Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MUX > SEC Filings for MUX > Form 10-K/A on 10-Mar-2014All Recent SEC Filings

Show all filings for MCEWEN MINING INC.



Annual Report



The following discussion summarizes what management believes is relevant to our results of operations for three fiscal years ended December 31, 2012 and our financial condition at December 31, 2012 and 2011, with a particular emphasis on the year ended December 31, 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 measures that are important to management in its evaluation of our operating results and which are used by management to compare our performance with 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 measures, please see the discussion under "Non-GAAP Measures" below.

The information in this section should be read in conjunction with our consolidated financial statements and the notes thereto included in this annual report.

Reliability of Information: Minera Santa Cruz S.A., the owner of the San Josť Mine, is responsible for and has supplied to us all reported results from the San Josť 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 document. As we are not the operator of the San Josť 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.


McEwen Mining Inc. was organized under the laws of the State of Colorado on July 24, 1979. We are a mining and minerals exploration company focused on precious metals in Argentina, Mexico and the United States. On January 24, 2012, we changed our name from US Gold Corporation to McEwen Mining Inc. after the completion of the acquisition, by way of a statutory plan of arrangement pursuant to the laws of the Province of Alberta, Canada, of Minera Andes Inc. ("Minera Andes"). Our principal assets consists of our 49% interest in the San Josť 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.

Development and Exploration Activities

El Gallo Complex, Mexico

In September 2012, we had our first gold pour at El Gallo Phase 1 upon completion of the Phase 1 construction, which had a total cost of $13.5 million. Total production for 2012 was 6,863 oz of gold and 4,492 oz of silver during the start up period. A total of 356,000 tonnes were mined and 248,000 tonnes processed between September and December

2012. Tonnes mined represent tonnes of ore extracted, while tonnes processed represent tonnes of ore crushed and placed on the leach pads. The difference between tonnes mined and processed remained in stockpile inventory. Due to long process cycles, actual recoveries are difficult to measure and may fluctuate significantly based on the timing, quantity and metallurgical attributes of new mineralized material placed on the leach pads, amongst other variables. The cumulative recovery rate for gold production from September 1, 2012 (start of production) to December 31, 2012 was approximately 60%.

El Gallo Phase 1 achieved commercial production on January 1, 2013. In 2013, production for Phase 1 is forecasted to be approximately 27,500 oz of gold.

The following table summarized production and sales totals for El Gallo 1 for 2012. As production for operational purposes was only achieved on January 1, 2013, certain measures such as total cash costs and all-in sustaining costs are not computed.

El Gallo Phase 1 - Production and Sales

                                          2012     Q4 2012
El Gallo 1 Mine
Tonnes mined (thousands)                     357        287
Average grade gold (gpt)                    1.21       1.21
Tonnes processed (thousands)                 340        261
Average grade gold (gpt)                    1.05       1.13
Gold ounces (thousands)
Produced                                     6.9        6.6
Sold                                         3.2        3.0
Silver ounces (thousands)
Produced                                     4.5        4.4
Sold                                         0.3        0.2
Gold equivalent ounces (thousands) (1)
Produced                                     6.9        6.7
Sold                                         3.2        3.0
Net sales (thousands)                    $ 5,966   $  5,510

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

In September 2012, the feasibility study for Phase 2 was completed and it reported an estimate of 24 million tonnes of mineralized material (including only the El Gallo and Palmarito deposits) with a weighted average grade of 0.1 gpt of gold and 68.9 gpt of silver. The report projected an average annual production rate of 5.0 million oz of silver and 6,000 oz of gold during each of the first six years at a cash operating cost of $9.86 per silver oz (net of gold by-product and including royalties). The feasibility study also estimated initial capital expenditures to be $180 million, including a 14.4% contingency.

In preparation for Phase 2 operations, we completed three production water wells during 2012 and the results from the pumping tests indicate there is sufficient water to meet our needs. We also received approval from Mexico's Federal Electricity Commission for our designs to connect Phase 2 to the national electrical grid. Environmental permits to construct the power line were submitted at the end of 2012. Environmental permits for construction and operations are progressing and are expected to be submitted to Mexico's Environmental and Natural Resources Ministry during the first quarter of 2013. We also expect to begin procurement in the first quarter of 2013 of long lead time equipment such as the ball mill, filter presses for dry stack tailings, Merrill Crowe plant, leach tanks and electrical substation.

During 2012, approximately 131,486 ft. (40,077 m) of drilling was completed at the El Gallo Complex. We expect to drill approximately 65,000 ft. (20,000 m) during 2013 with a total exploration budget of approximately $10 million.

Gold Bar Project, Nevada

During 2012, we continued to advance the Gold Bar Project through the permitting process. Baseline studies were completed in support of the U.S. Bureau of Land Management ("BLM") and State of Nevada permitting required for mine development and construction. We expect to submit our Plan of Operations permit application during the second half of 2013. As the official permitting process has begun, we are unable to perform any drilling activities at Gold Bar. Our 2013 budget for Gold Bar, primarily for permitting activities, is $1.2 million.

Los Azules Copper Project, Argentina

In August 2012, the Company issued a NI 43-101 compliant Technical Report, which estimated 323 million tonnes of mineralized material with a weighted average grade of 0.65 percent copper. In February 2013 we announced an updated estimate, which estimated 310 million tonnes of mineralized material with a weighted average grade of 0.65 percent copper. The February 2013 estimate incorporated the results of the drilling completed from October through December 2012.

During the prior drill season in the first half of 2012, drilling at the project was slow due to difficult ground conditions and equipment problems. A total of 9,301 ft. (2,835 m) was drilled during the 2011-2012 field season in eight holes, which ran from early January to late April 2012 and fell short of the 26,247 ft. (8,000 m) target originally planned. Although significant intercepts of copper mineralization were encountered, most of the drill holes started were unable to reach their target depth due to difficult ground conditions.

We began the 2012-2013 drill season in October 2012 with a total of five core drills and one rotary drill which are more powerful than the ones used in the prior season. A total of 31,000 ft. (9,436 m) was drilled during the fourth quarter of 2012. The current drilling season is expected to end in April 2013. We plan to drill a total of 49,215 ft. (15,000 m) over the current drilling season. The budget for the entire 2012-2013 drilling season is estimated to be $26 million.

In November 2012, McEwen Mining and TNR Gold Corp. agreed that all claims and counterclaims would be discontinued or resolved. The material terms of the settlement included that: (i) TNR would receive 1,000,000 common shares of McEwen Mining; (ii) TNR would transfer the Escorpio IV claim to McEwen Mining; and (iii) the Xstrata-Solitario Agreement will be amended so TNR will retain a Back-in Right for up to 25% of the equity in the Solitario Properties. The Back-in Right is only exercisable after the completion of a feasibility study. To exercise, TNR must pay two times the expenses attributable to the back-in percentage (i.e. paying 2 x 25% all of the costs attributable to the Solitario Properties). Upon backing-in, TNR may elect to continue to participate in the project or be diluted down to a 0.6% NSR on Solitario Properties.

Santa Cruz Exploration, Argentina

During 2012, a total of 36,583 ft. (11,150 m) of percussion drilling was completed on our Celestina project and a total of 26,539 ft. (8,089 m) of blast holes and diamond drilling was completed on our Cerro Mojon project. Exploration work ceased towards the end of May 2012 with the onset of Argentinean winter.

In September 2012, we received the drill permits for the Telken project, one of our 100% owned claim package adjacent to the San Josť Mine. During the fourth quarter of 2012, we commenced drilling at Telken with a reverse-circulation drill rig for a total of 5,100 ft. (1,554 m). The plan is to drill approximately 8,201 ft. (2,500 m) for the 2012-2013 drilling season.

We are continuing with our review of our 100% owned properties in the province of Santa Cruz, Argentina with extensive sampling and mapping taking place, along with selective drilling of prospective targets. We have budgeted $1.2 million towards exploration in Santa Cruz for 2013.

Corporate Development Activities

Rights Offering

During the fourth quarter of 2012, we launched a transferrable rights offering, in which all existing holders of common stock and holders of Exchangeable Shares had the opportunity to participate on an equal and proportional basis in purchasing additional common stock or Exchangeable Shares at a price of $2.25 (or C$2.24) per share, which represented a 50% discount to the closing share price prior to the announcement. Shareholders received one right for each share of common stock or Exchangeable Share and 10 rights were needed to purchase an additional share of the same class. Mr. McEwen purchased 2.8 million shares of common stock and 3.9 million Exchangable Shares for a total cost of $15.1 million. Upon completion of the rights offering, we issued an additional 19.6 million shares of common stock and 7.8 million Exchangeable Shares for proceeds of approximately $60.4 million, net of $1.2 million in expenses.

Business Acquisition

On January 24, 2012, we completed the acquisition of Minera Andes through a court-approved plan of arrangement under Alberta, Canada law (the "Arrangement"), under which Minera Andes, a Canadian company, became an indirect wholly-owned subsidiary of McEwen Mining.

Our management and Board of Directors believes that the combination with Minera Andes is in the best interests of our company and our shareholders because the combined company is expected to have a stronger combined cash position and balance sheet, sources of revenue, active mining operations, enhanced trading liquidity, a significant growth profile, an expanded exploration program and additional technical expertise.

On the closing date of the Arrangement, holders of Minera Andes' common stock received a number of exchangeable shares of McEwen Mining - Minera Andes Acquisition Corp. ("Exchangeable Shares"), an indirect wholly-owned Canadian subsidiary of McEwen Mining, equal to the number of Minera Andes shares, multiplied by the exchange ratio of 0.45. In the aggregate, former Minera Andes shareholders received 127,331,498 Exchangeable Shares. Our common stock began trading on the NYSE and TSX under the symbol "MUX" and the Exchangeable Shares began trading on the TSX under the symbol "MAQ" on January 27, 2012.

In June 2011, Robert R. McEwen, our Chairman, President, Chief Executive Officer and largest shareholder and then also the Chairman, President, Chief Executive Officer and largest shareholder of Minera Andes, proposed the Arrangement. In connection with the Arrangement, Mr. McEwen received approximately 38.7 million Exchangeable Shares. Mr. McEwen owns approximately 25% of the shares of the Company.

As a result of the Arrangement and on the date of closing, the combined company was held approximately 52% by then-existing McEwen Mining shareholders and 48% by former Minera Andes shareholders. On a diluted basis, the combined company was held approximately 53% by then-existing McEwen Mining shareholders and 47% by former Minera Andes shareholders.

The Exchangeable Shares are exchangeable for our common stock on a one-for-one basis. Option holders of Minera Andes received replacement options entitling them to receive, upon exercise, shares of our common stock, reflecting the exchange ratio of 0.45 with the appropriate adjustment of the exercise price per share. The option life and vesting period of the replacement options has not changed from the option life granted under the Minera Andes option plan.

The estimated fair value of the vested portion of the replacement options of $3.2 million have been included as part of the purchase price consideration at their fair values based on the Black-Scholes pricing model as illustrated below.

The principal assumptions used in applying the Black-Scholes option pricing model were as follows:

                                                                  January 24, 2012
Risk-free interest rate                                            0.02% to 0.39%
Dividend yield                                                          n/a
Volatility factor of the expected market price of common stock       46% to 77%
Weighted-average expected life of option                             1.4 years

The acquisition has been accounted for using the acquisition method in accordance with ASC Topic 805, Business Combinations, with McEwen Mining being identified as the acquirer. The measurement of the purchase consideration was based on the market price of our common stock on January 24, 2012, which was $5.22 per share. The total purchase price, including the fair value of the options, amounted to $667.8 million. The total transaction costs incurred through December 31, 2012 by us was $5.4 million, of which $3.9 million was reported in the year ended December 31, 2011 in general and administrative expenses, and $1.5 million for the year ended December 31, 2012 in acquisition costs in the consolidated statements of operations and comprehensive loss.

The allocation of the purchase price, based on the estimated fair value of assets acquired and liabilities assumed on January 24, 2012, is summarized in the following table (in thousands).

2. Business Acquisition

Calculation of the Purchase Price Equation

                                                                        Fair Value
Purchase price:
Exchangeable shares of McEwen Mining-Minera Andes Acquisition Corp.    $    664,671
Stock options to be exchanged for options of McEwen Mining Inc.               3,175
                                                                       $    667,846

Net assets acquired:
Cash and cash equivalents                                              $     31,385
Short-term investments                                                        4,952
Other current assets                                                          9,828
Inventories                                                                   1,362
Mineral property interests                                                  539,092
Investment in Minera Santa Cruz S.A.                                        262,883
Equipment                                                                     1,647
Accounts payable                                                             (5,323 )
Deferred income tax liability                                              (177,980 )
                                                                       $    667,846

For the purposes of our financial statements, the purchase consideration has been allocated to the fair value of assets acquired and liabilities assumed, based on an independent valuation report and management's best estimates and taking into account all available information at the time these consolidated financial statements were prepared. Mineral property interests acquired relate primarily to the Los Azules Copper Project while the Investment in Minera Santa Cruz S.A. reflects the 49% ownership of the San Josť Mine. The deferred income tax liability arises due to the excess of the fair market values reflected herein compared to the underlying tax values of those assets.

Dividend Receivable

As a result of the acquisition of Minera Andes, we also acquired a dividend receivable of $9.4 million due from MSC which was paid on February 24, 2012. During the remainder of 2012, we received an additional $9.8 million in dividends for a total of $19.2 million in dividends from MSC during 2012.

Liquidity and Capital Resources

As of December 31, 2012, we had working capital of $66.7 million, comprised of current assets of $91.9 million and current liabilities of $25.2 million. This represents an increase of approximately $24.9 million from the working capital of $41.8 million at fiscal year end December 31, 2011.

With the acquisition of Minera Andes on January 24, 2012, our working capital in 2012 increased by approximately $42.2 million, including the dividend receivable from MSC of $9.4 million. We expect to receive further dividends from MSC during 2013, although the timing and amount of those dividends will depend upon silver and gold prices, production levels, operating costs, capital expenditures, Argentine central bank and government restrictions, and a variety of other factors beyond our control.

Net cash used in operations for the year ended December 31, 2012 increased to $71.5 million from $59.0 million for 2011 and from $25.9 million in 2010, primarily due to an increase in cash paid to suppliers and employees, partially offset by dividends received from MSC of $9.8 million and cash received from gold and silver sales from Mexico of $5.6 million. Cash paid to suppliers and employees increased to $87.1 million for the 2012 period from $59.1 million and $26.0 million during the 2011 and 2010 periods respectively, as a result of the acquisition of Minera Andes and the increased development and construction expenditures of El Gallo Phase 1.

Cash provided by investing activities for the year ended December 31, 2012 was $65.1 million, primarily due to cash received from the acquisition of Minera Andes of $36.3 million as well as proceeds from the sale of gold and silver bullion of $23.8 million. This compares to cash used in investing activities of $40.3 million in the comparable period of 2011, primarily due to additional purchases of gold and silver bullion of $31.3 million, acquisition of mineral property interests in Nevada and Mexico of $10.1 million, additional purchases of property and equipment of $8.0 million mostly in Mexico, and investment in short-term Canadian Treasury Bills of $3.9 million, partially offset by proceeds from the sale of gold and silver bullion and marketable securities aggregating $13.6 million. This compares to cash provided by investing activities in 2010 of $3.9 million, primarily due to the redemption of our short-term US and Canadian Treasury Bills of $12.9 million, partially offset by additional purchases of gold bullion of $1.8 million, investment in marketable equity securities of $4.0 million, acquisition of mining concessions in Mexico of $1.3 million and property and equipment in Mexico of $2.0 million.

Cash provided by financing activities for 2012 was $64.3 million from the rights offering of 19.6 million shares of common stock and 7.8 million shares of Exchangeable Shares and the exercise of stock options, compared to $106.2 million from the public offering of 17.25 million shares and the exercise of stock options in the comparable period of 2011. Cash provided by financing activities in 2010 was $0.8 million. Overall, our cash increased by $57.5 million in 2012, providing us needed capital.

We believe our working capital at December 31, 2012 is sufficient to fund ongoing exploration and corporate activities over the next 12 months. Our sources of working capital at December 31, 2012 include cash on hand, other current assets, revenue from Phase 1 of El Gallo and any distributions from the San Josť Mine. However, in order to fund the development of El Gallo Phase 2, pending receipt of regulatory approvals, we will need to raise additional capital

given the capital cost is estimated at approximately $180 million which significantly exceeds our available working capital.

Tabular Disclosure of Contractual Obligations

Schedule of Contractual Obligations. The following table summarizes our obligations and commitments as of December 31, 2012 to make future payments under certain contracts, aggregated by category of contractual obligation, for specified time periods:

                                                            Payments due by period
                                           Less than                                     More than
Contractual Obligations        Total         1 year        1-3 years      4-5 years       5 years
                                                         (in thousands)
Operating Lease
Obligations                  $  13,793    $      3,971    $     8,744    $     1,043    $         35
Purchase Obligations             1,530           1,026            504              -               -
Accounts Payable &
Accrued Liabilitites            21,635          21,235            400              -               -
Asset Retirement
Obligations                      6,360             130          2,299             39           3,892
Total                        $  43,318    $     26,362    $    11,947    $     1,082    $      3,927

Results of Operations - MSC


The following discussion relates only to MSC and is disclosed on a 100% basis of which we indirectly own 49%. We account for our investment in MSC using the equity method. Furthermore, this discussion is based on the results for the full year of 2012 whereas we have only recorded income from our equity investment for the period from January 25, 2012 to December 31, 2012. MSC, the entity which owns and operates the San Josť Mine, is responsible for and has supplied to us all reported results and operational updates from the San Josť Mine.

For the year ended December 31, 2012, MSC reported net income of $61.8 million. The amortization of the fair value increments arising from the purchase price allocation decreased the reported net income from MSC for the year ended December 31, 2012 by $9.1 million.

During the year ended December 31, 2012, production was 85,768 ounces of gold and 5,952,534 ounces of silver, compared to production of 80,948 ounces of gold and 5,869,564 ounces of silver in 2011. This represents an increase of 5% for gold production and 1% for silver production.

The following table sets out production totals, sales totals, total cash costs, and all-in sustaining cash costs (on a co-product basis) for the San Josť Mine for 2012 and 2011. Total cash costs and all-in sustaining cash costs are considered to be non-GAAP measures (see non-GAAP measures, page 30). Also included below are the production figures on a 49% attributable basis

MSC - Production and Sales

                           2012       Q4 2012     Q3 2012      Q2 2012     Q1 2012       2011
San Josť Mine - 100%
Tonnes mined
(thousands)                    548         136          140         139         133          499
Average grade (gpt):
Gold                          5.40        6.04         5.04        4.85        5.33         5.88
Silver                         422         466          422         384         397          461
Tonnes processed
(thousands)                    510         129          136         129         116          463
Average grade (gpt):
Gold                          5.79        6.00         5.24        5.98        5.98         5.86
Silver                         417         422          402         430         416          444
Average recovery (%):
Gold                          90.4        91.1         91.1        88.6        91.6         92.9
Silver                        86.6        87.9         87.9        84.2        87.8         88.8
Gold ounces
Produced                        86          23           21          22          20           81
Sold                            84          23           29          18          14           83
Silver ounces
Produced                     5,953       1,545        1,552       1,500       1,356        5,870
Sold                         5,897       1,553        2,166       1,146       1,032        6,086
Net sales (thousands)   $  310,384   $  77,946   $  116,299   $  56,375   $  59,764   $  325,302
Total cash costs
(thousands)             $  146,020   $  38,578   $   54,066   $  29,844   $  23,532   $  134,682
Total cash costs per
ounce sold ($/oz):
Gold                    $      760   $     770   $      766   $     811   $     686   $      628
Silver                  $    13.90   $   13.35   $    14.66   $   13.54   $   13.27   $    13.63
All-in sustaining
. . .
  Add MUX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MUX - All Recent SEC Filings
Copyright © 2015 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.