations for the three and nine months ended September 30, 2013 and compares those results to the three and nine months ended September 30, 2012. With regard to properties or projects that are not in production, we provide some details of our plan of operation. The discussion also presents certain Non-GAAP financial performance measures, such as total cash costs, total cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, all-in costs, all-in cost per ounce, and average realized price, that are important to management in its evaluation of our operating results and which are used by management to compare our performance to what we perceive to be peer group mining companies and relied on as part of management's decision-making process. Management believes these measures may also be important to investors in evaluating our performance. For a detailed description of each of the Non-GAAP financial performance measures, please see the discussion under "Non-GAAP Financial Performance Measures" below, beginning on page 35. We suggest that you read this discussion in connection with the MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS contained in our annual report on Form 10-K for the year ended December 31, 2012.

Reliability of Information: Minera Santa Cruz S.A., the owner of the San José mine, is responsible for and has supplied to us all reported results from the San José mine. The technical information contained herein is, with few exceptions as noted, based entirely on information provided to us by Minera Santa Cruz S.A. ("MSC"). Our joint venture partner, a subsidiary of Hochschild Mining plc, and its affiliates other than MSC do not accept responsibility for the use of project data or the adequacy or accuracy of this information. As we are not the operator of the San José mine, there can be no assurance that production information reported to us by MSC is accurate, we have not independently verified such information and readers are therefore cautioned regarding the extent to which they should rely upon such information.

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We are required to prepare reports under the Canadian Securities Administrators' National Instrument 43-101 "Standards of Disclosure for Mineral Projects" ("NI 43-101"), under the Canadian securities laws because we are listed on the Toronto Stock Exchange ("TSX") and subject to Canadian securities laws. These standards are materially different from the standards generally permitted in reports filed with the United States ("U.S.") Securities and Exchange Commission ("SEC").

Definitions of terms under NI 43-101 differ materially from the definitions of those and related terms in Industry Guide 7 ("Guide 7") promulgated by the SEC. Under U.S. standards, mineralization may not be classified as a "reserve" unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Under Guide 7 standards, a "Final" or "Bankable" feasibility study is required to report reserves, the three-year historical average precious metals prices are used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate government authority. One consequence of these differences is that "reserves" calculated in accordance with Canadian standards may not be "reserves" under Guide 7 standards. U.S. investors should be aware that McEwen Mining's properties located in the United States and Mexico do not have "reserves" as defined by Guide 7 and are cautioned not to assume that any part or all of the disclosed mineralized material will be confirmed or converted into Guide 7 compliant "reserves".

Under NI 43-101, we report measured, indicated and inferred resources, which are measurements that are generally not permitted in filings made with the SEC. The estimation of measured resources and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves. U.S. investors are cautioned not to assume that any part of measured or indicated resources will ever be converted into economically mineable reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. It cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category. Therefore, U.S. investors are also cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically.

Canadian regulations permit the disclosure of resources in terms of "contained ounces" provided that the tonnes and grade for each resource are also disclosed; however, the SEC only permits issuers to report "mineralized material" in tonnage and average grade without reference to contained ounces. Under U.S. regulations, the tonnage and average grade described herein would be characterized as mineralized material. We provide such disclosure about our exploration properties to allow a means of comparing our projects to those of other companies in the mining industry, many of which are Canadian and report pursuant to NI 43-101, and to comply with applicable disclosure requirements.

We also note that drill results are not indicative of mineralized material in other areas where we have mining interests. Furthermore, mineralized material identified on our properties does not and may never have demonstrated economic or legal viability.

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McEwen Mining Inc. was organized under the laws of the State of Colorado on July 24, 1979. Since inception, the Company has been engaged in the exploration for, development of, production and sale of gold and silver. On January 24, 2012, we changed our name from US Gold Corporation to McEwen Mining Inc. after the completion of the acquisition of Minera Andes Inc. ("Minera Andes") by way of a statutory plan of arrangement pursuant to the laws of the Province of Alberta, Canada. Our principal assets consists of our 49% interest in the San José mine in Santa Cruz, Argentina; the El Gallo Complex in Sinaloa, Mexico; the Gold Bar Project in Nevada, United States; the Los Azules Project in San Juan, Argentina, and a large portfolio of exploration properties in Argentina, Nevada and Mexico.

In this report, Au represents gold, Ag represents silver, oz represents ounce, opt represents troy ounces per short ton, gpt represents grams per metric tonne, ft. represents feet, m represents meters, km represents kilometer, and sq. represents square. All of our financial information is reported in United States ("U.S.") dollars, unless otherwise noted.

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Selected Financial and Operating Results

                                         Three months ended September 30,           Nine months ended September 30,
                                            2013                  2012                 2013                 2012

Gold and silver sales                 $          11,778     $             456    $          35,735    $            456
Income on investment in Minera
Santa Cruz S.A., net of
amortization                          $           2,040     $          11,240    $             252    $         14,968
Net income (loss)                     $           3,264     $          (2,654 )  $        (136,399 )  $        (40,369 )
Per common share - basic and
diluted                               $            0.01     $           (0.01 )  $           (0.46 )  $          (0.16 )
Consolidated gold ounces
Produced                                             20                    11                   58                  31
Sold                                                833                   761                2,278               2,160
Consolidated silver ounces
Produced                                             21                    14                   59                  30
Sold                                                814                 1,061                2,240               2,129
Consolidated gold equivalent
ounces (thousands) (1)
Produced                                             36                    25                  102                  73
Sold                                                 37                    35                  102                  71
Consolidated average realized
price (2)
Gold                                  $           1,378     $           1,707    $           1,364    $          1,671
Silver                                $           23.19     $           32.58    $           21.96    $          31.56
Consolidated total cash costs per
gold equivalent ounce (2) (3)         $             749     $             804    $             793    $            796
Consolidated all-in sustaining
costs per gold equivalent ounce
(2) (4)                               $           1,081     $           1,245    $           1,223    $          1,367
Consolidated all-in costs per gold
equivalent ounce (2) (4)              $           1,245     $           1,715    $           1,490    $          2,178

(1) Gold equivalent ounces calculated using an average silver to gold ratio of 52:1.

(2) Total cash costs, all-in sustaining costs, all-in costs, and average realized prices are non-GAAP financial performance measures with no standardized definition under U.S. GAAP. See "Non-GAAP Financial Performance Measures" beginning on page 35 for additional information, including definitions of these terms.

(3) In the second quarter of 2013, the Company revised its allocation of general and administrative expenses to total cash costs to conform to the Gold Institute Production Cost standard. Prior period figures have been adjusted to conform to the current methodology.

(4) In the second quarter of 2013, the Company adopted the new guidance on all-in sustaining and all-in costs published by the World Gold Council on June 27, 2013. Prior period figures have been adjusted to conform to the current methodology.

Operating and Financial Highlights

† Gold equivalent production in the third quarter of 2013 totaled 36,494 ounces, which includes 28,467 gold equivalent ounces attributable to us from our 49% owned San José mine in Argentina and 8,027 gold equivalent ounces from El Gallo 1 in Mexico.

† For the third quarter of 2013, total cash costs, all-in sustaining costs and all-in costs for all of our operations on a consolidated basis totaled $749, $1,081 and $1,245 per gold equivalent ounce, respectively. Total cash costs and all-in sustaining costs at the San José mine in Argentina totaled $749 and $1,003 per gold equivalent ounce, respectively. Total cash costs and all-in sustaining cash costs at our El Gallo 1 mine totaled $747 and $1,066 per gold equivalent ounce, respectively.

† Gold equivalent ounces sold in the third quarter of 2013 totaled 36,512 ounces, which includes 27,711 gold equivalent ounces attributable to us from our 49% owned San José mine in Argentina and 8,801 gold equivalent ounces from El Gallo 1 in Mexico.

† Average realized price for all of our operations on a consolidated basis in the third quarter of 2013 was $1,378 and $23.19 per ounce of gold and silver sold, respectively.

† The Company ended the quarter with $32.6 million in cash and precious metals and no debt.

Development and Exploration Activities

El Gallo Complex, Mexico

El Gallo 1

During the third quarter of 2013, we continued to work on the expansion of El Gallo 1. The expansion is ahead of schedule with completion expected at the end of the first quarter rather than the second quarter of 2014. In addition, the estimated cost has been reduced to $3 million from the previously stated $5 million. Key advancements in the quarter focused on heap leach pad construction, crushing and processing plant upgrades, and requisitions of long lead capital items, as these areas are critical for increased production at El Gallo 1. For the nine months ended September 30, 2013, we have spent $0.5 million on the expansion.

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Remaining equipment upgrades and development activities are summarized below:

†          Installing a new series of pumps, generators and carbon columns.

†          Upgrading the electro-winning cells at the ADR
(adsorption-desorption-recovery) process plant.

†          Expanding the heap leach pad to accommodate the increased throughput
and subsequent ore delivery rate.

El Gallo 2

During the third quarter, we continued to evaluate ways to optimize the project both by continuing the metallurgical testing for El Gallo 2 as a heap leach operation rather than a conventional milling process and also by looking to decrease the capital cost estimate should we proceed with development under a milling scenario. We expect that the capital cost requirements under a heap leach scenario would be much lower, approximately $30 million, versus the original estimate of $180 million under a milling scenario, with the primary tradeoff being lower silver production levels due to reduced recoveries. Follow-up tests confirm earlier tests which suggest silver recoveries through heap leaching would be between 55-60%. However more work is required on processing costs and permitting requirements before a final decision is made. The metallurgical testing of El Gallo 2 ore via heap leach is expected to be completed by the fourth quarter of 2014. Development under a heap leach scenario would require changes to the permits currently sought for El Gallo 2 described below.

Concurrently, we are reviewing the technical design of El Gallo 2 under the milling scenario and making modifications to the design which are expected to result in savings of 10-15% from the original project estimate of $180 million. The Company has continued to advance the construction of the El Gallo 2 ball mill to ensure both process alternatives remain viable without incurring unnecessary costs or delays. The construction of the ball mill is expected to be complete in Q3 2014. For the nine months ended September 30, 2013, we have made advances of $3.4 million for the ball mill and filter presses.

El Gallo 2: Development and Permitting

As at the date of this filing, all required El Gallo 2 permits have been either submitted or approved. The final permit to begin construction and operations under the mill scenario is still under review by the Mexican government. The government has completed an initial review. We have since supplied the answers and supporting documentation. We are hoping to have approval by the end of 2013, but it could extend into early 2014, with the number of other projects within the country that are currently being reviewed.

The following table summarizes the status of our permits for El Gallo 2 as of November 7, 2013.

El Gallo 2: Permitting Schedule and Update

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