so
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑K10-K
| |
☒
| |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172020 |
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number 001‑33190001-33190
MCEWEN MINING INC.
(Name of registrant as specified in its charter)
| |
Colorado | 84‑079616084-0796160
|
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
150 King Street West, Suite 2800, Toronto, OntarioCanada | M5H 1J9 |
(Address of principal executive offices) | (Zip Code) |
(866) 441‑0690(866) 441-0690
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value
| | NYSE
|
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | MUX | New York Stock Exchange (“NYSE”) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and emerging“emerging growth companycompany” in Rule 12b‑212b-2 of the Exchange Act.
| |
Large accelerated filer ☒☐ | Accelerated filer ☐☒ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
(Do not check if a smaller reporting company)
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262 (b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 20172020 (the last business day of the registrant’s second fiscal quarter), the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was $613,010,302$406,515,026 based on the closing price of $2.63$1.01 per share as reported on the NYSE. There were 337,054,594459,187,391 shares of common stock outstanding on February 20, 2018.March 10, 2021.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for the 20182021 Annual Meeting of Shareholders are incorporated into Part III, Items 10 through 14 of this report.
TABLE OF CONTENTS
ADDITIONAL INFORMATION
Descriptions of agreements or other documents in this report are intended as summaries and are not necessarily complete. Please refer to the agreements or other documents filed or incorporated herein by reference as exhibits. Please see the Exhibit Index at the end ofItem 15, Exhibits and Financial Statement Schedules in this report for a complete list of those exhibits.
SPECIAL NOTE REGARDING FORWARD‑LOOKINGFORWARD-LOOKING STATEMENTS
Please see the note under “ITEMItem 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations,” for a description of special factors potentially affecting forward‑lookingforward-looking statements included in this report.
CAUTIONARY NOTE TO UNITED STATES INVESTORS—INFORMATION CONCERNING
PREPARATION OF RESOURCE AND RESERVE ESTIMATES
McEwen Mining Inc. (“McEwen Mining,” “we”, “our”, “us” or the “Company”) is required to prepare reports under the Securities Exchange Act of 1934 and the Canadian Securities Administrators’ National Instrument 43‑10143-101 “Standards of Disclosure for Mineral Projects” (“NI 43‑101”43-101”), under the Canadian securities laws because we are listed on the Toronto Stock Exchange (“TSX”) and subject to Canadian securities laws. Standards under NI 43-101 are materially different than the standards generally permitted in reports filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) under Industry Guide 7 (“Guide 7”).
Definitions of terms under NI 43‑10143-101 differ materially from the definitions of those and related terms in Industryunder Guide 7 (“Industry Guide 7”) promulgated by the SEC. Under U.S. standards,Guide 7, mineralization may not be classified as a “Reserve”“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 Industry Guide 7 standards, a “Final”“final” or “Bankable”“bankable” feasibility study or other report 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”“reserves” under Industry Guide 7 standards. U.S. investors should be aware that the only McEwen Mining properties with reserves as defined by Industry Guide 7 are the Black Fox mine, the Gold Bar projectmine and the San JoseJosé mine. All other properties do not have “Reserves”“reserves” as defined by Industry Guide 7 and Investors are cautioned not to assume that any part or all of the disclosed mineralized material will be confirmed or converted into Industry Guide 7 compliant “Reserves”“reserves”.
Further, since we have no reserves on some of our properties as defined in Industry Guide 7, we have in the past and will continue to expense substantially all design, construction and development costs with regard to those properties, even though these expenditures are expected to have a future economic benefit in excess of one year. Only certain types of property and equipment which have alternative uses or significant salvage value may be capitalized without proven and probable reserves. We also expense our asset retirement obligations on those properties. Companies that have reserves under Industry Guide 7 typically capitalize these costs, and subsequently depreciate or amortize them on a units‑of‑productionunits-of-production basis as reserves are mined. Unlike these other companies, on our properties that have no reserves we depreciate or amortize any capitalized costs based on the most appropriate amortization method, which includes straight‑linestraight-line or Units-of-productionunits-of-production method over the estimated life of the mine, as determined by our internal mine plans. Because of these and other differences, our financial statements may not be comparable to the financial statements of mining companies that have established reserves.reserves on all of their properties.
Under NI 43‑101,43-101, we report measured, indicated and inferred resources, which are measurements that are generally not permitted in filings made with the SEC.under Guide 7. 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 under Industry Guide 7. 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 two categories of resources. Inferred Mineral Resourcesmineral resources could be upgraded to Indicated Mineral Resourcesindicated mineral resources with continued exploration. Therefore, U.S. investors are also cautioned not to assume that all or any part of inferred resources exist, or that they can be legally or economically mined.
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 SECGuide 7 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 and other informationor disseminated to youby us would be characterized as mineralized material. We provide such disclosure about our 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 43‑101,43-101, 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.
RELIABILITY OF INFORMATION
Minera Santa Cruz S.A.(“MSC”), 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 with regard to the San José mine is, with few exceptions as noted, based entirely on information provided to us by 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.
PART I
ITEM 1. BUSINESS
BUSINESS
History and Organization
We are a mining and minerals production and exploration company focused on precious and base metals in Argentina, Mexico, Canada 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 of Minera Andes Inc. (“Minera Andes”) by way of a statutory plan of arrangementStates, Canada, Mexico and Argentina. We were incorporated under the laws of the Province of Alberta, Canada.
In 2017, we completed two acquisitions that established our operations in Canada. On April 26, 2017, we completed the acquisition of Lexam VG Gold Inc. (“Lexam”) pursuant to a statutory Plan of Arrangement under Ontario law and Lexam became a wholly-owned subsidiary of our company. Lexam controls a cluster of four past-producing gold properties located in the Timmins district of northern Ontario, Canada, which we believe have the potential for both open-pit and underground mining.
On October 3, 2017, we completed the acquisition of additional mining assets located in the Timmins district of Ontario. In a transaction with Primero Mining Corp., we acquired the Black Fox Complex, an operating underground precious metal mine, associated mining claims and equipment, the Black Fox-Stock Mill, and the Grey Fox and Froome projects, advanced-stage properties located near the Black Fox Complex.
Following the acquisitions in 2017, we own 100% of the El Gallo 1 mine in the state of Sinaloa, Mexico,Colorado in 1979. We own 100% of the Black Fox Complexmine and Stock mill in Timmins, Ontario, Canada, a 100% interest in the Gold Bar mine in Nevada, 100% of the formerly-producing El Gallo Project in Sinaloa, Mexico, and a 49% interest in Minera Santa Cruz S.A. (“MSC”),MSC, the owner and operator of the producing San José mine in the province of Santa Cruz, Argentina, whichArgentina. MSC is controlled by the majority owner of the joint venture, Hochschild Mining plc (“Hochschild”). Since we own less than a 50% interest in MSC, we account for our interest as an unconsolidated subsidiary using the equity method of accounting. In addition to our operating properties, we also hold interests in advanced stageadvanced-stage and exploration stageexploration-stage properties and projects in Argentina, Mexico, Timmins, and the United States, Canada, Mexico and Argentina, including the Gold Bar (“Gold Bar”) and Los Azules (“Los Azules”) projects.copper project in Argentina.
Our commencement of Canadian operations in 2017 was facilitated by the acquisition of Lexam VG Gold Inc. (“Lexam”) in April 2017 and the acquisition of the Black Fox mine and Stock mill in October 2017. These two acquisitions provided us an operating mine, mill and significant land interests in the historic Timmins mining district of Ontario.
Our 100% owned Gold Bar mine in Nevada poured its first gold ingot on February 16, 2019 and achieved commercial production on May 23, 2019. Construction activities started in late 2017 following the receipt of the final permit on November 8, 2017. At the El Gallo Project, mining and crushing activities ceased during the second quarter of 2018, with production activities since that time limited to residual leaching.
Our objective is to increase theshareholder value of our shares through the exploration for and economic extraction of gold, silver and other valuable minerals. Other than the San José mine in Argentina, we generally conduct our activities as the sole operator, but we may enter into arrangements with other companies through joint venture or similar agreements in an effort to achieve our strategic objectives. We hold our mineral property interests and property and operate our business through various subsidiary companies, and except for MSC, each of which is owned entirely, directly, or indirectly, by us.
Our principal executive office is located at 150 King Street West, Suite 2800, Toronto, Ontario, Canada M5H 1J9 and our telephone number is (866) 441-0690. We also maintain offices in San Juan, Argentina; Guamuchil, Mexico, Elko, Nevada (U.S.), Matheson, Canada, Guamuchil, Mexico, and Matheson, Canada.San Juan, Argentina. Our website is www.mcewenmining.com. We make available at no cost our periodic reports including Forms 10-K, 10-Q and 8-K, and news releases and certain of our corporate governance documents, including our Code of Ethics, on our website. Our common stock is listed on the New York Stock Exchange (“NYSE”) and on the Toronto Stock Exchange (“TSX”) under the symbol “MUX”.
In this report, “McEwen Mining”, the “Company”, “our” and “we” refer to McEwen Mining Inc. together with our subsidiaries, unless otherwise noted. “Au” represents gold; “Ag” represents silver; “Cu” represents copper, “oz” represents troy ounce; “gpt” represents grams per metric tonne; “ft.” represents feet; “m” represents meter; “km” represents kilometer; and “sq.” represents square, and C$ refers to Canadian dollars. All our financial information is reported in United States (U.S.) dollars, unless otherwise noted.
Segment Information
Our operating segments include USA, Canada, Mexico, MSC Nevada,and Los Azules and Canada. Canada became a new operating segment with the acquisition of Lexam and the Black Fox Complex in 2017.Azules. Financial information for each of our reportable segments can be found under Item 7. 7.Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. 8. Financial Statements and Supplementary Data, Note 15. Our sales and long-lived assets, based on the location from which they originate, are geographically distributed as follows:
| | | | | | | | | | | | | |
| | Sales | | Long‑Lived Assets | |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | |
Mexico | | 83 | % | 100 | % | 100 | % | 7 | % | 7 | % | 6 | % |
Argentina(1) | | — | % | — | % | — | % | 67 | % | 84 | % | 85 | % |
United States | | — | % | — | % | — | % | 9 | % | 9 | % | 9 | % |
Canada | | 17 | % | — | % | — | % | 17 | % | — | % | — | % |
Other | | — | % | — | % | — | % | — | % | — | % | — | % |
| (1)
| | Includes our 49% equity investment in MSC.
|
3, Operating Segment Reporting.
Products
The end product at our gold and silver operations is either in the form of doré or concentrate. Doré is an alloy consisting primarily of gold and silver but also containing other impurity metals. Doré is sent to third party refiners to produce bullion that meets the required market standard of 99.95% gold and 99.9% silver. Ore concentrate, or simply concentrate, is raw oremineralized material that has been ground finely to a powdery product from which gangue (waste) is removed, thus concentrating the metal component. SlagConcentrate, as well as slag and fine carbon are by-productscarbons (by-products of the gold production process left over after gold and silver have been separated whichprocess), are sent to third party smelters for further recovery of metals.gold and silver.
During 2020, production from the El Gallo 1Gold Bar mine consistsconsisted of approximately 98%100% doré and 2% slag and fine carbon, whereas 100% of gold and silver, the production at the Black Fox mine iswas 99% doré. and 1% slag and fine carbon and from the El Gallo Project approximately 97% doré and 3% slag and fine carbon. Production from the San José mine consistsconsisted of approximately 48%44% doré and 52%56% concentrate.
During 2017,2020, we reported the following consolidated production attributable to us:
| | | | | | |
| | Gold | | Silver | | Gold equivalent |
Consolidated Production | | ounces | | ounces | | ounces(1) |
Gold Bar mine | | 27,910 | | 691 | | 27,918 |
Black Fox mine | | 24,337 | | 1,395 | | 24,353 |
El Gallo Project | | 8,012 | | 4,935 | | 8,072 |
San José mine (on 49% basis) | | 31,843 | | 2,013,048 | | 54,500 |
Total Production | | 92,102 | | 2,020,069 | | 114,843 |
| | | | | | |
| | Gold | | Silver | | Gold equivalent |
Consolidated Production | | ounces | | ounces | | ounces(1) |
| | | | | | |
El Gallo 1 mine | | 46,446 | | 18,586 | | 46,694 |
Black Fox Complex(2) | | 14,268 | | 804 | | 14,279 |
San José mine (on 49% basis) | | 49,232 | | 3,159,352 | | 91,357 |
Total Production | | 109,946 | | 3,178,742 | | 152,330 |
| (1) | (1)
| | Calculated using an average silver to gold ratio of 75:86:1 at the 100% owned operations and a ratio of 89:1 at the San José mine. With a ratio of 86:1, gold equivalent ounces at the San José mine amount to 55,250. |
| (2)
| | The Black Fox Complex was acquired effective October 3, 2017, so the figures represent a partial year of production.
|
Gold and silver bullion obtained from the doré produced in USA, Canada, Mexico and Canada is sold at the prevailing spot market price. Gold and silver doré produced from the San José mine is sold at the prevailing spot market price based onprice. Concentrates produced by the London fix. ConcentratesSan José mine are provisionally priced, whereby the selling price is subject to final adjustments at the end of a period ranging from 30 to 90 days after delivery to the customer. The final price is based on the market price at the relevant quotation pointperiod stipulated in the contract. Due to the time elapsed between shipment and the final settlement with the buyer, MSC must estimateestimates the prices at which sales of metals will be settled. At the end of each financial reporting period, previously recorded provisional sales are adjusted to estimated settlement metals prices based on relevant forward market prices until final settlement with the buyer.
During 2017, total2020, revenues from gold and silver sales were $55.8$48.9 million for the El Gallo 1Gold Bar mine, $11.6$41.4 million for the Black Fox mine, $14.5 million for the El Gallo Project, and $227.1$107.4 million for the San José mine on a 100%49% basis. Since we account forRevenue from the San José mine usingis not included in our Consolidated Statements of Operations and Comprehensive (Loss) as we use the equity method of accounting we do not include revenue from the San José mine in the Consolidated Statement of Operations and Comprehensive (Loss) Income.for MSC. See Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding production and operating results for our properties, and Item 8. 8. Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies—Investments and Note 10,Investment in Minera Santa Cruz S.A. (“MSC”) – San José Mine for additional information regarding the equity method of accounting.
Like all metal producers, our operations are affected by fluctuations in metal prices. The following table presents the annual high, low and average daily London P.M. Fix prices per ounce for gold and London Fix prices per ounce for silver over the past three years and 20182021 to the most recent practical date on the London Bullion Market:
| | | | | | | | | | | | | | | | | | | |
| | Gold | | Silver | |
Year | | High | | Low | | Average | | High | | Low | | Average | |
| | (in dollars per ounce) | |
2015 | | $ | 1,296 | | $ | 1,049 | | $ | 1,160 | | $ | 18.23 | | $ | 13.71 | | $ | 15.68 | |
2016 | | | 1,366 | | | 1,077 | | | 1,251 | | | 20.71 | | | 13.58 | | | 17.14 | |
2017 | | | 1,346 | | | 1,151 | | | 1,257 | | | 18.56 | | | 15.22 | | | 17.05 | |
2018 (through February 16, 2018) | | | 1,355 | | | 1,311 | | | 1,332 | | | 17.52 | | | 16.35 | | | 17.01 | |
| | | | | | | | | | | | | | | | | | | |
| | Gold | | Silver | |
Year | | High | | Low | | Average | | High | | Low | | Average | |
|
| | (in dollars per ounce) | |
2018 | | $ | 1,355 | | $ | 1,178 | | $ | 1,268 | | $ | 17.52 | | $ | 13.97 | | $ | 15.71 | |
2019 | | | 1,546 | | | 1,270 | | | 1,393 | | | 19.31 | | | 14.38 | | | 16.21 | |
2020 | | | 2,067 | | | 1,474 | | | 1,770 | | | 28.90 | | | 12.00 | | | 20.50 | |
2021 (through March 10, 2021) | | | 1,943 | | | 1,687 | | | 1,817 | | | 29.59 | | | 24.87 | | | 26.51 | |
On February 16, 2018March 10, 2021, the London P.M. Fix for gold was $1,352$1,716 per ounce whereasand the London Fixfix for silver was $16.84$25.65 per ounce.
Gold and SilverMineralized Material Processing Methods
Gold and silver are extracted from mineralized material by either milling or heap leaching depending on, among other things, the amount of gold and silver contained in the material, whether the material is naturally oxidized or not, and the amenability of the material to treatment. At the Gold Bar mine and the El Gallo 1 mine,Project, both open pit operations, the mineralized material is processed using heap leaching methods. Heap leaching consists of stacking crushed, oxidized material on impermeable pads, where a weak cyanide solution is applied to the surface of the heap to dissolve and leach the gold and silver. The gold and silver‑bearingsilver-bearing solution is then collected and processed into gold and silver into doré bars. Doré bars are then shipped from the mine to a third party refiner to obtain bullion.
At Black Fox, ore minedmineralized material from the underground mine is initially crushed on-site, transported to the Black Fox mill site and fed to the mill’s crushing circuit. Following additional processing and refining, the milloperation produces doré bars. Doré bars are then shipped
At San José, mineralized material from the mine to a third party refiner to obtain bullion.
The processing plant at the San Joséunderground mine is composed of conventional crushing, grindingprocessed at a mill site, producing a concentrate and flotation circuits. Approximately half of the silver‑gold flotation concentrate is subsequently processed in an intensive cyanide leaching circuit with the dissolved gold and silver recovered by electro-winning of a clarified solution followed by smelting to produce doré. The doré is then sent to refiners to obtain bullion. The balance of the flotation concentrate is filtered and shipped to a smelter for further processing.product.
Hedging Activities
Our strategy is to provide shareholders with exposure to gold and silver prices by selling our gold and silver ounces at spot market prices and consequently, we do not hedge our gold or silver sales. We may, however, from time to time, manage certain risks associated with fluctuations in foreign currencies using the derivatives market.
Gold and Silver Reserves
We have established gold andand/or silver reserves at three of our properties, including San Jose,properties: Gold Bar, Black Fox and San José. In 2020, through consultations with field experts, we completed work around the Gold Bar.Bar mineral reserve to revise the previous estimate. The work included drilling and metallurgical testing, geological and structural modelling and a 110,500 feet (33,700 m) drill program. On January 7, 2021, we announced the updated Indicated Resource and Probable Reserve Estimates of the Gold Bar mine and subsequently filed the 43-101 Technical Report on February 22, 2021.
The following table summarizes the estimated portion of Provenproven and Probableprobable gold and silver Reservesreserves attributable to us for San Jose andthe Gold Bar mine, the Black Fox mine and San José mine as of December 31, 2017, is presented in Item 2. Properties. 2020:
| | | | | | | | | | | |
| Gold Reserves at December 31, 2020
(tonnes and ounces presented in thousands) |
| Proven | | Probable | | Proven and probable |
| Tonnes | Gold (gpt) | Gold ounces | | Tonnes | Gold (gpt) | Gold ounces | | Tonnes | Gold (gpt) | Gold ounces |
Black Fox mine (1) | 33 | 3.96 | 4 | | 72 | 4.10 | 9 | | 105 | 4.05 | 13 |
Gold Bar mine (2) | - | - | - | | 15,570 | 0.84 | 420 | | 15,570 | 0.84 | 420 |
San José mine (3) | 399 | 6.73 | 86 | | 92 | 5.46 | 16 | | 491 | 6.49 | 102 |
| | | | | | | | | | | |
| Silver Reserves at December 31, 2020
(tonnes presented in thousands, ounces presented in millions) |
| Proven | | Probable | | Proven and probable |
| Tonnes | Silver (gpt) | Silver ounces | | Tonnes | Silver (gpt) | Silver ounces | | Tonnes | Silver (gpt) | Silver ounces |
San José mine (3) | 399 | 409 | 5.3 | | 92 | 354 | 1.0 | | 491 | 399 | 6.3 |
| (1) | The reserve estimate for the Black Fox mine as at December 31, 2020 was prepared by Channa Kumarage P.Eng., Senior Mine Planner and Patrick Lachapelle P.Eng., Technical Services Manager, and reviewed by Rory Greyvensteyn, General Manager, all employees of our company. The mineral reserves were estimated using a gold price of $1,650 per ounce. Reserves are stated at a mill feed reference point and include diluting materials and mining losses. |
| (2) | The reserve estimate for the Gold Bar mine as at December 31, 2020 was prepared by Joseph McNaughton, P.E., Senior Mining Engineers, Partner, Independent Mining Consultants and reviewed by Jeff Choquette and Todd Wakefield of Mine Technical Services Ltd. The reserves stated in the table above are contained within an engineered pit design between the $1,250/oz and $1,400 gold sales price Lerchs-Grossman pit shells. |
| (3) | The reserve estimate for the San José mine as at December 31, 2020, presented on a 49% basis, was prepared by Hochschild and audited by P&E Mining Consultants Inc. (“P&E”). The mineral reserves were estimated using metal prices of $1,800 per ounce of gold and $20 per ounce of silver. The reserves, as presented, are in place and include mining dilution and mining losses, but do not include allowances for mill or smelter recoveries. The reserve estimate for our 49% interest is based on that percentage of the 100% basis. |
Competitive Business Conditions
We compete with many companies in the mining and mineral exploration and production industry, including large, established mining companies with substantial capabilities, personnel, and financial resources. There is a limited supply of desirable mineral lands available for claim‑staking,claim-staking, lease, or acquisition in Mexico, Argentina, Canada, or the United States, Canada, Mexico, or Argentina, and other areas where we may conduct our mining or exploration activities. We may be at a competitive disadvantage in acquiring mineral properties, since we compete with these individuals and companies, many of which have significantly greater financial resources and larger technical staffs than we do. From time to time, specific properties or areas which would otherwise be attractive to us for exploration or acquisition may be unavailable due to their previous acquisition by other companies or our lack of financial resources.
Competition in the industry is not limited to the acquisition of mineral properties, but also extends to the technical expertise to find, advance, and operate such properties; the labor to operate the properties; and the capital for the purpose of funding such exploration and development. Many competitors not only explore for and mine precious and base metals but conduct refining and marketing operations on a world‑wideworld-wide basis. Such competition may result in not only our company being unable to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation, financial condition and cash flows.
General Government Regulations
In Mexico, Argentina, Canada and the United States, Canada, Mexico and Argentina, we are subject to various governmental laws and regulations, including environmental regulations. Other than operating licenses for our mining and processing facilities and concessions granted under contracts with the host government, there are no third party patents, licenses or franchises material to our business. The applicable laws and regulations applicable to us include:include but are not limited to:
| ·
● | | mineral concession rights; |
| ·
● | | environmental laws; and |
| ·
● | | mining permits. permits; |
| ● | mining and income taxes; |
| ● | health and safety laws and regulations; |
| ● | labor laws and regulations; and |
We believe that all of our properties are operated in compliance with all applicable governmental laws and regulations.
Reclamation Obligations
Under applicable laws in the jurisdictions where our properties are located, we are required to reclaim disturbances caused by our mining activities. Accordingly, we have recorded estimates in our financial statements for our reclamation obligations, in accordance with United States Generally Accepted Accounting Principles (“US GAAP” or “GAAP”) the most significant of which are related to our properties in the U.S., Canada and Mexico.
Estimated future reclamation costs are based primarily on legal and regulatory requirements. At December 31, 2020, we accrued $34.0 million for reclamation costs relating to currently developed and producing properties. These amounts are included in Asset Retirement Obligation on the Consolidated Balance Sheets.
U.S. Environmental Laws
We are subject to extensive environmental regulation under the laws of the U.S. and Nevada, the state where our U.S. operations are conducted. For example, certain mining wastes from the extraction and processing of ores would be considered hazardous waste under the Resource Conservation and Recovery Act (“RCRA”) and state law equivalents, but we are currently exempt from the extensive set of Environmental Protection Agency (“EPA”) regulations governing hazardous waste. If our mine wastes were treated as hazardous waste under RCRA or such wastes resulted in operations being designated as “Superfund” sites under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) or state law equivalents for cleanup, significant expenditures could be required for the construction of additional waste disposal facilities, for other remediation expenditures, or for natural resource damages. Under CERCLA, any present or past owners or operators of a Superfund site generally may be held liable and may be forced to undertake remedial cleanup action or to pay for the government’s cleanup efforts. Such owners or operators may also be liable to governmental entities for the cost of damages to natural resources, which may be substantial. Additional regulations or requirements may also be imposed upon our operations, tailings, and waste disposal areas, as well as upon mine closure under federal and state environmental laws and regulations, including, without limitation, CERCLA, the Clean Water Act, Clean Air Act, the Endangered Species Act and state law equivalents.
We have reviewed and considered current federal legislation relating to climate change and do not believe it to have a material effect on our operations. Future changes in U.S. federal or state laws or regulations could have a material adverse effect upon us and our results of operations.
Foreign Government Regulations
Canada, where the Black Fox mine, Stock mill and other exploration and development projects are located, and Mexico, where the El Gallo Project and Fenix Project are located, have both adopted laws and guidelines for environmental permitting that are similar to those in effect in the U.S. The permitting process requires a thorough study to determine the baseline condition of the mining site and surrounding area, an environmental impact analysis, and proposed mitigation measures to minimize and offset the environmental impact of exploration and mining operation activities. We have received all permits required to operate our current activities in Canada and Mexico and have received all permits necessary for the exploration activities being conducted at our other non-U.S. properties.
Customers
Production from Gold Bar, Black Fox, and the El Gallo 1 and Black Fox minesProject is sold as refined metal on the spot market or doré under the terms set out in a doré purchase agreement between us and the Bank of Nova Scotia (“Scotia”), aagreements.
We have doré purchase agreements with Canadian financial institution.institutions, Asahi Refining (“Asahi”), our refiner, and with metals trading companies. Under the terms of that agreement, dated July 2012,our doré purchase agreements, we have the option to sell approximately 90% of the gold and silver contained in doré bars produced at Gold Bar, Black Fox and the El Gallo 1 and Black Fox minesProject prior to the completion of refining by the third party refiner, which normally takes approximately 10 to 15 business days.refining. During the year ended December 31, 2017, 98%2020, 95% of our consolidated sales were made to The Bank of Nova Scotia and 98%Asahi, with 34% of the sales made by El Gallo 1 mine and Black Fox mine were to Scotia, respectively, with no sales made through the doré purchase agreement. We also have an agreement to sell refined metal to a second Canadian financial institution.
During the year ended December 31, 2017, 74%2020, 90% of total sales from the San José mine were made to Republic Metals Corporation, Argo-Heraeus and LS Nikko Copper Inc. Republic Metals,three companies: Aurubis AG, a Florida corporation, is a purchaser of doré andGermany company, accounted for 39%21% of that amount.amount, Argo-Heraeus, a Swiss company, is a purchaser of doré, which accounted for 29%21% of such amount.amount and LS Nikko Copper Inc., a South Korean company, is a purchaser of concentrate, which accounted for 32%48% of that amount. MSC has sales agreements with each of these purchasers.
In the event that our relationship with Scotiacustomer relationships or MSC’s relationship with Republic Metals, Argo-Heraeus or LS Nikko Copper Inc.customer relationships were interrupted for any reason, we believe that we or MSC could locate other purchasers for our products. However, any interruption wouldmay temporarily disrupt the sale of our products and could adverselymay affect our operating results.
EmployeesHuman Capital Resources
As of December 31, 2017,2020, we had 535377 employees including 245 employees based in Mexico, 6 in Argentina, 2083 in the United States, 24 in Toronto, Ontario, Canada, and 240166 in Timmins, Ontario, Canada.Canada, 98 employees based in Mexico, and 6 in Argentina. All of our employees based in Toronto work in an executive, technical or administrative position, while our employees in Mexico, Argentina, the United States, Timmins, Mexico, and TimminsArgentina include management, laborers, craftsmen, mining, geology and permittingenvironmental specialists, information technologists, and various other support roles. As of December 31, 2020, MSC had 1,431 employees in Argentina.
SomeA portion of our employees in Mexico are covered by union labor contracts andwith whom we believe we have good relations with our employees and their unions.relations. We also frequently engage independent contractors in connection with certain administrative matters and the exploration of our properties, such as drillers, geophysicists, geologists, and other specialty technical disciplines. As of December 31, 2017, MSC had 1,156 employees in Argentina.
For Canada and United States, we also engage independent contractors for technical and professional expertise as well as extractive and exploration activities such as drilling, geophysics, hauling and crushing.
ITEM 1A. RISK FACTORSFACTORS
Our business activities and financial condition are subject to significant risks, including those described below. You should carefully consider these risks. If any of these risks actually occurs, our business, financial condition, and/or results of operation could be adversely affected. This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward‑forward looking statements that may be affected by several risk factors.factors, including those set forth below. The following information summarizes all material risks known to us as of the date of filing this report:
Risks Relating to Our CompanyFinancial Condition, Results of Operation and Cash Flows
Our results of operations, cash flows and the value of our properties are highly dependent on the market prices of gold, silver, and copper and these prices can be volatile.
The profitability of our gold and silver mining operations and the value of our mining properties are directly related to the market price of gold, silver and copper. The price of gold, silver and copper may also have a significant influence on the market price of our common stock. Historically, the market price of gold and silver has fluctuated significantly and is affected by numerous factors beyond our control. These factors include supply and demand fundamentals, global or national political or economic conditions, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and other currencies, interest rates, gold and silver sales and loans by central banks, forward sales by metal producers, accumulation and divestiture by exchange traded funds, and a number of other factors such as industrial and commercial demand.
The volatility of mineral prices represents a substantial risk which no amount of planning or technical expertise can fully eliminate.
We derive all of our revenue from the sale of gold and silver and our results of operations will fluctuate as the prices of these metals change. A period of significant and sustained lower gold and silver prices would materially and adversely affect our results of operations and cash flows. The volatility of mineral prices represents a substantial risk which no amount of planning or technical expertise can fully eliminate. In the event mineralmetal prices decline or remain low for prolonged periods of time, our existing producing properties may become uneconomic and we might be unable to develop our undeveloped properties, which may further adversely affect our results of operations, financial performance and cash flows. An asset impairment charge may also result from the occurrence of unexpected adverse events that impact our estimates of expected cash flows generated from our producing properties or the market value of our non-producing properties, including a material diminution in the price of gold and/or silver.
Our results of operations have been and could continue toin the future be materially and adversely affected by the impairment of assets.
During 2017,2020, the price of gold, as measured by the London PM fix, fluctuated between $1,151$1,474 and $1,346$2,067 per ounce.ounce, while the price of silver fluctuated between $15.22$12.00 and $18.56$28.90 per ounce. As at February 16, 2018,March 10, 2021, gold, silver and copper prices were $1,352$1,716 per ounce, $16.84$25.65 per ounce, and $3.27$4.01 per pound, respectively.
A material reduction in cash flow resulting from the revision of our mine plan and reserve estimate at the Gold Bar mine in Nevada has required reductions in certain operating expenditures for most of 2020 in order to preserve working capital. In light of the working capital reduction, the Company completed 4 equity raises: September 10, 2020, December 31, 2020, January 29, 2021, and February 9, 2021 for gross proceeds of $64.4 million. It also renegotiated its debt facility in 2020 to more favorable repayment terms.
We initially established reserves at Gold Bar as of December 31, 2017, and such estimate was updated as of December 31, 2018. As of the date of filing this report, the further updated reserve estimate for the Gold Bar mine was completed and updated report filed on February 22, 2021. The operations are now fully funded including the Company’s newest Froome development project at its Fox Complex in Canada which is expected to reach commercial production in late Q4 of this year.
We have incurred substantial losses in recent years and may never return to profitability.
During the three years ended December 31, 2020, we have incurred pre-tax losses on an annual basis of $153.7 million, $63.6 million and $47.6 million. As of December 31, 2020, our accumulated deficit, which includes non-cash impairment charges, was $1.2 billion. In the future, our ability to become profitable will depend on the profitability of the Gold Bar, Black Fox and San José mines, our ability to bring the Froome project into production and generate revenue sufficient to cover our costs and expenses, and our ability to advance, sell or otherwise monetize our other properties, including the Los Azules copper project. In pursuit of that objective, we will seek to identify additional mineralization that can be extracted economically at operating and exploration properties. For our non-operating properties that we believe demonstrate economic potential, we need to either develop our properties, locate and enter into agreements with third party operators, or sell the properties. We may suffer significant additional losses in the future and may not be profitable again. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Our business requires substantial capital investment and we may be unable to raise additional funding on favorable terms to develop additional mining operations. In addition, our continued reliance on equity funding will result in continued dilution to our existing shareholders.
We have in the past and will likely in the future require significant capital to develop our exploration projects. A significant portion of that funding in the past has come in the form of sales of our common stock. We continue to evaluate capital and development expenditure requirements as well as other options to monetize certain assets in the Company’s portfolio including Los Azules, Grey Fox, Stock and the Fenix Project. If we make a positive decision to develop one or more of these initiatives, the expenditures incurred may significantly exceed our working capital. Our ability to obtain necessary funding, in turn, depends upon a number of factors, including the state of the economy, our operating results and applicable commodity prices. We may not be successful in obtaining the required financing to advance our projects or other purposes, on terms that are favorable to us or at all, in which case, our ability to replace reserves and continue operating would be adversely affected. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration or potential development and the possible partial or total loss of our interest in certain properties. Even if we are successful in obtaining additional equity capital, it will result in dilution to existing shareholders.
Our indebtedness adversely affects our cash flow and may adversely affect our ability to operate our business.
As of December 31, 2020, we had an outstanding long term, secured debt with a principal amount of $50.0 million. Repayment of the loan is secured by a lien on certain of our and our subsidiaries’ assets. This debt requires us to make monthly interest payments and, beginning in August 2022, to begin making monthly principal payments of $2 million for 12 months and a final $26 million payment on August 31, 2023.We cannot be certain that our cash flow from operations will be sufficient to allow us to pay the principal and interest on our debt and meet our other obligations. Even if we have sufficient cash flow to retire the debt, those payments will affect the amount of cash we have available to invest in capital investment, exploration, ongoing operations and other purposes. Payments on our debt may also inhibit our ability to react to changing business conditions.
Any failure to meet our debt obligations could harm our business and financial condition and may require us to sell assets or take other steps to satisfy the debt.
Our ability to make payments on and/or to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate sufficient cash flow from operations in the future. We cannot assure that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay principal and interest on our indebtedness or to fund our other liquidity needs. Decreases in precious metal prices, in addition to our ability to execute our mine plans at existing operations, may adversely affect our ability to generate cash flow from operations. If our cash flow and existing capital resources are insufficient to fund our debt obligations, we may be forced to reduce our planned capital expenditures, sell assets, seek additional equity or debt capital, or restructure our debt, and any of these actions, if completed, could adversely affect our business and/or the holders of our securities. We cannot assure you that any of these remedies could, if necessary, be completed on commercially reasonable terms, in a timely manner or at all. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness could result in the immediate acceleration of the debt and foreclosure of our assets.
Restrictive debt covenants could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions, and engage in other business activities that may be in our best interests.
Our credit facility contains covenants that restrict or limit our ability to:
| ● | Pay dividends or distributions on our capital stock; |
| ● | Borrow additional funds; |
| ● | Repurchase, redeem, or retire our capital stock; |
| ● | Make certain loans and investments; |
| ● | Enter into certain transactions with affiliates; |
| ● | Create or assume certain liens on our assets; |
| ● | Make certain acquisitions; or |
| ● | Engage in certain other corporate activities. |
As part of our facility, the debt can be called in certain circumstances, including on demand in the event of a material adverse change in our business or our inability to satisfy certain financial tests on an ongoing basis. Our ability to comply with these requirements may be affected by events beyond our control, and we cannot assure you that we will satisfy them in the future. In addition, these requirements could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business or the economy in general, or otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of potential business opportunities that arise because of the restrictive covenants under our debt agreement. A breach of any of the covenants in our debt agreements could result in a default under the agreement.
Increased operating and capital costs could affect our results of operations.
Costs at any particular mining location are subject to variation due to a number of factors, such as variable ore grade, changing metallurgy and revisions to mine plans in response to the physical shape and location of the ore body, as well as the age and utilization rates for the mining and processing- related facilities and equipment. In addition, costs are affected by the price and availability of input commodities, such as fuel, electricity, labor, chemical reagents, explosives, steel, concrete and mining and processing related equipment and facilities. Commodity costs are, at times, subject to volatile price movements, including increases that could make production at certain operations less profitable. Further, changes in laws and regulations can affect commodity prices, uses and transport. Reported costs may also be affected by changes in accounting standards. A material increase in costs at any significant location could have a significant effect on our results of operation and operating cash flow.
We could have significant increases in capital and operating costs over the next several years in connection with the development of new projects in challenging jurisdictions and in the sustaining and/or expansion of existing mining and processing operations. Costs associated with capital expenditures may increase in the future as a result of factors beyond our control. Increased capital expenditures may have an adverse effect on the results of operation and cash flow generated from existing operations, as well as the economic returns anticipated from new projects.
If we do not hedge our exposure to reductions in gold and silver prices, we may be subject to significant reductions in price.
We do not use hedging transactions with respect to any of our gold and silver production and we do not expect to do so in the future. Accordingly, we may be exposed to more significant price fluctuations if gold and/or silver prices decline. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.
Estimates relating to new development projects and mine plans of existing operations are uncertain and we may incur higher costs and lower economic returns than estimated.
Our decision to develop a project is typically based on the results of feasibility studies, which estimate the anticipated economic returns of a project. However, the actual project profitability or economic feasibility may differ from such estimates as a result of any of the following factors, among others:
| ● | Changes in tonnage, grades and metallurgical characteristics of mineralized material to be mined and processed; |
| ● | Changes in input commodity and labor costs; |
| ● | The quality of the data on which engineering assumptions were made; |
| ● | Adverse geotechnical conditions; |
| ● | Availability of an adequate and skilled labor force; |
| ● | Availability, supply and cost of utilities such as water and power; |
| ● | Fluctuations in inflation and currency exchange rates; |
| ● | Changes in metals prices; or |
| ● | Changes in tax laws, the laws and/or regulations around royalties and other taxes due to the regional and national governments and royalty agreements. |
Our recent development activities, including Gold Bar and Black Fox, may not result in the expansion or replacement of past production with new production, or one or more of these new production sites or facilities may be less profitable than
currently anticipated or may not be profitable at all, any of which could have a material adverse effect on our results of operations and financial position.
For our existing operations, we base our mine plans on geological, metallurgical and engineering assumptions, financial projections and commodity price estimates. These estimates are periodically updated to reflect changes in our operations, including modifications to our proven and probable reserves and mineralized material, revisions to environmental obligations, changes in legislation and/or our political or economic environment, and other significant events associated with mining operations. There are numerous uncertainties inherent in estimating quantities and qualities of gold, silver and copper and costs to mine recoverable reserves, including many factors beyond our control, that could cause actual results to differ materially from expected financial and operating results or result in future impairment charges.
We are subject to foreign currency risks which may increase our costs and affect our results of operation.
While we transact most of our business in U.S. dollars, certain expenses, such as labor, operating supplies, and property and equipment, may be denominated in Canadian dollars, Mexican pesos or Argentine pesos. As a result, currency exchange fluctuations may impact our operating costs. The appreciation of non-U.S. dollar currencies against the U.S. dollar increases costs and the cost of purchasing property and equipment in U.S. dollar terms in Canada, Mexico and Argentina, which can adversely impact our operating results and cash flows.
The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency exchange rates. Appreciation of non-U.S. dollar currencies results in a foreign currency gain on such investments and a depreciation in non-U.S. dollar currencies results in a loss. We have not utilized market risk sensitive instruments to manage our exposure to foreign currency exchange rates but may in the future actively manage our exposure to foreign currency exchange rate risk. We also hold portions of our cash reserves in Canadian, Mexican and Argentine currency.
Our continuing reclamation obligations at Tonkin, Gold Bar, Black Fox and other Timmins properties, El Gallo, and other properties could require significant additional expenditures.
We are responsible for the reclamation obligations related to disturbances on all our properties. In Canada and the United States, we are required to post bonds to ensure performance of our reclamation obligations. As of December 31, 2020, we have accrued $34.0 million in estimated reclamation costs for our properties, including $31.8 million covered by surety bonds for projects in the United States and Canada. We have not posted a bond in Mexico as none is required by the current legislation; however, we have recorded a liability based on the estimated amount of our reclamation obligations in that jurisdiction.
There is a risk that any surety bond or recorded liability, even if increased based on the analysis and work performed to update the reclamation obligations, could be inadequate to cover the actual costs of reclamation when actually carried out. The satisfaction of bonding requirements and continuing reclamation obligations will require a significant amount of capital. Further, it is possible that the United States Bureau of Land Management (“BLM”) may request that we provide additional long-term financing supported by a long-term trust for an amount that cannot be determined at present. There is a risk that we will be unable to fund any additional bonding requirements or that the surety bonds may no longer be accepted by the governmental agencies as satisfactory reclamation coverage, in which case we would be required to replace the surety bonding with cash, and further, that the regulatory authorities may increase reclamation and bonding requirements to such a degree that it would not be commercially reasonable to continue exploration activities, which may adversely affect our results of operations, financial performance and cash flows.
There is no guarantee that we will declare distributions to shareholders.
From June 2015 to September 2018, we paid a distribution to holders of our common stock on a semi-annual basis. Those distributions were suspended in March 2019. Any determination to reinstate this distribution on our common stock will be based primarily upon covenants in outstanding debt instruments, our financial condition, results of operations and capital requirements, including for capital expenditures and acquisitions, and our Board of Directors’ determination that the distribution to shareholders is in the best interest of our shareholders and in compliance with all laws and agreements applicable to the Company.
Risks Relating to our Operation as a Mining Company
Our estimates of proven and probable reserves and mineralized material are based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.
estimated or result in additional impairment charges to our operations.
Unless otherwise indicated,disclosed proven and probable reserves and mineralization figures presented in our filings with securities regulatory authorities, including the SEC, news releases and other public statements that may be made from time to time, are based upon estimates made by both independent and our own internal geologists.professionals. Estimates of proven and probable reserves and mineralized material are subject to considerable uncertainty and are based, to a large extent, on the prices of gold and silver and interpretations of geologic data obtained from drill holes and other exploration techniques. These prices and interpretations are subject to change. If we determine that certain of our estimated reserves or mineralized material have become uneconomic, we may be forced to reduce our estimates. Actual production may be significantly less than we expect.
expect and such reductions may result in impairment charges such as we experienced in 2020.
When making determinations about whether to advance any of our projects to development, we rely upon such estimated calculations as to the mineralized material and grades of mineralization on our properties. Until ore is mined and processed, mineralized material and grades of mineralization must be considered as estimates only. We cannot ensure that:
| ·
| | these estimates will be accurate; or
|
| ·
| | that these estimates will be accurate, or this mineralization can be mined or processed profitably. |
Any material changes in mineral estimates and grades of mineralization may affect the economic viability of placing a property into production and such property’s return on capital. There can be no assurance that minerals recovered in small scale tests will be recovered in large‑scalelarge-scale tests under on‑siteon-site conditions or in production scale. Extended declines in market prices for gold and/or silver may render portions of our mineralization estimates uneconomic and result in reduced reported mineralization or adversely affect the commercial viability of one or more of our properties. Any material reductions in estimates of mineralization, or of our ability to extract this mineralization, could have a material adverse effect on our results of operations or financial condition.
Investors should also be aware that calculations of “Reserves”“reserves” differ under SEC reporting standards and those under other international standards, such as Canada. Investors should also be aware that mineralized material may never be converted into reserves. See,Please also see, CAUTIONARY NOTE TO UNITED STATES INVESTORS-INFORMATION CONCERNING PREPARATION OF RESOURCE AND RESERVE ESTIMATESESTIMATES.
We may be unable to replace gold and silver reserves as they become depleted.
Like all metal producers, we must continually replace reserves depleted by production to maintain production levels over the long term and provide a return on invested capital. Depleted reserves can be replaced in several ways, including expanding known ore bodies, by locating new deposits or acquiring interests in reserves from third parties. Exploration is highly speculative in nature, involves many risks and uncertainties and is frequently unsuccessful in discovering significant mineralization. Accordingly, our current or future exploration programs may not result in new mineral producing operations. Even if significant mineralization is discovered, it will likely take many years from the initial phases of exploration until commencement of production, during which time the economic feasibility of production may change.
From time to time, we may acquire ore reserves from other parties, as we did in 2017. Such acquisitions are based on an analysis of a variety of factors including historical operating results, estimates of and assumptions regarding the extent of ore reserves, the timing of production from such reserves and cash and other operating costs. In addition, we may rely on data and reports prepared by third parties (including the ability to permit and comply with existing regulations) and which may contain information or data that we are unable to independently verify or confirm in advance. Other than historical operating results, all of these factors are uncertain and may have an impact on our revenue, our cash flow and other operating issues, as well as contributing to the uncertainties related to the process used to estimate ore reserves.
As a result of these uncertainties, our exploration programs and acquisitions may not result in the expansion or replacement of our current production with new ore reserves or operations, which could have a material adverse effect on our business, prospects, results of operations and financial position.
The Black Fox and LexamOur acquisitions may not achieve their intended results and may result in us assuming unanticipated liabilities.results.
The Black Fox and LexamOur acquisitions completed in 2017 subject us to many risks. The Fox Complex acquired in 2017 was a distressed asset which has struggled to produce positive cash flows during its years of operation. We are working to improve the operations but with a small
reserve base, the success of this operation is dependent upon finding additional mineralization through exploration and there is no guarantee that we will be able to convert this mineralization into mineable reserves. We may discover title defects or adverse environmental or other conditions relating to the properties acquired in the transactions of which we are currently unaware. Environmental, title, and other problems could reduce the value of the properties to us, and, depending on the circumstances, we could have limited or no recourse to the sellers with respect to those problems. We have assumed substantially all of the liabilities associated with the acquired properties and would be entitled to indemnification in connection with those liabilities in only limited circumstances, for limited periods and in limited amounts. Potential remedies may not be adequate to cover any liabilities we incur, and such liabilities could be significant. Also, it is uncertain whether our existing operations and the acquired properties and operations can be integrated in an efficient and effective manner. In addition, the success of the Black Fox acquisition depends on, among other things, the accuracy of our assessment of the reserves associated with the acquired properties and operating costs, among other factors. These assessments were based to a significant degree on information provided by the sellers and we cannot guarantee their accuracy. Although the acquired properties are subject to many of the risks and uncertainties to which acquisitions we pursue are subject generally, risks associated with the Black Fox acquisition, in particular, include those associated with our ability to operate efficiently in a new area and the significant size of the transactions in the aggregate.
Our business requires substantial capital investment and we may be unable to raise additional funding on favorable terms to develop additional mining operations.
We will need to obtain additional capital, either in the form of debt or equity financing, to fund construction of the Gold Bar project and to continue our development and exploration activities on other projects. Our working capital balance at December 31, 2017, along with expected cash generated from mining operations at El Gallo 1 and Black Fox mines and any dividends received from MSC, is not expected to be sufficient to allow us to fund the construction of Gold Bar or to continue our operations indefinitely. Should we also decide to develop the Los Azules project, we will require significant capital beyond our existing resources. Our ability to obtain necessary funding, in turn, depends upon a number of factors, including the state of the economy and applicable commodity prices. We may not be successful in obtaining the required financing for Gold Bar or other purposes, on terms that are favorable to us or at all, in which case, our ability to replace reserves and continue operating would be adversely affected. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration or potential development and the possible partial or total loss of our interest in certain properties.
If we do not hedge our exposure to reductions in gold and silver prices, we may be subject to significant reductions in price.
We do not use hedging transactions with respect to any of our gold and silver production and we do not expect to do so in the future. Accordingly, we may be exposed to more significant price fluctuations if gold and/or silver prices decline. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.
We own our 49% interest in the San José mine under the terms of an option and joint venture agreement (“OJVA”), and therefore we are unable to control all aspects of the exploration and development of, and production from, this property.
Our interest in the San José mine is subject to the risks normally associated with the conduct of joint ventures. A disagreement between joint venture partners on strategic decisions or how to conduct business efficiently, the inability of joint venture partners to meet their obligations to the joint venture or third parties, or litigation arising between joint venture partners regarding joint venture matters could have a material adverse effect on the viability of our interests held through the joint venture. Since all day-to-day decisions are made by the majority owner of the venture, we are unable to participate in those decisions, including whether and when to pay dividends to the venture partners.
We conduct operationsEven if we are successful in a number of foreign countries and are exposed to legal, political and social risks associated with those operations.
Allachieving one or more of our revenue in 2017 was generated by operations outside the United States. Exploration, development, production and closure activities in many countries are potentially subject to heightened political and social risks that are beyond our control and could result in increased costs, capacity constraints and potential disruptions to our business. These risks include the possible unilateral cancellation or forced renegotiation of contracts in which we may, directly or indirectly, have an interest, unfavorable changes in foreign laws and regulations, royalty and tax increases (including taxes associated with the import or export of goods), risks associated with consumption taxes in Mexico (VAT) and Canada (HST), income tax refund recovery and collection processes, changes in US legislation as applicable to foreign operations, claims by governmental entities or indigenous communities, expropriation or nationalization of property and other risks arising out of foreign sovereignty over areas in which our operations are conducted. The right to import and export gold and silver may depend on obtaining certain licenses and quotas, which could be delayed or deniedstrategic initiatives at the discretion of the relevant regulatory authorities, or could become subject to new taxes or duties imposed by U.S. or foreign jurisdictions, which could have a material adverse effect on our business, financial condition, or future prospects. In addition, our rights under local law may be less secure in countries where judicial systems are susceptible to manipulation and intimidation by government agencies, non-governmental organizations or civic groups.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. See Note 9 Income and mining tax to the Consolidated Financial Statements for additional details.
Any of these developments could require us to curtail or terminate operations at our mines, incur significant costs to renegotiate contracts, meet newly-imposed environmental or other standards, pay greater royalties or higher prices for labor or services and recognize higher taxes, or experience significant delays or obstacles in the recovery of VAT/HST or income tax refunds owed, which could materially and adversely affect financial condition, results of operations and cash flows.
Our ongoing and future success depends on developing and maintaining productive relationships with the communities, including indigenous peoples, and other stakeholders in our operating locations. Notwithstanding our ongoing efforts, local communities and stakeholders can become dissatisfied with our activities or the level of benefits provided, which may result in civil unrest, protests, direct action or campaigns against us. Any such occurrences could materially and adversely affect our financial condition, results of operations and cash flows.
Our operations in Argentina and Mexico are subject to political and social risks.
With respect to our San José mine, there are risks relating to an uncertain or unpredictable political and economic environment in Argentina. For instance, Argentina defaulted on foreign debt repayments and on the repayment on a number of official loans to multinational organizations in 2002 and 2003, and defaulted again on its bonds in 2014 after failing to reach an agreement with certain of its bondholders. In 2008, the Argentine government also reassessed its policy and practice in respect of export duties and began levying export duties on mining companies operating in the country. In 2012, Argentina’s President announced the nationalization of the majority stake of Yacimientos Petrolíferos Fiscales (YPF), Argentina’s largest oil company. In 2013, Argentina’s federal Income Tax Statute was amended to include a 10% income tax withholding on dividend distributions by Argentine corporations, and the capital gains exception for non‑resident taxpayers was repealed. In 2015, Argentina’s federal government removed export taxes for dore and concentrate products while the local authorities in the province of Santa Cruz substituted a provincial reserve tax with a lower provincial Corporate Social Responsibility (“CSR”) payment. In December 2017, Argentina enacted comprehensive tax reform (Law No. 27,430 (the Law)), through publication in the Official Gazette. The Law is generally effective 1 January 2018. Specifically, the Law introduces amendments to corporate income tax, personal income tax, value added tax (VAT), tax procedural law, criminal tax law, social security contributions, excise tax, tax on fuels, and tax on the transfer of real estate. It also establishes a special regime comprising an optional revaluation of assets for income tax purposes. The law gradually reduces the corporate tax rate to 25 % from 35 % by 2020. It also proposes to tax profits from financial investment for the first time, introducing a levy of 15 % for foreign currency-denominated and inflation-linked instruments and 5 percent for peso-denominated debt.
With respect to our El Gallo 1 mine in Mexico, there has been a consistent level of violence and crime relating to drug cartels and gangs in Sinaloa State where we operate, and in other regions of Mexico. Our facility at El Gallo was robbed in 2015. On January 10, 2018 the US State Department issued a Level 4 (“do not travel”) warning with respect to five Mexican states, including Sinaloa State due to violence related to the drug cartels. These events may disrupt our ability to carry out exploration and mining activities and affect the safety and security of our employees and contractors.
In Mexico, in October 2013, the Mexican lower house passed a bill proposing a tax‑deductible mining royalty of 7.5% on earnings before the deduction of interest, taxes, depreciation and amortization, along with an additional 0.5% on precious metals revenue for precious metals mining companies. The Mexican Senate approved the provisions of the Tax Reform on October 31, 2013. The effective date of the law was January 1, 2014. On February 11, 2014, we filed an Amparo with the Supreme Court to appeal the constitutionality of the Tax Reform. On November 15, 2017, the Supreme Court ruled against us and remanded the case to the lower court. Our obligation to pay the tax is presently stayed pending a final ruling from the court. A ruling against us would result in an additional expense and may result in additional expenses in the future. As of December 31, 2017, we have not generated taxable income subject to the 7.5% mining royalty, and have accrued $1.2 million for the 0.5% precious metals royalty.
Reform of the General Mining Law in the United States could adversely affect our results of operations.
Periodically, members of the U.S. Congress have introduced bills which would supplant or alter the provisions of the General Mining Law of 1872, which governs the unpatented claims that we control with respect to our U.S. properties. One such amendment has become law and has imposed a moratorium on the patenting of mining claims, which reduced the security of title provided by unpatented claims such as those on our U.S. properties. If additional legislation is enacted, it could substantially increase the cost of holding unpatented mining claims by requiring payment of royalties, and could significantly impair our ability to develop mineral estimates on unpatented mining claims. Such bills have proposed,
among other things, to make permanent the patent moratorium, to impose a federal royalty on production from unpatented mining claims and to declare certain lands as unsuitable for mining. Although it is impossible to predict at this time what royalties may be imposed in the future, the imposition of such royalties could adversely affect the potential forproject, development of such mining claims, and the economics of existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our business.
Our business is subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti‑bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits and reputational harm.
We operate in certain jurisdictions that have experienced governmental and private sector corruption to some degree. The U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. Violations of these laws, or allegations of such violations, could lead to civil and criminal fines and penalties, litigation, and loss of operating licenses or permits, and may damage our reputation, which could have a material adverse effect on our business, financial position and results of operations. There can be no assurance that our internal control policies and procedures always will protect us from recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by our affiliates, employees or agents. As such, our corporate policies and processes may not prevent all potential breaches of law or other governance practices.
We are subject to foreign currency risk.
While we transact most of our business in U.S. dollars, expenses, such as labor, operating supplies, and property and equipment, are denominated in Canadian dollars, Mexican pesos or Argentine pesos. As a result, currency exchange fluctuations may impact our operating costs. The appreciation of non‑U.S. dollar currencies against the U.S. dollar increases costs and the cost of purchasing property and equipment in U.S. dollar terms in Mexico, Argentina and Canada, which can adversely impact our operating results and cash flows. Conversely, a depreciation of non‑U.S. dollar currencies usually decreases operating costs and property and equipment purchases in U.S. dollar terms in foreign countries.
The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency exchange rates. Appreciation of non‑U.S. dollar currencies results in a foreign currency gain on such investments and a depreciation in non‑U.S. dollar currencies results in a loss. We have not utilized market risk sensitive instruments to manage our exposure to foreign currency exchange rates but may in the future actively manage our exposure to foreign currency exchange rate risk. We also hold portions of our cash reserves in Canadian, Mexican and Argentine currency.
Development at Los Azules presents development challenges that may negatively affect, if not completely negate, the feasibility of development of the property.
The Los Azules property is located in a remote location that is currently accessed by 75 miles (120 kilometers) of unimproved dirt road with eight river crossings and two mountain passes above 13,451 feet (4,100 meters).feet. Even assuming that technical difficulties associated with this remote location can be overcome, the significant capital costs required to develop the project may make the project uneconomical. If the long term price of copper were to remain low or decrease significantly below the current price or capital cost estimates increase significantly, Los Azules may not be feasible for development, and we may have to write‑offwrite-off the remaining carrying value of the asset. Furthermore, the project’s economic feasibility has not yet been demonstrated through a full feasibility study. The PEAPreliminary Economic Assessment (“PEA”) is preliminary in nature, includes NI 43‑10143-101 mineral resources that are considered too speculative geologically to have economic considerations applied to them that would allow them to be categorized as mineral reserves either under Industry Guide 7 or NI 43‑101,43-101, and there is no certainty that the PEA will be realized.
We may acquire additional exploration stageexploration-stage properties and weon which reserves may face negative reactions if reserves are not located on acquired properties.
never be discovered.
We have in the past and may in the future acquire additional exploration stageexploration-stage properties. There can be no assurance that we have or will be able to complete the acquisition of such properties at reasonable prices or on favorable terms and that reserves will be identified on any properties that we acquire. We may also experience negative reactions from the financial markets if we are unable to successfully complete acquisitions of additional properties or if reserves are not located on acquired properties. These factors may adversely affect the trading price of our common stock or our financial condition or results of operations.
The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses that could materially and adversely affect our operations.
Exploration for and production of minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result in the discovery of mineralization, and any mineralization discovered may not be of sufficient quantity or quality to be profitably mined. Few properties that are explored are ultimately advanced to production. Our current exploration efforts are, and future development and mining operations we conduct will be, subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties, such as, but not limited to:
| ·
● | | economically insufficient mineralized material; |
| ·
● | | fluctuations in production costs that may make mining uneconomical; |
| ·
● | | availability of labor, contractors, engineers, power, transportation and infrastructure; |
| ·
● | | potential delays related to social, public health, and community issues; |
| ·
● | | negotiations with aboriginal groups or local populations affecting our efforts to explore, develop or produce gold and silver deposits; |
| ·
● | | unanticipated variations in grade and other geologicgeological problems; |
| ·
● | | difficult surface or underground conditions; |
| ·
● | | metallurgical and other processing problems; |
| ·
● | | mechanical and equipment performance problems; |
| ·
● | | industrial accidents, personal injury, fire, flooding, cave‑ins,cave-ins, landslides and other natural disasters; and |
| ·
● | | decrease in reserves or mineralized material due to a lower silver, gold or copper price. |
Any of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures, potential revenues and production dates. We currently have no insurance to guard against any of these risks, except in very limited circumstances. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write‑downwrite-down of our investment in these interests. All of these factors may result in losses in relation to amounts spent which are not recoverable.
We do not insure against all risks to which we may be subject in our operations.
While we currently maintain insurance policies to insure against general commercial liability claims and physical assets at our properties in Argentina, Canada, Mexico, and the United States, we do not maintain insurance to cover all of the potential risks associated with our operations. Our other exploration projects have no existing infrastructure for which we insure. We may also be unable to obtain insurance to cover other risks at economically feasible premiums or at all. Insurance coverage may not continue to be available, or maywould then not be adequate to cover liabilities. We might also become subject to liability for environmental, pollution or other hazards associated with mineral exploration and production which may not be insured against, which may exceed the limits of our insurance coverage or which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that
could materially adversely affect our financial condition and our ability to fund activities on our property. A significant loss could force us to reduce or terminate our operations.recoverable.
Our operations are subject to permitting requirements which could require us to delay, suspend or terminate our operations on our mining properties.
Our mining operations, including ongoing exploration drilling programs and development efforts, require permits from various state and federal governments, including permits for the use of water and for drilling wells for water. We may be unable to obtain these permits in a timely manner, on reasonable terms or on terms that provide us sufficient resources to develop our properties, or at all. Even if we are able to obtain such permits, the time required by the permitting process can be significant. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits, our timetable and business plan for exploration of our properties will be adversely affected, which may in turn adversely affect our results of operations, financial condition, cash flows and market price of our securities.
Due to an increased level of non‑governmentalnon-governmental organization and aboriginal and local group activity targeting the mining industry, the potential for the government or process instituted by non-governmental organizations, aboriginal and local, to delay the issuance of permits or impose new requirements or conditions upon mining operations may be increased. Any changes in government policies may be costly to comply with and may delay mining operations. Future changes in such laws and regulations, if any, may adversely affect our operations, make our operations prohibitively expensive, or prohibit them altogether. If our interests are materially adversely affected as a result of a violation of applicable laws, regulations, or permitting requirements or a change in applicable law or regulations, it would have a significant negative impact on the value of our company and could have a significant impact on our stock price.
Our operations in Argentina and Mexico are subject to political and social risks.
With respect to our affiliated company, Minera Santa Cruz S.A (“MSC”) which owns the San José mine, there are risks relating to an uncertain or unpredictable political and economic environment in Argentina, illustrated by the following:
| ● | Argentina defaulted on foreign debt repayments and on the repayment on a number of official loans to multinational organizations in 2002 and 2003, and defaulted again on its bonds in 2014. |
| ● | In 2012, Argentina’s President announced the nationalization of the majority stake of Yacimientos Petrolíferos Fiscales (YPF), Argentina’s largest oil company. |
| ● | In December 2017, Argentina enacted comprehensive tax reform (Law No. 27,430 (the “Law”)). Specifically, the Law introduces amendments to tax and other various laws, including a special regime comprising an optional revaluation of assets for income tax purposes. The Law gradually reduces the corporate tax rate from 35% to 25% over the period of 2018 to 2020. |
| ● | In 2018, Argentina’s federal government introduced a decree imposing a temporary tax on all exports from Argentina. The tax was introduced as an emergency measure due to the significant peso devaluation during the year. The estimated impact to MSC is a tax of approximately 7.5% of revenue. |
| ● | In September 2019, Argentine authorities implemented new foreign exchange regulations which impact the results of MSC. The main restrictions include, but are not limited to, full repatriation of proceeds of exports in cash and bank savings to be denominated only in Argentine pesos and authorization from Argentina Central Bank being required for dividend distributions abroad and intercompany loan payments. |
| ● | In October 2019, Alberto Fernández and former president Cristina Fernández de Kirchner were elected to office. The prior president, Mr. Mauricio Macri, who assumed office in December 2015, implemented several significant economic and policy reforms, including reforms related to foreign exchange and trade, fiscal policy, labor laws and tax rules. The fiscal, monetary and currency adjustments undertaken by the Macri administration subdued growth in the short-term, and some measures, including the export tax, have negatively impacted Argentina sourced revenues. There remains uncertainty about changes that may be adopted by the new administration and their impact on the Argentina economy and our business. |
| ● | In December 2019, the Argentina federal government approved a decree delaying the corporate tax rate to change from 30% to 25% to the end of 2021 and extending the temporary export tax introduced in September 2018 to the end of 2021. Furthermore, the decree suspended the increase in the dividend withholding tax from 7% to 13% until January 2021. |
| ● | In 2020, the Alberto Fernández administration marked its first year in office, a year in which it faced numerous challenges including renegotiating Argentina’s foreign debt, managing currency crises, and, most difficult, designing Argentina’s response to the COVID-19 pandemic. |
With respect to the El Gallo Project in Mexico, there has been an ongoing level of violence and crime relating to drug cartels and gangs in Sinaloa State where we operate, and in other regions of Mexico. Our facility at the El Gallo Project was robbed in 2015. On December 17, 2019, the US State Department issued a Level 2 (“increased caution”) warning with respect to five Mexican states, including Sinaloa State, due to violent crime. These events may disrupt our ability to carry out exploration and mining activities and affect the safety and security of our employees and contractors. On September 8, 2020, the US State Department issued a Level 3 (“Reconsider travel”) revaluating travel to Mexico with respect to COVID-19 and warning travel to five Mexican states, including Sinaloa State, due to violent crime. These events may disrupt our ability to carry out exploration and mining activities and affect the safety and security of our employees and contractors.
Our operations and properties in Canada expose us to additional political risks.
Our properties in Canada may be of particular interest or sensitivity to one or more interest groups, including aboriginal groups (which are generally referred to as "First Nations" and “Metis” groups). We have mineral projects in Ontario that are in areas with an aboriginal presence. It is our practice to work closely with and consult with First Nations in areas in which our projects are located or which could be impacted by our activities. However, there is no assurance that relationships with such groups will be positive. Accordingly, it is possible that our production, exploration or development activities on these properties could be interrupted or otherwise adversely affected in the future by political uncertainty, native land claims entitlements, expropriations of property, changes in applicable law, governmental policies and policies of relevant interest groups, including those of First Nations. Any changes in law or relations or shifts in political conditions may be beyond our control, or we may enter into agreements with First Nations, all of which may adversely affect our business and operations and if significant, may result in the impairment or loss of mineral concessions or other mineral rights, or may make it impossible to continue our mineral production, exploration or development activities in the applicable area, any of which could have an adverse effect on our financial conditions and results of operations.
Our operations face substantial regulation of health and safety.
Our operations are subject to extensive and complex laws and regulations governing worker health and safety across our projects and our failure to comply with applicable legal requirements can result in substantial penalties. Future changes in applicable laws, regulations, permits and approvals or changes in their enforcement or regulatory interpretation could substantially increase costs to achieve compliance, lead to the revocation of existing or future exploration or mining rights or otherwise have an adverse impact on our results of operations and financial position.
Our mines are inspected on a regular basis by government regulators who may issue citations and orders when they believe a violation has occurred under local mining regulations. If inspections result in an alleged violation, we may be subject to fines, penalties or sanctions and our mining operations could be subject to temporary or extended closures.
In addition to potential government restrictions and regulatory fines, penalties or sanctions, our ability to operate (including the effect of any impact on our workforce) and thus, our results of operations and our financial position (including because of potential related fines and sanctions), could be adversely affected by accidents, injuries, fatalities or events detrimental (or perceived to be detrimental) to the health and safety of our employees, the environment or the communities in which we operate.
Reform of the General Mining Law in the United States could adversely affect our results of operations.
Periodically, members of the U.S. Congress have introduced bills which would supplant or alter the provisions of the General Mining Law of 1872, which governs the unpatented claims that we control with respect to our U.S. properties. One such amendment has become law and has imposed a moratorium on the patenting of mining claims, which reduced the security of title provided by unpatented claims such as those on our U.S. properties. If additional legislation is enacted, it could substantially increase the cost of holding unpatented mining claims by requiring payment of royalties, and could significantly impair our ability to develop mineral estimates on unpatented mining claims. Such bills have proposed, among other things, to make permanent the patent moratorium, to impose a federal royalty on production from unpatented mining claims and to declare certain lands as unsuitable for mining. Although it is impossible to predict at this time what royalties may be imposed in the future, the imposition of such royalties could adversely affect the potential for development of such mining claims, and the economics of existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our business.
Title to mineral properties can be uncertain, and we aremay be at risk of loss of ownership of one or more of our properties.
Our ability to explore and operate our properties depends on the validity of our title to that property. Our U.S. mineral properties include leases of unpatented mining claims, as well as unpatented mining and mill site claims, which we control directly. Unpatented mining claims provide only possessory title and their validity is often subject to contest by third parties or the federal government, which makes the validity of unpatented mining claims uncertain and generally riskier. Similarly, Canadian mineral properties consist of patented and unpatented claims which each have their respective risks and uncertainties. Further, there may be title defects or additional rights which are not recorded on the title. Our concessions in Mexico are subject to continuing government regulation and failure to adhere to such regulations will result in termination of the concession. Similarly, under Argentine Law, failure to comply with applicable conditions may result in the termination of the concession. Uncertainties inherent in mineral properties relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, assessment work and possible conflicts with other claims not determinable from public record. We have not obtained title opinions covering our entire property, with the attendant risk that title to some claims, particularly title to undeveloped property, may be defective. There may be valid challenges to the title to our property which, if successful, could impair development and/or operations.
We cannot ensure that we will have an adequate supply of water to complete desired exploration or development of our mining properties.
Our mining operations require significant quantities of water for mining, ore processing and related support facilities. Our operations in Argentina, Mexico, Canada and the United States, Mexico and Argentina are in areas where water is scarce and competition among users for continuing access to water is significant. Continuous production at our mines is dependent on our ability to maintain our water rights and claims and to defeat claims adverse to our current water uses in legal proceedings. Although each of our operations currently has sufficient water rights and claims to cover its operational demands, we cannot predict the potential outcome of pending or future legal proceedings relating to our water rights, claims and uses. Water shortages may also result from weather or environmental and climate impacts out of the Company’s control.
Our continuing reclamation obligations at Tonkin, Gold Bar, Black Fox, El Gallo, and other properties could require significant additional expenditures.
We are responsible for the reclamation obligations related to disturbances located on all our properties. On February 10, 2014, we submitted to the BLM an amendment to the original Plan of operations for the Tonkin Complex that incorporated the final plan for permanent closure, which was approved by the BLM on September 21, 2015, including our $3.6 million estimate of anticipated reclamation requirements, for which a financial guarantee has been put in place. In order for the
Company to commence construction at its Gold Bar project, a reclamation bond of $15.0 million was approved by the BLM on August 25, 2017, reflecting an estimate of the anticipated reclamation requirements, for which a financial guarantee has been put in place. As at December 31, 2017 the extent of the disturbances at Gold Bar were limited to early site preparation work. An initial reclamation obligation of $0.1 million was recorded to reflect this work.
Pursuant to the Black Fox acquisition, which closed in October 2017, the Company filed three updated closure plans with the Ministry of Northern Development and Mines (“MNDM”). The three updated closure plans included the Black Fox Mine, the Stock Mill, and the Grey Fox Advanced Exploration Project, which have closure costs of C$15.1 million, C$5.2 million, and C$0.4 million, respectively. The updated closure plans were filed on September 21, 2017, and accepted by the MNDM on September 27, 2017. These financial assurances were satisfied by the Company through financial guarantees.
Regarding the El Gallo 1 mine and El Gallo 2 project, we have not posted a bond in Mexico as none is required by the current legislation; however, we have recorded a liability based on the estimated amount of our reclamation obligations.
There is a risk that any surety bond or recorded liability, even if increased based on the analysis and work performed to update the reclamation obligations, could be inadequate to cover the actual costs of reclamation when carried out. The satisfaction of bonding requirements and continuing reclamation obligations will require a significant amount of capital. Further, it is possible that the BLM may request that the Company provides additional long-term financing supported by a long-term trust for an amount that cannot be determined at this point. There is a risk that we will be unable to fund any additional bonding requirements or that the surety bonds may no longer be accepted by the governmental agencies as satisfactory reclamation coverage, in which case we would be required to replace the surety bonding with cash, and further, that the regulatory authorities may increase reclamation and bonding requirements to such a degree that it would not be commercially reasonable to continue exploration activities, which may adversely affect our results of operations, financial performance and cash flows.
Our ongoing operations and past mining activities are subject to environmental risks, which could expose us to significant liability and delay, suspension or termination of our operations.
All aspects of our operations are subject to Argentine, Mexican, CanadianUnited States, Canada, Mexico and AmericanArgentina federal, state and local environmental regulation. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste, including cyanide. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non‑compliance,non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for us and our officers, directors and employees. Future changes in environmental regulation, if any, may adversely affect our operations, make our operations prohibitively expensive, or prohibit them altogether. Environmental hazards may exist on our properties that are unknown to us at the present and that have been caused by us, or previous owners or operators, or that may have occurred naturally. We utilize explosives in our business, which could cause injury to our personnel, and damage to our equipment or assets. Mining properties from the companies we have acquired may cause us to be liable for remediating any damage that those companies may have caused. The liability could include response costs for removing or remediating the release and damage to natural resources, including ground water, as well as the payment of fines and penalties. Failure to comply with applicable environmental laws, regulations and permitting requirements may also result in enforcement actions thereunder,
including orders issued by regulatory or judicial authorities, causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.
Our industry is highly competitive, attractive mineral lands are scarce, and we may not be able to obtain quality properties.
We compete with many companies in the mining industry, including large, established mining companies with substantial capabilities, personnel and financial resources. There is a limited supply of desirable mineral lands available for claim staking, lease or acquisition in Argentina, Mexico, Canada and the United States, Canada, Mexico and Argentina, and other areas where we may conduct exploration activities. We may be at a competitive disadvantage in acquiring mineral properties, since we compete with these individuals and companies, many of which have greater financial resources and larger technical staffs than we do. From time to time, specific properties or areas which would otherwise be attractive to us for exploration or acquisition may be unavailable to us due to their previous acquisition by other companies or our lack of financial resources. Competition in the industry is not limited to the acquisition of mineral properties but also extends to the technical expertise
to find, advance, and operate such properties; the labor to operate the properties; and the capital for the purpose of funding such properties. Many competitors not only explore for and mine precious metals, but conduct refining and marketing operations on a world‑wideworld-wide basis. Such competition may result in our Company being unable not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation, financial condition and cash flows.
We rely on contractors to conduct a significant portion of our operations and construction projects.
A significant portion of our operations and construction projects are currently conducted in whole or in part by contractors, including specifically our operations at the El Gallo 1Gold Bar and Black Fox mines and the construction at the Gold Bar Project.mines. As a result, our operations are subject to a number of risks, some of which are outside our control, including:
| ·
● | | Negotiating agreements with contractors on acceptable terms; |
| ·
● | | The inability to replace a contractor and its operating equipment in the event that either party terminates the agreement; |
| ·
● | | Reduced control and oversight over those aspects of operations which are the responsibility of the contractor; |
| ·
● | | Failure of a contractor to perform under its agreement; |
| ·
● | | Interruption of operations or increased costs in the event that a contractor ceases its business due to insolvency or other unforeseen events; |
| ·
● | | Failure of a contractor to comply with our standards and policies, as well as with applicable legal and regulatory requirements, to the extent it is responsible for such compliance; and |
| ·
● | | Problems of a contractor with managing its workforce, labor unrest or other related employment issues. |
In addition, we may incur liability to third parties as a result of the actions of our contractors. The occurrence of one or more of these risks could potentially adversely affect our results of operations and financial position.
If our employees or contractors engage in a strike, work stoppage or other slowdown, we could experience business disruptions and/or increased costs.
As of December 31, 2017,2020, a number of our employees were represented by different trade unions and work councils which subject us to employment arrangements very similar to collective bargaining agreements. Further, most of our employees are based in foreign locations. The laws of certain foreign countries may place restrictions on our ability to take certain employee-related actions or require that we conduct additional negotiations with trade unions, works councils or other governmental authorities before we can take such actions.
If the employees or contractors at the Gold Bar, Mexico, or San José, El Gallo 1 or Black Fox mines were to engage in a strike, work stoppage, or other slowdown in the future, we could experience a significant disruption of our operations. Such disruption could interfere with our business operations and could lead to decreased productivity, increased labor costs, and lost revenue.
We may not be successful in negotiating new collective bargaining agreements or other employment arrangements when the current ones expire. Furthermore, future labor negotiations could result in significant increases in our labor costs. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, and results of operations.
Regulations and pending legislation governing issues involving climate change could result in increased operating and capital costs which could have a material adverse effect on our business.
Producing gold is an energy-intensive business, resulting in a significant carbon footprint. We utilize electricity, diesel fuel, gasoline, and natural gas to produce metal.
A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impacts of climate change that are viewed as the result of emissions from the combustion of carbon-based fuels. At the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change (“UNFCC”) held in Paris in 2015, the Paris Agreement was adopted which was intended to govern emission reductions beyond 2020. The Paris Agreement went into effect in November 2016 when countries that produce at least 55% of the world's greenhouse gas emissions ratified the agreement. While there are no immediate impacts to business from the Paris Agreement, the goal of limiting global warming to “well below 2o C” will be taken up at national levels.
Some of the countries in which we operate have implemented, and are developing, laws and regulations related to climate change and greenhouse gas emissions. In December 2009, the United States Environmental Protection Agency (“EPA”) issued an endangerment finding under the U.S. Clean Air Act that current and projected concentrations of certain mixed greenhouse gases, including carbon dioxide, in the atmosphere threaten the public health and welfare. Additionally, the United States and China signed a bilateral agreement in November 2014 that committed the United States to reduce greenhouse gas emissions by an additional 26% to 28% below 2005 levels by the year 2025. The EPA in August 2015 issued final rules for the Clean Power Plan under Section 111 (d) of the Clean Air Act designed to reduce greenhouse gas emissions at electric utilities in line with reductions planned for the compliance with the Paris Agreement. On June 19, 2019, the EPA as part of a regulatory review repealed the Clean Power Plan and replaced it with the Affordable Clean Energy rule which eliminates most of the emission reduction standards included in the Clean Power Plan. That rule is now the subject of challenges in the courts.
Legislation and increased regulation and requirements regarding climate change could impose increased costs on us, our venture partners and our suppliers, including increased energy, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations.
Risks Relating to Our Common Stock
A small number of existing shareholders own a significant portion of McEwen Mining common stock, which could limit your ability to influence the outcome of any shareholder vote.
As of March 10, 2021, Mr. McEwen beneficially owned approximately 18% of the 459.2 million shares of McEwen Mining common stock outstanding. Under our Articles of Incorporation and the laws of the State of Colorado, the vote of the holders of a majority of the shares voting at a meeting at which a quorum is present is generally required to approve most shareholder action. As a result, Mr. McEwen will be able to significantly influence the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Articles of Incorporation or proposed mergers, acquisitions or other significant corporate transactions.
Our stock price may be volatile, and as a result you could lose all or part of your investment.
In addition to other risk factors identified herein and to volatility associated with equity securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock:
| ● | Changes in the worldwide price for gold, silver and/or copper; |
| ● | Disappointing results from our exploration or production efforts; |
| ● | Producing at rates lower than those targeted; |
| ● | Political and regulatory risks; |
| ● | Weather conditions, including both unusually heavy rains and unusually light rains or drought; |
| ● | Failure to meet our revenue or profit goals or operating budget; |
| ● | Decline in demand for our common stock; |
| ● | Downward revisions in securities analysts’ estimates or changes in general market conditions; |
| ● | Technological innovations by competitors or in competing technologies; |
| ● | Investor perception of our industry or our prospects; |
| ● | Disruption of supply and demand and other economic factors due to virus and other disease; |
| ● | Actions by government central banks; and |
| ● | General economic trends. |
Stock markets in general have in the past and may in the future experience extreme price and volume fluctuations. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. Adverse price fluctuations may lead to threatened or actual delisting of our common stock from the NYSE. As a result, you may be unable to resell your shares at a desired price.
The future issuances of our common stock will dilute current shareholders and may reduce the market price of our common stock.
Under certain circumstances, our board of directors has the authority to authorize the offer and sale of additional securities without the vote of or notice to existing shareholders. We may issue equity in the future in connection with capital formation, acquisitions, strategic transactions or for other purposes. Based on the need for additional capital to fund expected growth, it is likely that we will issue additional securities to provide such capital and that such additional issuances may involve a significant number of shares of our common stock. Issuance of additional securities in the future will dilute the percentage interest of existing shareholders and may reduce the market price of our common stock and any other outstanding securities. Furthermore, the sale of a significant amount of our common stock by any selling security holders, including Mr. McEwen, may depress the price of our common stock. As a result, you may lose all or a portion of your investment.
General Risks
The Coronavirus pandemic could result in adverse operating results due to workforce reductions, supply and/or demand interruptions and travel restrictions.
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 virus a global pandemic. During late March and early April, our operations were disrupted by temporary shutdowns to protect our workforce from the spread of the virus. During the shutdown periods, rigorous policies and procedures were implemented at each site to minimize potential health and safety risks to our workforce. Though we have resumed operations at all our mine sites, the disruption in operations continue to adversely impact cash flows and liquidity and are expected to continue to have adverse consequences to us beyond 2020. Due to slowed ramp up in production and sales, our liquidity and financial condition have been adversely affected and we are at an increased risk of not having sufficient cash flow to fund our operations as well as an increased risk of default under our debt agreement. Achieving and maintaining normal operating capacity is also dependent on the continued availability and logistical delivery of supplies, which remains out of our control. The long-term impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions and the viability and success of the worldwide vaccination roll out. Management continues to actively monitor the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce.
We do not insure against all risks to which we may be subject in our operations.
While we currently maintain insurance policies to insure against general commercial liability claims and physical assets at our properties in the United States, Canada, Mexico and Argentina, we do not maintain insurance to cover all of the potential risks associated with our operations. We may also be unable to obtain insurance to cover other risks at economically feasible premiums or at all. Insurance coverage may not continue to be available, or may not be adequate to cover liabilities. We might also become subject to liability for environmental, pollution or other hazards associated with mineral exploration and production including bankruptcy of our refiners or other third party contractors which may not be insured against, which may exceed the limits of our insurance coverage or which we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could materially adversely affect our financial condition and our ability to fund activities on our property. A significant loss could force us to reduce, temporarily suspend or, in the worst case, terminate our operations.
Our business is subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits and reputational harm.
We operate in certain jurisdictions that have experienced governmental and private sector corruption to some degree. The U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. Violations of these laws, or allegations of such violations, could lead to civil and criminal fines and penalties, litigation, and loss of operating licenses or permits, and may damage our reputation, which could have a material adverse effect on our business, financial position and results of operations. There can be no assurance that our internal control policies and procedures always will protect us from recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by our affiliates, employees or agents. As such, our corporate policies and processes may not prevent all potential breaches of law or other governance practices.
We depend on certain key personnel, and our success will depend on our continued ability to retain and attract such qualified personnel.
Our success is dependent on the efforts, abilities and continued service of certain senior officers and key employees and consultants. A number of our key senior officers, employees and consultants have significant experience in the precious metals industry. A loss of service from any one of these individuals may adversely affect our operations, and we may have difficulty or may not be able to locate and hire a suitable replacement.
We conduct operations in a number of foreign countries and are exposed to legal, political and social risks associated with those operations.
A significant portion of our revenue in 2020 was generated by operations outside the United States. Exploration, development, production and closure activities in many countries are potentially subject to heightened political and social risks that are beyond our control and could result in increased costs, capacity constraints and potential disruptions to our business. These risks include the possible unilateral cancellation or forced renegotiation of contracts in which we may, directly or indirectly, have an interest, unfavorable changes in foreign laws and regulations, royalty and tax increases (including taxes associated with the import or export of goods), risks associated with consumption taxes in Mexico, Argentina, and Canada, income tax refund recovery and collection processes in Mexico and Argentina, changes in US legislation as applicable to foreign operations, claims by governmental entities or indigenous communities, expropriation or nationalization of property and other risks arising out of foreign sovereignty over areas in which our operations are conducted. The right to import and export gold and silver may depend on obtaining certain licenses and quotas, which could be delayed or denied at the discretion of the relevant regulatory authorities, or could become subject to new taxes or duties imposed by U.S. or foreign jurisdictions, which could have a material adverse effect on our business, financial condition, or future prospects. In addition, our rights under local law may be less secure in countries where the rule of law is less robust and judicial systems may be susceptible to manipulation or influence from government agencies, non-governmental organizations or civic groups.
Any of these developments could require us to curtail or terminate operations at our mines, incur significant costs to renegotiate contracts, meet newly-imposed environmental or other standards, pay greater royalties or higher prices for labor or services and recognize higher taxes, or experience significant delays or obstacles in the recovery of consumption taxes or income tax refunds owed, which could materially and adversely affect our financial condition, results of operations and cash flows.
Our ongoing and future success depends on developing and maintaining productive relationships with the communities, including indigenous peoples, and other stakeholders in our operating locations. Notwithstanding our ongoing efforts, local communities and stakeholders can become dissatisfied with our activities or the level of benefits provided, which may result in civil unrest, protests, direct action or campaigns against us. Any such occurrences could materially and adversely affect our financial condition, results of operations and cash flows.
Our business could be negatively impacted by security threats, including cybersecurity threats, and other disruptions.
We face various security threats, including attempts by third parties to gain unauthorized access to sensitive information or to render data or systems unusable; threats to the safety of our employees; threats to the security of our infrastructure; and threats from terrorist acts. There can be no assurance that the procedures and controls we use to monitor these threats and mitigate our exposure to them will be sufficient in preventing them from materializing. If any of these events were to
materialize, they could lead to losses of sensitive information, critical infrastructure, personnel or capabilities essential to
our operations and could have a material adverse effect on our reputation, financial condition, results of operations, or cash flows.
Our technologies, systems and networks, and those of our business partners, may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, theft of property or other disruption of our business operations. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. A cyber incident involving our information systems and related infrastructure, or that of our business partners, could disrupt our business plans and negatively impact our operations. Although to date we have not experienced any significant cyber-attacks, there can be no assurance that we will not be the target of such attacks in the future. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any security vulnerabilities.
Several of our directors and officers are residents outside of the United States, and it may be difficult for shareholders to enforce within the United States any judgments obtained against such directors or officers.
Several of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process on such directors and officers, or enforce within the United States any judgments obtained against such directors and officers, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, shareholders may be effectively prevented from pursuing remedies against such directors and officers under United States federal securities laws. In addition, shareholders may not be able to commence an action in a Canadian court predicated upon the civil liability provisions under United States federal securities laws. The foregoing risks also apply to those experts identified in this report that are not residents of the United States.
The laws of the State of Colorado, our Articles of Incorporation and agreements with certain officers and directors may protect our directors from certain types of lawsuits.
The laws of the State of Colorado provide that our directors will not be liable to us or our shareholders for monetary damages for all but certain types of conduct as directors of the Company. Our Articles of Incorporation permit us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law, including through stand‑alonestand-alone indemnity agreements. We have also entered into indemnification agreements with our executive officers and directors which require that we indemnify them against certain liabilities incurred by them in their capacity as such. The exculpation provisions may have the effect of preventing shareholders from recovering damages against our directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our directors and officers against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
Risks Relating to Our Common Stock
A small number of existing shareholders own a significant portion of McEwen Mining common stock, which could limit your ability to influence the outcome of any shareholder vote.
As of February 21, 2018, Mr. McEwen beneficially owned approximately 23% of our outstanding shares, or 79.2 million of the 337.1 million shares of McEwen Mining common stock. Van Eck Associates Corporation beneficially owns 10.1% of our outstanding common stock. Under our Articles of Incorporation and the laws of the State of Colorado, the vote of the holders of a majority of the shares voting at a meeting at which a quorum is present is generally required to approve most shareholder action. As a result, Mr. McEwen and/or the other beneficial owner will be able to significantly influence the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Articles of Incorporation or proposed mergers, acquisitions or other significant corporate transactions.
Our stock price may be volatile, and as a result you could lose all or part of your investment.
In addition to other risk factors identified herein and to volatility associated with equity securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock:
| ·
| | Changes in the worldwide price for gold, silver and/or copper;
|
| ·
| | Disappointing results from our exploration or production efforts;
|
| ·
| | Producing at rates lower than those targeted;
|
| ·
| | Political and regulatory risks;
|
| ·
| | Weather conditions, including both unusually heavy rains and unusually light rains or drought;
|
| ·
| | Failure to meet our revenue or profit goals or operating budget;
|
| ·
| | Decline in demand for our common stock;
|
| ·
| | Downward revisions in securities analysts’ estimates or changes in general market conditions;
|
| ·
| | Technological innovations by competitors or in competing technologies;
|
| ·
| | Investor perception of our industry or our prospects;
|
| ·
| | Actions by government central banks; and
|
| ·
| | General economic trends.
|
Stock markets in general have in the past and may in the future experience extreme price and volume fluctuations. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. Adverse price fluctuations may lead to threatened or actual delisting of our common stock from the NYSE. As a result, you may be unable to resell your shares at a desired price.
There is no guarantee that the Company will continue to declare returns of capital and/or other distributions.
On June 18, 2015, the Board of Directors declared an annual return of capital of $0.01 per share of common stock, payable semi-annually. The most recent return of capital installment of $0.005 was paid on February 14, 2018. Any determination to continue this return of capital on our common stock will be based primarily upon our financial condition, results of operations and capital requirements, including for capital expenditures and acquisitions, and our Board of Directors’ determination that the return of capital is in the best interest of our stockholders and in compliance with all laws and agreements applicable to the Company.
Gains recognized by non‑U.S. holders and non‑U.S. persons holding any interest in the Company other than solely as a creditor (including, for example, interests in the form of our convertible debt, if any) on the sale or other disposition of our securities may be subject to U.S. federal income tax.
We believe that we currently are a “United States real property holding corporation” under section 897(c) of the Internal Revenue Code (the “Code”), or USRPHC, and that there is a substantial likelihood that we will continue to be a USRPHC in the future. Subject to certain exceptions, securities (other than securities that provide no interest in a corporation other than solely as a creditor) issued by a corporation that has been a USRPHC at any time during the preceding five years (or the non‑U.S. holder’s holding period for such securities, if shorter) are treated as U.S. real property interests, or USRPIs, and a gain recognized by a non‑U.S. holder on the sale or other disposition of a USRPI is subject to regular U.S. federal income tax, on a net basis at graduated rates, as if such gain were effectively connected with the conduct by such holder of a U.S. trade or business. If a gain recognized by a non‑U.S. holder from the sale or other disposition of our common stock or other securities is subject to regular net basis income tax under these rules, the transferee of such common stock or other securities may be required to deduct and withhold a tax equal to 10% of the gross amount paid to the non‑U.S. holder with respect to the sale or other disposition, unless certain exceptions apply. Any tax withheld may be credited against the U.S. federal income tax owed by the non‑U.S. holder for the year in which the sale or other disposition occurs.
The future issuances of our common stock will dilute current shareholders and may reduce the market price of our common stock.
Under certain circumstances, our board of directors has the authority to authorize the offer and sale of additional securities without the vote of or notice to existing shareholders. We may issue equity in the future in connection with acquisitions, strategic transactions or for other purposes. Based on the need for additional capital to fund expected growth, it is likely that we will issue additional securities to provide such capital and that such additional issuances may involve a significant number of shares of our common stock. Issuance of additional securities in the future will dilute the percentage interest of existing shareholders and may reduce the market price of our common stock and any other outstanding securities. Furthermore, the sale of a significant amount of our common stock by any selling security holders, including Mr. McEwen, may depress the price of our common stock. As a result, you may lose all or a portion of your investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
COMMENTS
None.
ITEM 2. PROPERTIESPROPERTIES
We classify our mineral properties into the reportable segments consistent with the manner in which they are grouped in Item 8. 8. Financial Statements and SupplementalSupplementary Data, Note 153, Operating Segment Reportingand subdivide them within each segment by their respective stage of development: “Production Properties”“production properties”, “Advanced-Stage Properties”“advanced-stage properties” and “Exploration Properties”.“exploration properties.” Advanced-stage properties consist of properties for which advanced studies and reports have been completed indicating the presence of economically mineable mineralized material or in some cases, proven and probable reserves, and for which we have obtained or are in the process of obtaining the required permitting. Our designation of certain properties as “Production Properties”“production properties” or “Advanced-stage Properties”“advanced-stage properties” should not suggest that we have proven or probable reserves at those properties as defined by the SEC Industry Guide 7.
OurThe location of our significant production, advanced-stage and exploration properties are described below.is shown below:
SEGMENT: MEXICOUSA
The following map depicts the location of our major properties included in the USA segment, including the Gold Bar mine and exploration properties which are fully owned by us or subject to joint venture agreements. The Gold Bar mine is located in the southern Roberts Mountains along the prolific Battle Mountain-Eureka-Cortez gold trend in central Nevada. Approximately 25 miles northwest of the Gold Bar property is the Cortez gold mine owned by Nevada Gold Mines (Barrick and Newmont joint venture), and 25 miles southeast is the producing Ruby Hill mine:
The following table summarizes the land position of our properties in Nevada as of December 31, 2020:
| | | | |
| | Number of | | Square |
USA Mineral Property Interest | | Claims | | Miles |
Gold Bar | | 3,016 | | 97 |
Tonkin | | 1,390 | | 45 |
Limo | | 821 | | 27 |
Battle Mountain ("BMX") (joint venture) | | 573 | | 18 |
Other Properties | | 1,300 | | 42 |
Total USA Properties | | 7,100 | | 229 |
Production Properties
Gold Bar mine, Nevada (100% owned)
For detailed information on the Gold Bar mine production statistics and financial results, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview and History
The Gold Bar mine is an open pit oxide gold mine with a processing facility, heap leach pad and gold recovery plant. The mine is located primarily on public lands managed by the BLM. We commenced project construction in November 2017 following receipt of the signed Record of Decision from the U.S. Environmental Protection Agency. The Gold Bar mine achieved commercial production on May 23, 2019.
The property is located within the Battle Mountain-Eureka-Cortez gold trend in Eureka County, Nevada. The property was previously mined from 1987 to 1994 by Atlas Precious Metals Inc.
Location and Access
The Gold Bar mine is located in the Southern Roberts Creek Mountains, in Eureka County, Nevada, approximately 30 miles northwest of the town of Eureka, Nevada, primarily in Township 22 North, Range 50 East (N39°48’16.5”; W116°21’09.65”). The mine site is accessed from US Highway 50 by travelling north on Robert’s Creek Road, an unimproved dirt road maintained by the Company. The mine area is approximately 15 miles from U.S. Highway 50.
Geology and Mineralization
The mine is located in the Battle Mountain-Eureka mineral belt in a large window of lower-plate carbonate rocks surrounded by upper-plate rocks. The lower-plate carbonates consist of an east-dipping section of Silurian Lone Mountain Dolomite, Devonian McColley Canyon Formation, Devonian Denay Formation, and Devonian Devils Gate Limestone (from oldest to youngest). Gold mineralization is hosted primarily in the Bartine Member of the McColley Canyon Formation, which consists of carbonate wackestones and packstones which are approximately 250 to 380 feet thick. Minor amounts of mineralization are found in the underlying dolomitic limestone Kobeh Member of the McColley Canyon Formation where it is adjacent to apparent feeder structures. The area where the project is located has “Carlin-Type” sediment-hosted gold mineralization characteristics with typical associated alteration (decalcification, silicification).
At Gold Ridge, extensive alteration (silicification) and gold mineralization occurs at surface and at depth proximal to three historical open pits. Drilling is ongoing to extend mineralization beyond the currently defined resource.
Facilities and Infrastructure
Gold Bar mine construction began in November 2017 with key site facilities and infrastructure completed by the end of 2018 and commercial production declared in May 23, 2019. The Gold Bar mine has well developed infrastructure including on-site power generation and transmission lines, water, natural gas and related supply utilities as well as buildings which support the operations and administration. The water supply for the Gold Bar mine and processing facilities comes from production wells located approximately two miles southeast from the site and powered by a diesel generator. The mining of the open pits is being carried out by a contractor and the mining progressed during 2020. Ore from the mine is transported to the crusher and conveyor system with the crushed and agglomerated material transported to the heap leach pad via an overland conveyor.
The ore is stacked onto the heap using a radial stacker and then leached with a weak cyanide solution to extract the precious metal values. The gold is then recovered from the pregnant solution in the carbon plant by adsorbing the dissolved gold onto activated carbon followed by desorption, electrowinning, retorting and smelting to recover the gold as a final doré product.
Exploration Activities
Exploration activities in 2020 focused on targets around the Gold Bar mine including drilling at the Gold Bar South target to support resource estimation and potential conversion to reserves and drilling at Ridge to test certain near-surface and deep targets. Gold Bar South, acquired by McEwen Mining in 2016, consists of 186 mining claims located approximately
3.5 miles southeast from our Gold Bar mine. Gold Bar South hosts a near surface oxide gold deposit which, based on several historic higher-grade drill intersections, shows exploration potential laterally and at depth. See Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations for more details. We expect to continue similar drilling at the Gold Bar property in 2021 with multiple near-surface targets identified.
Exploration Properties
Tonkin property (100% owned)
The Tonkin property represents our second largest holding within the Battle Mountain-Eureka Trend in Eureka County, Nevada with approximately 45 sq. miles of claims. The Tonkin property consists of the Tonkin deposit and the previously operating Tonkin mine.
From 1985 through 1989, the Tonkin mine produced approximately 30,000 ounces of gold utilizing an oxide heap leach and a separate ball mill involving bio-oxidation to treat refractory sulphide mineralized material. Due to cost escalation and recovery issues, the operation was shut down. The mine site is currently on care-and-maintenance and we continue to advance the reclamation program. We also continue evaluation work with respect to the Tonkin deposit.
Other exploration properties
We hold other exploration stage properties throughout Nevada which are not considered material at this time.
SEGMENT: CANADA
The following map depicts the location of our major properties forming the Canada segment of our operations. The properties within the Canada segment are located in the well-established Timmins Gold Mining district in Northern Ontario, Canada. The segment consists of the Black Fox and Stock properties and various exploration and advanced stage properties (the “Fox Complex”), comprising 5,100 hectares of land packages intersecting 9 miles of the Destor-Porcupine Fault, which is known as the ‘Golden Highway.’ The Destor-Porcupine Fault has a total strike length of approximately 124 miles and hosts many of Ontario and Quebec’s prolific gold mines.
The Black Fox property includes the Black Fox mine and surrounding properties, including the Grey Fox and Froome advanced-stage properties. Stock property, the site of former Stock mine, is located approximately 17 miles from the Black Fox mine. Stock property includes the Stock mill where mineralized material from Black Fox mine is transported to and processed and the Stock exploration property. In addition, Canada segment includes other exploration properties such as Fuller, Davidson-Tisdale, Buffalo Ankerite and Paymaster.
The location of the various properties is shown below:
The following table summarizes the Canada land position of our company as of December 31, 2020:
| | | | | | |
| | Number of | | Number of | | Square |
Canada Mineral Property Interest | | PINs (1) | | Claims | | Miles |
Black Fox mine | | 32 | | 52 | | 10 |
Stock mill | | 24 | | 108 | | 10 |
Davidson-Tisdale | | 14 | | 2 | | 2 |
Fuller | | 4 | | — | | 1 |
Paymaster | | 15 | | — | | 1 |
Buffalo Ankerite | | 7 | | 1 | | 3 |
Total Canada Properties | | 96 | | 163 | | 27 |
| (1) | Parcel Identification Number (“PIN”) is a unique number assigned to each automated parcel in the Ontario Land Registry. |
Production Properties
Black Fox mine and Stock mill, Canada (100% owned)
For detailed information on the Black Fox mine and Stock mill production statistics and financial results, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview and History
We acquired the Fox Complex in October 2017. It is located in the well-established Timmins Gold Mining district in Northern Ontario, Canada. Its main properties, Stock and Black Fox, are positioned along the Provincial Highway 101, with the Stock property 22 miles east of the city of Timmins and the Black Fox property 6 miles east of the town of Matheson. Given the proximity to communities in a region with primary industries of mining and forestry, local supplies and services are easily available and can be delivered in a timely manner to our operations.
The Black Fox mine refers to the current mining operation and is an underground gold mine and a key component of the complex, which also includes the Froome and Grey Fox deposits. The Black Fox mine initially produced from 1997 to 2001, operated by Exall Resources Limited. Re-commissioned by Brigus Gold Corporation, the mine restarted in early 2009. Primero Mining Corp. (“Primero”) acquired Brigus on March 5, 2014 and continued to operate the mine. We acquired the property on October 3, 2017 and continued the commercial operations.
Also, part of the Fox Complex, the Stock property hosts the Stock mill and is the site of the former Stock mine. Exploration initiated by us in 2018 and continuing in 2020 has defined two new mineralized zones at Stock East and Stock West, within a 2-mile mineralized trend along the Destor-Porcupine Fault.
The Black Fox mine contains 32 mining right parcels and 52 unpatented claims totaling 10 sq. miles of mining land. The complex also includes 6 sq. miles of surface land. All land parcels are located within Beatty and Hislop townships in the municipality of Black-River Matheson.
Location and Access
The Black Fox mine is located 6 miles east of Matheson, Ontario, and accessed directly from Highway 101 East. Matheson, in turn, is located approximately 45 miles from Timmins, which has a commercial airport. Timmins is approximately 342 miles by air north of Toronto.
The Stock mill is located approximately 17 miles from the Black Fox mine. Mineralized material is shipped to the mill from the Black Fox mine by truck.
Geology and Mineralization
All of our properties in the Timmins-Matheson region are located within the Archean aged, Abitibi greenstone belt. Gold mineralization at the Black Fox mine occurs in several different, geological environments within a complex system of structurally-prepared pathways (conduits) that host economic quantities of gold mineralization as: (1) free gold grains associated with shallow dipping quartz veins (aka ‘flats’) and stockworks within green carbonate and ankerite-altered
ultramafic rocks; (2) gold associated with the development and distribution of pyrite, and (3) free gold carried within steeply dipping sigmoidal/sheared quartz veins.
Facilities and Infrastructure
The Black Fox mine property has well developed infrastructure including electricity, roads, water supply and high-speed internet access. There are seven fully serviced modular buildings which support various functions of the underground mine. There is also a maintenance shop, warehouse, compressed air plant, backfill plant and water management facilities. Mineralized material from the Black Fox mine is transported to, and processed at, the Stock mill, which has a nominal processing capacity of 2,000 tpd.
The primary water supply for the Black Fox mine comes from an on-site fresh water well and water produced from dewatering activities. Current water supplies are adequate to sustain current and planned future operations.
The Stock property, the site of our Stock mill, has well developed infrastructure including electricity, roads, water supply and high-speed internet access. There are also two buildings that support security and administration of the mill. There is an assay lab and several other buildings to support operations and milling, including a hoist house, warehouse and maintenance shop, mine dry building, crusher and conveyor systems and the mill building itself. The site also houses various support structures including storage and generator buildings.
Underground Mine Development
Froome, Canada (100% Owned)
The Froome deposit, which is part of the overall Fox Complex, is accessed from two declines from the bottom of the Black Fox pit and situated approximately one-half mile west of the Black Fox mine. The mineralized material from Froome will be hauled approximately 20 miles to the Stock Mine mill, where it will be processed. Life of mine production from the Froome deposit is expected to be approximately 2.5 years and low cost, bulk mining is expected to bridge gold production and provide cash flow while we continue to drill and assess potential additional resources at the Black Fox, Grey Fox, Stock and Lexam projects for future development towards expanded production.
Development of the underground access to the Froome deposit is on track, having advanced 76% by the end of the year. We plan to reach the main deposit in Q2 2021 and expect to achieve commercial production from Froome in Q4 2021. Froome offers several benefits compared to Black Fox such as a straighter, more efficient haulage route and wider, more consistent mineralization that is amenable to lower cost bulk mining methods. We are targeting an average annualized production rate of 40-45,000 gold equivalent ounces (“GEO”) from Froome over a period of approximately 2.5 years.
Advanced-Stage Properties
Grey Fox, Canada (100% owned)
The Grey Fox project is located 2.2 miles southeast of Black Fox mine, and is adjacent to Kirkland Lake Gold’s former
Hislop mine. Access is either by paved or well maintained, two-way, dirt roads.
An internal feasibility-level study was completed on the Grey Fox project in early 2015 by Primero, which recommended further development of the deposit. Further advanced project work continued until 2016, when Primero ceased all non-essential expenditures.
In 2019, we completed a substantial surface exploration program which focused on diamond drilling to increase and further define Grey Fox mineralized material. Exploration activities in 2020 further explored and defined the high-grade mineralization discovered at the Whiskey Jack target.
Exploration Properties
The Stock property is the site of the former Stock mine, which produced 137,000 ounces of gold from an underground operation between 1989 and 2005.
Exploration activities (chiefly diamond drilling and geophysical surveys) were initiated at the Stock property in early 2018, and continued at a steady pace throughout 2019. These efforts led to growth of mineralized material at Stock East, and the discovery of a new source of potentially economic bulk mineralization known as Stock West sitting approximately 0.5 miles west of the existing mine workings. The Company resumed exploration at Stock West in late August 2020.
Other exploration properties acquired in connection with our acquisition of Lexam VG Gold Inc. in 2017 include Davidson-Tisdale, Fuller, Paymaster, and Buffalo Ankerite. We performed minimal work at these properties in 2020.
SEGMENT: MEXICO
The following map depicts the location of our property forming the Mexico Operations segment, of which the El Gallo 1 mineProject (formerly “El Gallo 1” or “El Gallo Mine”) and the El Gallo 2 projectadvanced-stage Fenix Project are described in the sections below:
The following table summarizes the Company’s land position in Mexico as of December 31, 2017:2020:
| | | | | | |
Mexico Mineral Property Interest | | Claims | | Square Miles | | Square Kilometers |
El Gallo 1 mine | | 7 | | 8 | | 20 |
El Gallo 2 project | | 5 | | 144 | | 372 |
Other Mexico properties | | 38 | | 528 | | 1,369 |
Total Mexico Properties | | 50 | | 680 | | 1,761 |
| | | | |
Mexico Mineral Property Interest | | Claims | | Square Miles |
Fenix Project (including the El Gallo Project) | | 19 | | 127 |
Other Mexico properties | | 27 | | 236 |
Total Mexico Properties | | 46 | | 363 |
Production Properties
El Gallo 1 mine,Project (formerly “El Gallo 1” or “El Gallo Mine”), Mexico (100% owned)
For detailed information on the El Gallo 1 mineProject production statistics and financial results, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations.
Overview and History
We own 100% of the El Gallo 1 mine.Project. The El Gallo 1 mine isProject was the open‑pitopen-pit gold mine and heap leach operation formerlyoriginally known as the Magistral mine. Modern exploration activities at the Magistral site and surrounding properties started in early 1995 and were carried out by several companies. Commercial production was initiated in 2002 by Nevada Pacific Gold Ltd. andWe operated the mine produced approximately 70,000 ounces of gold from 2002 to 2005 before it was placed on care and maintenance for economic reasons. We acquired Nevada Pacific Gold in 2007, performed limited exploration activities, refurbished the infrastructure and completed the first gold pour in September 2012 with commercialto June 2018, when we ceased active mining. Present activities are limited to residual leaching production commencing on January 1, 2013. Duringthat is expected to continue until the year ended December 31, 2017, the El Gallo 1 mine produced a totalend of 46,446 ounces2021, as well as closure and reclamation activities.
The El Gallo 1 mineProject consists of 8 squaresq. miles (20 square km) of concessions. Concession titles are granted under Mexican mining law. Mining concessions are subject to annual work requirements and payment of annual surface taxes which are assessed and levied on a semi-annual basis in accordance with Mexican law. An annual lease agreement for surface access to the El Gallo 1 mineProject is currently in place.
Location and Access
The El Gallo 1 mineProject and the surrounding properties are in northwestern Mexico in the western foothills of the Sierra Madre Occidental mountain range, within the State of Sinaloa in the Mocorito Municipality, approximately 60 miles (100 km) by air northwest of the Culiacan, the Sinaloa State capital city. The concessions are located approximately 2.5 miles (4.0 km) by road from the town of Mocorito, which is approximately 10 miles (16 km) from the city of Guamuchil.Mocorito. Access is by paved or well-maintainedand well maintained, two-way dirt roads.
Geology and Mineralization
Mineralization among the various deposits of the El Gallo 1 mine area is generally similar. The mineralized structural zones consist of quartz stockwork, breccia, and/or local quartz veins, all occurring within propylitically altered andesitic volcanic rocks. The mineralization is generally characterized by gold accompanied by iron oxide and variable copper, zinc and lead in sulfides.
Facilities and Infrastructure
The El Gallo 1 mineProject property has well‑developedwell-developed infrastructure including electricity, roads, water supply and high-speed internet access. There is a truck shop, a warehouse, a fuel depot, core logging facilities, an explosives magazine, heap leach pads, process ponds, an assay laboratory, a three stage crushing plant, an ADR process plant with a sulfidation-acidification recovery (“SAR”) circuit added in the first quarter of 2018 and an administrative office. The laboratory is equipped to process all assays (blastholeassay samples from the mine, core, chips and soil) and incorporates fire assaying, atomic absorption, and ICP-OES equipment. Also included is asoil. The metallurgical lab is capable of conducting leach bottle rolls and column tests to determinedetermining cyanide leaching amenability and gold and silver recoveries of oresmineralized material amenable to cyanide leaching.
In 2017, we initiatedAdvanced-Stage Properties
Fenix Project, Mexico (100% owned)
Overview and History
Two areas of mineralized material located inside of our property are currently considered for the Fenix Project and are the basis of the resource estimate included in the feasibility study released on February 16, 2021.
The Fenix Project contemplates a two-phase development process. Phase 1 includes the reprocessing of material on the gold heap leach pad at the existing El Gallo Project. Phase 2 includes the processing of open pit silver mineralization from El Gallo Silver at the existing process plant.
The process plant is expected to use conventional and proven mineral processing and precious metals recovery technologies. Phase 1 is envisioned to have a throughput rate of 5,000 tonnes per day. During Phase 2, mineralized material from the El Gallo Silver would be processed at a maximum of 3,250 tons per day.
Tailings produced during the operation would be stored in the mined-out Samaniego open pit at the El Gallo Project. As part of this process, tailings deposition would include a delivery system designed to maximize tailings consolidation and water recovery. Utilizing the in pit tailings storage technology is expected to be cost effective and environmentally friendly as it would reduce the disturbance footprint and construction material, eliminate the construction of a sulfidation-acidification recovery (SAR) circuittailings dam, recycle process water, and reduce closure obligations by removing the leach pad.
During the second half of 2019, we received the environmental permit approval for in-pit tailings storage in the Samaniego pit and the additional approval for the removalprocess plant for Phase 1, which entails the construction of copper, zincthe Carbon-In-Leach (CIL) mill circuit. A decision to pursue the project remains under review.
Access and lead from pregnant leach solutions. This will increase the adsorption efficiency at the ADR plant to recover gold and silver from the pregnant leach solutions obtained from the heap leach. The SAR circuit is expected to be commissioned in the first quarter of 2018.
Mining operations and site security are performed by contractors with company employees in the management, administrative and processing areas.Location
The primary water supply forFenix Project is located adjacent to the El Gallo 1 mine comes from two operating water wells located 0.9 miles (1.5 km) from the process facility. Wells pump water into a raw water pond, whichProject and is then used for operations. The wells combined with
capture of 32 inches (~830 mm) of average local annual precipitation provide sufficient supply for the El Gallo 1 mine production.similarly accessible.
Mining activities will cease in the second quarter of 2018 while we expect leaching activities will continue until 2020 or later, as long as it remains economical to do so. Exploration work is ongoing in an effort to extend the mine life beyond 2018Facilities and make new discoveries in the district.
Advanced-stage Properties
El Gallo 2 Project, Mexico (100% owned)
Access and LocationInfrastructure
The El Gallo 2 project is located 3.0 miles (4.8 km) northwest of our El Gallo 1 mine.
Overview and History
El Gallo 2 is a prospective silver mining operation. Although there is a long history of mining in the area, only minimal amount of mining appears to have occurred at El Gallo 2 based on field observations. There is no recorded history of prior exploration having occurred at El Gallo 2. We acquired El Gallo 2 and the surrounding mineral concessions in connection with the acquisition of Nevada Pacific Gold in 2007. In 2008, we initiated exploration in the district. After conducting rotary drilling in the area, we were able to confirm the grade and thickness of the silver resource in January 2009.
A feasibility study (‘‘FS’’) was completed on the El Gallo 2 project in September 2012. As a result of changes in commodity prices since the publication of the FS, we are of the view that the 2012 FS is no longer current and should not be relied on. A final decision to proceed with the construction of El Gallo 2 has not been made and alternatives to reduce capital and operating costs continue to be examined. Any decision to proceed would be dependent on improved silver prices, improved project economics, and securing financing on terms that are more favorable than those that were available at the time of completion of the FS. During 2017, we conducted further studies on the feasibility and development of the El Gallo 2 project. However, as of December 31, 2017, no new study has been completed.
Facilities and Infrastructure
El Gallo 1Project infrastructure is currently used to support current work on the El Gallo 2. The waterFenix Project.
A change in power supply for the El Gallo 2 projectby self generation with natural gas is expected to comebe economical with reduced capital and operating expenditures compared to the previous National Grid option, using natural gas from three locally drilled water wells. Required water yields were confirmed through several long‑term pumping tests completed in 2013.
Exploration Properties
Our land position of Exploration Properties in Mexico consists of several claims not associated with a specific project, such as Palmarito and Mina Grande. The Palmarito silver deposit is a historic silver mining area that saw historical production from open pit and underground workings before cessation of mining in the 1950s.
Since 2008, exploration activities across the license areas have included prospecting, as well as stream sediment, soil and rock chip sampling, and most recently an ongoing full district-scale soil geochemistry survey. This work has in some areas leading to more detailed work including large scale mapping, blasthole drilling and ultimately RC and core drilling programs. This stage-gate approach has led to either a steady progression of work in prospective areas or the suspension of work in less favorable areas. The prioritization of targets has continued based on new data and interpretations. Limited exploration was conducted in 2017. We allocated part of the 2018 budget to continue the exploration work, including multiple drill campaigns to evaluate the highest priority soil geochemistry anomalies identified by our district-scale soil sampling program.
SEGMENT: LOS AZULES, ARGENTINA
SEGMENT: CANADA
Exploration Properties
The following map depicts the location of our major properties includedthe Los Azules project in the Canada segment,province of San Juan in Argentina. Los Azules is located in the Andean Copper Belt in Southern Argentina, which arehosts many of the Lexam Properties (Fuller, Davidson Tisdale, Buffalo Ankerite and Paymaster), and the Black Fox Complex, (the Black Fox Property (Black Fox Mine, Grey Fox, Froome), Black Fox-Stock mill and Black Fox North). These properties are described below.world’s largest copper deposits.
The following table summarizes the Canada land position of our Companyrelated to Los Azules segment as of December 31, 2017:
| | | | | | |
| | Number of | | Square | | Square |
Canada Mineral Property Interest | | Claims | | Miles | | Kilometers |
Black Fox Property | | 54 | | 7 | | 18 |
Davidson-Tisdale | | 36 | | 2 | | 5 |
Fuller | | 10 | | 1 | | 2 |
Paymaster | | 13 | | 1 | | 2 |
Buffalo Ankerite | | 15 | | 1 | | 2 |
Total Canada Properties | | 128 | | 12 | | 29 |
2020:
| | | | |
| | Number of | | Square |
Argentina Mineral Property Interest | | Claims | | Miles |
Los Azules project | | 21 | | 123 |
Other Argentina properties | | 18 | | 184 |
Total Argentina Properties | | 39 | | 307 |
Production Properties
Black Fox Mine, CanadaLos Azules Copper Project, Argentina (100% owned)
For detailed information on the Black Fox Mine production statistics and financial results, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview and History
We own 100% of the Black Fox Complex, which includes the Black Fox Mine, Black Fox North and the Black Fox-Stock Mill. We acquired these assets, along with some advanced-stage and exploration properties, in October 2017. The Black Fox Mine refers to the current mining operation and is an underground gold mine. Modern exploration activities at the Black Fox Mine (formerly the Glimmer Mine) started in the late 1990’s.
The Glimmer Mine and surrounding properties started operating in 1997. Commercial production was initiated by Exall Resources Limited and the mine operated over the period 1997 to 2001. Operations were suspended in May 2001 due to low gold prices. The Glimmer Mine was renamed the Black Fox Mine in 2002 and there was no gold production between 2002 and 2008. Brigus Gold Corporation (“Brigus”) restarted the mine following increased gold prices in early 2009. Primero Mining Corp. (“Primero”) acquired Brigus on March 5, 2014. During the period between 2014 and 2016, the mine produced 151,000 ounces of gold. We acquired the property on October 3, 2017, completed the first gold pour in November 2017 and the commercial operations of the mine were unaffected by the acquisition.
The Black Fox Property consists of one block of land comprising 32 parcels and 22 mining titles for a total of 4,324 acres (1,750 hectares) or 6.8 sq. mi (17.5 sq. km). Some parcels and mining titles are subject to royalties. All parcels and mining titles are freehold mining lands (mining patents), mining leases, or licenses of occupation. All required permits are in place.
Location and Access
The Black Fox Complex is located 7 miles (11 km) east of Matheson, Ontario, on Highway 101 East. Matheson, in turn, is located approximately 45 miles (72 km) from Timmins, which has a commercial airport. Access to the mine is either by paved or well maintained, two‑way, dirt roads.
Geology and Mineralization
The Black Fox Complex is located within the Abitibi greenstone belt. Gold mineralization at the Black Fox Mine occurs in several different geological environments within the main ankerite alteration zone, and generally occurs as: (1) Free gold associated with shallow dipping quartz veins and stockworks in green carbonate and ankerite altered ultramafic rocks; (2) Gold-bearing pyrite; (3) Gold associated with fine-grained pyrite and (4) Free gold in steeply dipping sigmoidal quartz veins.
Facilities and Infrastructure
The Black Fox Mine property has well‑developed infrastructure including electricity, roads and high-speed internet access. There are seven fully serviced modular buildings which support various functions of the underground mine. There is also a maintenance shop, warehouse, compressed air plant, backfill plant and water management facilities. Ore from the Black Fox mine is transported to, and processed at, the Stock Mill, approximately 17 miles (27 km) from the mine.
The primary water supply for the Black Fox Mine comes from an on-site fresh water well, and water produced from dewatering activities is channeled to the holding pond for process recycling and/or discharge through the Black Fox water treatment facility. Current water supplies are adequate to sustain current and planned future operations.
We acquired the Black Fox-Stock Mill as part of the acquisition from Primero in October 2017. The mill is located approximately 17 miles (27 km) from the Black Fox mine and has a nominal processing capacity of 2,500 tpd. Ore is shipped to the mill from the Black Fox mine by truck.
The Black Fox-Stock mill is also the site of the former Stock Mine, which produced 137,000 ounces of gold from an underground operation between 1989 and 2005. The surface facilities remain in place with the underground mine now flooded.
The Stock Mill property has well‑developed infrastructure including electricity, roads and high-speed internet access. There are two buildings that support security and administration of the Stock Mill. There is an assay lab and administrative building on site. There are several other buildings to support operations and milling, including a hoist house, warehouse and maintenance shop, mine dry building, crusher and conveyor systems and the mill building itself. The site also houses various support structures including reagent storage and oil storage buildings, reagent distribution building, two standby generator buildings and a potable water building.
We inherited a toll milling agreement with Sage Gold to process ore from the Clavos Gold project.
Reserves
We are in the process of completing our own technical report in respect of the Black Fox mine. In connection with this project we are reviewing this mineral resource.
Metal Streaming Agreement
On November 9, 2010, Brigus entered into an agreement with Sandstorm Gold Ltd. (“Sandstorm”) whereby Brigus received up front proceeds of $56.3 million and Sandstorm agreed to purchase 12% of the future gold production from the Black Fox Mine beginning in January 2011 and 10% of future gold production from the Black Fox extension covering a portion of the adjoining Pike River property. Sandstorm also committed to pay Brigus ongoing payments of $500 per ounce purchased, subject to an inflationary adjustment beginning in 2013, but which would not exceed 2% per annum. Brigus had the option, for a 24-month period, to reduce the Gold Stream Agreement to a minimum of 6% of production from the Black Fox Mine and 4.5% of production from the Black Fox Extension (Pike River) for a payment of $36.6 million. On November 5, 2012, Brigus elected to exercise a portion of the option and repurchased 4% of the Gold stream for $24.4 million. This reduced Sandstorm’s portion of future production at Black Fox to 8% and the Black Fox extension to 6.3%. The Sandstorm agreement was assumed by McEwen as part of the acquisition of the Black Fox Complex. The Company is obligated to sell 8% of current and future gold production from the Black Fox mine and 6.3% at the adjoining Pike River property (Black Fox Extension) to Sandstorm at the lesser of market price or $531 per oz (with inflation adjustments of up to 2% per year) until 2090. The upfront proceeds, representing the uncredited balance, were completely repaid prior to the Company’s acquisition of the properties.
Advanced-stage Properties
Grey Fox, Canada (100% owned)
Overview and History
The Grey FoxLos Azules copper project is an advanced-stage project. It is also 100% owned by our subsidiary McEwen Ontario. The Grey Foxporphyry copper exploration project is not subject to any streaming arrangements.
An internal feasibility-level study (“Feasibility”) was completed onlocated in the Grey Fox projectcordilleran region in early 2015 by Primero, which recommended further developmentthe province of San Juan, Argentina near the border with Chile. In 1994, Minera Andes acquired lands in the southern portion of the Grey Fox deposit. AtLos Azules area. Over the endyears there was additional exploration done by Minera Andes and other companies who owned adjacent properties around Los Azules. We acquired Minera Andes in January 2012.
During 2020, we continued preliminary engineering and cost estimates to advance the proposed low altitude all year access route (northern access route) in an effort to improve access to the site. We also advanced the Los Azules water management plan to evaluate the project engineering,operating as a zero discharge development.
The environmental baseline studies, geotechnical evaluations, permitting activities, closure plan preparation, and development of mine designs and production plansmonitoring work continued as well as cost estimates had advanced sufficientlyother works, which were identified as necessary to initiate consultation withdevelop a conforming Environmental Impact Assessment (“EIA”) submission. The environmental work included the First Nations,geological mapping of the Metis of Ontariotailings dam design.
Location and local communities. Subsequently, Primero stopped development work on the project. A final decision to proceed with development of Grey Fox has not been made and alternatives to reduce capital and operating costs continue to be examined by the Company. Any decision to proceed would be dependent on improved gold price expectations and improved project economics.
Access and Location
The Grey Fox project is located 2.2 miles (3.5 km) south of Black Fox Mine,at approximately 31o 13’30” South latitude and 70o 13’50” West longitude and abuts the Chile-Argentina border. It is directly adjacent to Kirkland Lake’s Hislop mine. Access is eitheraccessible by paved or well maintained, two‑way,unimproved dirt roads.
Facilities and Infrastructure
There is no infrastructureroads with seasonal closures in winter. The elevation at the Grey Fox property.site ranges between 11,500 feet to 14,750 feet above sea level.
Froome, Canada (100% Owned)
OverviewGeology and HistoryMineralization
The Froome project was discovered by Primero in early 2015.
Access and Location
The Froome deposit is located 0.6 miles (1 km) westwithin a copper porphyry belt that is host to some of the Black Fox Mine.world’s largest copper mines. The deposit is accessible by either paved or well maintained, two-way, dirt roads.
Facilities and Infrastructure
Due to the proximity of Froome to the Black Fox mine, existing infrastructure from Black Fox can be utilized on this project. We will continue evaluating to determine the viability of future production from this deposit.
Exploration Properties
We acquired the Lexam properties in connection with the acquisition of Lexan in April 2017. Each of these properties (Buffalo Ankerite, Davidson Tisdale, Fuller and Paymaster) is adjacent to either a previous mining operation or an existing one. There is limited infrastructure on the properties. The company is evaluating synergies that could come as a result of using the Black Fox - Stock Mill to process material from these properties, which is about 30 miles (50 km) away from the mill to the west.
Buffalo Ankerite, Canada (100% Owned)
We control a 100% interest in the Buffalo Ankerite Property, which is located 3.5 miles (5.6 km) southeast of Timmins, in northeastern Ontario. Production took place between 1926 and 1953 and included a 4,000 ft. (1,220 meter) deep shaft. In early 2007, Lexam began exploring for both near surface and deep gold mineralization.
Fuller, Canada (100% Owned)
The Fuller Property is comprised of 13 claims covering 519 acres (210 hectares) in Tisdale Township, approximately 3 km southeast of Timmins, Ontario.
Paymaster, Canada (61.01% Owned)
In June 2008, Lexam entered a four-year option agreement with Goldcorp Inc. (“Goldcorp”) to acquire a 60% interest in 15 patented mining claims that are adjacent to and on strikeupper part of the gold mineralized zones situated on the Fuller Property and the Buffalo Ankerite Property. In June 2012, Lexam completed its earn-in requirements and acquiredsystem consists of a 60% interest in the Paymaster Property. On September 20, 2013, Lexam received formal notification from Goldcorp indicating that they would not participate in the 2013 exploration program. As Goldcorp continued its nonparticipation in subsequent years, Goldcorp’s 40% ownership was diluted in accordance with terms stipulated in the joint venture agreement. As of December 31, 2017, McEwen increased its interest in the Paymaster Property to 61%.
Davidson Tisdale, Canada (100% Owned)
We own 100% of the Davidson Tisdale property, covering 1,134 acres (460 hectares) from 25.5 claims. The Davidson Tisdale Property hosts gold in the Main Zone and the S-Zone mineralized structures,barren leached cap, which are developed by a 550 foot (168 meter) deep decline ramp with five mine levels. Permitting activities have been carried out over previous years. Upon completion of additional permitting, we envision a surface bulk sample as the initial mining work, leading to an open pit operation before the commencement of underground mining. Additional exploration potential exists at depth, below the underground mine workings.
Other Exploration Properties
Black Fox North, Canada (100% Owned)
We own 100% of the Black Fox North property, covering 207.7 acres (84 hectares) from 10 claims, and located 2.5 miles (4 km) north of Black Fox Mine. The Black Fox North Property is underlain by mafic and felsic volcanic flows toa high-grade secondary enrichment blanket. Primary mineralization below the northeast and sedimentary rocks to the southwest. The volcanic and sedimentary sequences are separated by the northwest-southeast striking Pipestone Fault. The Pipestone fault is known to host mineralization. To date, no gold mineralizationsecondary enrichment zone has been identified onintersected in drilling up to a depth of more than 3,280 feet below surface.
Exploration Activities
Drilling conditions in the property. Soil surveys across the property, as well asarea are difficult, especially due to the presence of bimodal volcanism, suggest the potential for base metal mineralizationhighly faulted zones and areas of loose surface scree or talus. Due to snow conditions on two mountain passes on the property.access road to the site, seasonal exploration typically commences in December and extends into late April. Drilling programs have been undertaken at Los Azules between 1998 and 2014 and in 2017 by four different mineral exploration companies: Battle Mountain Gold (now Newmont Corporation), Mount Isa Mines S.A. (now Glencore Plc.), Minera Andes and McEwen Mining. Drilling, including early reverse circulation programs, focused initially on gold exploration and subsequently on diamond drilling for porphyry style copper mineralization. Since 2013, we have focused on baseline studies regarding flora, fauna, water quality and other environmental compliance matters.
Facilities and Infrastructure
There are currently limited facilities or infrastructure located at the project site which mainly includes portable camp structures and drill platforms.
SEGMENT: MINERA SANTA CRUZ (“MSC”), ARGENTINA
The following map depicts the location of our major properties included in the MSC segment which are the San José mine and other concessionsland package, which forms the Minera Santa Cruz segment. San José is located aroundapproximately 12 miles north of Newmont’s Cerro Negro mine, in the mine:northwest corner of the Deseado Massif region:
Production Properties
San José mine, Argentina (49% owned)
For detailed information on the San José mine production statistics and financial results, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations.
Overview and History
The San JoseJosé mine is an underground gold and silver mining operation.operation located in Santa Cruz, Argentina. We acquired our interest in the San José mine in connection with our acquisition of Minera Andes in January 2012. The property is owned and operated under an option and joint venture agreement (“OJVA”) between Minera Andes (49%) and Hochschild (51%) in the name of MSC. The
property was acquired by Minera Andes in 1997, following the completion of a regional geological study. Minera Andes carried outfollowed by an intensiveextensive exploration program from 1997 to 2001, leading to the discovery of the Huevos Verdes and Saavedra West Zones. A feasibility study was completed in October 2005 under the direction of MSC and, the decision to proceed to production was made on March 28, 2006. Plant, infrastructurefollowing construction, and mine development continued from July 2006 to September 2007 and commercial production was declared on January 1, 2008.
The San José mine is an underground operation located approximately 12 miles (20 km) north of Goldcorp’s Cerro Negro project in the northwest corner of the Deseado Massif region in the Province of Santa Cruz in Argentina. The mine is part of a larger property which covers a total area of approximately 1,0741,004 sq. miles. (2,781 sq. km)miles and consists of 135141 mining concessionsconcessions.
MSC has purchased the land and corresponding occupation rights that are necessary to conduct its operations.
Location and Access
The San José property is in the province of Santa Cruz, Argentina, lying approximately between latitude 46°41’S and 46°47’S and longitude 70°17’W and 70°00’W. The mine is 1,087 miles (1,750 km) south‑southwestsouth-southwest of the city of Buenos Aires and 217 miles (350 km) southwest of the Atlantic port city of Comodoro Rivadavia. The principal access route to the San José property is a paved highway from Comodoro Rivadavia unto an unsealed 20-mile (32 km)followed by a 20 mile two-lane dirt road section to the mine. Comodoro Rivadavia has regularly-scheduledregularly scheduled air services to Buenos Aires. The nearest town is Perito Moreno, which is approximately 19 miles (30 kilometers) west of the San José property. The main structural trend of fault and vein systems on the property is in directions within the northwest quadrant.
Geology and Mineralization
The San José property is in the Deseado Massif, which consists of Paleozoic metamorphic basement rocks uncomfortablyunconformably overlain by Middle to Upper Jurassic bimodal andesitic and rhyolitic volcanics and volcaniclastics. Cretaceous sediments and Tertiary to Quaternary basalts overlie the Jurassic volcanics. The Jurassic Bajo Pobre Formation is the main host of gold and silver vein mineralization at the mine. The formation is comprised of a lower andesite volcaniclastic unit and an upper andesite lava flow and has a maximum thickness of 394 ft. (120 meters). Mineralization in the San José area occurs as low sulfidation epithermal quartz veins, breccias and stockwork systems accompanying normal‑normal sinistral faults striking 330° to 340°.faults.
Facilities and Infrastructure
Infrastructure at the property consists of camp facilities that can accommodate up to approximately 1,100 personnel, a medical clinic, a security building, a maintenance shop, a laboratory, processing facilities, a mine and process facility warehouse, a surface tailings impoundment, support buildings and mine portals, a change house, a core warehouse, an administration building and offices. The laboratory is equipped to process all assays (core, chips and soil) and incorporates fire assaying and atomic absorption equipment.. MSC has installed a satellite‑satellite based telephone/data/internet communication system.
Electricity is provided by an 81‑81 mile (130 km) 132 kV electric transmission line, which was constructed in 2009 and connects the San José mine processing facility to the national power grid.
The San José mine is a ramp access underground mining operation.
Exploration Activities
MSC has purchased the land and corresponding occupation rights that are necessary to conduct its operations. All of the known mineralized zones, mineral resources and mineral reserves and active mine workings, existing tailing ponds and waste are within MSC’s concessions.
During 2017, approximately 33,661 feet (10,260 meters) were drilled in2020, continued exploration focused on San José proximity targets, continued evaluating Aguas Vivas Juanita, Platíferoas planned and Nueva-1 areas. For 2018drill program started in Telken Norte.
In 2021, we expect the approved budget considers approximately 24,803 feet (7,560 meters) in the San José area. In 2017, MSC secured surface land access for exploration programs to be focused on resources replacement with emphasis on extensions and eventual mine development if successful through a 30-year agreement with the land owners. However, if the Aguas Vivas results from 2017 and the drilling in the San José area have positive results then additional meters will be drilled in 2018.
Reserves
The reserves information for the San José mine as at December 31, 2017, on a 100% basis, was prepared by Hochschild and audited by P&E Mining Consultants Inc. (“P&E”). In its report dated February 4, 2018, P&E concluded that the reserve estimates for the San José mine prepared by Hochschild provide a reliable estimation of reserves in accordance with the standards of the Joint Ore Reserve Committee of the Australian Institute of Mining and Metallurgy (“JORC”), NI 43‑101, the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) best practices and SEC Industry Guide 7.
The mineral reserves were estimated using metal prices of $1,200 per ounce of gold and $16.5 per ounce of silver with a marginal revenue cut‑off value of $101.63 per tonne. The reserves, as presented, are in‑place and include mining dilution and mining losses, but do not include allowances for mill or smelter recoveries.
The following table summarizes 100% of proven and probable gold and silver reserves of the San José mine, as of December 31, 2017:
| | | | | | | | | | | |
| | Tonnes | | Silver | | Silver ounces | | Gold | | Gold ounces | |
Reserve Category | | (in thousands) | | (grams/tonne) | | (in millions) | | (grams/tonne) | | (in thousands) | |
Proven | | 973 | | 490 | | 15.3 | | 6.99 | | 219 | |
Probable | | 434 | | 384 | | 5.4 | | 6.74 | | 94 | |
Proven & Probable | | 1,407 | | 457 | | 20.7 | | 6.92 | | 313 | |
SEGMENT: USA
The following map depicts the location of our major properties in the USA segment, including the Gold Bar project currently under construction and exploration properties which are fully owned by us or subjectnew structures near to joint venture agreements:
The following table summarizes the land position of our properties in Nevada as of December 31, 2017:
| | | | | | |
| | Number of | | Square | | Square |
USA Mineral Property Interest | | Claims | | Miles | | Kilometers |
Gold Bar Complex | | 1,207 | | 39 | | 101 |
Tonkin Complex | | 1,390 | | 45 | | 116 |
Limo Complex | | 665 | | 21 | | 56 |
Battle Mountain Complex | | 573 | | 19 | | 48 |
Other United States Properties | | 1,457 | | 47 | | 122 |
Total USA Properties | | 5,292 | | 171 | | 443 |
Advanced-stage Properties
Gold Bar Project, Nevada (100% owned)
Overview and History
The Gold Bar Project is a proposed open pit gold mine with an oxide heap leach recovery circuit. Construction work commenced in late 2017 following receipt of the final permit.
The property is located within the Battle Mountain-Eureka-Cortez gold trend in Eureka County, central Nevada. The property was previously mined from 1987 to 1994 by Atlas Precious Metals Inc. We commenced the formal permitting process to recommence mining in 2012.
On February 15, 2018, we announced the results of a definitive FS, which will be filed on SEDAR. The FS is compliant with NI 43-101 and the reserve estimate is compliant with SEC Industry Guide 7. Based on the FS, initial capital expenditures for the project are estimated at $80.8 million including an allocation of $4.6 million for contingencies.
Location and Access
The Gold Bar project is in the Roberts Creek Mountains, in Eureka County, Nevada, approximately 30 miles (48 km) northwest of the town of Eureka, Nevada, primarily in Township 22 North, Range 50 East (N39°48’16.5”; W116°21’09.65”). The project site is accessed by traveling 25 miles (40 km) west on US Highway 50 from Eureka, the nearest town. Travel is then 16 miles (26 km) north on the Three Bars Road, a gravel, all-weather road maintained by Eureka County. The project area is approximately 15 miles (24 km) from the end of Three Bars Road, and is accessed through unimproved dirt roads that are not maintained by the county.
Geology and Mineralization
The project is located in the Battle Mountain‑Eureka mineral belt in a large window of lower‑plate carbonate rocks surrounded by upper‑plate rocks. The lower‑plate carbonates consist of an east‑dipping section of Silurian Lone Mountain Dolomite, Devonian McColley Canyon Formation, Devonian Denay Formation, and Devonian Devils Gate Limestone (from oldest to youngest). Gold mineralization is hosted primarily in the Bartine Member of the McColley Canyon Formation, which consists of carbonate wackestones and packstones approximately 250 to 380 feet thick. Minor amounts of mineralization are found in the underlying dolomitic limestone Kobeh Member of the McColley Canyon Formation where it is adjacent to apparent feeder structures. The area where the project is located has “Carlin‑Type” sediment‑hosted gold mineralization characteristics with typical associated alteration (decalcification, silicification).
Facilities and Infrastructure
At present, temporary facilities and infrastructure exist at the Gold Bar project site in support of ongoing construction activities. These items include a temporary water supply and power generation,current operations as well as modular offices.recognizance of new exploration targets over the district.
Gold Bar Project construction began immediately upon receipt of the final permit on November 8, 2017. Key activities conducted during November and December 2017 were:
| ·
| | Engineering and procurement of major capital equipment items;
|
| ·
| | Onsite mobilization of all major contractors;
|
| ·
| | Site clearance and initial preparation for 2018 civil work was largely completed;
|
| ·
| | Installed temporary offices, communications equipment, water, and power;
|
| ·
| | Began installation of mine water supply system;
|
| ·
| | Mine development underway at Cabin Creek pit, which will be the initial source of production.
|
Exploration Activities
Since the formal permitting process began in 2012, we did not perform any drilling activities within the production area subject to the Plan of Operations (“POO”). We did, however, drill and pump-tested one potential water well location for future mining operations. We drilled 33 holes in 2015 which were primarily in previously disturbed areas of the pit. No other exploration occurred between 2016 and November 2017. In December 2017, a series of near pit limit exploration targets were initiated at the Gold Bar project. The total program footage will be determined by program success. The program is expected to continue throughout the first quarter of 2018.
Permitting Activities
The Gold Bar project is fully permitted for construction. State permits required for operations are all expected to be received prior to commencement of operations, which is expected for the fourth quarter of 2018.
Proven or Probable Reserves
The mineral reserves at the Gold Bar project were estimated using gold price of $1,000 per ounce, and a cut-off grade of 2.26 g/t. The reserves, as presented, are in‑place and include mining dilution and mining losses, but do not include allowances for mill or smelter recoveries. The reserve estimate was prepared by Independent Mining Consultant of Tucson, Arizona.
The following table summarizes estimated proven and probable gold reserves recoverable of the Gold Bar project, as of December 31, 2017:
| | | | | | |
| | Tonnes | | Gold | | Gold ounces |
Reserve Category | | (in thousands) | | (grams/tonne) | | (in thousands) |
Proven | | 2,253 | | 1.27 | | 83 |
Probable | | 14,244 | | 0.97 | | 401 |
Proven & Probable | | 16,497 | | 1.01 | | 484 |
Exploration Properties
Tonkin property (100% owned)
The Tonkin property represents our largest holding within the Battle Mountain‑Eureka Trend in Eureka County, Nevada with approximately 43 sq. miles (113 sq. km). The Tonkin property consists of the Tonkin Springs deposit and the previously operating Tonkin mine.
From 1985 through 1989, the Tonkin mine produced approximately 30,000 ounces of gold utilizing an oxide heap leach and a separate ball mill involving bio oxidation to treat refractory sulphide ore. Due to cost escalation and recovery issues, the operation was shut down and not restarted. The mine site is currently on care-and-maintenance and we continue to advance the reclamation program. We also continue evaluation work with respect to the Tonkin Springs deposit. No significant drilling took place in 2017.
Other Exploration Properties
No significant drilling or exploration activities took place in any of these properties during the year 2017. The Company continues to rationalize its mineral property interests in Nevada in an effort to focus its exploration efforts on prospective areas.
SEGMENT: LOS AZULES
Exploration Properties
The following map depicts the location of our major exploration properties in the Los Azules segment in two distinct exploration projects at Los Azules and Chonchones, in the province of San Juan in Argentina. Los Azules is the more advanced and significant project at this time.
The following table summarizes the land position related to Los Azules segment as of December 31, 2017:
| | | | | | |
| | Number of | | Square | | Square |
Argentina Mineral Property Interest | | Claims | | Miles | | Kilometers |
Los Azules project | | 331 | | 145 | | 376 |
Chonchones project | | 139 | | 67 | | 173 |
Lagañoso project | | 49 | | 19 | | 49 |
La Cerrada project | | 118 | | 51 | | 132 |
Other Argentina properties | | 31 | | 58 | | 150 |
Total Argentina Properties | | 668 | | 340 | | 880 |
Los Azules Copper Project, Argentina (100% owned)
Overview and History
The Los Azules copper project is a 100% owned advanced‑stage porphyry copper exploration project located in the cordilleran region in the province of San Juan, Argentina near the border with Chile. In 1994, Minera Andes acquired lands in the southern portion of the Los Azules area. Over the years there was additional exploration done by Minera Andes and other companies who owned adjacent properties around Los Azules. We acquired this property, along with other Argentina exploration properties and our interest in the San José mine, as part of with the acquisition of Minera Andes in January 2012.
Location and Access
The project is located at approximately 31o 13’30” South latitude and 70o 13’50” West longitude and about 4 miles (6 km) east of the Chile‑Argentina border. It is accessible by unimproved dirt roads with seasonal closures in winter. The elevation at the site ranges between 11,500 feet to 14,750 feet (3,500 meters to 4,200 meters) above sea level.
Geology and Mineralization
The deposit is located within a copper porphyry belt that is host to some of the world’s largest copper mines. The upper part of the system consists of a barren leached cap, which is underlain by a high‑grade secondary enrichment blanket. Primary mineralization below the secondary enrichment zone has been intersected in drilling up to a depth of more than 3,280 feet (1,000 meters) below surface.
Exploration Activities
Drilling conditions in the area are difficult, especially due to the presence of highly faulted zones and areas of loose surface scree or talus. Due to snow conditions on two mountain passes on the access road to the site, seasonal exploration typically commences in December and extends into late April or early May. Drilling programs have been undertaken at Los Azules between 1998 and 2014 and in 2017 by four different mineral exploration companies: Battle Mountain Gold (now Newmont Mining Inc.), Mount Isa Mines S.A. (now Glencore Plc.), Minera Andes and McEwen Mining. Drilling, including early reverse circulation programs, focused initially on gold exploration and subsequently on diamond drilling for porphyry style copper mineralization. From 1998 until the second quarter of 2013, a total of 201,764 ft. (61,141 m.) were drilled on the property. No significant drilling took place between third quarter of 2013 and fourth quarter of 2016 as we focused on baseline studies regarding flora, fauna, water quality and other environmental compliance matters. In 2017, a total of 21,451 ft. (6,500 m.) was drilled bringing total drilling done to date at Los Azules to 223,215 ft. (67,641 m.)
During the third quarter of 2017 we completed an updated 43-101 Preliminary Economic Assessment (“PEA”), results of which were announced on September 7, 2017.
Facilities and Infrastructure
There are currently limited facilities or infrastructure located at the project site which mainly includes portable camp structures and drill platforms.
Other Exploration Properties
Our other exploration properties are located in the Province of San Juan. No significant exploration activities took place during 2017.
ITEM 3. LEGAL PROCEEDINGS
PROCEEDINGS
We are not currently subject to any material legal proceedings, other than the tax matter described under the risk “Our operations in Argentina and Mexico are subject to political and social risks” included inItem 1A. Risk Factors.proceedings. To the best of our knowledge, no such proceeding is threatened, the results of which would have a material impact on our properties, results of operations, or financial condition. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.
ITEM 4. MINE SAFETY DISCLOSURES
AsAt McEwen Mining, safety is a core value, and we have no operating mines located instrive for superior performance. Our health and safety management system, which includes detailed standards and procedures for safe production, addresses topics such as employee training, risk management, workplace inspection, emergency response, accident investigation and program auditing. In addition to strong leadership and involvement from all levels of the U.S.organization, these programs and procedures form the cornerstone of safety at McEwen Mining, ensuring that employees are provided a safe and healthy environment and are intended to reduce workplace accidents, incidents and losses, comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety.
The operation of our Gold Bar mine is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our Gold Bar mine on a regular basis and may issue citations and orders when it believes a violation has occurred under the Mine Act. While we contract a majority of the mining operations at Gold Bar to an independent contractor, we may be considered an “operator” for purposes of the Mine Act and may be issued notices or any of its territories, the disclosurecitations if MSHA believes that we are responsible for violations.
We are required to report certain mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, and that required information is included in Exhibit 95 filed with this Item is not applicable.report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
On January 24, 2012, our common stock commenced trading on the NYSE and TSX under the symbol “MUX”, subsequent to the completion of the acquisition of Minera Andes. Exchangeable shares of McEwen Mining—Minera Andes Canadian Acquisition Corp. (“Exchange Co.”) traded on the TSX, under the symbol “MAQ” until August 2016, when all the outstanding exchangeable shares were redeemed.
The table below sets forth the high and low sales prices for our common stock on a quarterly basis as reported by the NYSE and TSX from January 1, 2016 to December 31, 2017.
| | | | | | | | | | | | | |
| | NYSE | | TSX (C$) | |
| | High | | Low | | High | | Low | |
Year ended December 31, 2017 | | | | | | | | | | | | | |
First Quarter | | $ | 4.43 | | $ | 2.84 | | $ | 5.83 | | $ | 3.84 | |
Second Quarter | | | 3.30 | | | 2.47 | | | 4.40 | | | 3.30 | |
Third Quarter | | | 2.86 | | | 1.94 | | | 3.53 | | | 2.40 | |
Fourth Quarter | | | 2.38 | | | 1.82 | | | 2.97 | | | 2.33 | |
Year ended December 31, 2016 | | | | | | | | | | | | | |
First Quarter | | $ | 2.13 | | $ | 0.96 | | $ | 2.84 | | $ | 1.41 | |
Second Quarter | | | 3.85 | | | 1.80 | | | 4.99 | | | 2.36 | |
Third Quarter | | | 4.92 | | | 3.33 | | | 6.44 | | | 4.38 | |
Fourth Quarter | | | 3.74 | | | 2.51 | | | 4.93 | | | 3.40 | |
As of February 20, 2018,March 10, 2021, there were 337,054,594 459,187,391shares of our common stock outstanding, which were held by approximately 4,5593,363 stockholders of record. As noted above, the exchangeable shares were fully redeemed in the third quarter of 2016.
Transfer Agent
Computershare Investor Services Inc.Trust Company, N.A. is the transfer agent for our common stock. The principal office of Computershare is 250 Royall Street, Canton, Massachusetts, 02021 and its telephone number is (303) 262‑0600.262-0600. The transfer agent in Canada is Computershare Investor ServicesTrust Company of Canada at 100 University Ave., 8th Floor, Toronto ON, M5J 2Y1 and its telephone number is 1‑800‑564‑6253.1-800-564-6253.
DividendShareholder Distribution Policy
On June 18,We made a distribution to our shareholders from 2015 until 2018, following which our Boardboard of Directors declareddirectors determined to suspend the first dividend, which at that time was characterized as a returnpayment. Payment of capital since we have accumulated losses from operations and did not have retained earnings. This wasany distributions in the first distribution or return of capital since inception. The distribution was declared as $0.01 per share of common stock, payable semi-annually. The first semi-annual distribution of $0.005 per share was paid on August 17, 2015, with further distributions paid semi-annually through 2017. The latest semi-annual distribution of $0.005 per share was paid on February 14, 2018. Whether future distributions will be declared depends uponin the discretion of our future growth, results of operationsboard depending on, among other things, subject to covenants contained in our debt agreement (which presently precludes dividends) and cash needs.flow, capital needs for our business and anticipated metal prices.
When we issued the semi-annual distributions during 2017, an assessment was made that the distribution would be treated as a return of capital, since we expected to report a net loss and did not have retained earnings. This assessment was the support required to characterize the distributions as return of capital. In light of the Tax and Jobs Act, enacted on December 22, 2017, we incurred a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax-deferred. As a result of the inclusion of our subsidiaries’ foreign earnings, we now expect to report net income for tax purposes. As a result, the distributions made during 2017 have been re-characterized as taxable dividends.
Purchases of Equity Securities by the Company
The repurchase plan under which we were authorized to repurchase a portion of our stock expired on September 30, 2016. We did not make any repurchases since this time.
Securities Authorized for Issuance Under Equity Compensation Plans
Set out below is information as of December 31, 2017 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance. This information relates to our Amended and Restated Equity Incentive Plan.
| | | | | | | | |
| | | | Weighted‑average | | Number of securities | |
| | Number of securities to | | exercise price per | | remaining available for | |
| | be issued upon exercise | | share of outstanding | | future issuance under equity | |
Plan Category | | of outstanding options | | options | | compensation plans | |
Equity compensation plans approved by security holders | | 4,905,299 | | $ | 2.44 | | 5,283,137 | |
Equity compensation plans not approved by security holders(1) | | 46,796 | | | C$1.79 | | — | |
Total | | 4,952,095 | | | | | 5,283,137 | |
| (1)
| | In connection with the acquisition of Lexam VG Gold, on April 27, 2017, we assumed stock options covering 54,264 shares of our common stock and are exercisable at a price of C$1.79. Following the forfeiture of 7,468 options, a total of 46,796 options remained exercisable at December 31, 2017.
|
The options that we assumed in connection with the 2017 acquisition were not approved by our security holders. We are not authorized to issue any additional options under any of these plans.
Performance Graph
The following graph compares our cumulative total shareholder return for the five years ended December 31, 20172020 with (i) the NYSE Arca Gold Bugs Index, which is an index of companies involved in the gold industry and (ii) the NYSE Composite Index, which is a performance indicator of the overall stock market. The graph assumes a $100 investment on December 31, 20122015 in our common stock and the two other stock market indices, and assumes the reinvestment of dividends, if any.
| | | | | | | | | | | | | | | | | | | |
| | December 31, | |
| | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | |
McEwen Mining (MUX) | | $ | 100 | | $ | 51 | | $ | 29 | | $ | 28 | | $ | 77 | | $ | 60 | |
NYSE Arca Gold Bugs Index | | | 100 | | | 45 | | | 37 | | | 25 | | | 41 | | | 43 | |
NYSE Composite Index | | | 100 | | | 123 | | | 128 | | | 120 | | | 131 | | | 152 | |
| | | | | | | | | | | | | | | | | | | |
| | December 31, | |
| | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | |
McEwen Mining (MUX) | | $ | 100 | | $ | 277 | | $ | 217 | | $ | 174 | | $ | 121 | | $ | 94 | |
NYSE Arca Gold Bugs Index | | | 100 | | | 164 | | | 173 | | | 144 | | | 218 | | | 270 | |
NYSE Composite Index | | | 100 | | | 109 | | | 126 | | | 112 | | | 137 | | | 143 | |
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected historical financial data about our Company for the last five years. The data has been derived from our audited consolidated financial statements for the years indicated. You should read this data in conjunction with the MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and our audited consolidated financial statements contained herein. All amounts are stated in thousands of U.S. dollars unless otherwise indicated.
| | | | | | | | | | | | | | | | |
| | For the year ended December 31, | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
| | (in thousands, except per share amounts) | |
Operating data | | | | | | | | | | | | | | | | |
Revenue(1) | | $ | 67,724 | | $ | 60,388 | | $ | 72,956 | | $ | 45,303 | | $ | 45,982 | |
(Loss) income on investment in Minera Santa Cruz S.A. | | | (44) | | | 12,951 | | | 2,414 | | | (5,284) | | | 846 | |
Operating (loss) income(2) | | | (26,027) | | | 15,347 | | | (49,333) | | | (410,191) | | | (200,397) | |
Other income (expenses) | | | 24 | | | 1,959 | | | 4,323 | | | (8,922) | | | (710) | |
Net (loss) income(2) | | | (10,634) | | | 21,055 | | | (20,450) | | | (311,943) | | | (147,742) | |
Basic (loss) income per share | | $ | (0.03) | | $ | 0.07 | | $ | (0.07) | | $ | (1.05) | | $ | (0.50) | |
Diluted (loss) income per share | | | (0.03) | | | 0.07 | | | (0.07) | | | (1.05) | | | (0.50) | |
| | | | | | | | | | | | | | | | |
| | As at December 31, | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | |
| | (in thousands) | |
Balance sheet data | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 27,153 | | $ | 37,440 | | $ | 25,874 | | $ | 12,380 | | $ | 24,321 | |
Investments | | | 7,971 | | | 8,543 | | | 1,032 | | | 1,082 | | | 2 | |
IVA taxes receivable | | | 5,250 | | | 4,304 | | | 10,032 | | | 11,739 | | | 11,591 | |
Inventories | | | 31,951 | | | 26,620 | | | 14,975 | | | 12,404 | | | 8,800 | |
Restricted cash | | | 10,000 | | | — | | | — | | | — | | | — | |
Property and equipment, net | | | 51,046 | | | 14,252 | | | 15,759 | | | 17,896 | | | 15,143 | |
Mineral property interests | | | 293,437 | | | 242,640 | | | 237,245 | | | 287,812 | | | 642,968 | |
Investment in Minera Santa Cruz S.A. | | | 150,064 | | | 162,320 | | | 167,107 | | | 177,018 | | | 212,947 | |
Other assets | | | 15,257 | | | 2,199 | | | 3,061 | | | 2,627 | | | 7,294 | |
Total assets | | $ | 592,129 | | $ | 498,318 | | $ | 475,085 | | $ | 522,958 | | $ | 923,066 | |
Current liabilities | | $ | 37,639 | | $ | 20,581 | | $ | 22,039 | | $ | 24,082 | | $ | 11,189 | |
Deferred income and mining tax liability | | | 8,430 | | | 23,665 | | | 26,899 | | | 51,899 | | | 158,855 | |
Capital lease liabilities, less current portion | | | 81 | | | — | | | — | | | — | | | — | |
Other long‑term liabilities | | | 24,706 | | | 11,033 | | | 7,855 | | | 5,763 | | | 6,255 | |
Shareholders’ equity | | | 521,273 | | | 443,039 | | | 418,292 | | | 441,214 | | | 746,767 | |
Total liabilities and shareholders’ equity | | $ | 592,129 | | $ | 498,318 | | $ | 475,085 | | $ | 522,958 | | $ | 923,066 | |
| (1)
| | Includes revenue from the sale of gold from the Black Fox mine, part of the Black Fox Complex acquired in October 2017.
|
| (2)
| | Includes a non‑cash expense of $711, $50,600, $353,736, and $62,963 relating to the write‑downs of mineral property interests, and property and equipment in 2017, 2015, 2014, and 2013, respectively. Also includes a non‑cash expense of $11,777, $21,162 and $95,878 relating to the write‑down of our investment in Minera Santa Cruz S.A. in 2015, 2014 and 2013, respectively.
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
TheIn the following discussion, updates our plan“McEwen Mining”, the “Company”, “we”, “our”, and “us” refers McEwen Mining Inc. and as the context requires, its consolidated subsidiaries.
This section of operations as of February 21, 2018 for the foreseeable future. It alsothis Annual Report on Form 10-K generally discusses our results of operations for the three fiscal years ended December 31, 2017, 20162020 and 20152019 items and our financial condition as at December 31, 2017year-to-year comparisons between 2020 and 2016,2019 with a particular emphasis on 2020. For a discussion of our financial condition and results of operations for 2019 compared to 2018, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2017. 2019 filed with the SEC on March 16, 2020.
The technical contents of this management’s discussion and analysis has been reviewed and approved by Peter Mah, P.Eng., Chief Operating Officer and Luke Willis, Director, Resource Modelling as Qualified Persons as defined by Canadian Securities Administrator National Instrument 43-101 “Standards of Disclosure for Mineral Projects”.
With regard to properties orand projects that are not in production, we provide some details of our plan of operation. This section provides information up to the date of filing this report.
The discussion also presents certain non‑GAAPcontains financial performance measures such as earnings from mining operations, totalthat are not prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP” or “GAAP”). Each of the following is a non-GAAP measure: cash gross profit, cash costs, total cash cost per ounce, all‑inall-in sustaining costs, all‑inall-in sustaining cost per ounce, average realized price per ounce, and cash, investments and precious metals, that are important to management in its evaluation of our operating results and whichliquid assets. These non-GAAP measures are used by management in running the business and we believe they provide useful information that can be used by investors to compareevaluate our performance and our ability to what we perceivegenerate cash flows. These measures do not have standardized definitions and should not be relied upon in isolation or as a substitute for measures prepared in accordance with GAAP. Cash Costs equals Production Costs Applicable to be peer group mining companiesSales 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. is used interchangeably throughout the document.
For a detailed descriptionreconciliation of eachthese non-GAAP measures to the amounts included in our Statements of Operations for the non‑GAAP financial performance measuresthree months ended December 31, 2020 and 2019 and the years ended December 31, 2020, 2019 and 2018 and to our Balance Sheets as of December 31, 2020 and 2019 and certain limitations inherent in such measures, please see the discussion under “Non‑GAAP“Non-GAAP Financial Performance Measures” below,, on page 55.58.
TheThis discussion also includes references to “Advanced-stage Properties”“advanced-stage properties”, which are defined as properties for which advanced studies and reports have been completed indicating the presence of mineralized material or proven and probable reserves, andor that have obtained or are in the process of obtaining the required permitting. Our designation of certain properties as “Advanced-stage Properties”“advanced-stage properties” should not suggest that we have or will have proven or probable reserves at those properties as defined by the SEC Industry Guide 7. This section provides information up to the date of the filing of this report.
The information in this section should be read in conjunction with our consolidated financial statements and the notes thereto included in this annual report.Annual Report on Form 10-K.
Reliability of Information: MSC,Throughout this Management’s Discussion and Analysis (“MDA”), 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 regarding the San José mine contained herein is, with few exceptions as noted, based entirely on information provided to us by MSC. Our joint venture partner, a subsidiary of Hochschild Mining plc, and its affiliates other than MSC do not accept responsibilityreporting periods for the three months ended March 31, 2020, June 30, 2020, September 30, 2020, December 31, 2020, and December 31, 2019 are abbreviated as Q1/20, Q2/20, Q3/20, Q4/20 and Q4/19, respectively, the reporting periods for the six months ended June 30, 2020 and December 31, 2020 are abbreviated as H1/20 and H2/20, respectively, and the reporting for the years ended December 31, 2020 and 2019 are abbreviated as YTD/20 and YTD/19 respectively.
In addition, in this report, gold equivalent ounces (“Au Eq. oz”) includes gold and silver ounces calculated based on a 94:1 ratio for the first quarter of 2020, 104:1 for the second quarter of 2020, 79:1 for the third quarter of 2020, and 77:1 for the fourth quarter of 2020. Beginning with the second quarter of 2019, we adopted a variable silver to gold ratio for reporting that approximates the average price during each fiscal quarter.
Note: We ceased active mining and processing at the El Gallo mine in the second quarter of 2018. Where comparative results for mining operations are presented for prior periods, we continue to use of project data or the adequacy or accuracy of this document.
term “El Gallo Mine.” We use the
term “El Gallo Project” to refer to the ongoing reclamation and residual heap-leaching that is taking place at the formerly-producing mine.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 virus a global pandemic. During late March and early April, our operations were disrupted by temporary shutdowns to protect our workforce from the spread of the virus. A summary of our operations during 2020 is as follows:
| ● | All operations at Black Fox were temporarily suspended on March 26 and resumed on April 13; |
| ● | Mining operations at the Gold Bar mine were suspended on April 1 and resumed on May 4, while leaching activities continued throughout the suspended period; |
| ● | Operating activities at the El Gallo Project were suspended on April 1, while leaching activities continued. Operations resumed June 1; |
| ● | Operations at the San José mine owned by MSC (operated by our joint venture partner) closed March 20 and resumed with scaled back operations by the end of April. In the third quarter, operations at the San José mine were again in a ramp-up phase as a result of the ongoing countrywide restrictions on the movement of people. On November 30, 2020 the government mandated a shutdown of mine operations in the region. Operations at the San José mine resumed on December 8, 2020; and |
| ● | Our head office in Toronto, Canada was shut down on March 13 and remains closed. All employees are performing their functions remotely. |
During and after the shutdown periods, rigorous policies and procedures have been implemented at each site to minimize potential health and safety risks to our workforce.
The temporary shutdowns have adversely impacted our mine operations, cash flow, and liquidity throughout 2020. In addition to the adverse effect on production and revenue, we have incurred costs in connection with the shutdowns and subsequent ramp-up at each operation. Our liquidity and financial condition have been adversely affected and as a result we have raised an additional $64.4 million in gross equity financings from September 2020 to February 2021. In addition, we renegotiated more favorable debt repayment terms in Q2 2020. We are currently maintaining normal operating capacity at our operations; however this remains dependent on the continued availability and logistical delivery of supplies, which remains out of our control. The long-term impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak, related advisories and restrictions and the viability and success of the worldwide vaccination roll out. Management continues to actively monitor the global situation with respect to COVID-19 and its ongoing impacts on our financial condition, liquidity, operations, suppliers, industry and workforce.
The governments of the United States, Canada and Mexico have enacted or proposed legislation to provide relief to companies and/or individuals affected by the enforced reduction in operations. During 2020, we secured $1.9 million of relief from the US government under the paycheck protection (“PPP”) program. The funds are fully forgivable so long as sufficient eligible expenditures were incurred in a 24 week period. The income from the PPP program is recognized on a systematic basis as eligible forgivable expenditures are incurred. As at December 31, 2020, the full amount has been recognized as other income, as the Company is reasonably assured that it is in compliance with the forgiveness criteria of incurring the eligible expenses for forgiveness within the required timeframe. We also secured $4.5 million of government relief in Canada through the Canadian Emergency Wage Subsidy (“CEWS”) program.
Index to Management’s Discussion and Analysis:
2020 AND Q4/20 OPERATING AND FINANCIAL HIGHLIGHTS
2017 OperatingHighlights for the year and Financial Highlights
2017 highlightsquarter ended December 31, 2020 are includedsummarized below and discussed further in the Consolidated Financial Performance:
COVID-19 Impacts
| ·
● | Operations were temporarily suspended in Q2/20 in efforts to prevent the spread of COVID-19 among our workers, business partners, and communities. Production successfully resumed at our operating mines during Q3/20 and they remain in operation as at December 31, 2020. |
| In 2017, we entered●
| The San José mine continued to operate below normal capacity during Q3/20 and Q4/20 due to government imposed travel restrictions. On November 30, 2020, the Canadian mining market after acquiring the Lexam groupgovernment mandated a temporary shutdown of properties, locatedmine operations in the Timminsregion. Operations at the San José mine resumed on December 8, 2020. |
Performance
| ● | We produced 114,844 gold districtequivalent ounces in 2020; production includes 54,500 gold equivalent ounces from the San José mine(1). We produced 30,227 gold equivalent ounces in Q4/20, including 14,805 attributable gold equivalent ounces from the San José mine(1). |
| ● | We sold 115,662 gold equivalent ounces in 2020, including 54,929 attributable gold equivalent ounces from the San José mine (1). We sold 30,228 gold equivalent ounces in Q4/20, with 15,071 attributable ounces from the San José mine (1). |
Cash Flow and Results of Operations
| ● | We reported cash and cash equivalents of Canada. Later$20.8 million at December 31, 2020; we raised $20.2 million (net proceeds of $19.6 million) through two flow-through financings in 2020. |
| ● | Subsequent to the year end, we acquired the Black Fox Complex, comprised of the Black Fox underground gold mine, the Black Fox Stock mill, and the Grey Fox and Froome development projects, complementing the Lexam properties and enhancing our positioning in the region. |
| ·
| | We began construction of the Gold Bar project after receiving the final permitting on November 8, 2017. Commercial production from Gold Bar is expected to be achieved in the first quarter of 2019.
|
| ·
| | We completed a Preliminary Economic Assessment (“PEA”) for the Los Azules Project, estimating an economical project and the opportunity for a sustainable and long-life open pit mine at current copper, gold and silver prices.
|
| ·
| | We completed two financings for totalraised additional gross proceeds of $56.6$12.7 million primarily forand $31.5 million through a Canadian development expenditures (“CDE”) flow-through and an equity financing.
|
| ● | We re-negotiated the purposedebt facility to remove immediate liquidity issues in 2020. |
| ● | We reported 2020 revenue of funding the acquisition of the Black Fox Complex and finance the 2018 exploration program in Timmins. |
| ·
| | Our consolidated gold and silver sales were $67.5 million in 2017, comprised of $55.9$104.8 million from the sale of 44,49060,733 gold equivalent ounces byfrom our El Gallo 1100% owned properties; at an average realized price(2) of $1,771 per gold equivalent ounce.
|
| ● | We reported cash gross loss(2) of $4.0 million in 2020, with a gross loss of $26.9 million. |
| ● | We reported 2020 net loss of $152.3 million, including an $83.8 million impairment adjustment for the Gold Bar Mine and $27.5 million spent on exploration and advanced projects. The 2020 net loss was $68.5 million before the impairment adjustment for the Gold Bar mine. |
Exploration and Reserves
| ● | We completed two flow-through financings in Q3 and Q4, which provided gross proceeds of $10.4 million and $9.8 million, respectively (combined net proceeds of $19.6 million). These proceeds will be used to incur eligible exploration expenditures in the Timmins region over the next one to two years with the primary focus around the Stock West, Grey Fox and Whiskey Jack targets. |
| ● | We completed $15.9 million of exploration drilling and other exploration work in 2020. |
| ● | We completed 43 thousand feet (13 thousand meters) and 111 thousand feet (34 thousand meters) of drilling at Black Fox and Nevada respectively. |
| (1) | At our 49% attributable interest. |
| (2) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. See “Non-GAAP Financial Performance Measures” beginning on page 58. |
| ● | We added 111 thousand ounces to the Froome Project life of mine plan which provides further confidence in the future of the Fox Complex. |
| ● | The Pick, Ridge, Cabin and $11.6 million fromGold Bar South geological models and resource estimates were updated in Q4 2020, and all resource estimates were subject to independent third party review for quality assurance. |
| ● | We announced the salepositive results of 9,422the Fenix project feasibility study on December 31, 2020. The study highlights the two-phased approach of our near term production opportunity. |
| ● | On January 7, 2021, we announced an updated Probable Reserve Estimate of 302 thousand recoverable gold ounces by our Black Fox mine.for the Gold Bar Mine in Nevada. |
SELECTED CONSOLIDATED FINANCIAL AND OPERATING RESULTS
The following tables present select financial and operating results of our company for the three months ended December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019, and 2018:
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
|
| | (in thousands, except per share) |
Revenue from gold and silver sales(1) | | $ | 27,703 | | $ | 32,362 | | $ | 104,789 | | $ | 117,019 | | $ | 128,175 |
Production costs applicable to sales | | $ | (34,560) | | $ | (23,848) | | $ | (108,827) | | $ | (83,280) | | $ | (81,014) |
Loss before income and mining taxes | | $ | (23,656) | | $ | (26,401) | | $ | (153,715) | | $ | (63,591) | | $ | (47,640) |
Net loss(2) | | $ | (23,542) | | $ | (25,132) | | $ | (152,325) | | $ | (59,747) | | $ | (44,870) |
Net loss per share(2) | | $ | (0.06) | | $ | (0.07) | | $ | (0.38) | | $ | (0.17) | | $ | (0.13) |
Cash (used in) provided by operating activities | | $ | (2,600) | | $ | (17,611) | | $ | (27,873) | | $ | (39,527) | | $ | 487 |
Cash additions to mineral property interests and plant and equipment | | $ | 4,069 | | $ | 2,680 | | $ | 13,373 | | $ | 29,707 | | $ | 81,321 |
| (1) | ·
| | We realized average prices of $1,255 and $17.40 per ounce of gold and silver, respectively, sold byExcludes revenue from the El Gallo 1 mine, and an average price of $1,233 per ounce of gold sold by the Black Fox mine.
|
| ·
| | Our consolidated production was 60,973 gold equivalent ounces, comprised of 46,694 gold equivalent ounces produced by the El Gallo 1 mine and 14,279 gold equivalent ounces produced by the Black Fox mine.
|
| ·
| | The San José mine, produced 186,443 gold equivalent ounces, comprisedwhich is accounted for under the equity method.
|
| (2) | Results for the year ended December 31, 2020 include an impairment charge of 100,475 ounces of gold and 6,447,657 ounces of silver, on a 100% basis; or 91,357 gold equivalent ounces, represented by 49,233 ounces of gold and 3,159,352 ounces of silver, based on the 49% share attributable to us. |
| ·
| | The El Gallo 1 mine realized total cash costs of $791 and all-in sustaining costs of $909 per gold equivalent ounce, respectively.
|
| ·
| | The Black Fox mine realized total cash costs of $865 and all-in sustaining costs of $1,319 per gold equivalent ounce, respectively.
|
| ·
| | The San José mine realized total cash costs of $839 and all-in sustaining costs of $1,027 per gold equivalent ounce, respectively.
|
| ·
| | We reported a net loss of $10.6$83.8 million, or $0.03$0.21 per share for the year.
share. |
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
|
| | (in thousands, except per ounce) |
Produced - gold equivalent ounces(1) | | | 30.2 | | | 46.3 | | | 114.8 | | | 174.4 | | | 175.6 |
100% owned operations | | | 15.4 | | | 22.1 | | | 60.3 | | | 82.7 | | | 88.0 |
San José mine (49% attributable) | | | 14.8 | | | 24.2 | | | 54.5 | | | 91.7 | | | 87.6 |
Sold - gold equivalent ounces(1) | | | 30.3 | | | 46.2 | | | 115.6 | | | 175.4 | | | 190.1 |
100% owned operations | | | 15.2 | | | 22.1 | | | 60.7 | | | 85.1 | | | 102.7 |
San José mine (49% attributable) | | | 15.1 | | | 24.1 | | | 54.9 | | | 90.3 | | | 87.4 |
Average realized price ($/Au Eq. oz)(2)(3) | | $ | 1,888 | | $ | 1,487 | | $ | 1,771 | | $ | 1,403 | | $ | 1,277 |
P.M. Fix Gold ($/oz) | | $ | 1,874 | | $ | 1,481 | | $ | 1,735 | | $ | 1,393 | | $ | 1,268 |
Cash cost per ounce ($/Au Eq. oz sold):(2) | | | | | | | | | | | | | | | |
100% owned operations | | $ | 2,197 | | $ | 1,009 | | $ | 1,772 | | $ | 949 | | $ | 789 |
San José mine (49% attributable) | | $ | 1,234 | | $ | 826 | | $ | 1,233 | | $ | 867 | | $ | 851 |
AISC per ounce ($/Au Eq. oz sold):(2) | | | | | | | | | | | | | | | |
100% owned operations | | $ | 2,393 | | $ | 1,197 | | $ | 2,077 | | $ | 1,251 | | $ | 952 |
San José mine (49% attributable) | | $ | 1,455 | | $ | 1,034 | | $ | 1,514 | | $ | 1,140 | | $ | 1,061 |
Cash gross (loss) profit(2) | | $ | (6,857) | | $ | 8,514 | | $ | (4,038) | | | 33,739 | | | 47,161 |
Silver : Gold ratio(1) | | | 77 : 1 | | | 85:1 | | | 86 : 1 | | | 84:1 | | | 75:1 |
| (1) | ·
| | We realized net loss of $0.1 million from our investment in MSC, and received $12.2 million in dividends.
|
| ·
| | At year end, we reported $68.1 million in cash and restricted cash, investments and precious metals valued at the London P.M. Fix spot price(1), and no bank debt. Restricted cash represents proceeds from a financing that is committed to the exploration program in Ontario.
|
| (1)
| | For a reconciliation of precious metals valued at the London P.M. Fix spot price and cost, please see the discussion under “Non GAAP Financial Performance Measures” below, on page 55.
|
Selected Consolidated Financial and Operating Results
| | | | | | | | | | | | | | | | |
| | Three months ended | | Year ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 | |
| | (in thousands, unless otherwise indicated) | |
Gold and silver sales El Gallo 1 mine | | $ | 12,472 | | $ | 11,162 | | $ | 55,845 | | $ | 60,388 | | $ | 72,956 | |
Gold and silver sales Black Fox mine | | $ | 11,620 | | $ | — | | $ | 11,620 | | $ | — | | $ | — | |
Income (loss) on investment in MSC, net of amortization | | $ | 491 | | $ | (838) | | $ | (44) | | $ | 12,951 | | $ | 2,414 | |
Net (loss) income | | $ | 2,169 | | $ | (4,491) | | $ | (10,634) | | $ | 21,055 | | $ | (20,450) | |
Net (loss) income per common share | | $ | 0.01 | | $ | (0.01) | | $ | (0.03) | | $ | 0.07 | | $ | (0.07) | |
Consolidated gold ounces(1): | | | | | | | | | | | | | | | | |
Produced | | | 48.6 | | | 20.3 | | | 109.9 | | | 101.5 | | | 110.3 | |
Sold | | | 33.3 | | | 21.9 | | | 102.4 | | | 97.6 | | | 105.7 | |
Consolidated silver ounces(1): | | | | | | | | | | | | | | | | |
Produced | | | 927 | | | 839 | | | 3,179 | | | 3,304 | | | 3,316 | |
Sold | | | 906 | | | 851 | | | 3,209 | | | 3,487 | | | 3,142 | |
Consolidated gold equivalent ounces(1)(2): | | | | | | | | | | | | | | | | |
Produced | | | 61.0 | | | 31.5 | | | 152.3 | | | 145.5 | | | 154.5 | |
Sold | | | 45.4 | | | 33.2 | | | 145.2 | | | 144.0 | | | 147.6 | |
Silver : gold ratio(2) | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | |
| (1)
| | Includes attributable production from our 49% owned San José mine.
|
| (2)
| | Silver production is presented as a gold equivalent. Gold equivalent ounces calculations approximate prevailing spot prices at theequivalent; silver:gold ratio of 86:1 for 2020 and 84:1 for 2019; 77:1 for Q4/20 and 85:1 for Q4/19. See page 38. |
| (2) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. See “Non-GAAP Financial Performance Measures” beginning of the year.on page 58. |
| (3) | On sales from 100% owned operations only, excluding streaming arrangement. |
CONSOLIDATED PERFORMANCE
Consolidated Financial Performance
For the year ended December 31, 2017,2020, we recordedreported a net loss of $10.6$152.3 million or $0.03(or $0.38 per share,share) compared to a net incomeloss of $21.1$59.7 million or $0.07in 2019 (or $0.17 per share,share). The increased loss from year to year relates primarily to a non-cash impairment charge of $83.8 million in 2016. The $10.62020 at Gold Bar; lower revenues of $12.2 million netpredominantly as a result of lower production from all sites in 2020 versus 2019; and higher cost of sales of $25.5 million in 2020 as a result of COVID-19 related production suspensions and related costs; and higher production costs from Gold Bar operations in 2020. These changes were partially offset by a reduced loss was primarilyfrom our investment in MSC, and reduced general and administration as well as exploration costs in 2020 versus 2019. MSC’s results benefited from significantly higher average realized gold and silver prices (27% and 41% higher average gold and silver prices) and lower depreciation and depletion expenses due to lower mineralized material mined and processed.
Cash gross loss (a non-GAAP measure) of $4.0 million for 2020 decreased by $37.7 million compared to a cash gross profit of $33.7 million in 2019, mainly as the result of the following factors:
| ·
| | An increase in exploration expenditures incurred at Los Azules project;
|
| ·
| | A decrease in the profitability at the El Gallo 1 mine, due to higher production costs applicable to sales, higher number of ounces processed, and the operational challenges from the mechanical failure that the crushing circuit suffered during the third quarter;
|
| ·
| | Production costs applicable to sales at the Black Fox mine were substantially equal to revenue, from gold and silver sales, resulting in a negligible profit margin;
|
| ·
| | A decrease in net income reported by MSC, due to the loss of government tax incentives since late 2016, coupled with higher production costs applicable to sales, as a result of higher labor costs and the impact of inflation;
|
| ·
| | An increase of General and Administrative expenses due to the two acquisitions and financings completed in the year; and
|
| ·
| | An increase in recoveries of income taxes as a result of the U.S. and Argentina Government tax reforms, which significantly reduced deferred tax liabilities.
|
Our cash, cash equivalents and restricted cash in 2017 was $37.2 million, which is a slight decrease from the $37.4 million in 2016.
Results of Consolidated Operations
Year ended December 31, 2017 compared to 2016
Revenue. Consolidated gold and silver sales increased by $7.1 million, or 12%, to $67.5 million for the year ended December 31, 2017, from $60.4 million in 2016, mainly due to $11.6 million gold sales contributed by the Black Fox mine, which was acquired in October 2017, partially offset by a $4.5 million decrease in gold and silver sales reported by the El Gallo 1 mine, when compared to 2016, as a result of fewer ounces sold.
Production costs applicable to sales. Consolidatedproduction costs applicable to sales increased to $45.2 million in 2017 from $28.1 million in 2016, due to $9.9higher costs per ounce in particular at Gold Bar due to operational and grade
reconciliation issues. This has been ongoing and drilling continued throughout 2020 and is ongoing to date, as well as updated independent technical studies, to mitigate this risk. See “Non-GAAP Financial Performance Measures” for a reconciliation to gross (loss) profit, the nearest GAAP measure.
Production from our 100% owned mines of 60,343 gold equivalent ounces in 2020 decreased by 22,423 gold equivalent ounces compared to 2019. The decrease is attributed to the temporary shutdowns of our mine operations in efforts to combat the spread of COVID-19 during the first half of 2020. Operations resumed, however, below capacity throughout most of 2020, given the challenges in mobilizing personnel and with government imposed travel restrictions. In addition to the impacts of COVID-19 on our operations in 2020, production at the El Gallo Project decreased by 8,261 gold equivalent ounces compared to 2019, as leaching continued to wind down.
Our share of the San José mine production of 54,500 gold equivalent ounces in 2020 was 37,153 ounces lower than in 2019; this decrease is attributable to the slow ramp up back to full production due to government imposed travel restrictions to combat the spread of COVID-19 for most of 2020.
CONSOLIDATED FINANCIAL REVIEW
Year ended December 31, 2020 compared to 2019
Revenue from gold and silver sales in 2020 of $104.8 million production costs attributabledecreased by 10% compared to 2019. The decrease reflects 24,402 fewer gold equivalent ounces sold from our 100% owned mines in 2020 compared to 2019, partially offset by a higher average realized price ($1,771/oz or $368/oz higher compared to 2019).
The decrease in gold equivalent ounces sold includes 8,763 fewer gold equivalent ounces sold from the El Gallo Project as the operations continue to wind down, 12,923 fewer gold equivalent ounces sold from the Black Fox mine and 2,716 fewer gold equivalent ounces sold from the Gold Bar mine as a result of operational interruptions. The ongoing reserve estimate work culminated in an updated technical report filed on February 22, 2021. All of our operations were impacted by COVID-19 throughout 2020.
Production Costs applicable to sales in 2020 increased by 31% to $108.8 million compared to 2019; gold equivalent ounces sold in 2020 were 29% fewer than in 2019 but at a higher cash cost per ounce sold as explained in the “Consolidated Performance” section above.
Depreciation and depletion in 2020 decreased by $1.9 million to $22.9 compared to 2019, reflecting the decrease in gold equivalent ounces sold in 2020 and the lower depreciable and depletable asset base as a result of the impairment charge recorded at Gold Bar in the first quarter of 2020.
Advanced projects of $11.7 million for 2020 increased by $2.2 million compared to 2019. Advanced projects in 2020 included continued spending for the Froome development project in Timmins Ontario, engineering and permit work at the Gold Bar South property in Nevada and the Fenix project in Mexico.
Exploration costs of $15.9 million for 2020 decreased by $21.8 million compared to 2019. In 2020, exploration activities ramped up in the second half of the year as we announced the closing of two flow-through financing programs. Through December 31, 2020, we have incurred $1.9 million in qualifying exploration expenditures. Expenditures relate to exploration activities in Timmins at the Stock and Grey Fox targets. Exploration costs in 2019 related to expenses incurred at the Company’s Timmins operations.
General and administrative expenses of $9.2 million for 2020 decreased by $3.6 million, compared to 2019, due to lower salaries, financing fees, and a reduction in corporate activities in marketing and travelling in 2020 due to COVID-19.
Loss from investment in MSC of $1.5 million in 2020, decreased by $7.2 million from 2019, reflecting increased gross profits of $8.4 million.
Revision of estimates and accretion of asset retirement obligations of $1.8 million in 2020, decreased by $1.7 million from 2019, primarily due to the inclusion of the asset retirement obligations at the Gold Bar mine in 2019 as it transitioned to commercial production in May 2019. There was no such addition in 2020.
Impairment of property, plant and equipment at Gold Bar was $83.8 million. During the first quarter of 2020, we performed a comprehensive review of our Gold Bar mine and determined that indicators of impairment existed. A recoverability test was performed and we concluded that the carrying value of the long-lived assets for the Gold Bar mine was impaired based on a reduction in preliminary estimated resources and expected future production at that time. Technical work and drilling has continued throughout 2020 to better understand the resources, which culminated in an updated reserve and resource estimate announced on January 7, 2021, with an updated technical report filed on February 22, 2021. The following are key points noted in the updated technical report:
| 1. | The feasibility study base case using a gold price assumption of $1,500/oz estimates a life of mine discounted after-tax value of $55.2 million at an 8% discount rate. |
| 2. | Over the expected 6-year mine life, production is expected to total 17.2 million tons of ore at a diluted gold grade of 0.025 oz/t (0.84 g/t) for a total payable gold of 302,000 oz as at December 1, 2020. This represents a net reduction of 16% in estimated reserves, relative to the reserve estimate as at December 31, 2018 of 430,000 gold ounces. |
Other operating of $2.0 million compared to $nil in 2019 and reflects the expenses relating to the suspension of our operations at the Gold Bar and Black Fox mines primarily related to COVID-19 costs.
Other income was $6.9 million for 2020 compared to $7.1 million for 2019. Other income in 2020 includes proceeds received from COVID-19 relief funds. The 2019 amount relates primarily to gains on marketable securities of $5.3 million.
Income and mining tax recovery of $1.4 million for 2020 decreased by $2.4 million from 2019. The decease is mainly due to lower amortization of the flow-through premium in 2020 as compared to 2019. In addition, the income and mining tax recovery reflects the devaluation of the Argentine and Mexican peso against the U.S. dollar on the Company’s peso-denominated deferred tax liability and the reversal of deferred tax liabilities on the impairment of the US properties.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents balance at December 31, 2020 of $20.8 million decreased by $25.7 million from the balance at December 31, 2019. The decrease in cash and cash equivalents at December 31, 2020 was due to $27.9 million of cash used in operations and $13.4 million invested in mineral property interests and plant and equipment, partly offset by $17.6 million in cash provided by financing activities. Cash provided from financing activities included gross proceeds of $20.2 million (net proceeds of $19.6 million) from the issuance of flow-through shares on September 10, 2020 and December 31, 2020. We are required to spend the flow-through proceeds on flow-through eligible Canadian exploration expenditures (“CEE”) as defined by subsection 66(15) of the Income Tax Act (Canada). We expect to fulfill our CEE commitments by the end of 2022. For more details on our flow-through financing refer to Note 14 to the Consolidated Financial Statements, Shareholders’ Equity.
Working capital at December 31, 2020 of $7.9 million decreased by $35.2 million from December 31, 2019, reflecting the decrease of $25.6 million in cash and cash equivalents and the decrease of $11.4 million in inventory, primarily in materials on the leach pads at the Gold Bar and El Gallo projects, which was partially offset by the decrease in current liabilities as result of the debt refinancing.
Cash used in operations of $27.9 million in 2020 decreased from $39.5 million cash used in operations in 2019. The change is attributed to a decrease in exploration expenses of $21.8 million, receipt of COVID-19 related relief funds of $6.4 million, a decrease in general and administrative expenses of $3.6 million and an increase in accounts payable of $2.0 million in 2020; partially offset by a decrease in revenue of $12.2 million and increased production costs of sales adjusted for inventory write-downs of $11.6 million.
Cash used in investing activities of $11.8 million in 2020 decreased from $14.1 million in 2019. The net difference of $2.3 million is primarily due to a decrease of $16.3 million in spending on mineral property interest and plant and equipment as the construction of the Gold Bar mine was completed in May 2019. This decrease was partially offset by lower proceeds from sale of investments ($1.3 million in 2020 compared to $6.8 million in 2019) and lower dividends received from MSC ($0.3 million in 2020 compared to $8.9 million in 2019). On January 28, 2021 we received a dividend of $2.5 million from MSC, refer to Note 23 –Subsequent Events, to the Consolidated Financial Statements.
During 2020, we spent $13.4 million on mineral property and plant and equipment, (a decrease of $16.3 million from the year 2019), predominantly on capital development, with the spending mainly related to underground development at the Fox Complex and infill drilling at Gold Bar.
Financing activities provided $17.6 million in cash in 2020 compared to $70.0 million in 2019. In 2020, this included $19.6 million from the issuance of flow-through shares, slightly offset by $2.2 million in lease obligations payments. The proceeds will be used to incur CEE at the Grey Fox, Stock and Whiskey Jack targets in Timmins over the next 2 years.
In June 2020, the loan facility was amended under a new administrative agent resulting in an extension of the required principal payments. The amendment also reduced the minimum working capital covenant to $nil at December 31, 2020. The remainder of the agreement remains in full force and effect.
During the year and subsequent to year end the Company closed on $64.4 million in gross proceeds from equity financings. As a result of this, the Company believes it has sufficient liquidity along with funds generated from ongoing operations, to fund anticipated cash requirements for operations, capital expenditures and working capital purposes. As a result, the previously disclosed going concern uncertainty disclosure has been removed, as substantial doubt no longer exists regarding the Company’s ability to meet its obligations as they become due within one year after the date that the financial statements are issued. Refer to Note 14 – Shareholders and EquityNote 23 –Subsequent Events, to the Consolidated Financial Statements.
OPERATIONS REVIEW
U.S.A. Segment
The U.S.A. segment is comprised of the Gold Bar mine and certain exploration properties.
Gold Bar mine
2020 compared to 2019
The following table sets out operating results for the Gold Bar mine for the three months and year ended December 31, 2020. As the Gold Bar mine achieved commercial production on May 23, 2019, the comparatives for cash costs, cash cost per ounce, all-in sustaining costs and all-in sustaining costs per ounce for the year ended 2019 include sales and costs from pre-commercial production during the first months of 2019:
| | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | | 2019 | | 2020 | | 2019 |
|
Operating Results | | (in thousands, unless otherwise indicated) |
Mined mineralized material (t) | | | 357 | | | 617 | | | 1,072 | | | 1,918 |
Average grade (gpt Au) | | | 0.77 | | | 0.58 | | | 0.72 | | | 0.82 |
Processed mineralized material (t) | | | 352 | | | 722 | | | 1,164 | | | 2,412 |
Average grade (gpt Au) | | | 0.74 | | | 0.58 | | | 0.69 | | | 0.81 |
Gold ounces: | | | | | | | | | | | | |
Produced | | | 5.9 | | | 9.7 | | | 27.9 | | | 30.7 |
Sold | | | 5.7 | | | 10.0 | | | 27.8 | | | 30.5 |
Silver ounces: | | | | | | | | | | | | |
Produced | | | 0.2 | | | 0.2 | | | 0.7 | | | 0.6 |
Sold | | | — | | | — | | | 0.6 | | | 0.3 |
Gold equivalent ounces: | | | | | | | | | | | | |
Produced | | | 5.9 | | | 9.7 | | | 27.9 | | | 30.7 |
Sold | | | 5.7 | | | 10.0 | | | 27.8 | | | 30.5 |
Revenue from gold and silver sales | | $ | 10,755 | | $ | 14,906 | | $ | 48,884 | | $ | 43,847 |
Cash costs(1) | | $ | 19,602 | | $ | 12,816 | | $ | 58,465 | | $ | 33,614 |
Cash cost per ounce ($/Au Eq. oz sold)(1) | | $ | 3,439 | | $ | 1,281 | | $ | 2,106 | | $ | 1,101 |
All‑in sustaining costs(1) | | $ | 21,241 | | $ | 14,526 | | $ | 68,272 | | $ | 39,139 |
AISC per ounce ($/Au Eq. oz sold)(1) | | $ | 3,726 | | $ | 1,452 | | $ | 2,459 | | $ | 1,282 |
Silver : gold ratio | | | 77 : 1 | | | 85 : 1 | | | 86 : 1 | | | 84 : 1 |
| (1) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 58 for additional information. |
Despite the significant impacts of the COVID-19 pandemic and outbreaks in the region, the Gold Bar mine produced 27,900 gold equivalent ounces in 2020 compared to 30,700 GEOs the year prior. The COVID-19 outbreak had a significant impact on production as the Gold Bar operation shut down for part of Q2 and isolation quarantine protocols resulted in reduced operating shifts in Q4 after positive COVID-19 tests of site personnel. The slower ramp up to full mining rates following the shut down was primarily due to delays related to mining contractor rehiring of operators after the shutdown resulting in slower than planned equipment operation, and the Company completing drilling, assaying, and an updated in-house resource model to develop a plan forward that includes mining from Gold Bar South. When compared to 2019 there were less ore tonnes mined, lower grades and a reduced gold production as a result. We continue to execute improvement initiatives at Gold Bar targeted to support the turnaround of the operations, which includes but are not limited to the following: improving contractor mining efficiencies, processing optimizations and ongoing exploration drilling targeting potentially economic near term gold production mineralization.
During Q4/20 and into Q1/21, a final updated resource model and updated resource and reserve estimates were completed which provided us with a more accurate model to plan from moving forward as compared to the 2018 feasibility study. A
feasibility study update for Gold Bar was filed on February 22, 2021. The following are key points noted in the updated technical report:
| 1. | The feasibility study base case using a gold price assumption of $1,500/oz estimates a life of mine discounted after-tax value of $55.2 million at an 8% discount rate. |
| 3. | Over the expected 6-year mine life, production is expected to total 17.2 million tons of ore at a diluted gold grade of 0.025 oz/t (0.84 g/t) for a total payable gold of 302,000 oz as at December 1, 2020. This represents a net reduction of 16% in estimated reserves, relative to the reserve estimate as at December 31, 2018 of 430,000 gold ounces. |
With respect to our operational experience at Gold Bar, the majority of material mined during 2020 was from the Pick West pit with the remainder of the Cabin reserve being mined and completed in Q1. The transition in 2020 to mining from the Pick West pit has returned lower ore tonnes, gold grade and contained ounces from the upper benches as compared to the feasibility block model. This is due to greater structural control of the mineralization than was previously expected, but which was exposed in the newly developed pit. Due to the differences observed between the modeled and mined ore tonnage and grade from the Pick West pit, the reserve estimate as at December 31, 2018 and the future mine plan were re-evaluated. Remodeling of these deposits have been completed in-house and reviewed by an independent third party engineering firm. Optimization of this reserve will continue into 2021 to improve ore deliveries to the pad.
Revenue from gold and silver sales increased by $5.1 million compared to 2019. The increase is attributed to the higher average realized gold prices in 2020 partially offset by lower gold equivalent ounces sold. The decrease in ounces sold is as a result of the COVID-19 restrictions and the underperformance of Pick West actual mining to plan as discussed above.
Production costs applicable to sales was $58.5 million for 2020 versus $33.6 million in 2019. The production cost variance from year to year is related mainly to the start of leach pad stacking in 2019 and as a result a significant portion of those costs were recognized on the balance sheet as build up of inventory, whereas, in 2020 there were higher costs related to the historically mined gold ounces being drawn down from the heap leach and in-circuit inventory balances and recognized in production costs.
Cash cost and AISC per gold equivalent ounce of $2,106 and $2,459 were negatively impacted by the lower ore tonnes mined and placed on the heap leach pad at a decreased grade, as noted aboveabove. They were also impacted by $4.5 million of pre-strip costs and $12.4 million in write-downs of the stockpile, heap leach and in-circuit inventory balances. Higher costs were partially offset by work force and contractor reductions.
Gold Bar mine impairment
In Q1/20, we recorded an impairment charge of $83.8 million based on the preliminary revised mine plan, which indicated a significant reduction in contained ounces relative to the 2018 reserve estimate. The impairment charge reduced the carrying value of the Gold Bar mineral property interests and plant and equipment.
Evaluation of the resource estimate continued through the fourth quarter of 2020 and an updated resource and reserve estimate and feasibility study update for Gold Bar Mine was acquiredfiled on February 22, 2021, with economic highlights noted above.
Exploration Activities – Nevada
In 2020, we spent $5.1 million on exploration activities in October 2017, and around the Gold Bar mine. This is compared to the $7.2 million higherspent on exploration activities in Nevada in 2019.
The exploration activities in 2020 included 110,500 feet (33,700 m) of drilling and metallurgical testing to support the updated Reserve estimates. The drilling program included 64,000 feet (19,500 m) at the Pick deposit, 35,000 feet (10,700 m) at Gold Bar South, and an ongoing drill program at the Gold Ridge deposit with 11,500 feet (3,500 m) drilled to date.
Drilling at Gold Bar South has successfully advanced the project and is expected to contribute to Gold Bar mine’s future production. Subject to the receipt of permit approvals as planned, the mining of Gold Bar South could begin as early as in Q1 2022.
Canada Segment
The Canada segment is comprised of the Fox Complex, which includes the Black Fox gold mine, the Froome underground mine development and the Grey Fox and Stock advanced-stage projects, the Stock mill, and other gold exploration properties located in Timmins, Ontario, Canada.
Black Fox mine and Froome mine development
The Black Fox mine plan currently shows production winding down in H1 2021 while exploration will continue following up on known target areas with the aim to extend potentially economic mineralization and mine life. There are 111,000 ounces in the life of mine plan at the Froome Project and with more surface and underground exploration drilling planned to extend the Froome deposit near existing and planned infrastructure. Underground development will continue to advance towards the deposit in 2021. We expect to reach the main deposit in early Q2 2021, and achieve commercial production in Q4 2021.
The following table sets out operating results for the Black Fox mine for the three months ended December 31, 2020 and 2019, and the years ended December 31, 2020, 2019, and 2018:
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | 2018 | |
|
Operating Results | | (in thousands, unless otherwise indicated) | | | |
Mined mineralized material (t) | | | 62 | | | 69 | | | 200 | | | 214 | | 256 | |
Average grade (gpt Au) | | | 4.00 | | | 5.00 | | | 3.51 | | | 5.04 | | 5.84 | |
Processed mineralized material (t) | | | 68 | | | 80 | | | 235 | | | 244 | | 263 | |
Average grade (gpt Au) | | | 3.77 | | | 4.50 | | | 3.19 | | | 4.83 | | 5.58 | |
Gold equivalent ounces: | | | | | | | | | | | | | | | |
Produced | | | 8.0 | | | 9.9 | | | 24.4 | | | 35.7 | | 48.9 | |
Sold | | | 8.0 | | | 9.7 | | | 24.8 | | | 37.7 | | 51.0 | |
Revenue from gold and silver sales | | $ | 14,195 | | $ | 13,919 | | $ | 41,452 | | $ | 50,058 | $ | 62,024 | |
Cash costs(1) | | $ | 10,408 | | $ | 7,096 | | $ | 34,639 | | $ | 31,121 | $ | 43,095 | |
Cash cost per ounce ($/Au Eq. oz sold)(1) | | $ | 1,307 | | $ | 729 | | $ | 1,397 | | $ | 825 | $ | 845 | |
All‑in sustaining costs(1) | | $ | 11,454 | | $ | 9,095 | | $ | 40,904 | | $ | 46,192 | $ | 57,970 | |
AISC per ounce ($/Au Eq. oz sold)(1) | | $ | 1,439 | | $ | 934 | | $ | 1,650 | | $ | 1,225 | $ | 1,137 | |
Silver : gold ratio | | | 77 : 1 | | | 85: 1 | | | 86 : 1 | | | 84 : 1 | | 75 : 1 | |
| (1) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 58 for additional information. |
2020 compared to 2019
Production decreased by 11,300 gold equivalent ounces or 32% mainly due to lower gold grades processed in 2020. In addition, mined mineralized tonnes were negatively impacted by a suspension of mining activities due to COVID-19. In the second half of the year, grade reconciliation and performance improved following more drill accesses and tighter drill spacings, a greater number of mining headings available, improved sequencing and timing, improved resource modelling accuracy and improved grade control and mining practices.
Revenue from gold and silver sales decreased by $8.6 million or 17% in 2020 compared to 2019. The change reflects a 12,923 gold equivalent ounce decrease in sales due to the technical and operational issues discussed above, partially offset by an increase in average gold price realized.
Production costs reportedapplicable to sales increased by the El Gallo mine.$3.5 million or 11% compared to 2019, despite fewer gold ounces produced and sold. The increase in production costs applicable to sales at the El Gallo 1 mine was expected,is due to underground development costs being expensed as the mine approaches the end of its life. In addition, the increase in the number of tonnes processed, coupled with higher number of waste tonnes removed in the year, as well as costs incurred due to the mechanical failureend of the crushing circuit that occurred during the third quarter of 2017 further contributedmine life.
All-in sustaining costs decreased by $5.3 million or 11% to the increase in production costs at the El Gallo 1 mine.
Operating Income (Expenses)
Mine development costs, which relate to engineering and development expenditures incurred at our advanced-stage properties, changed slightly to $3.8$40.9 million in 2017 from $3.9 million in 2016. Mine development costs in 2017 were comprised of $3.1 million at the Gold Bar project in Nevada, and $0.7 million at the El Gallo 2 project in Mexico.
Exploration costs in 2017 increased2020, compared to $17.7 million from $8.0 million in 2016, mainly2019, due to the $6.3 million higher exploration expenditures incurred at the Los Azules project. These incremental costs for Los Azules were necessarylower sustaining capital expenditures. All-in sustaining cost per gold equivalent ounce increased in 2020 to complete the PEA. In 2017, we also spent $5.6 million on exploration at our Mexican properties, $2.1 million$1,650/oz versus $1,225/oz in Nevada, $1.6 million in Timmins, and $0.5 million in corporate exploration charges.
Property holding costs increased to $3.9 million from $3.5 million year-over-year mainly as a result of higher costs for the Mexican properties, reflecting the Mexican peso appreciation against the U.S. dollar, partly offset by a decrease in property costs incurred in Argentina, compared to 2016.
General and administrative expenses increased to $18.9 million in 2017, from $12.7 million in 2016, mainly as a result of acquisition and financing costs associated with our two acquisitions completed in the year, and higher personnel costs when compared to the 2016 period.
Income from our investment in MSC decreased from $13.0 million in 2016 to a $0.1 million loss in 2017,2019, primarily due to the loss of government tax incentives in late 2016. MSC’s decrease in gold and silver sales, coupled with higher production costs applicable to sales, and the increase in exploration costs and capital expenditures, also contributed to the overall decrease in income. Please refer to the section Results of Operations – MSC below, for further details.
An impairment charge of $0.7 million was recorded in 2017, to write-down property and equipment in Mexico.
The revision of estimate and accretion of asset retirement obligation increased to $2.1 million in 2017, from $0.6 million in 2016 primarily from an increase in the revision of the Timmins obligation.
Other income (expenses)
Other income decreased to $0.1 million in 2017 from $2.0 million in 2016, primarily due to higher interest expense recorded in 2017, coupled with the increase in unrealized loss on derivatives; which was partly offset by a $0.8 million increase in gain on sale of marketable securities reported during the year.
Recovery of income taxes
Recovery of income taxes increased by $11.6 million, from $3.7 million in 2016 to $15.4 million in 2017, as a result of the U.S. and Argentina Government tax reforms, which will significantly reduce future taxes, along with fluctuations in tax benefits related to exploration spending at Los Azules, and the devaluation of the Argentina peso, during the year. Also contributing to the deferred tax recovery was the recognition of a deferred tax asset, to the extent of the deferred tax liability recognized on the acquired mineral property interests of the Gold Bar project, in the amount of $6.4 million
Year ended December 31, 2016 compared to 2015
Revenue. Gold and silver sales for the year ended December 31, 2016 decreased by $12.6 million, or 17%, to $60.4 million from $73.0 million in 2015 due to a 22% decrease in34% less gold equivalent ounces sold duringin 2020.
Froome Underground Mine Development
The Froome deposit which is part of the year at our El Gallo 1 mine, partially offset by a 6% and 4% increase in the average realized prices of gold and silver, respectively, during the year. The decrease in ounces sold, in turn, reflects lower grade processed in 2016 as the mine nears the end of its life. The El Gallo 1 mine was our only operating mine in 2016.
Production costs applicable to sales. Production costs applicable to salesoverall Fox Complex, is accessed from two declines at the El Gallo 1 mine decreased by $6.5 million, or 19%, to $28.1 million in the year ended December 31, 2016, compared to $34.6 million in 2015, in line with the 22% decrease in gold equivalent ounces sold mentioned above.
Operating Income (Expenses)
Mine development costs, increased to $3.9 million in 2016 from $1.2 million in 2015, and was comprised of $2.7 million at Gold Bar project in Nevada, and $1.2 million at the El Gallo 2 project in Mexico. Please refer to the Advanced-stage properties section for a complete discussion on these costs.
Exploration costs in 2016 decreased by $0.8 million or 10% to $8.0 million in 2016 from $8.8 million in 2015. During 2016, we spent $4.1 million in explorations at our Mexican properties, $2.0 million in Nevada, $1.6 million at Los Azules, and $0.2 million in corporate exploration charges. For a complete discussion on exploration costs, please refer to the Exploration properties section below.
Property holding costs decreased by $0.8 million or 18% year-over-year as a result of the reduced number of claims held in 2016, compared to 2015, coupled with the decline in the Mexican peso.
General and administrative expenses increased by 6% in 2016, to $12.7 million from $12.0 million in 2015, because of changes to senior management, partly offset by the devaluation of the Canadian dollar, Mexican peso and Argentine peso against the U.S. dollar during 2016.
Income from our investment in MSC increased by $10.5 million, from $2.4 million in 2015 to $13.0 million in 2016, due to the strong performance of the San José mine in 2016. Please refer to the section Results of Operations – MSC below, for further details.
No impairment charges were recorded in 2016, compared to impairment charges of $11.8 million related to our investment in MSC, and $50.6 million for mineral property interests and property and equipment, recorded in 2015.
Other income (expenses)
Other income decreased to $2.0 million in 2016 from $4.3 million in 2015, mainly due to the net result of lower interest and other income, foreign exchange gain and the impairment of marketable securities, which were partly offset by the unrealized gain on derivatives reported during the year. Interest and other income decreased by $1.6 million in 2016 due to an absence of the portion of insurance proceeds related to the theft of gold concentrate stolen from our refinery in Mexico. In addition, foreign exchange gain decreased by $1.3 million mainly because of the devaluation of the Mexican
peso affecting the VAT receivable balance held in the year. Finally, we recognized a $1.4 million gain on derivatives from our ownership of certain warrants in a publicly listed entity, acquired in 2016.
Recovery of income taxes
Recovery of income taxes decreased by $20.8 million, from $24.6 million in 2015 to $3.7 million in 2016 as no impairment related tax recoveries were recognized in 2016 compared to 2015.
Liquidity and Capital Resources
We had working capital of $49.2 million at December 31, 2017, which consisted of $86.9 million of current assets and $37.6 million of current liabilities, compared to $58.0 million working capital reported at year-end 2016. Within current assets we have $10.0 million of restricted cash, which represents funds committed to the exploration program in Ontario, as a result of completing our flow-through financing. The $8.8 million decrease in working capital was the net result of increased cash used in operating activities, from higher production and exploration costs incurred in the year, coupled with the acquisitionbottom of the Black Fox Complex,pit and property, plantsituated approximately one-half mile west of the Black Fox mine. The mineralized material from Froome will be hauled approximately 20 miles to the Stock Mine mill, where it will be processed.
We expect that the Froome underground decline development will access the deposit in early Q2 2021 and equipment, which were partly offset byas of December 31, 2020 has advanced 76% of the proceeds receivedplan. Life of mine production from the equity offerings closed during the year. Overall, our cash balance (including restricted cash) decreased slightlyFroome deposit is estimated to $37.2 million in 2017, from $37.4 million in 2016.
We believe that our working capital at year-end 2017be approximately 2.5 years and low cost, bulk mining is sufficientexpected to satisfy any non-discretionary obligations due in the next 12 months, and to fund ongoing operations and corporate activities over the next 12 months. However,bridge gold production providing cashflow while we continue to evaluate capitaldrill and development expenditure requirements to advance Gold Bar,assess potential additional resources at the Black Fox, Grey Fox, Stock and Lexam projects for future development towards expanded production.
We expect that operational synergies through shared resources and infrastructure with the ongoing production of the Fox Complex will improve the production and cost profile for the combined projects.
Exploration Activities and Expansion Study – Timmins
We remain focused on our other Timmins projects,principal exploration goal of cost-effectively discovering and El Gallo 2,extending gold deposits adjacent to our existing operations to contribute to near-term gold production. We incurred $6.5 million in 2020 for exploration initiatives, compared to $25.8 million in 2019.
Black Fox mine
In the first half of 2020, underground drilling at the Black Fox Mine continued to return encouraging high-grade intercepts at depth before being transitioned to infill drilling for near term production opportunities. The exploration activities during 2020 were confined to 42,526 feet (12,962 meters) of underground diamond drilling and related sample analysis in order to discover and identify additional mineralization adjacent to the Black Fox ore body. There is a strong potential to extend the mineralization to greater depths as well as towards the western margin of the ore body, as the mineralization remains open in all directions.
Grey Fox project
Exploration drilling commenced within the northern portion of the Grey Fox mineralization in August 2020. One drill rig was primarily focused on advancing the Whiskey Jack discovery made in late 2019, coring 16,634 feet (5,070 meters) prior to its transfer to our Stock exploration expenditures for allsite.
Highlights of the Whiskey Jack drilling campaign were presented in our operationsOctober 16, 2020 news release.
Stock property
The Stock exploration area sits adjacent to our Stock mill, which currently processes ore from our Black Fox mine. This facility processed ore from the historical underground Stock mine, which operated intermittently from the early 1980s until 2004, generating a total of 137,000 ounces of gold.
The Stock West mineralized zone was discovered in mid-2019; in 2020 five drill rigs completed 53,642 feet (16,350 meters) of follow-up drilling. Initial results suggest the potential to define a significant new zone of mineralization 800m (1/2 mile) from our Stock processing facility.
We returned our efforts to this high-priority target in late August by adding four surface drill rigs. The majority of our Q4 drilling was designed to infill the gaps between our encouraging 2019 intercepts. This will increase the density of the data needed to develop a 3D model and projects. Ifto generate an initial resource estimate. Four contracted drill rigs completed a total of 58,593 feet (17,859 meters) by year-end. Drill crews returned to site in early January 2021 as we makecontinue to advance the potential of the Stock property. Assuming this drilling is successful in identifying sufficient gold to support a positive decision to pursue one or morere-open the historic Stock Mine, we are well positioned to act quickly and begin dewatering the mine in the second half of these initiatives,2021. Previously the expenditures incurred may significantly exceed our working capital. In such case, we would explore several financing methods, which may include incurring debt, issuing additional equity, equipment leasing, and other forms of financing.mine was dewatered in just 4 months through the existing shaft workings.
Net cash used in operations was $15.4 million for 2017, while net cash provided by operations was $25.2 million and $15.6 million for 2016, and 2015, respectively. The significant changes from one year to the next are summarized as follows:
| ·
| | $95.9 million cash paid to suppliers and employees in 2017, compared to $52.3 million in 2016, and $55.3 million in 2015, due to significantly higher production, exploration and other expenses;
|
| ·
| | $12.2 million dividend received from MSC in 2017, compared to $17.7 million in 2016 and $0.5 million in 2015;
|
| ·
| | $5.9 million VAT collected in Mexico in 2017, compared to $9.5 million in 2016, and $6.0 million in 2015, and;
|
| ·
| | $67.7 million cash received from gold and silver sales in 2017, compared to $59.5 million in 2016 and $70.2 million in 2015.
|
Cash used in investing activities was $34.5 million in 2017, compared to $10.1 million in 2016 and $1.9 million in 2015, primarily due to the following factors:
| ·
| | $27.3 million incurred for the acquisition of the Black Fox Complex, and $0.8 million for the acquisition of Lexam VG Gold;
|
| ·
| | Additions to mineral property interests of $3.5 million in 2017, compared to $6.0 million spent in 2016 and $nil in 2015;
|
| ·
| | Additions to property and equipment of $5.1 million in 2017, primarily at our Gold Bar project, compared to $1.2 million and $0.8 million in 2016 and 2015, respectively;
|
| ·
| | $2.2 million proceeds from the sale of investments during the year ended December 31, 2017, compared to $0.5 million in 2016 and $nil in 2015;
|
| ·
| | No investments in marketable securities were incurred in 2017, compared to $4.4 million and $1.1 million used for investing in 2016 and 2015, respectively, and;
|
Fox Complex Expansion – Economic Study
| ·
| | We collected $nil million from the disposal of property and equipment in 2017, compared to $1.0 million and $nil in 2016 and 2015, respectively.
|
Cash provided by financing activities was $49.7 million in 2017, compared
We have engaged an independent engineering group to $3.2 million used in 2016complete a Preliminary Economic Assessment (PEA) on the Grey Fox - Black Fox, Stock and $0.1 million provided by financing activities in 2015, primarily because of:
| ·
| | Net proceeds of $43.2 million received from the issuance of shares and warrants in connection with the equity offeringTimmins resources utilizing our existing central milling capacity. The PEA is expected to be completed on September 22, 2017, while no similar financing occurred in the years 2016 and 2015;
|
| ·
| | Net proceeds of $9.4 million from the issuance of flow-through common shares completed on December 19, 2017, compared to no similar financing occurring in the years 2016 and 2015;
|
| ·
| | The $3.1 million return of capital to our shareholders in 2017, compared to $3.0 million in 2016, and $1.5 million in 2015;
|
| ·
| | $nil repayment of the bank credit facility obtained by our Mexican subsidiary, compared to $3.4 million and $1.8 million repaid in 2016 and 2015, respectively;
|
| ·
| | $nil share repurchase for the year ended December 31, 2017, compared to $0.6 million in share repurchases in 2016 and $1.8 million in 2015, and;
|
| ·
| | $0.1 million proceeds from stock options exercised in 2017, compared to $3.7 million proceeds from options exercised in 2016 and $nil in 2015.
|
Results of Operations—Mexico Segment
The Mexico segment includes: the El Gallo 1 mine, the El Gallo 2 advanced-stage project, and exploration properties neighboring the El Gallo area.
El Gallo 1 mine
The El Gallo 1 mine is a gold operating unit, 100% owned by us, located in Sinaloa, Mexico.
The El Gallo 1 mine is a mature operation, of which we have mined and depleted various pits during its operating life. The current operations are producing from sections of higher waste to ore stripping ratios, deeper ore and sulfide transitional deposits typical of late stage operations. Exploration work is continuing with the objective of developing additional resources to extend the mine life beyond 2018. However, oxide mining activities from the existing open pits will cease in the second quarter of 2018 while leaching activities will continue until 2020, or later, as long as it remains economical2021. The objective of the PEA is to do so.develop a plan for the Fox Complex over a 10-year life. Production growth is envisioned to start ramping up in 2022.
Mexico Segment
Overview
The Mexico segment includes the El Gallo Project (formerly “El Gallo 1” or “El Gallo Mine”) and the advanced-stage Fenix Project, located in Sinaloa.
El Gallo Project
Current activities at the El Gallo Project are limited to residual leaching as part of closure and reclamation plans.
The following table sets out production and sales totals, forsummarizes certain operating results at the El Gallo 1 mineProject for the three months ended December 31, 20172020 and 2016,2019, and for the years ended December 31, 2017, 2016,2020, 2019, and 2015:2018:
| | | | | | | | | | | | | | | | |
| | Three months ended | | Year ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 | |
| | (in thousands, unless otherwise indicated) | |
Tonnes of mineralized material mined | | | 373 | | | 347 | | | 1,160 | | | 1,048 | | | 1,209 | |
Average grade gold (gpt) | | | 2.19 | | | 1.14 | | | 1.77 | | | 1.32 | | | 3.37 | |
Tonnes of mineralized material processed | | | 495 | | | 320 | | | 1,399 | | | 1,108 | | | 1,128 | |
Average grade gold (gpt) | | | 2.59 | | | 1.46 | | | 2.07 | | | 2.14 | | | 3.41 | |
Gold ounces: | | | | | | | | | | | | | | | | |
Produced | | | 19.8 | | | 7.6 | | | 46.4 | | | 54.9 | | | 63.0 | |
Sold | | | 9.7 | | | 9.1 | | | 44.2 | | | 48.7 | | | 62.2 | |
Silver ounces: | | | | | | | | | | | | | | | | |
Produced | | | 6.0 | | | 3.9 | | | 18.6 | | | 25.3 | | | 29.9 | |
Sold | | | 1.7 | | | 1.0 | | | 23.7 | | | 17.6 | | | 35.9 | |
Gold equivalent ounces(1): | | | | | | | | | | | | | | | | |
Produced | | | 19.9 | | | 7.7 | | | 46.7 | | | 55.3 | | | 63.4 | |
Sold | | | 9.7 | | | 9.2 | | | 44.5 | | | 48.9 | | | 62.7 | |
Net sales | | $ | 12,472 | | $ | 11,162 | | $ | 55,845 | | $ | 60,388 | | $ | 72,956 | |
Average realized price ($/ounce)(2): | | | | | | | | | | | | | | | | |
Gold | | $ | 1,280 | | $ | 1,219 | | $ | 1,255 | | $ | 1,235 | | $ | 1,163 | |
Silver | | $ | 16.75 | | $ | 17.52 | | $ | 17.40 | | $ | 16.77 | | $ | 16.15 | |
London average price ($/ounce): | | | | | | | | | | | | | | | | |
P.M. Fix Gold | | $ | 1,276 | | $ | 1,221 | | $ | 1,257 | | $ | 1,251 | | $ | 1,160 | |
Fix Silver | | $ | 16.73 | | $ | 17.19 | | $ | 17.05 | | $ | 17.14 | | $ | 15.68 | |
Silver : gold ratio(1) | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | |
| (1)
| | Silver production presented as a gold equivalent. Gold equivalent ounces calculations approximate prevailing spot prices at the beginning of the year.
|
| (2)
| | Average realized price is a non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 55 for additional information, including definitions of this term.
|
| | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 | |
|
Operating Results | | (in thousands, unless otherwise indicated) | |
Gold ounces: | | | | | | | | | | | | | | | | |
Produced | | | 1.5 | | | 2.5 | | | 8.0 | | | 16.2 | | | 39.0 | |
Sold | | | 1.5 | | | 2.4 | | | 8.1 | | | 16.8 | | | 51.6 | |
Silver ounces: | | | | | | | | | | | | | | | | |
Produced | | | 0.2 | | | 2.4 | | | 4.9 | | | 8.4 | | | 9.1 | |
Sold | | | — | | | 1.7 | | | 5.0 | | | 8.5 | | | 13.4 | |
Gold equivalent ounces: | | | | | | | | | | | | | | | | |
Produced | | | 1.5 | | | 2.5 | | | 8.1 | | | 16.3 | | | 39.1 | |
Sold | | | 1.4 | | | 2.4 | | | 8.1 | | | 16.9 | | | 51.8 | |
Revenue from gold and silver sales | | $ | 2,752 | | $ | 3,537 | | $ | 14,453 | | $ | 23,114 | | $ | 66,151 | |
Silver : gold ratio | | | 77 : 1 | | | 85: 1 | | | 86 : 1 | | | 84 : 1 | | | 75 : 1 | |
Tonnes mined represent tonnes
Cash costs and All-in-sustaining costs and Cash cost and AISC per gold equivalent ounce
As the El Gallo Project’s gold and silver production and sales are the result of mineralized material extracted, while tonnes processed represent tonnesresidual leaching activities, we have ceased relying on, and disclosing, cash cost and all-in sustaining cost per gold equivalent ounce as key metrics for the Project. The economics of mineralized material crushedresidual leaching are measured by incremental revenues exceeding incremental costs; residual leaching is expected to continue as long as incremental revenues exceed incremental costs. Cash costs and placedall-in sustaining costs include, in addition to current period residual leaching costs, prior-year leach pad inventory costs expensed in the current period, with the latter not relevant on the leach pads. The difference between tonnes minedevaluation of 1,160,274 (2016 – 1,048,483) and tonnes processedthe economics of 1,399,210 (2016 – 1,107,573) correspond to ore previously mined which was consumed from the stockpiled inventory. residual leaching operations. Residual leaching costs for the year ended December 31, 2020 were $11.4 million, or $1,409 per gold equivalent ounce.
El Gallo project recoveries
Due to long process cycles, actual recoveries from the heap are difficult to measure and may fluctuate significantly based on the timing, quantity and metallurgical attributes of newthe mineralized material placed on the leach pads, among other variables. The cumulative recovery rate realized for gold production from September 1, 2012 (start of production at the El Gallo 1 mine)production) to December 31, 2017 is estimated at 57% (2016 – 59%).
Gold and silver production
2017 compared to 2016
| ·
| | While a decrease in production was expected, the drop exceeded our expectations by 3,306 gold equivalent ounces, since we commenced mining from the higher strip deeper pits, with an increased amount of sulfide transitional mineralization during 2017. In addition, operational issues affecting the crushing circuit during the third quarter of 2017 resulted in additional challenges to our Mexican operation; however successful mining to the ultimate bottom of the Samaniego pit and the addition of a portable crusher to increase the normal crushing capacity available during the fourth quarter of 2017, the El Gallo 1 mine was able to partially compensate for the production shortfall.
|
| ·
| | Average grades of material processed during the year ended December 31, 2017 were 2.07 g/t, compared to 2.14 g/t in 2016, while for the fourth quarter of 2017, grades of material processed averaged 2.59 g/t compared to 1.46 g/t obtained in the same quarter in 2016.
|
2016 compared to 2015
| ·
| | In 2016, we produced 55,266 gold equivalent ounces, compared to 63,366 gold equivalent ounces in 2015. The decrease in gold and silver production in 2016 was expected, mainly due to a decrease in the grades of mineral mined, as the high-grade Samaniego pit was nearly mined out in early 2016, coupled with lower number of tonnes processed during the year.
|
| ·
| | Average grades of material processed during the year ended December 31, 2016 were 2.14 g/t, compared to 3.41 g/t in 2015, while for the fourth quarter of 2016, grades of material processed averaged 1.46 g/t compared to 4.20 g/t obtained in the same quarter in 2015.
|
Gold and silver sales
2017 compared to 2016
| ·
| | Revenue from sale of gold and silver at the El Gallo 1 mine decreased by 8% to $55.8 million, from $60.4 million in the same period of 2016, due to a 9% decrease in gold equivalent ounces sold in 2017, slightly offset by a 2% and 4% increase in average realized prices of gold and silver, respectively, when compared to 2016.
|
| ·
| | The average realized price of gold and silver were $1,255 and $17.40 in 2017, compared to $1,235 and $16.77 in 2016. In comparison, the London P.M. Fix Gold average was $1,257 during 2017 and $1,251 during 2016, while the London Fix Silver average was $17.05 for 2017 and $17.14 for 2016.
|
2016 compared to 2015
| ·
| | Revenue from the sale of gold and silver at our El Gallo 1 mine decreased by 17% to $60.4 million in 2016, compared to $73.0 million in 2015, due to a 22% decrease in the number of gold equivalent ounces sold in 2016, offset by a 6% and 4% increase in average realized sale prices of gold and silver, respectively. The decrease in ounces sold reflected significantly lower grades mined and processed in 2016.
|
| ·
| | The average realized price of gold and silver were $1,235 and $16.77 in 2016, compared to $1,163 and $16.15 in 2015.In comparison, the London P.M. Fix Gold average was $1,251 during 2016 and $1,160 during 2015, while the London Fix Silver average was $17.14 for 2016 and $15.68 for 2015.
|
Total Cash Costs and All‑In Sustaining Costs
The following table presents a summary of our total cash cost, cash cost per ounce, all-in sustaining costs and all-in sustaining costs per ounce of gold equivalent at El Gallo 1 mine:
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, unless otherwise stated) |
El Gallo 1 mine | | | | | | | | | | | | | | | |
Total cash costs(1) | | $ | 11,064 | | $ | 6,399 | | $ | 35,198 | | $ | 25,609 | | $ | 27,607 |
Total cash cost per gold equivalent ounce sold ($/ounce)(1)(2) | | $ | 1,135 | | $ | 699 | | $ | 791 | | $ | 524 | | $ | 440 |
All‑in sustaining costs(1) | | $ | 12,189 | | $ | 7,615 | | $ | 40,437 | | $ | 29,818 | | $ | 36,439 |
All‑in sustaining cost per gold equivalent ounce sold ($/ounce)(1)(2) | | $ | 1,251 | | $ | 832 | | $ | 909 | | $ | 610 | | $ | 581 |
Silver : gold ratio(2) | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 |
| (1)
| | Total cash cost, total cash cost per ounce, all‑in sustaining costs, and all-in sustaining costs per ounce are non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 55 for additional information, including definitions of these terms.
|
| (2)
| | Silver production presented as a gold equivalent. Gold equivalent ounces calculations approximate prevailing spot prices at the beginning of the year.
|
2017 compared to 2016
Total cash costs per gold equivalent ounce for the year ended December 31, 2017 were $791 compared to $524 for the year of 2016. On an aggregate basis, total cash costs at the El Gallo 1 mine increased by 37% to $35.2 million in 2017, compared to $25.6 million in 2016. Higher total cash costs per gold equivalent ounce were the result of higher mining costs due to an increased strip ratio and tonnes mined, and higher processing costs due to increased tonnage treated and a decrease in recoveries. In addition, haulage costs from mining the Central 2 and Lupita pits are higher since they are located at a greater distance from the leach pad than the Samaniego pit. Finally, the increase in peso denominated production costs from the appreciation of the Mexican peso against the U.S. dollar also contributed to the higher total cash costs reported, when compared to 2016.
During the year ended December 31, 2017, the El Gallo 1 mine reported all-in sustaining costs of $909 per gold equivalent ounce, compared to $610 in 2016. Aggregate all-in sustaining costs from the El Gallo 1 mine in 2017 also increased, to $40.4 million from $29.8 million in 2016, due to higher cash costs noted above, coupled with higher exploration expenditures incurred in our efforts to extend the El Gallo 1 life of mine, and a slight increase in capital expenditures incurred in the year.
2016 compared to 2015
On a per ounce basis, total cash costs per gold equivalent ounce sold at the El Gallo 1 mine increased to $524 in 2016 from $440 in 2015. The increase was a result of slightly higher number of tonnes processed, from which lower mineral grades were obtained during 2016, that resulted in total cash costs spread over a fewer number of ounces produced and sold. This was partly offset by lower crushing and plant processing expenditures resulting from our efforts to contain costs, coupled with the devaluation of the Mexican peso against the U.S. dollar, when compared to 2015.
On an aggregate basis, total cash costs at the El Gallo 1 mine were $25.6 million in 2016, compared to $27.6 million in 2015, with the decrease mainly driven by the lower number of gold equivalent ounces sold when compared to 2015.
All‑in sustaining cost per gold equivalent ounce in 2016 was $610 compared to $581 per ounce in 2015, or $29.8 million in 2016 and $36.4 million in 2015, on an aggregate basis. The decrease in aggregate all-in sustaining costs was driven by the factors above, coupled with higher capital expenditures of a sustaining nature, including the expansion of our leach pad.
Advanced-stage Properties - El Gallo 2
El Gallo 2 Project
During 2017 we spent $0.7 million on studies for the advancement of feasibility and development of the El Gallo 2 project. These studies are designed to identify opportunities to reduce initial capital investment required to develop and start the project and to reduce the estimated operating costs while minimizing the impact on estimated production. Potential changes include different mill configurations, mine plans, and tailings deposition methods.
A review of the $186.9 million capital expenditures estimated in the El Gallo 2 initial feasibility study is currently underway. An updated pre-feasibility study is expected to be completedactivities in the second quarter of 2018.2018, is estimated at 65%.
During 2017 we incurred $1.6
The residual leaching activities in El Gallo are expected to continue in 2021 or until it remains economical.
2020 compared to 2019
Production and revenue continued to decrease in 2020 reflecting the prior cessation of active mining as the operation moved into residual heap leaching in mid-2018. The decrease in revenue was due to the decrease in production of 50% partially offset by a higher average realized gold price.
Costs increased in 2020 due to a $1.7 million in explorationwrite-down of the stockpile, heap leach and $0.7 million inin-circuit inventory balances.
Advanced-Stage Properties – Fenix Project
McEwen Mining announced on December 31, 2020 the advancementresults of a feasibility andstudy for the development of its 100%-owned Fenix Project, which includes the El Gallo 2, respectively. Our 2018 budget forGold and El Gallo Silver deposits, located in Sinaloa, Mexico.
The study envisions a 9.5-year mine life with an attractive after-tax IRR of 28% using $1,500/oz gold and $17/oz silver, with an estimated initial capital expenditure of $42 million for Phase 1 and $24 million for Phase 2. The project implementation is envisioned in two distinct phases: Phase 1 (years 1 to 6) - gold production from heap leach reprocessing, and Phase 2 is $3.4 million(years 7 to cover exploration, feasibility advancement, and limited development of El Gallo 2 project.
Exploration Activities – Mexico
El Gallo area, Sinaloa, México10) - silver production from open pit mining.
The El Gallo areakey environmental permits for Phase 1 were received in Q3 2019, including the approval for an in-pit tailings storage facility and process plant construction.
We incurred $2.5 million during 2020 on activities required to advance the Fenix Project. This compares to the $2.4 million we spent during 2019. The Fenix Project feasibility study was published on February 16, 2021.
The feasibility study is being explored in an effort to extendavailable for review on our website and SEDAR (www.sedar.com).
The Company is currently evaluating multiple financing alternatives, including the lifepotential divestiture of mine of El Gallo 1, to assess and expand known zones of mineralization and to generate new drill targets within the district for significant new discoveries. In 2017, our exploration activities included a multi-element soil geochemical survey carried out over two large high priority target areas, which were identified based on results of all available geo-information including new spectral study completed at the end of the second quarter of the year. Drilling continued around the mine site, focusing on the north-west extensionMexican business unit.
of the Samaniego open pit and on the Lupita-Central trend. Additionally, reverse-circulation drilling continued around the mine site and on new targets identified from the soil geochemical survey in the area surrounding El Gallo 2.
Our 2017 budget for exploration was $5.9 million, from which we spent $5.6 million, including near-mine and district scale exploration. Our 2018 budget is $1.1 million.
Results of Operations - Canada Segment
The Canada segment is composed of the recently acquired Black Fox Complex, which consists of the fully operational Black Fox gold mine, the Black Fox-Stock mill, and the Grey Fox and Froome advanced-stage exploration projects, and other gold exploration properties located in Timmins, Ontario, Canada.
Black Fox mine
The Black Fox underground gold mine initially operated from 1997 to 2001. It was re-commissioned in 2009 and has operated continuously since then, producing a total of 821,000 ounces of gold initially from an open pit, which is now depleted, and subsequently from the underground mine. The Black Fox property is located along a prime 4.5 mile (7 km) section of the Destor-Porcupine Fault, which is host to many world-class gold deposits. The property is already well endowed with gold mineralization and has very attractive geological potential.
Overview
The following table sets out production and sales totals, for the Black Fox mine for the three months and year ended December 31, 2017. Since the mine was acquired in October 2017, no data for comparable periods is available:
| | | | | | | | | | | | | | | | |
| | Three months ended | | Year ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 | |
| | (in thousands, unless otherwise indicated) | |
Tonnes of mineralized material mined | | | 81 | | | — | | | 81 | | | — | | | — | |
Average grade gold (gpt) | | | 6.20 | | | — | | | 6.20 | | | — | | | — | |
Tonnes of mineralized material processed | | | 79 | | | — | | | 79 | | | — | | | — | |
Average grade gold (gpt) | | | 6.47 | | | — | | | 6.47 | | | — | | | — | |
Gold ounces: | | | | | | | | | | | | | | | | |
Produced | | | 14.3 | | | — | | | 14.3 | | | — | | | — | |
Sold | | | 9.4 | | | — | | | 9.4 | | | — | | | — | |
Silver ounces: | | | | | | | | | | | | | | | | |
Produced | | | 0.8 | | | — | | | 0.8 | | | — | | | — | |
Sold | | | — | | | — | | | — | | | — | | | — | |
Gold equivalent ounces(1): | | | | | | | | | | | | | | | | |
Produced | | | 14.3 | | | — | | | 14.3 | | | — | | | — | |
Sold | | | 9.4 | | | — | | | 9.4 | | | — | | | — | |
Net sales | | $ | 11,620 | | $ | — | | $ | 11,620 | | $ | — | | $ | — | |
Average realized price ($/ounce)(2): | | | | | | | | | | | | | | | | |
Gold | | $ | 1,233 | | $ | — | | $ | 1,233 | | $ | — | | $ | — | |
Silver | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
London average price ($/ounce): | | | | | | | | | | | | | | | | |
P.M. Fix Gold | | $ | 1,276 | | $ | 1,221 | | $ | 1,257 | | $ | 1,251 | | $ | 1,160 | |
Fix Silver | | $ | 16.73 | | $ | 17.19 | | $ | 17.05 | | $ | 17.14 | | $ | 15.68 | |
Silver : gold ratio(1) | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | |
| (1)
| | Silver production presented as a gold equivalent. Gold equivalent ounces calculations approximate prevailing spot prices at the beginning of the year.
|
| (2)
| | Average realized price is a non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 55 for additional information, including definitions of this term.
|
2017 Gold and silver production and sales
| ·
| | Production for the quarter ended December 31, 2017 was 14,279 gold equivalent ounces consisting of 14,268 ounces of gold and 804 ounces of silver. Production obtained from the Black Fox mine exceeded the 10,000 gold equivalent ounces planned after the acquisition, as a result of higher average grades obtained than expected.
|
| ·
| | Sales revenue from the Black Fox mine was $11.6 million as a result of the sale of 9,422 ounces of gold during the year. The average realized price of gold was $1,233 per ounce, which compares to the London P.M. Fix Gold average of $1,276 noted during the last quarter of 2017.
|
Total Cash Costs and All-In Sustaining Costs
The following table presents a summary of our total cash cost, cash cost per ounce, all-in sustaining costs and all-in sustaining costs per ounce of gold equivalent at the Black Fox mine:
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Year ended |
| | | December 31, | | December 31, |
| | 2017 | | | 2016 | | 2017 | | 2016 | | 2015 |
| | | (in thousands, unless otherwise stated) |
Total cash costs(1) | | $ | 8,151 | | | $ | — | | $ | 8,151 | | $ | — | | $ | — |
Total cash cost per gold equivalent ounce sold ($/ounce)(1)(2) | | $ | 865 | | | $ | — | | $ | 865 | | $ | — | | $ | — |
All‑in sustaining costs(1) | | $ | 12,432 | | | $ | — | | $ | 12,432 | | $ | — | | $ | — |
All‑in sustaining cost per gold equivalent ounce sold ($/ounce)(1)(2) | | $ | 1,319 | | | $ | — | | $ | 1,319 | | $ | — | | $ | — |
Silver : gold ratio(2) | | | 75 : 1 | | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 |
| 1)
| | Total cash cost, total cash cost per ounce, all‑in sustaining costs, and all-in sustaining costs per ounce are non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 55 for additional information, including definitions of these terms
|
| 2)
| | Silver production presented as a gold equivalent. Gold equivalent ounces calculations approximate prevailing spot prices at the beginning of the year.
|
Total cash costs per gold equivalent ounce for the quarter ended December 31, 2017 was $865. On an aggregate basis, total cash cost recorded by the Black Fox mine was $8.2 million and mostly comprised underground mining costs as well as milling expenditures incurred in the quarter.
During the year ended December 31, 2017, the Black Fox mine reported all-in sustaining costs of $1,319 per gold equivalent ounce. Further, the aggregate all-in sustaining cost recorded in the period was $12.4 million, and in addition to cash costs included $3.3 million for underground mine development, $0.6 million for exploration and study costs, and $0.1 million in capital expenditures incurred during the three months ended December 31, 2017.
For 2018, we have budgeted a total of $5.3 million for sustaining and capital expenditure activities at the Black Fox mine.
Exploration Activities – Timmins
Black Fox mine and advanced-stage explorations projects
Underground exploration and definition drilling programs at the Black Fox mine are currently underway with the objective to upgrade and expand resources in the Deep Central, High Quartz Vein, Far West and Far East Zones, at depths ranging from approximately 1,640 ft. to 2,788 ft. (500 m to 850 m). Exploration and definition drilling in the upper mine is focused on infill and extensions of remnant resource/reserves, and new targets including connector between the east and west mining zones, up plunge extension of the Central Zone to the 390 m Level, and flanking secondary plunge extensions outside the mined out stope areas.
Planned exploration drilling will also focus on expanding the gold resources at depth and along strike at the Black Fox Mine and the Froome deposit, which is located 800 m west of the mine. Multiple exploration targets exist on the Black Fox and Stock properties. We are planning to begin drilling in early 2018.
Timmins Properties
On April 26, 2017, we completed the acquisition of Lexam. With this strategic acquisition, we added several assets including the Fuller, Davidson-Tisdale, Buffalo Ankerite, and Paymaster projects, bringing the potential for development expansion through exploration.
Trade-off studies and evaluation work on the properties are currently in progress.
Results of Operations - MSC Segment, Argentina
The MSC segment is composed of MSC, the operator of the San José mine, located in Argentina.
MSC (on a 100% basis)
MSC – Operating Results
Overview
The following table sets out production totals, sales totals, total cash costs and all‑in sustaining costs (on a co‑product and gold equivalent basis)operating results for the San José mine for the periods presented,three months ended December 31, 2020 and 2019, and for the years ended December 31, 2020, 2019, and 2018.
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
|
Operating Results | | (in thousands, except otherwise indicated) |
San José Mine—100% basis | | | | | | | | | | | | | | | |
Mined mineralized material (t) | | | 95 | | | 155 | | | 400 | | | 554 | | | 527 |
Average grade mined (gpt) | | | | | | | | | | | | | | | |
Gold | | | 5.3 | | | 7.0 | | | 5.7 | | | 6.9 | | | 6.5 |
Silver | | | 339 | | | 461 | | | 389 | | | 472 | | | 450 |
Processed mineralized material (t) | | | 110 | | | 145 | | | 401 | | | 544 | | | 556 |
Average grade processed (gpt) | | | | | | | | | | | | | | | |
Gold | | | 6 | | | 6.9 | | | 5.6 | | | 6.8 | | | 6.2 |
Silver | | | 345 | | | 426 | | | 357 | | | 443 | | | 397 |
Average recovery (%): | | | | | | | | | | | | | | | |
Gold | | | 89 | | | 88.8 | | | 89.4 | | | 88.6 | | | 87.2 |
Silver | | | 89 | | | 88.4 | | | 89.1 | | | 88.3 | | | 86.8 |
Gold ounces: | | | | | | | | | | | | | | | |
Produced | | | 18 | | | 28.6 | | | 65.0 | | | 105.5 | | | 96.6 |
Sold | | | 18 | | | 27.9 | | | 65.3 | | | 102.8 | | | 95.9 |
Silver ounces: | | | | | | | | | | | | | | | |
Produced | | | 1,085 | | | 1,759 | | | 4,108 | | | 6,846 | | | 6,165 |
Sold | | | 1,112 | | | 1,804 | | | 4,172 | | | 6,846 | | | 6,175 |
Gold equivalent ounces: | | | | | | | | | | | | | | | |
Produced | | | 30 | | | 49.3 | | | 111.2 | | | 187.0 | | | 178.8 |
Sold | | | 31 | | | 49.1 | | | 112.1 | | | 184.3 | | | 178.3 |
Revenue from gold and silver sales | | $ | 64,354 | | $ | 74,538 | | $ | 219,020 | | $ | 263,887 | | $ | 213,096 |
Average realized price: | | | | | | | | | | | | | | | |
Gold ($/Au oz) | | $ | 1,762 | | $ | 1,514 | | $ | 1,842 | | $ | 1,448 | | $ | 1,246 |
Silver ($/Ag oz) | | $ | 29.40 | | $ | 17.95 | | $ | 23.67 | | $ | 16.80 | | $ | 15.16 |
Cash costs(1) | | $ | 37,950 | | $ | 40,522 | | $ | 138,182 | | $ | 159,915 | | $ | 151,779 |
Cash cost per ounce ($/Au Eq. oz sold)(1) | | $ | 1,234 | | $ | 826 | | $ | 1,233 | | $ | 867 | | $ | 851 |
All‑in sustaining costs(1) | | $ | 44,744 | | $ | 50,734 | | $ | 169,715 | | $ | 210,186 | | $ | 189,196 |
AISC per ounce ($/Au Eq. oz sold)(1) | | $ | 1,455 | | $ | 1,034 | | $ | 1,514 | | $ | 1,140 | | $ | 1,061 |
Silver : gold ratio | | | 77 : 1 | | | 85 : 1 | | | 89 : 1 | | | 84 : 1 | | | 75 : 1 |
| (2) | As used here and elsewhere in this report, this is a Non-GAAP financial performance measure. Cash costs for the Company’s 100% owned operations equal Production costs applicable to sales. See “Non-GAAP Financial Performance Measures” beginning on page 58 for additional information. |
The comparative analysis below compares the operating and financial results of MSC on a 100% basis. Also included below are the production figures on a 49% attributable basis. As stated in Item 8. Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies—Investments, we account for investments over which we exert significant influence but not control through majority ownership using the equity method of accounting. In applying the equity method of accounting
2020 compared to our investment in MSC, MSC’s financial statements, which are originally prepared by MSC in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, have been adjusted to conform with U.S. GAAP. As such, the summarized financial data presented under this heading is in accordance with U.S. GAAP.
| | | | | | | | | | | | | | | | |
| | Three months ended | | Year ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 | |
| | (in thousands, except otherwise stated) | |
San José Mine—100% basis | | | | | | | | | | | | | | | | |
Tonnes of ore mined | | | 152 | | | 147 | | | 527 | | | 533 | | | 507 | |
Average grade (gpt): | | | | | | | | | | | | | | | | |
Gold | | | 7.1 | | | 6.7 | | | 7.0 | | | 6.7 | | | 6.7 | |
Silver | | | 492 | | | 490 | | | 483 | | | 512 | | | 505 | |
Tonnes of ore processed | | | 145 | | | 147 | | | 533 | | | 536 | | | 532 | |
Average grade (gpt): | | | | | | | | | | | | | | | | |
Gold | | | 7.3 | | | 6.3 | | | 6.7 | | | 6.3 | | | 6.4 | |
Silver | | | 465 | | | 418 | | | 436 | | | 444 | | | 448 | |
Average recovery (%): | | | | | | | | | | | | | | | | |
Gold | | | 87.8 | | | 86.9 | | | 87.4 | | | 87.8 | | | 88.8 | |
Silver | | | 86.8 | | | 86.3 | | | 86.3 | | | 87.4 | | | 87.5 | |
Gold ounces: | | | | | | | | | | | | | | | | |
Produced | | | 29.6 | | | 25.9 | | | 100.5 | | | 95.0 | | | 96.6 | |
Sold | | | 29.0 | | | 26.0 | | | 99.6 | | | 99.8 | | | 88.8 | |
Silver ounces: | | | | | | | | | | | | | | | | |
Produced | | | 1,877 | | | 1,704 | | | 6,448 | | | 6,691 | | | 6,706 | |
Sold | | | 1,845 | | | 1,734 | | | 6,501 | | | 7,081 | | | 6,340 | |
Gold equivalent ounces(1): | | | | | | | | | | | | | | | | |
Produced | | | 54.7 | | | 48.7 | | | 186.4 | | | 184.2 | | | 186.0 | |
Sold | | | 53.6 | | | 49.1 | | | 186.3 | | | 194.2 | | | 173.3 | |
Net sales | | $ | 65,193 | | $ | 53,192 | | $ | 227,093 | | $ | 235,961 | | $ | 186,095 | |
Gross average realized price ($/ounce)(2): | | | | | | | | | | | | | | | | |
Gold | | $ | 1,274 | | $ | 1,115 | | $ | 1,264 | | $ | 1,242 | | $ | 1,120 | |
Silver | | $ | 16.53 | | $ | 15.19 | | $ | 16.88 | | $ | 17.28 | | $ | 15.05 | |
London average price ($/ounce): | | | | | | | | | | | | | | | | |
P.M. Fix Gold | | $ | 1,276 | | $ | 1,221 | | $ | 1,257 | | $ | 1,251 | | $ | 1,160 | |
Fix Silver | | $ | 16.73 | | $ | 17.19 | | $ | 17.05 | | $ | 17.14 | | $ | 15.68 | |
Silver : gold ratio(1) | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | |
McEwen Mining—49% basis | | | | | | | | | | | | | | | | |
Ounces produced: | | | | | | | | | | | | | | | | |
Gold | | | 14.5 | | | 12.7 | | | 49.2 | | | 46.6 | | | 47.4 | |
Silver | | | 920 | | | 835 | | | 3,159 | | | 3,278 | | | 3,286 | |
Gold equivalent(1) | | | 26.8 | | | 23.8 | | | 91.4 | | | 90.3 | | | 91.2 | |
| (1)
| | Silver production is presented as a gold equivalent. Gold equivalent ounces calculations approximate prevailing spot prices at the beginning of the year.
|
| (2)
| | Average realized prices, total cash costs, and all‑in sustaining costs are non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 55 for additional information, including definitions of these terms.
|
2019
Gold and silver production
2017 decreased by 38% and 40%, respectively, in 2020 compared to 2016
| ·
| | Gold production in 2017, on a 100% basis, was 100,475 ounces, compared to 95,006 gold ounces produced in 2016. The increase was the result of higher grades processed during the year, along with minimal labor stoppages affecting production.
|
| ·
| | Silver production during 2017, on a 100% basis, was 6,447,657 ounces, 4% lower than the 6,690,558 silver ounces produced in 2016. The decrease was due to slightly lower number of tonnes mined and processed, lower average realized grades mined and processed and lower recoveries.
|
| ·
| | Using a silver to gold ratio of 75:1, the San José Mine produced 186,443 gold equivalent ounces in 2017. This compares to 184,213 gold equivalent ounces in 2016. For the year ended 2017, gold equivalent production at San Jose Mine slightly increased by 2% when compared to the 2016 period, due to the increase in average grades of gold processed partly offset by the2019 as a result of a 26% decrease in processed mineralized material, coupled with 17% and 19% decreases in the average grades of silver processed during the period.
|
| ·
| | Tonnes mined and processed in 2017 both decreased by 1%, mainly because of unusual lower temperatures during July, which affected the processing of the stockpile and reducing the tonnes processed in that quarter. Despite the decrease in the number of tonnes mined and processed, gold equivalent production was higher than in 2016 due to better gold grades obtained in 2017.
|
2016 compared to 2015
| ·
| | Gold production in 2016, on a 100% basis, was 95,006 ounces, a 2% decrease from the 96,638 gold ounces produced in 2015, due to lower average grades and recoveries obtained in 2016.
|
| ·
| | Silver production during 2016, on a 100% basis, was 6,690,558 ounces, compared to 6,703,614. The slight decrease was also driven by lower average grades and recoveries in 2016.
|
| ·
| | Tonnes mined and processed in 2016 increased by 5% and 1% respectively, mainly because of minimal labor stoppages, compared to 18 days of production lost due to stoppages in 2015.
|
Gold and silver sales
2017 compared to 2016
| ·
| | During 2017, net sales decreased by 4% to $227.1 million, from $236.0 million in 2016 due to a 8% decrease in the number of ounces of silver sold. Sales in 2016 were higher than normal as a result of shipments that were delayed from December 2015, due to Port strikes. In addition, a 2% decrease in the average realized price of silver was partly offset by a 2% increase in average realized prices of gold in the year.
|
| ·
| | Sales volumes in 2017 decreased to 99,634 ounces of gold and 6,501,401 ounces of silver, compared to 99,762 ounces of gold and 7,081,158 ounces of silver sold in 2016. As noted above, sales volumes in 2017 were lower since a portion of the sales in early 2016 related to shipments that had been delayed in December 2015, due to strikes at the Port.
|
| ·
| | The average realized gross sale price, after mark‑to‑market provisional price adjustments, discussed below, were $1,264 and $16.88 per ounce of gold and silver, respectively, resulting in an 2% increase and 2% decrease from $1,242 per ounce of gold and $17.28 per ounce of silver realized in 2016. In comparison, the average London P.M. fix price for gold was $1,257 per ounce of gold and $17.05 per ounce of silver in 2017.
|
2016 compared to 2015
| ·
| | Net sales of gold and silver in 2016 increased by 27% to $236.0 million, from $186.1 million in 2015 because of a 12% increase in the number of gold and silver ounces sold, coupled with 11% and 15% higher average realized prices for gold and silver ounces, respectively.
|
| ·
| | Sales volumes in 2016 increased to 99,762 ounces of gold and 7,081,158 ounces of silver, compared to 88,792 ounces of gold and 6,339,684 ounces of silver sold in 2015, as MSC was not affected by shipment delays at year-end 2016 as it was in 2015.
|
| ·
| | The average realized gross sale price, after mark‑to‑market provisional price adjustments, discussed below, were $1,242 and $17.28 per ounce of gold and silver, respectively, resulting in an 11% and 15% increase from $1,120 per ounce of gold and $15.05 per ounce of silver realized in 2015. In comparison, the average London P.M. fix price for gold was $1,251 per ounce of gold and $17.14 per ounce of silver in 2016.
|
The difference between the average gross realized sale price per ounce of gold and silver, respectively, of the mineralized material processed in 2020. The decrease in processed mineralized material reflected the suspension of mining activities due to COVID-19 followed by operating below capacity, as the ongoing countrywide restrictions on the movement of people resulted in the ramp-up being phased over a significant period of time.
Revenue from gold and silver sales decreased by 17% in 2020 compared to 2019, reflecting fewer gold equivalent ounces sold by MSC and the average London fix pricesdue to lower production as noted above, ispartially offset by higher average realized gold and silver prices in 2020.
Cash costs decreased by $21.7 million or 14% in 2020 compared to 2019, reflecting lower activity related to tonnes of mineralized material processed and fewer ounces produced and sold. All-in sustaining costs for 2020 decreased by $40.5 million or 19% compared to 2019, mainly due to adjustments of certain provisionally priced shipments of concentrates. Certain sales are ‘provisionally priced’ where the selling price is subject to final adjustment at the end of a period, normally ranging from 30 to 90 days after the start of the delivery process to the customer, based on the market price at the relevant quotation point stipulatedlower cash costs, coupled with lower capitalized underground mine development and sustaining capital investment in the contract. Sales revenue on provisionally priced sales of concentrates is recognized based on estimates of the final pricing receivable, which in turn are based on relevant forward market prices. At each reporting date, provisionally priced metal is marked to market based on the forward selling price for the quotational period of the sales contract.plant and equipment.
Total
Cash Costs and All‑In Sustaining Costs
The following table presents a summary of the total cash cost cash cost per ounce, all-in sustaining costs and all-in sustaining costs per ounce of gold equivalent at the San José mine, on a 100% and 49% basis:
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, unless otherwise indicated) | | | |
San José mine - 100% basis | | | | | | | | | | | | | | | |
Total cash costs(1) | | $ | 37,472 | | $ | 35,803 | | $ | 156,348 | | $ | 147,478 | | $ | 149,938 |
All‑in sustaining costs(1) | | | 44,374 | | | 47,656 | | | 191,439 | | | 185,324 | | | 192,643 |
| | | | | | | | | | | | | | | |
San José mine - 49% basis | | | | | | | | | | | �� | | | | |
Total cash costs(1) | | $ | 18,362 | | $ | 17,543 | | $ | 76,610 | | $ | 72,264 | | $ | 73,469 |
Total cash costs per ounce sold ($/ounce)(1): | | | | | | | | | | | | | | | |
Gold | | $ | 713 | | $ | 723 | | $ | 847 | | $ | 751 | | $ | 871 |
Silver | | $ | 9.06 | | $ | 9.81 | | $ | 11.07 | | $ | 10.24 | | $ | 11.45 |
Gold equivalent(2) | | $ | 699 | | $ | 729 | | $ | 839 | | $ | 760 | | $ | 865 |
All‑in sustaining costs(1) | | $ | 21,744 | | $ | 23,351 | | $ | 93,805 | | $ | 90,809 | | $ | 94,396 |
All‑in sustaining costs per ounce sold ($/ounce)(1): | | | | | | | | | | | | | | | |
Gold | | $ | 920 | | $ | 963 | | $ | 1,058 | | $ | 944 | | $ | 1,119 |
Silver | | $ | 11.68 | | $ | 13.05 | | $ | 13.83 | | $ | 12.87 | | $ | 14.72 |
Gold equivalent(2) | | $ | 828 | | $ | 970 | | $ | 1,027 | | $ | 954 | | $ | 1,111 |
Silver : gold ratio(2) | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 | | | 75 : 1 |
| (1)
| | Total cash costs, total cash costs per ounce, all-in sustaining costs, and all‑in sustaining costs per ounce are non‑GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non‑GAAP Financial Performance Measures” on page 55 for additional information, including definitions of these terms.
|
| (2)
| | Silver production is presented as a gold equivalent. Gold equivalent ounces calculations approximate prevailing spot prices at the beginning of the year.
|
2017 compared to 2016
On a 100% basis, total cash costs cost per gold equivalent ounce sold by MSC increased by 10%were higher for 2020 compared to $839 from $760 in 2016, due to higher production costs applicable to sales due to higher labor2019, as lower aggregate fixed cash costs and higher inflation, partly offset by the decrease in commercial discounts and refining, smelting and transportation costs. In addition, during 2017, MSC sold a lower number ofAISC were spread over 39% fewer gold equivalent ounces which also contributed to the increase of the per ounce cost, when compared to 2016.sold, as noted above.
On a 100% basis, total cash costs increased by 6% to $156.3 million in 2017 from $147.5 million during 2016, mainly due to higher production costs applicable to sales driven by higher labor costs and the impact of inflation, partly offset by the devaluation of the Argentina peso against the U.S. dollar. Labor costs were higher in 2017 due to the combined effect of
salary increases and additions to the labor force at the mine early in the year. Further, higher total cash costs were also the result of the increase in on-site general and administrative expenses, partly offset by lower commercial discounts and lower refining, smelting and transportation costs, compared to the 2016 period.
For 2017, on a per ounce basis, all-in sustaining costs increased to $1,027 per gold equivalent ounce, compared to $954 per gold equivalent ounce in 2016. On an aggregate basis, all-in sustaining costs increased from $185.3 million to $191.4 million in 2017, due to higher on-site exploration expenses aligned with MSC’s program to extend the life of the mine, partly offset by a decrease in underground mine development costs and capital expenditures incurred in the period.
Total cash costs and all-in sustaining costs per gold equivalent ounce, using a 75:1 ratio, of $839 and $1,027, respectively were above MSC’s 2017 production guidance of $780 and $990 per gold equivalent ounce, respectively.
2016 compared to 2015
On a 100% basis, total cash costs for the San José mine per gold equivalent ounce sold in 2016 decreased by 12% to $760 from $865 in 2015. On an aggregate basis, total cash costs decreased by 2% to $147.5 million in 2016 from $149.9 million in 2015, despite the higher number of ounces of gold equivalent sold in the year. The decrease was mainly due to lower refining, smelting and transportation costs resulting from lower export duties in place in Argentina since November 2015 and the increase in commercial discounts given to the refineries, in line with the increase in the number of ounces of gold equivalent sold throughout the year.
All‑in sustaining cost per gold equivalent ounce in 2016 was $954 compared to $1,111 per ounce in 2015. On a 100% basis, total aggregate all-in sustaining cost per gold equivalent ounce was $185.3 million, compared to $192.6 million in 2015. The decrease was due to lower mine development costs incurred due to the lower number of meters drilled in the year.
Total cash costs and all-in sustaining costs per gold equivalent ounce, using a 75:1 ratio, of $760 and $954, respectively were below MSC’s 2016 production guidance of $780 and $990 per gold equivalent ounce, respectively.
Investment in MSC (49%)
Our 49% attributable share of operations from our investment in MSC was a loss of $0.1$1.5 million in 2017,2020, compared to incomea loss of $13.0$8.8 million in 2016.2019, reflecting a higher gross profit of $8.4 million primarily due to lower production costs, depreciation, and lower revenue. The $0.1decrease in revenue is a result of 39% lower gold equivalent ounces sold in 2020 as compared to 2019 offset by a 27% and 41% higher gold and silver price realized.
On a 100% basis, improved performance reflects significantly higher gross profit of $51.0 million lossin 2020 compared to $34.0 million in 2019 for the yearreasons as listed above.
Higher gross profit in 2020 was due primarily to higher average realized gold and silver prices, offset by lower gold and silver ounces sold. In addition, there were lower production costs applicable to sales and depreciation and depletion expense mainly as a result of lower variable costs associated with the lower production. These all were partially offset by $11.4 million operating costs due to the COVID-19 pandemic in 2020.
In 2020, on a 100% basis, MSC generated a cash gross profit of $80.8 million and incurred $22.9 million of development and other capital expenditures, $10.4 million of exploration spending and $30.5 million of other expenditures, with the latter including primarily foreign exchange losses and financing fees. Current and deferred income taxes at December 31, 2020 include current income taxes payable of $4.5 million. MSC paid $0.7 million of dividends to the joint venture partners in 2020 ($0.3 million attributable to us).
A summary of the operating results from MSC for the years ended December 31, 20172020, 2019, and 2018 is net of the amortization of the fair value increments arising from the purchase price allocation recorded as part of the acquisition of Minera Andes of $9.6 million and related deferred income tax recovery of $11.9 million.follows:
Included in the income tax recovery is the impact of fluctuations in the exchange rate between the Argentine peso and the U.S. dollar on the peso‑denominated deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes.
| | | | | | | | | | |
| | Year ended December 31, | |
| | 2020 | | 2019 | | | 2018 | |
Minera Santa Cruz S.A. (100%) | | | | | | | | | | |
Revenue from gold and silver sales | | $ | 219,020 | | $ | 263,887 | | $ | 213,096 | |
Production costs applicable to sales | | | (138,182) | | | (159,915) | | | (151,779) | |
Depreciation and depletion | | | (29,809) | | | (69,995) | | | (52,200) | |
Gross profit | | | 51,029 | | | 33,977 | | | 9,117 | |
Exploration | | | (10,446) | | | (10,635) | | | (5,884) | |
Other expenses(1) | | | (30,515) | | | (13,065) | | | (12,840) | |
Net income (loss) before tax | | $ | 10,068 | | $ | 10,277 | | $ | (9,607) | |
Current and deferred tax expense | | | (4,466) | | | (14,556) | | | (10,934) | |
Net income (loss) | | $ | 5,602 | | $ | (4,279) | | $ | (20,541) | |
| | | | | | | | | | |
Portion attributable to McEwen Mining Inc. (49%) | | | | | | | | | | |
Net income (loss) | | $ | 2,745 | | $ | (2,097) | | $ | (10,065) | |
Amortization of fair value increments | | | (5,390) | | | (9,448) | | | (9,730) | |
Income tax recovery | | | 1,128 | | | 2,791 | | | 7,930 | |
Loss from investment in MSC, net of amortization | | $ | (1,517) | | $ | (8,754) | | $ | (11,865) | |
| | | | | | | | | | |
| | | | | |
| | For the year ended December 31, | |
| | 2017 | | 2016 | | 2015 | |
| | (in thousands) | |
Minera Santa Cruz S.A. (100% basis) | | | | | | | | | | |
Net sales | | $ | 227,093 | | $ | 235,961 | | $ | 186,095 | |
Production costs applicable to sales | | | (177,180) | | | (173,679) | | | (158,615) | |
Net (loss) income | | | (4,750) | | | 32,574 | | | (5,835) | |
Portion attributable to McEwen Mining Inc. (49% basis) | | | | | | | | | | |
Net (loss) income | | $ | (2,328) | | $ | 15,961 | | $ | (2,859) | |
Amortization of fair value increments | | | (9,632) | | | (12,274) | | | (10,669) | |
Income tax recovery | | | 11,916 | | | 9,264 | | | 15,942 | |
(Loss) income from investment in MSC, net of amortization | | $ | (44) | | $ | 12,951 | | $ | 2,414 | |
| (1) | Other expenses include foreign exchange, accretion of asset retirement obligations and other finance related expenses. |
During the year ended December 31, 2017, we received $12.2 million in dividends from MSC, compared to $17.7 million in 2016.
Changes in our investment in MSC for the years ended December 31, 20172020 and 20162019 are as follows:
| | | | | | |
| | 2017 | | 2016 |
| | (in thousands) |
Investment in MSC, beginning of the period | | $ | 162,320 | | $ | 167,107 |
Attributable net income from MSC | | | (2,328) | | | 15,961 |
Amortization of fair value increments | | | (9,632) | | | (12,274) |
Income tax recovery | | | 11,916 | | | 9,264 |
Dividend distribution received | | | (12,212) | | | (17,738) |
Investment in MSC, end of the period | | $ | 150,064 | | $ | 162,320 |
| | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Investment in MSC, beginning of year | | $ | 110,183 | | $ | 127,814 |
Attributable net income (loss) from MSC | | | 2,745 | | | (2,097) |
Amortization of fair value increments | | | (5,390) | | | (9,448) |
Income tax recovery | | | 1,128 | | | 2,791 |
Dividend distribution received | | | (340) | | | (8,877) |
Investment in MSC, end of year | | $ | 108,326 | | $ | 110,183 |
As at December 31, 2017, MSC had current assets of $104.4 million, total assets of $406.5 million, current liabilities of $46.0 million and total liabilities of $100.3 million. These balances include the increase in fair value and amortization of the fair value increments arising from the Company’s purchase price allocation and are net of the impairment charges. Excluding the fair value increments from the purchase price allocation and impairment charges, MSC had current assets of $103.7 million, total assets of $248.3 million, current liabilities of $46.0 million, and total liabilities of $72.2 million as at December 31, 2017.Dividend Distribution (49%)
Results of Operations – U.S.A. Segment
The U.S.A. segment is comprised of the Gold Bar project, an advanced-stage property located in Nevada, U.S., and other early stage exploration properties. During 2017,2020, we spent $2.1received $0.3 million in early stage exploration activities such as field mapping and geochemical reconnaissance workdividends from MSC, compared to $8.9 million in various areasdividends received during 2019. Subsequent to year end on January 28, 2021, we received a dividend of $2.5 million from MSC. For more details on our Investment in Nevada and other states where we consider that exploration potential exists.
Advanced-stage Properties – Gold Bar Project
Gold Bar is located primarily on public lands managed by the Bureau of Land Management (“BLM”). On OctoberMSC, refer to Note 10 2017, the Environmental Protection Agency published a Notice of Availability of the Final Environmental Impact Statement (“EIS”) in the Federal Register. After the regulated review period the Company received the signed Record of Decision (“ROD”) on the final EIS on November 8, 2017. We have targeted this project for an open pit, heap leach operation allowing for commercial production in the first quarter of 2019.
During 2017, we spent $3.1 million prior to ROD and an additional $6.0 million subsequent to the ROD, on permitting, engineering, and site development activities (including making deposits on long-lived capital equipment)Consolidated Financial Statements, Investment in preparation for full-scale project construction that we are planning to execute during 2018.Minera Santa Cruz S.A. (“MSC”) — San José mine.
Key construction developments at Gold Bar during 2017 included:
| ·
| | Approval of all required Federal and State permits to initiate Gold Bar construction;
|
| ·
| | Continued engineering and procurement of major long-lead capital equipment items including crushing plant and material conveying system, mercury retort, and bulk construction commodities;
|
| ·
| | Mobilization of all critical contractors and installation of temporary offices, communications equipment, water, and power; and
|
| ·
| | Site clearance and initial preparation for 2018 construction.
|
For 2018, we have budgeted approximately $71.0 million for construction activities planned for the year. Major capital equipment deliveries and construction will continue through to the third quarter of 2018. Construction activities include: heap leach pad earthworks and construction, process ponds, process plant and related building infrastructure, and site-wide utility distribution. In addition, mine and access road development will begin in the first half of 2018, followed by mine pre-stripping. It is estimated that ore will be delivered to the heap leach pad in the fourth quarter of 2018.
Results of Operations—Los Azules Segment,
Argentina
The Los Azules segment is composed of the Los Azules project, a copper exploration project located in San Juan, Argentina.
Los Azules Project
During 2020, work continued on preliminary engineering and developing cost estimates to advance the proposed low altitude all year access route. Most of the surveying and staking of the mining rights was completed to be able to consolidate all the mining rights into a single mining group. The Escorpio IV and Mercedes survey were complete in January 2021.
In 2021, we expect to continue baseline studies related to flora, fauna, surface water quality and archeology required by the environmental and mining authorities for the current stage of exploration. In addition, the Company is looking at a road study to reduce costs for potential drilling work campaigns.
We had budgeted $9.6 millionare currently evaluating two alternatives with regard to Los Azules to realize more value for our shareholders: one is pursuing a joint venture with a senior mining company to bring the project into production; and the other alternative is spinning out the asset into a new public company. Concurrently we are looking at opportunities to improve the economics of Los Azules with ore sorting technologies.
The preliminary economic assessment (PEA) for the 2016-2017 exploration season at Los Azules of which we spent $7.1 million during the first half ofProject, completed and announced in September 2017, and an additional $0.8 million during the second half of the year. During the third quarter of 2017 we completed a Preliminary Economic Assessment (“PEA”), results of which were announced on September 7, 2017. The complete PEA is available electronically aton our website at www.mcewenmining.com.
For the 2017-2018 season we have budgeted $5.3 million to continue with further technical and environmental baseline analysis, of which, the majority will be spent in 2018.
COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
The following table presents certain payments due by the Company under contractual obligations with minimum firm commitments asAs of December 31, 2017, and excludes amounts already recorded on2020, we have the Consolidated Balance Sheet, other than reclamation costs:following consolidated contractual obligations:
| | | | | | | | | | | | | | | | | |
| | Payments due by period |
| | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Mining and surface rights | | $ | 2,233 | | $ | 492 | | $ | 488 | | $ | 470 | | $ | 443 | $ | 4,126 |
Reclamation costs(1) | | | 2,819 | | | 5,363 | | | 5,510 | | | 564 | | | 27,428 | | 41,684 |
Long-term debt | | | 4,875 | | | 14,712 | | | 42,139 | | | — | | | — | | 61,726 |
Lease obligations | | | 2,695 | | | 2,416 | | | 508 | | | 180 | | | — | | 5,799 |
Total | | $ | 12,622 | | $ | 22,983 | | $ | 48,645 | | $ | 1,214 | | $ | 27,871 | $ | 113,335 |
| | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period | |
Contractual Obligations | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | |
| | (in thousands) | |
Operating lease obligations (office rent) | | $ | 400 | | $ | 368 | | $ | 300 | | $ | 240 | | $ | 230 | | $ | 197 | | $ | 1,735 | |
Operating lease obligations (mining and surface rights) | | | 3,994 | | | 436 | | | 442 | | | 442 | | | 437 | | | — | | | 5,751 | |
Exploration (including $10.0 million flow-through shares) | | | 11,554 | | | — | | | — | | | — | | | — | | | — | | | 11,554 | |
Construction | | | 11,344 | | | — | | | — | | | — | | | — | | | — | | | 11,344 | |
Reclamation costs(1) | | | 639 | | | 448 | | | 3,883 | | | 3,974 | | | 3,181 | | | 30,807 | | | 42,932 | |
Total | | $ | 27,931 | | $ | 1,252 | | $ | 4,625 | | $ | 4,656 | | $ | 3,848 | | $ | 31,004 | | $ | 73,316 | |
| (1) | (1)
| | Amounts presented represent the undiscounted uninflated future payments payments. |
Operating lease obligations include long‑long term leases covering office space, exploration expenditures, option payments and option payments on properties.
We have surety bonds outstanding to provide bonding for our environmental reclamation obligations in the United States.States and Canada. These surety bonds are available for draw down in the event we do not perform our reclamation obligations. When the specific reclamation requirements are met, the beneficiary of the surety bonds will cancel and/or return the instrument to the issuing entity. As of December 31, 2017,2020, no additional liability has been recognized for our surety bonds of $19.9$31.8 million.
Pursuant to the Black Fox acquisition, the Company increased its surety bond obligations by an additional $16.5 million (C$20.6 million). No liability has been recognized for these surety bonds.Off-Balance Sheet Arrangements
As of December 31, 2017,2020, we did not have any off‑balanceoff-balance sheet arrangements (as that phrase is defined by SEC rules applicable to this report) which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.
Non‑GAAP Financial Performance Measures
NON-GAAP FINANCIAL PERFORMANCE MEASURES
InWe have included in this report we have provided information prepared or calculated according to U.S. GAAP,certain non-GAAP performance measures as well as provided some non‑U.S. GAAP financialdetailed below. In the gold mining industry, these are common performance measures. Because the non‑GAAP performance measures but do not have any standardized meaning prescribed by U.S.and are considered non-GAAP measures. We believe that, in addition to conventional measures prepared in accordance with GAAP, certain investors use such non-GAAP measures to evaluate the Company’s performance and ability to generate cash flow. We also report these measures to provide investors and analysts with useful information about our underlying costs of operations and clarity over the Company’s ability to finance operations. Accordingly, they may not be comparableare intended to similar measures presented by other companies. These measuresprovide additional information and should not be considered in isolation or as substitutesa substitute for measures of performance prepared in accordance with GAAP. There are limitations associated with the use of such non‑non GAAP measures. SinceWe compensate for these limitations by relying primarily on our U.S. GAAP results and using the non-GAAP measures do not incorporate revenues, changes in working capital and non‑operating cash costs, they are not necessarily indicative of operating profit or loss, or cash flow from operations as determined in accordance with U.S. GAAP.
supplementally.
The non-GAAP measures Earning from Mining Operations, Total Cash Costs, All-In Sustaining Cash Costs, Average Realized Prices,are presented for our wholly owned mines and Cash, Investments and Precious Metals, are not, and are not intendedour interest in the San José mine. The GAAP information used for the reconciliation to be, presentations in accordance with U.S. GAAP. Thesethe non-GAAP measures represent, respectively, our Earnings from Mining Operations, Total Cash Costs, All-In Sustaining Cash Costs, and Average Realized Prices related to our wholly-owned El Gallo 1 and Black Fox mines andfor our minority interest in the San José mine owned by MSC. The portions of the costs and prices related to the minority interest may be found in Item 8. Financial Statements and Supplementary Data, Note 7 to our Consolidated Financial Statements.10, Investment in Minera Santa Cruz S.A. (“MSC”)– San José Mine. The amounts in the tables labeled “49% basis” were derived by applying to each financial statement line item the ownership percentage interest used to arrive at our share of net income or loss during the period when applying the equity method of accounting. We do not control the interest in or operations of MSC and the presentations of assets and liabilities and revenues and expenses of MSC do not represent our legal claim to such items. The amount of cash we receive is based upon specific provisions of the JVOAOption and Joint Venture Agreement (“OJVA”) and varies depending on factors including the profitability of the operations.
We provide the Non-GAAP measures because we believe they assist investors and analysts in estimating our earnings, production costs applicable to sales and sales revenue, including both our wholly-owned property and our interest in the San José mine, when read in conjunction with our reported results under U.S. GAAP. The presentation of these measures including the minority interest in the San José, has limitations as an analytical tool. Some of these limitations include:
| ·
● | | The amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses; and |
| ·
● | | Other companies in our industry may calculate their earnings,cash gross profit, cash costs, andcash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, average realized pricesprice per ounce, and liquid assets differently than we do, limiting the usefulness as a comparative measure. |
Because of these limitations, these non-GAAP measures should not be considered in isolation or as a substitute for our financial statements as reported under U.S. GAAP. We compensate for these limitations by relying primarily on our U.S. GAAP results and using the non-GAAP measures supplementally.Cash Gross Profit
Earnings (Loss) from Mining Operations
The term Earnings or Loss from Mining Operations used in this reportCash gross profit is a non‑GAAPnon-GAAP financial measure.measure and does not have any standardized meaning. We use cash gross profit to evaluate our operating performance and reportability to generate cash flow; we disclose cash gross profit or loss as we believe this measure because we believe it provides valuable assistance to investors and analysts in evaluating our ability to finance our ongoing business and capital activities. The most directly comparable measure prepared in accordance with a useful measure of the underlying earningsGAAP is gross profit or loss. Cash gross profit or loss from our mining operations.
We define Earnings from Mining Operations as Goldis calculated by adding depletion and Silver Sales from our El Gallo 1 mine, Black Fox mine, and our 49% attributable share of the San José mine’s Net Sales, less their respective Production Costs Applicabledepreciation to Sales. To the extent that Production Costs Applicable to Sales may include depreciation and amortization expense related to the fair value increments on historical business acquisitions (fair value paid in excess of the carrying value of the underlying assets and liabilities assumed on the date of acquisition), we deduct this expense in order to arrive at Production Costs Applicable to Sales that only include depreciation and amortization expense incurred at the mine‑site level. The San José mine Net Sales and Production Costs Applicable to Sales are presented, on a 100% basis, in Note 7 of the accompanying financial statements.
gross profit or loss.
The following table presentstables present a reconciliation of Earnings from Mining Operationscash gross profit or loss to Gross Profit, athe most directly comparable GAAP financial measure.
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands) |
El Gallo 1 Mine earnings from mining operations | | | | | | | | | | | | | | | |
Gold and silver sales | | $ | 12,472 | | $ | 11,162 | | $ | 55,845 | | $ | 60,388 | | $ | 72,956 |
Production costs applicable to sales | | | (11,099) | | | (6,894) | | | (35,292) | | | (28,133) | | | (34,607) |
Depreciation of mining related assets | | | (165) | | | (182) | | | (764) | | | (528) | | | (333) |
Gross profit | | | 1,208 | | | 4,086 | | | 19,789 | | | 31,727 | | | 38,016 |
Add: Amortization related to fair value increments on historical acquisitions included in Production Costs Applicable to Sales | | | 785 | | | 568 | | | 2,299 | | | 2,413 | | | 1,288 |
El Gallo 1 Mine earnings from mining operations | | | 1,993 | | | 4,654 | | | 22,088 | | | 34,140 | | | 39,304 |
| | | | | | | | | | | | | | | |
Black Fox earnings from mining operations | | | | | | | | | | | | | | | |
Gold and silver sales | | $ | 11,620 | | $ | — | | $ | 11,620 | | $ | — | | $ | — |
Production costs applicable to sales | | | (9,888) | | | — | | | (9,888) | | | — | | | — |
Gross profit | | | 1,732 | | | — | | | 1,732 | | | — | | | — |
Add: Amortization related to mineral interests included in Production Costs Applicable to Sales | | | 505 | | | — | | | 505 | | | — | | | — |
Black Fox earnings from mining operations | | | 2,237 | | | — | | | 2,237 | | | — | | | — |
| | | | | | | | | | | | | | | |
San José earnings from mining operations (49% basis) | | | | | | | | | | | | | | | |
Net sales | | $ | 31,945 | | $ | 26,064 | | $ | 111,276 | | $ | 115,621 | | $ | 91,187 |
Production costs applicable to sales | | | (21,790) | | | (23,410) | | | (86,818) | | | (85,103) | | | (77,721) |
San José earnings from mining operations | | | 10,155 | | | 2,654 | | | 24,458 | | | 30,518 | | | 13,466 |
measure, gross profit or loss:
Total
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, 2020 | | Year ended December 31, 2020 |
| | Gold Bar | | Black Fox | | El Gallo | | Total (100% owned) | | Gold Bar | | Black Fox | | El Gallo | | Total (100% owned) |
|
| | (in thousands) | | (in thousands) |
Gross (loss) profit | | $ | (12,105) | | $ | 240 | | $ | (1,821) | | $ | (13,686) | | $ | (21,366) | | $ | (4,070) | | $ | (1,512) | | $ | (26,948) |
Add: Depreciation and depletion | | | 3,258 | | | 3,547 | | | 24 | | | 6,829 | | | 11,785 | | | 10,883 | | | 242 | | | 22,910 |
Cash gross (loss) profit | | $ | (8,847) | | $ | 3,787 | | $ | (1,797) | | $ | (6,857) | | $ | (9,581) | | $ | 6,813 | | $ | (1,270) | | $ | (4,038) |
��
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
|
San José mine cash gross profit (100% basis) | | (in thousands) |
Gross profit | | $ | 18,679 | | $ | 14,103 | | $ | 51,029 | | $ | 33,977 | | $ | 9,117 |
Add: Depreciation and depletion | | | 7,725 | | | 19,912 | | | 29,809 | | | 69,995 | | | 52,200 |
Cash gross profit | | $ | 26,404 | | $ | 34,015 | | $ | 80,838 | | $ | 103,972 | | $ | 61,317 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, 2019 | | Year ended December 31, 2019 |
| | Gold Bar | | Black Fox | | El Gallo | | Total (100% owned) | | Gold Bar | | Black Fox | | El Gallo | | Total (100% owned) |
|
| | (in thousands) | | (in thousands) |
Gross (loss) profit | | $ | (2,334) | | $ | 4,072 | | $ | (476) | | $ | 1,262 | | $ | (701) | | $ | 5,666 | | $ | 4,021 | | $ | 8,986 |
Add: Depreciation and depletion | | | 4,424 | | | 2,751 | | | 77 | | | 7,252 | | | 10,934 | | | 13,271 | | | 548 | | | 24,753 |
Cash gross profit (loss) | | $ | 2,090 | | $ | 6,823 | | $ | (399) | | $ | 8,514 | | $ | 10,233 | | $ | 18,937 | | $ | 4,569 | | $ | 33,739 |
| | | | | | | | | | | | |
| | Year ended December 31, 2018 |
| | Gold Bar | | Black Fox | | El Gallo | | Total (100% owned) |
|
| | (in thousands) |
Gross profit | | $ | — | | $ | 5,957 | | $ | 26,125 | | $ | 32,082 |
Add: Depreciation and depletion | | | — | | | 12,972 | | | 2,107 | | | 15,079 |
Cash gross profit | | $ | — | | $ | 18,929 | | $ | 28,232 | | $ | 47,161 |
Cash Costs and All‑InAll-In Sustaining Costs
The terms total cash costs, total cash cost per ounce, all‑inall-in sustaining costs, and all‑inall-in sustaining cost per ounce used in this report are non‑GAAPnon-GAAP financial measures. We report these measures to provide additional information regarding operational efficiencies on an individual mine basis, (El Gallo 1 mine, Black Fox mine, and San José mine), and believe these measures provide investors and analysts with useful information about our underlying costs of operations. For the San José mine, where we hold a 49% share in the production through our 49% interest in MSC, we exclude the share of gold or silver production attributable to the controlling interest.
Total cashCash costs consistsconsist of mining, processing, on‑siteon-site general and administrative expenses, community and permitting costs related to current operations, royalty costs, refining and treatment charges (for both doré and concentrate products), sales costs, export taxes and operational stripping costs, andbut exclude depreciation and amortization.amortization (non-cash items). The sum of these costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.
All‑inAll-in sustaining costs consistsconsist of total cash costs (as described above), plus environmental rehabilitation costsaccretion of retirement obligations and amortization of the asset retirement costs related to operating sites, environmental rehabilitation costs for mines with no reserves, sustaining exploration and development costs, sustaining capital expenditures and sustaining capital expenditures.lease payments. Our all-in sustaining costs exclude the allocation of corporate general and administrative costs. Following is additional information regarding our all-in sustaining costs:
| ·
● | | Sustaining operating costs represent expenditures incurred at current operations that are considered necessary to maintain current annual production at the mine site and include mine development costs and ongoing replacement of mine equipment and other capital facilities. Sustaining capital costs do not include costs of expanding the project that would result in improved productivity of the existing asset, increased existing capacity or extended useful life. |
| ·
● | | Sustaining exploration and development costs includedinclude expenditures incurred to sustain current operations and leads to the increase inreplace reserves and/or resources to replace ounces extracted as part of the ongoing production. |
Exploration activity performed near-mine (brownfield) or new exploration projects (greenfield) or any other activity not directly linked to the existing mine-site are classified as non-sustaining. |
The sum of all-in sustaining costs is divided by the corresponding gold equivalent ounces sold to determine a per ounce amount.
Costs excluded from total cash costs and all‑inall-in sustaining costs, in addition to depreciation and depletion, are income and mining tax expense, all corporate financing charges, costs related to business combinations, asset acquisitions and asset disposal, and any items that are deducted for the purpose of normalizing items.
For MSC, co‑product total cash costs and all‑in sustaining costs are calculated by dividing the respective proportionate share of the total cash costs and all‑in sustaining costs for each metal sold for the period by the ounces of each respective metal sold. The respective proportionate share of each metal sold is calculated based on their pro‑rated sales value. Approximately 55% of the value of the sales in the fourth quarter of 2017 was derived from gold and 45% was derived from silver, which compared to 52% and 48%, respectively, for the same period in 2016. For the year ended December 31, 2017, approximately 53% of the value of the sales was derived from gold and 47% was derived from silver, compared to 50% and 50% in 2016, respectively.
The following tables reconcile these non‑GAAPnon-GAAP measures to the most directly comparable GAAP measure, Productionproduction costs applicable to sales. Total cashsales; the El Gallo Project results are excluded from this reconciliation for 2020 as the economics of residual leaching operations are measured by incremental revenue exceeding incremental costs. Cash costs all‑inand all-in sustaining costs include, in addition to current period residual leaching costs, prior-year leach pad inventory costs expensed in the current period, with the latter not relevant on the evaluation of the residual leaching operations. Residual leaching costs for the year ended December 31, 2020 were $11.4 million or $1,409 per gold equivalent ounce. Residual leaching is expected to continue as long as incremental revenues exceed incremental costs. For this reason, we have ceased relying on, and disclosing, cash cost and all-in sustaining cost per gold equivalent ounce as key metrics for the El Gallo Project:
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, 2020 | | Year ended December 31, 2020 |
| | Gold Bar | | Black Fox | | Total | | Gold Bar | | Black Fox | | Total |
|
| | (in thousands, except per ounce) | | (in thousands, except per ounce) |
Production costs applicable to sales - Cash costs (100% owned) | | $ | 19,602 | | $ | 10,408 | | $ | 30,010 | | $ | 58,465 | | $ | 34,639 | | $ | 93,104 |
Mine site reclamation, accretion and amortization | | | 485 | | | 119 | | | 604 | | | 1,223 | | | 414 | | | 1,637 |
In‑mine exploration | | | 608 | | | 573 | | | 1,181 | | | 1,923 | | | 1,280 | | | 3,203 |
Capitalized underground mine development (sustaining) | | | — | | | — | | | — | | | — | | | 3,646 | | | 3,646 |
Capital expenditures on plant and equipment (sustaining) | | | 76 | | | 279 | | | 355 | | | 4,739 | | | 601 | | | 5,340 |
Sustaining leases | | | 470 | | | 75 | | | 545 | | | 1,922 | | | 324 | | | 2,246 |
All‑in sustaining costs | | $ | 21,241 | | $ | 11,454 | | $ | 32,695 | | $ | 68,272 | | $ | 40,904 | | $ | 109,176 |
Ounces sold, including stream (Au Eq. oz)(1) | | | 5.7 | | | 8.0 | | | 13.7 | | | 27.8 | | | 24.8 | | | 52.6 |
Cash cost per ounce ($/Au Eq. oz sold) | | $ | 3,439 | | $ | 1,307 | | $ | 2,197 | | $ | 2,106 | | $ | 1,397 | | $ | 1,772 |
AISC per ounce ($/Au Eq. oz sold) | | $ | 3,726 | | $ | 1,439 | | $ | 2,393 | | $ | 2,459 | | $ | 1,650 | | $ | 2,077 |
| (1) | Total gold equivalent ounces sold for Q4/20 and 2020 is 30,228 and 115,662, respectively, and includes gold equivalent ounces sold from the operating mines of 13,707 and 52,592, as disclosed above, and 1,450 and 8,084 gold equivalent ounces sold from the El Gallo Project for Q4/20 and 2020, respectively. |
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, 2019 | | Year ended December 31, 2019 |
| | Gold Bar | | Black Fox | | El Gallo | | Total | | Gold Bar | | Black Fox | | Total |
|
| | (in thousands, except per ounce) | | (in thousands, except per ounce) |
Production costs applicable to sales - Cash costs (100% owned) | | $ | 12,816 | | $ | 7,096 | | $ | 3,936 | | $ | 19,912 | | $ | 33,614 | | $ | 31,121 | | $ | 64,735 |
Mine site reclamation, accretion and amortization | | | 345 | | | 108 | | | 82 | | | 453 | | | 1,205 | | | 583 | | | 1,788 |
In‑mine exploration | | | — | | | 296 | | | — | | | 296 | | | — | | | 3,726 | | | 3,726 |
Capitalized underground mine development (sustaining) | | | — | | | 1,268 | | | — | | | 1,268 | | | — | | | 8,554 | | | 8,554 |
Capital expenditures on plant and equipment (sustaining) | | | 883 | | | 246 | | | — | | | 1,129 | | | 2,416 | | | 1,856 | | | 4,272 |
Sustaining leases | | | 482 | | | 81 | | | — | | | 563 | | | 1,904 | | | 352 | | | 2,256 |
All‑in sustaining costs | | $ | 14,526 | | $ | 9,095 | | $ | 4,018 | | $ | 23,621 | | $ | 39,139 | | $ | 46,192 | | $ | 85,331 |
Ounces sold, including stream (Au Eq. oz)(1) | | | 10.0 | | | 9.7 | | | 2.4 | | | 19.7 | | | 30.5 | | | 37.7 | | | 68.2 |
Cash cost per ounce ($/Au Eq. oz sold) | | $ | 1,281 | | $ | 729 | | $ | 1,661 | | $ | 1,009 | | $ | 1,101 | | $ | 825 | | $ | 949 |
AISC per ounce ($/Au Eq. oz sold) | | $ | 1,452 | | $ | 934 | | $ | 1,695 | | $ | 1,197 | | $ | 1,282 | | $ | 1,225 | | $ | 1,251 |
| | | | | | | | | | | | |
| | Year ended December 31, 2018 |
| | Gold Bar | | Black Fox | | El Gallo | | Total |
|
| | (in thousands, except ounces and per ounce) |
Production costs applicable to sales - Cash costs (100% owned) | | $ | — | | $ | 43,095 | | $ | 37,919 | | $ | 81,014 |
Mine site reclamation, accretion and amortization | | | — | | | 656 | | | 343 | | | 999 |
In‑mine exploration | | | — | | | 2,646 | | | 1,446 | | | 4,092 |
Capitalized underground mine development (sustaining) | | | — | | | 9,546 | | | — | | | 9,546 |
Capital expenditures on plant and equipment (sustaining) | | | — | | | 2,027 | | | 171 | | | 2,198 |
All‑in sustaining costs | | $ | — | | $ | 57,970 | | $ | 39,879 | | $ | 97,849 |
Ounces sold, including stream (Au Eq. oz) | | | — | | | 51.0 | | | 51.7 | | | 102.7 |
Cash cost per ounce ($/Au Eq. oz sold) | | $ | — | | $ | 845 | | $ | 733 | | $ | 789 |
AISC per ounce ($/Au Eq. oz sold) | | $ | — | | $ | 1,137 | | $ | 771 | | $ | 952 |
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
|
San José mine cash costs (100% basis) | | (in thousands, except per ounce) | | | |
Production costs applicable to sales - Cash costs | | $ | 37,950 | | $ | 40,522 | | $ | 138,182 | | $ | 159,915 | | $ | 151,779 |
Mine site reclamation, accretion and amortization | | | 276 | | | 322 | | | 635 | | | 1,181 | | | 1,228 |
Site exploration expenses | | | 2,580 | | | 3,261 | | | 9,183 | | | 10,635 | | | 5,884 |
Capitalized underground mine development (sustaining) | | | 3,370 | | | 7,177 | | | 16,782 | | | 27,237 | | | 21,678 |
Less: Depreciation | | | (268) | | | (624) | | | (1,184) | | | (2,355) | | | (1,835) |
Capital expenditures (sustaining) | | | 836 | | | 76 | | | 6,117 | | | 13,573 | | | 10,462 |
All‑in sustaining costs | | $ | 44,744 | | $ | 50,734 | | $ | 169,715 | | $ | 210,185 | | $ | 189,195 |
Ounces sold (Au Eq. oz) | | | 30.8 | | | 49.1 | | | 112.1 | | | 184.3 | | | 178.3 |
Cash cost per ounce ($/Au Eq. oz sold) | | $ | 1,234 | | $ | 826 | | $ | 1,233 | | $ | 867 | | | 851 |
AISC per ounce ($/Au Eq. oz sold) | | $ | 1,455 | | $ | 1,034 | | $ | 1,514 | | $ | 1,140 | | | 1,061 |
Average realized prices
The term average realized price per ounce used in this report is also a non-GAAP financial measure. We prepare this measure to evaluate our performance against market (London P.M. Fix). Average realized price is calculated as gross sales of gold and silver, less streaming revenue, divided by the number of net ounces sold in the period, less ounces sold under the streaming agreement.
The following table reconciles this non-GAAP measure to the most directly comparable U.S. GAAP measure, revenue from gold and silver sales. Ounces of gold and silver sold for the San José mine are provided to us by MSC.
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except per ounce) |
El Gallo 1 mine cash costs | | | | | | | | | | | | | | | |
Production costs applicable to sales | | $ | 11,099 | | $ | 6,894 | | $ | 35,292 | | $ | 28,133 | | $ | 34,607 |
Less: Depreciation | | | (785) | | | (568) | | | (2,299) | | | (2,413) | | | (1,288) |
Less: Pre‑stripping costs for future pit access | | | — | | | (367) | | | — | | | (1,713) | | | (6,408) |
On‑site general and administrative expenses | | | 750 | | | 440 | | | 2,185 | | | 1,580 | | | 805 |
Property holding costs | | | — | | | — | | | 20 | | | 22 | | | 26 |
Other non‑cash adjustments | | | — | | | — | | | — | | | — | | | (135) |
Total cash costs, El Gallo 1 mine | | $ | 11,064 | | $ | 6,399 | | $ | 35,198 | | $ | 25,609 | | $ | 27,607 |
Gold equivalent ounces sold: | | | 9,747 | | | 9,155 | | | 44,490 | | | 48,903 | | | 62,704 |
El Gallo 1 mine cash costs per gold equivalent ounce sold | | $ | 1,135 | | $ | 699 | | $ | 791 | | $ | 524 | | $ | 440 |
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
|
Average realized price - 100% owned | | (in thousands, except per ounce) |
Revenue from gold and silver sales | | $ | 27,703 | | $ | 32,362 | | $ | 104,789 | | $ | 117,019 | | $ | 128,175 |
Less: revenue from gold sales, stream | | | 311 | | | 309 | | | 1,194 | | | 1,540 | | | 2,190 |
Revenue from gold and silver sales, excluding stream | | $ | 27,392 | | $ | 32,053 | | $ | 103,595 | | $ | 115,479 | | $ | 125,985 |
Gold equivalent ounces sold | | | 15.1 | | | 22.1 | | | 60.6 | | | 85.1 | | | 102.7 |
Less: gold ounces sold, stream | | | 0.6 | | | 0.6 | | | 2.1 | | | 2.8 | | | 4.1 |
Gold equivalent ounces sold, excluding stream | | | 14.5 | | | 21.5 | | | 58.5 | | | 82.3 | | | 98.7 |
Average realized price per Au Eq. oz sold, excluding stream | | $ | 1,888 | | $ | 1,487 | | $ | 1,771 | | $ | 1,403 | | $ | 1,277 |
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except per ounce) |
Black Fox mine cash costs | | | | | | | | | | | | | | | |
Production costs applicable to sales | | $ | 9,888 | | $ | — | | $ | 9,888 | | $ | — | | $ | — |
Less: Depreciation | | | (1,737) | | | — | | | (1,737) | | | — | | | — |
Total cash costs, Black Fox 1 mine | | $ | 8,151 | | $ | — | | $ | 8,151 | | $ | — | | $ | — |
Gold equivalent ounces sold: | | | 9,422 | | | — | | | 9,422 | | | — | | | — |
Black Fox mine cash costs per gold equivalent ounce sold | | $ | 865 | | $ | — | | $ | 865 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except per ounce) |
San José mine cash costs (49% basis) | | | | | | | | | | | | | | | |
Production costs applicable to sales | | $ | 21,790 | | $ | 23,410 | | $ | 86,818 | | $ | 85,103 | | $ | 77,721 |
Less: Operating site reclamation accretion and amortization | | | (182) | | | (444) | | | (653) | | | (1,676) | | | (1,213) |
Depreciation | | | (6,701) | | | (8,339) | | | (23,003) | | | (27,463) | | | (22,157) |
On‑site general and administrative expenses | | | 1,114 | | | 1,130 | | | 4,292 | | | 4,004 | | | 3,454 |
Refining, smelting, and transportation | | | 830 | | | 461 | | | 3,271 | | | 5,072 | | | 9,657 |
Commercial discounts | | | 1,476 | | | 1,295 | | | 5,727 | | | 7,064 | | | 5,795 |
Community costs related to current operations | | | 35 | | | 30 | | | 158 | | | 160 | | | 211 |
Total cash costs | | $ | 18,362 | | $ | 17,543 | | $ | 76,610 | | $ | 72,264 | | $ | 73,468 |
McEwen's share of San José mine gold equivalent ounces sold | | | 26,255 | | | 24,063 | | | 91,296 | | | 95,147 | | | 84,928 |
Total cash costs, MSC | | $ | 699 | | $ | 729 | | $ | 839 | | $ | 760 | | $ | 865 |
Reconciliation of All‑In Sustaining Costs to Total Cash Costs
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except per ounce) |
El Gallo 1 mine all-in sustaining costs | | | | | | | | | | | | | | | |
Total cash costs | | $ | 11,064 | | $ | 6,399 | | $ | 35,198 | | $ | 25,609 | | $ | 27,607 |
Operating site reclamation accretion and amortization | | | 81 | | | 319 | | | 325 | | | 1,043 | | | 936 |
On‑site exploration expenses | | | 924 | | | 530 | | | 3,975 | | | 1,110 | | | 1,488 |
Capitalised expenditures (sustaining) | | | 120 | | | — | | | 939 | | | 343 | | | — |
Pre‑stripping costs for future pit access | | | — | | | 367 | | | — | | | 1,713 | | | 6,408 |
All‑in sustaining costs, El Gallo 1 mine | | $ | 12,189 | | $ | 7,615 | | $ | 40,437 | | $ | 29,818 | | $ | 36,439 |
Gold equivalent ounces sold | | | 9,747 | | | 9,155 | | | 44,490 | | | 48,903 | | | 62,704 |
El Gallo 1 mine all-in sustaining cost per gold equivalent ounce sold | | | 1,251 | | | 832 | | | 909 | | | 610 | | | 581 |
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except per ounce) |
Black Fox mine all-in sustaining costs | | | | | | | | | | | | | | | |
Total cash costs | | $ | 8,151 | | $ | — | | $ | 8,151 | | $ | — | | $ | — |
Operating site reclamation accretion and amortization | | | 159 | | | — | | | 159 | | | — | | | — |
On‑site exploration expenses | | | 636 | | | — | | | 636 | | | — | | | — |
Capitalised exploration (sustaining) | | | 148 | | | — | | | 148 | | | — | | | — |
Capitalised mine development (sustaining) | | | 3,338 | | | — | | | 3,338 | | | — | | | — |
All‑in sustaining costs, Black Fox mine | | $ | 12,432 | | $ | — | | $ | 12,432 | | $ | — | | $ | — |
Gold equivalent ounces sold | | | 9,422 | | | - | | | 9,422 | | | - | | | - |
Black Fox mine all-in sustaining cost per gold equivalent ounce sold | | | 1,319 | | | — | | | 1,319 | | | — | | | — |
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except per ounce) | | | |
San José mine all-in sustaining costs (49% basis) | | | | | | | | | | | | | | | |
Total cash costs | | $ | 18,362 | | $ | 17,543 | | $ | 76,610 | | $ | 72,264 | | $ | 73,468 |
Operating site reclamation accretion and amortization | | | 182 | | | 444 | | | 653 | | | 1,676 | | | 1,213 |
On-site exploration expenses | | | 279 | | | 742 | | | 2,547 | | | 1,431 | | | 1,431 |
Capitalised stripping & underground mine development | | | 2,748 | | | 3,287 | | | 11,550 | | | 12,833 | | | 13,383 |
Less: depreciation | | | (466) | | | (433) | | | (1,450) | | | (2,042) | | | — |
Capital expenditures (sustaining) | | | 639 | | | 1,768 | | | 3,895 | | | 4,647 | | | 4,899 |
All‑in sustaining costs | | $ | 21,744 | | $ | 23,351 | | $ | 93,805 | | $ | 90,809 | | $ | 94,394 |
McEwen's share of San José mine gold equivalent ounces sold | | | 26,255 | | | 24,063 | | | 91,296 | | | 95,147 | | | 84,928 |
San José mine all-in sustaining cost per gold equivalent ounce sold | | $ | 828 | | $ | 970 | | $ | 1,027 | | $ | 954 | | $ | 1,111 |
The following table summarizes the consolidated number of gold equivalent ounces sold:
| | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 | |
Gold equivalent ounces sold at El Gallo 1 mine | | 9,747 | | 9,155 | | 44,490 | | 48,903 | | 62,704 | |
Gold equivalent ounces sold at Black Fox mine | | 9,422 | | — | | 9,422 | | — | | — | |
McEwen’s share of MSC gold equivalent ounces sold | | 26,255 | | 24,063 | | 91,296 | | 95,147 | | 84,925 | |
Consolidated gold equivalent ounces sold (including McEwen’s share of MSC) | | 45,424 | | 33,218 | | 145,208 | | 144,050 | | 147,629 | |
Silver : gold ratio | | 75 : 1 | | 75 : 1 | | 75 : 1 | | 75 : 1 | | 75 : 1 | |
Average realized prices
| | | | | | | | | | | | | | | |
| | Three months ended December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
|
Average realized price - San José mine (100% basis) | | (in thousands, except per ounce) |
Gold sales | | $ | 31,656 | | $ | 82,365 | | $ | 120,258 | | $ | 148,890 | | $ | 119,515 |
Silver sales | | | 32,698 | | | 32,377 | | | 98,762 | | | 114,997 | | | 93,581 |
Gold and silver sales | | $ | 64,354 | | $ | 114,742 | | $ | 219,020 | | $ | 263,887 | | $ | 213,096 |
Gold ounces sold | | | 18.0 | | | 27.9 | | | 65.3 | | | 102.8 | | | 95.9 |
Silver ounces sold | | | 1,112 | | | 1,804 | | | 4,172 | | | 6,846 | | | 6,175 |
Gold equivalent ounces sold | | | 30.8 | | | 49.1 | | | 112.1 | | | 184.3 | | | 178.3 |
Average realized price per gold ounce sold | | $ | 1,762 | | $ | 2,957 | | $ | 1,842 | | $ | 1,448 | | $ | 1,246 |
Average realized price per silver ounce sold | | $ | 29.40 | | $ | 17.95 | | $ | 23.67 | | $ | 16.80 | | $ | 15.16 |
Average realized price per gold equivalent ounce sold | | $ | 2,092 | | $ | 2,338 | | $ | 1,954 | | $ | 1,431 | | $ | 1,195 |
Liquid assets
The term average realized price per ounceliquid assets used in this report is also a non‑GAAP financial measure. We report this measure to better understand the price realized in each reporting period for gold and silver.
Average realized price is calculated as gross sales of gold and silver (excluding commercial deductions) over the number of net ounces sold in the period (net of deduction units).
The following table reconciles this non‑GAAP measure to the most directly comparable U.S. GAAP measure, Sales of Gold and Silver. Ounces of gold and silver sold for the San José mine are provided to us by MSC.
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except ounce and per ounce figures) |
El Gallo 1 mine average realized prices | | | | | | | | | | | | | | | |
Gold sales | | $ | 12,443 | | $ | 11,145 | | $ | 55,432 | | $ | 60,093 | | $ | 72,377 |
Silver sales | | | 29 | | | 17 | | | 413 | | | 295 | | | 579 |
Gold and silver sales | | $ | 12,472 | | $ | 11,162 | | $ | 55,845 | | $ | 60,388 | | $ | 72,956 |
Gold ounces sold | | | 9,724 | | | 9,142 | | | 44,174 | | | 48,668 | | | 62,226 |
Silver ounces sold | | | 1,731 | | | 991 | | | 23,731 | | | 17,591 | | | 35,862 |
Gold equivalent ounces sold | | | 9,747 | | | 9,155 | | | 44,490 | | | 48,903 | | | 62,704 |
Average realized price per gold ounce sold | | $ | 1,280 | | $ | 1,219 | | $ | 1,255 | | $ | 1,235 | | $ | 1,163 |
Average realized price per silver ounce sold | | $ | 16.75 | | $ | 17.52 | | $ | 17.40 | | $ | 16.77 | | $ | 16.15 |
Average realized price per gold equivalent ounce sold | | $ | 1,280 | | $ | 1,219 | | $ | 1,255 | | $ | 1,235 | | $ | 1,163 |
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except ounce and per ounce figures) |
Black Fox mine average realized prices | | | | | | | | | | | | | | | |
Gold sales | | $ | 11,620 | | $ | — | | $ | 11,620 | | $ | — | | $ | — |
Silver sales | | | — | | | — | | | — | | | — | | | — |
Gold and silver sales | | $ | 11,620 | | $ | — | | $ | 11,620 | | $ | — | | $ | — |
Gold ounces sold | | | 9,422 | | | — | | | 9,422 | | | — | | | — |
Silver ounces sold | | | — | | | — | | | — | | | — | | | — |
Gold equivalent ounces sold | | | 9,422 | | | — | | | 9,422 | | | — | | | — |
Average realized price per gold ounce sold | | $ | 1,233 | | $ | — | | $ | 1,233 | | $ | — | | $ | — |
Average realized price per silver ounce sold | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Average realized price per gold equivalent ounce sold | | $ | 1,233 | | $ | — | | $ | 1,233 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | |
| | Three months ended | | Year ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
| | (in thousands, except ounce and per ounce figures) |
San José mine average realized prices (49% basis) | | | | | | | | | | | | |
Gold sales | | $ | 18,091 | | $ | 14,203 | | $ | 61,684 | | $ | 60,729 | | $ | 48,745 |
Silver sales | | | 14,940 | | | 12,905 | | | 53,785 | | | 59,960 | | | 46,749 |
Gold and silver sales | | $ | 33,031 | | $ | 27,108 | | $ | 115,469 | | $ | 120,688 | | $ | 95,494 |
Gold ounces sold | | | 14,202 | | | 12,733 | | | 48,820 | | | 48,883 | | | 43,509 |
Silver ounces sold | | | 903,958 | | | 849,774 | | | 3,185,687 | | | 3,469,767 | | | 3,106,445 |
Gold equivalent ounces sold | | | 26,255 | | | 24,063 | | | 91,296 | | | 95,147 | | | 84,931 |
Average realized price per gold ounce sold | | $ | 1,274 | | $ | 1,115 | | $ | 1,264 | | $ | 1,242 | | $ | 1,120 |
Average realized price per silver ounce sold | | $ | 16.53 | | $ | 15.19 | | $ | 16.88 | | $ | 17.28 | | $ | 15.05 |
Average realized price per gold equivalent ounce sold | | $ | 1,258 | | $ | 1,127 | | $ | 1,265 | | $ | 1,268 | | $ | 1,124 |
Cash, investments and precious metals
The term cash, investments and precious metals used in this report is also a non‑GAAPnon-GAAP financial measure. We report this measure to better understand our liquidity in each reporting period.
Cash, investments and precious metals isLiquid assets are calculated as the sum of the Balance Sheet line items of cash and cash equivalents, restricted cash and investments, andplus ounces of doré held in inventory, with doréprecious metals inventories valued at the London P.M.PM Fix spot price at the corresponding period. The following table summarizes the calculation of cashliquid assets as at December 31, 2020 and cash equivalents, restricted cash, investments and precious metals amounts shown in this report:2019:
| | | | | | |
| | December 31, |
| | 2020 | | 2019 |
|
| | (in thousands) |
Cash and cash equivalents | | $ | 20,843 | | $ | 46,452 |
Restricted cash | | | 3,595 | | | 48 |
Investments | | | - | | | 1,885 |
Precious Metals valued at market value (1)(2) | | | 1,412 | | | 1,329 |
Total liquid assets | | $ | 25,850 | | $ | 49,714 |
| | | | | | |
| | Year ended |
| | December 31, |
| | 2017 | | 2016 |
| | (in thousands) |
Cash and cash equivalents | | $ | 27,153 | | $ | 37,440 |
Restricted cash | | | 10,000 | | | - |
Investments | | | 7,971 | | | 8,543 |
Precious Metals valued at market value | | | 22,954 | | | 12,795 |
Total cash, investments and precious metals | | $ | 68,078 | | $ | 58,778 |
| (1) | As at December 31, 2020 and 2019 we held 798 and 877 gold equivalent ounces in inventory, respectively, net of our streaming agreement, valued at $1,770 and $1,515 per ounce, respectively. |
| (2) | Precious metals valued at cost at December 31, 2020 and 2019 equals $1,344 and $1,038, respectively. |
CRITICAL ACCOUNTING ESTIMATES
A reconciliation between precious metals valued at cost and precious metals, valued at market value is described in the following table:
| | | | | | |
| | Year ended |
| | December 31, |
| | 2017 | | 2016 |
| | (in thousands, except ounces and per ounce) |
Precious Metals (note 4 of the Consolidated Financial Statements) | | $ | 12,902 | | $ | 5,035 |
Reconciliation of Precious Metals to Precious Metals valued at market value | | | | | | |
Number of ounces of doré in inventory, net of streaming agreement | | | 17,780 | | | 11,039 |
London P.M. Fix, per ounce | | $ | 1,291 | | $ | 1,159 |
Precious Metals valued at market value | | $ | 22,954 | | $ | 12,795 |
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based ondiscusses our consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of these statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base these estimates on historical experience and on assumptions that we consider reasonable under the circumstances; however, reported results could differ from those based on the current estimates under different assumptions or conditions. The summary of our significant accounting policies is detailed in Note 2 of the Consolidated Financial Statements.Statements.
We believe that significant areas requiring the use of management estimates and assumptions relate to environmental reclamation and closure obligations; asset useful lives utilized for depletion, depreciation, amortization and accretion calculations; the fair value of equity investments and asset groups used in impairment testing; recoverable gold in leach pad inventory; current and long-term inventory and mine development capitalization costs; the collectability of value added taxes receivable; fair values of assets and liabilities acquired in business combinations; reserves; valuation allowances for deferred tax assets; income and mining tax provisions and reserves for contingencies and litigation. There are other items within our financial statements that require estimation, but are not deemed to be critical. However, changes in estimates used in these and other items could have a material impact on our financial statements. In the section below we identify estimates critical to the understanding of our financial condition and results of operations and that require the application of significant management judgment.
Stockpiles, Material on Leach Pads, In‑process Inventory, Precious Metals Inventory
Asset Retirement Obligation, reclamation and Materials and Supplies: Stockpiles, material on leach pads, in-process inventory, precious metals inventory and materials and supplies are accountedremediation costs: The Company records the fair value of a liability for usingan asset retirement obligation (“ARO”) in the weighted average cost method and are carried at the lowerperiod that it is incurred if a reasonable estimate of average cost or net realizable value. Net realizablefair value represents the estimated future sales pricecan be made. The Company prepares estimates of the product based on currenttiming and long-term metals prices,
less the estimated costsexpected cash flows when an ARO is incurred, which are updated to complete productionreflect changes in facts and bring the product to sale. Write-downs of stockpiles, material on leach pads, in-process inventory, precious metals inventory and materials and supplies, resulting from net realizable value impairments, are reported as a component of production costs applicable to sales. The current portion of stockpiles, material on leach pad, in-process inventory and materials and supplies is determined based on the expected amounts to be processed within the next 12 months. Stockpiles, material on leach pads, in‑process inventory and materials and supplies not expected to be processed within the next 12 months, if any, are classified as long‑term.
Stockpiles represent mineralized material extracted from the mine and available for processing. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, an estimatecircumstances. Estimation of the contained metals (basedfair value of AROs requires significant judgment, including amount of cash flows, timing of reclamation, inflation rate and credit risk. Accrued reclamation and closure costs can represent a significant and variable liability on assay data)our balance sheet. The company has estimated its liabilities under appropriate accounting guidance, and on at least an annual basis reviews its liabilities. However, the estimated metallurgical recovery rates. Costs are allocated to stockpiles based on current miningranges of liability could exceed the liabilities recognized. If substantial damages were awarded, claims were settled, or remediation costs incurred including applicable overhead relating to mining operations. Material is removed from the stockpile at an average cost per tonne.in excess of our accruals, our financial results or condition could be materially adversely affected.
Mineralized material on leach pads is the ore that is placed on pads where it is treated with a chemical solution that dissolves the gold contained in the ore over a period of months. Costs are attributed to the ore on leach pads based on current mining costs incurred up to the point of placing the ore on the pad. Costs are removed from the leach pad inventory based on the average cost per estimated recoverable ounce of gold on the leach pad as the gold is recovered. The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the leach pads (measured tonnes added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage.
In general, leach pads recover between 50% and 95% of the recoverable ounces in the first year of leaching, declining each year thereafter until the leaching is complete. The cumulative metallurgical recovery rate for gold production at the El Gallo 1 mine from September 2012 (start of production) to December 31, 2017 was approximately 57% (2016 – 59%). Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on actual results over time.
The current portion of ore on leach pads inventory is determined based on the expected amounts to be processed within the next twelve months. Ore on leach pads inventory not expected to be processed or used within the next twelve months is classified as long-term.
In-process inventories represent materials that are currently in the process of being converted to a saleable product. In-process material is measured based on assays of the material from the various stages of the Adsorption – Desorption – Recovery (“ADR”) process and the projected recoveries of the respective plants. Costs are allocated to in-process inventories based on the costs of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs incurred to that point in the process.
Precious metal inventories include gold and silver doré and bullion that is unsold and held at the Company’s or the refinery’s facilities. Costs are allocated to precious metal inventories based on costs of the respective in-process inventories incurred prior to the refining process plus applicable refining costs.
Materials and supplies inventories are comprised of chemicals, reagents, spare parts and consumable parts used in drilling and other operating activities. Cost includes applicable taxes and freight.
Proven and Probable Reserves: The definition of proven and probable reserves is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of the reserves are well‑established. Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observations.
Mineral property interests, Plant and Equipment and Mine Development costs
Mineral property interests: Mineral property interests include acquired interests in production, advanced-stage properties and exploration stage properties, which are considered tangible assets. costs: The amount capitalized relating to a mineral
property interest representsCompany amortizes its fair value at the time of acquisition, either as an individual asset purchase or as a part of a business combination provided that a reasonable expectation exists that the property includes mineral resources.
The value of mineral property interests, is primarily driven by the natureplant and amount of mineralized material believed to be contained in the properties. When provenequipment, and probable reserves as defined by SEC Industry Guide 7 exist, the relevant capitalizedmine development costs and mineral property interests are to be charged to expense based on the units of production method and upon commencement of production. However, when a property does not contain mineralized material that satisfies the definition of proven and probable reserves, the amortization of the capitalized costs and mineral property interests are charged to expense based onusing the most appropriate method, which includes straight-line method andthe units-of-production method over the estimated useful life of the mine, as determined by our internal mine plans.
Mine Development Costs: Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines and building of access paths and other infrastructure to gain access to the ore body at underground mines. Capitalization of mine development costs that meet the definition of an asset begins once proven and probable reserves as defined by SEC Industry Guide 7 have been defined. These costs would be capitalized to Mineral Property Interests. Absent of proven and probable reserves, as defined by SEC Industry Guide 7, these costs are charged to expense as incurred.
Drilling and related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at obtaining additional information, providing greater definition of the ore body or converting non-reserve mineralization to proven and probable reserves and the benefit is expected to be realized over a period beyond one year. All other drilling and related costs are expensed as incurred. However, drilling costs specifically incurred during the production stage for the purpose of operational ore control rather than obtaining additional information on the ore body are expensed and allocated to inventory costs and then included as a component of Production costs applicable to sales as the revenue from the sale of inventory occurs.
Pre-stripping costs incurred to access the ore body at an open pit mine prior to the production stage are capitalized during the development phase of the mine provided that the proven and probable reserves have been defined. Where multiple open pits exist at a mine, pre-stripping costs are capitalized separately to each pit. The production stage commences when the commercial production point has been achieved. Stripping costs incurred during the production stage of a mine are included as part of inventory costs and then included as a component of Production costs applicable to sales as the revenue from the sale of inventory occurs.
All capitalized mine development costs are amortized using the units of production method over the estimated life of the mine or ore body based on recoverable ounces to be mined from proven and probable reserves. However, costs incurred to access specific areas that only provide benefit over the life of that area are amortized over the estimated life of that specific area.
Plant and Equipment: For properties where the Company established proven and probable reserves, as defined by SEC Industry Guide 7, expenditures for plant and equipment and expenditures that extend the useful lives of existing plant and equipment are capitalized and recorded at cost. Plant and equipment are depreciated usingor the straight-line method over the estimated productive livesuseful life. The accounting estimates related to amortization are critical accounting estimates because (1) the determination of reserves involves uncertainties with respect to the asset.
For properties whereultimate geology of its reserves and the Company did not establishassumptions used in determining the economic feasibility of mining those reserves and (2) changes in estimated proven and probable reserves as defined by SEC Industry Guide 7, substantially alland asset useful lives can have a material impact on net (loss) income.
Estimates regarding mine development capitalization costs including design, engineering, construction, and installationinvolve the determination of equipment are expensed as incurred. Only certain types of equipment which have alternative uses or significant salvage value, may be capitalized without proven and probable reserves.
Construction-in-progress (CIP) costs: Assets under construction are capitalized as Construction-in-progress until the asset is available for operational use. The cost of construction-in-progress comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Assets under construction are not amortized until the end of the construction period or once commercial production is achieved. Upon achieving the production stage, the capitalized construction costs are transferred to the appropriate category of Plant and Equipment.
Impairment of Long-lived Assets: The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Once it is determined that impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its fair value.
For the purpose of recognition and measurement of impairment, the Company groups its long-lived assets by specific mine or project, as this represents the lowest level for which there are identifiable cash flows.
For asset groups where an impairment loss is determined using the undiscounted future net cash flows method or discounted future net cash flows method, future cash flows are estimated based on quantities of recoverable mineralized material, expected gold and silver prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The term “recoverable mineralized material” refers to the estimated amount of gold or other commodities that will be obtained after taking into account losses during processing and treatment of mineralized material.treatment. The Company’s estimates of future cash flows are based on numerous assumptions and ituncertainties. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold, silver and other commodity prices, production levels and costs of capital are each subject to significant risks and uncertainties.
For asset groups whereStockpiles, Material on Leach Pads, In-process Inventory, Precious Metals Inventory and Materials and Supplies: Stockpiles are measured by estimating the Company is unable to determine a reliablenumber of tonnes added and removed from the stockpile, an estimate of undiscounted future net cash flows, the Company adopts a market approachcontained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to estimate fair value by using a combination of observed market value per square mile and observed market value per ounce or pound of mineral materialstockpiles based on comparable transactions.current mining costs incurred including applicable overhead relating to mining operations.
Asset Retirement Obligation, reclamation and remediation costs: The Company records the fair value of a liability for an asset retirement obligation (“ARO”) in the period that it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costsCosts are capitalized as part of the carrying amount of the long-lived asset when proven or probable reserves exist, or if they relate to an acquired mineral property interest. Periodic accretion is recorded to ARO and charged to operations. Subsequent upward ARO cost revisions are capitalized only with respect to properties with proven or probable reserves, these being San Jose, Black Fox and Gold Bar. Upward adjustmentsattributed to the fair value of the AROmineralized material on properties that do not contain proven or probable reserves are charged to expense. The fair value of ARO is measured by discounting the expected cash flows adjusted for inflation, using a credit-adjusted risk free rate of interest. The Company prepares estimates of the timing and amounts of expected cash flows when an ARO isleach pads based on current mining costs incurred which are updated to reflect changes in facts and circumstances. Estimation of the fair value of AROs requires significant judgment, including amount of cash flows, timing of reclamation, inflation rate and credit risk.
Ongoing environmental and reclamation expenditures are debited against the ARO liability as incurredup to the extent they relate topoint of placing the ARO liability and to expense toore on the extent they do not.
Revenue Recognition: Revenue consists of sales value received for the Company’s principal products, gold and silver. The Company currently does not earn revenue from any products other than gold and silver. Revenue is recognized when title to gold and silver passes to the buyer and when collectability is reasonably assured. Title passes to the buyer based on terms of the sales contract. Product pricing is determined under the sales agreements whichpad. Costs are referenced against active and freely traded commodity markets, for example, the London Bullion Market for both gold and silver, in an identical form to the product sold.
Gold and silver doré producedremoved from the San José mine is sold at the prevailing spot market priceleach pad inventory based on the London A.M. fix, while concentratesaverage cost per estimated recoverable ounce of gold on the leach pad as the gold is recovered. The estimates of recoverable gold on the leach pads are sold atcalculated from the prevailing spot market pricequantities of mineralized material placed on the leach pads (measured tonnes added to the leach pads), the grade of mineralized material placed on the leach pads (based on assay data) and a recovery percentage.
Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and the engineering estimates are refined based on either the London P.M. fix or averageactual results over time.
In-process material is measured based on assays of the London A.M. and London P.M. fix depending onmaterial from the sales contract. Concentratesvarious stages of processing. Costs are provisionally priced, whereby the selling price is subjectallocated to final adjustments at the end of a period ranging from 30 to 90 days after delivery to the customer. The final price isin-process inventories based on the market price atcosts of the relevant quotationmaterial fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs incurred to that point stipulated in the contract. Dueprocess.
Costs are allocated to the time elapsed between shipment and the final settlement with the buyer, MSC must estimate the prices at which sales of metals will be settled. At the end of each financial reporting period, previously recorded provisional sales are adjusted to estimated settlement metals pricesprecious metal inventories based on relevant forward market prices until final settlement with the buyer.
The Company entered into a doré sales agreement with a Canadian financial institution in July 2012. Under that agreement, the Company has the option to sell to the institution approximately 90%costs of the gold and silver contained in doré barsrespective in-process inventories incurred prior to the completion of refining process plus applicable refining costs.
The assumptions used by the third party refiner,Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. The ultimate recovery will not be known until leaching operations cease.
Proven and Probable Reserves: Critical estimates are inherent in the process of determining the Company’s reserves. The Company’s reserves are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility and production cost. The Company’s assessment of reserves occurs at least annually, and periodically utilizes external audits.
Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves are also a key component in forecasts, with which normally takes approximately 15 business days. Revenue is recognized when the Company has provided irrevocable instructionscompares future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. The Company’s forecasts are also used in determining the refiner to transfer tolevel of valuation allowances on the purchaserCompany’s deferred tax assets. Reserves also play a key role in the refined ounces sold upon final processing outturn, and when paymentvaluation of certain assets in the determination of the purchase price allocations for acquisitions. Reserves involve many estimates and are not guarantees that the purchased doré or bullion has been madeCompany will recover the indicated quantities of metals. Changes in full by the purchaser.
Stock‑Based Compensation:The Company accounts for stock options at fair value as prescribedreserve estimates could result in ASC 718. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock option. The Company's
estimates may be impacted by certain variables including, but not limited to, stock price volatility, employee stock option exercise behavior and estimates of forfeitures.
Flow-through Shares: Current Canadian tax legislation permits mining entities to issue flow-through shares to investors whereby the deductions for tax purposes related to resource exploration and evaluation expenditures may be claimed by investors instead of the entity, subject to a renouncement process. Under ASC 740, proceeds from the issuance of flow-through shares are allocated firstmaterial adjustments to the common stock based on the underlying quoted price of common shares and the residual amount is allocated to the sale of tax benefits, classified as a liability. As the Company incurs qualifying exploration and evaluation expenditures to fulfill its obligation, the liability is drawn down and the sale of tax benefits is recognized in the Consolidated Statement of Operations and Comprehensive Loss (Income) as a reduction of deferred tax expense.Company’s reserve estimates.
Income and Mining Taxes: The Company accounts for income and mining taxes under ASC 740 using the liability method, recognizing certain temporary differences between the financial reporting basis of liabilities and assets and the related tax basis for such liabilities and assets. This method generates either a net deferred income and mining tax liability or asset for the Company, as measured by the statutory tax rates in effect. The Company derives the deferred income and mining tax charge or benefit by recording the change in either the net deferred income and mining tax liability or asset balance for the year. The Company records a valuation allowance against any portion of those deferred income and mining tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income and mining tax asset will not be realized.
Forward‑Looking StatementsAccounting for Government Assistance: The Company analogized guidance to account for the COVID-19 relief funds received from the United States Small Business Administration (“SBA”) and the Canada Revenue Agency (“CRA”). The ability to analogize standards from other GAAP sources is provisioned under ASC 105-05-2 when guidance is not provided for certain transactions under US GAAP. The adoption of the standard had a material impact on the financial statements as of December 31, 2020. Under this policy, the Company has recognized the income from the relief funds in the Statement of Operations, as the criteria for recognition of the funds have been met.
FORWARD-LOOKING STATEMENTS
This report contains or incorporates by reference “forward‑looking“forward-looking statements”, as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:
| ·
● | | statements about our anticipated exploration results, cost and feasibility of production, production estimates, receipt of permits or other regulatory or government approvals and plans for the development of our properties; |
| ·
● | | statements concerning the benefits or outcomes that we expect will result from our business activities and certain transactions that we contemplate or have completed, such as receipt of proceeds, increased revenues, decreased expenses and avoided expenses and expenditures; and |
| ·
● | | statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. |
These statements may be made expressly in this document or may be incorporated by reference to other documents that we will file with the SEC. Many of these statements can be found by looking for words such as “believes”, “expects”, “anticipates”, “estimates” or similar expressions used in this report or incorporated by reference in this report.
Forward‑lookingForward-looking statements and information are based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties, risks and contingencies, and there can be no assurance that such statements and information will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements and information.
Included among the forward-looking statements and information provided on this documentwhich we may provide is production guidance. On an annual basis, we develop a consolidated budget,From time to time the Company provides guidance on operations, based on stand-alone budgets for each operating mine. In developing the mine production portion of the budget, we evaluate a number of factors and assumptions, which include, but are not limited to:
| ·
● | | gold and silver price forecasts; |
| ·
● | | average gold and silver grade mined, using a resource model; |
| ·
● | | average grade processed by the crushing facility (El Gallo 1 mine)(Gold Bar) or milling facility (San José mine and Black Fox mine); |
| ·
● | | expected tonnes moved and strip ratios; |
| ·
● | | available stockpile material (grades, tonnes, and accessibility); |
| ·
● | | estimates of in process inventory (either on the leach pad or plant for the El Gallo 1 mine,Project and Gold Bar, or in the mill facility for the San José mine and the Black Fox mine); |
| ·
● | | estimated leach recovery rates and leach cycle times (El(the El Gallo 1 mine)Project and Gold Bar); |
| ·
● | | estimated mill recovery rates (San José mine and Black Fox mine); |
| ·
● | | dilution of material processed; |
| ·
● | | internal and contractor equipment and labor availability; and |
| ·
● | | seasonal weather patterns. |
Actual production results are sensitive to variances in any of the key factors and assumptions noted above. As a result, we frequently evaluate and reconcile actual results to budgeted results to determine if key assumptions and estimates require modification. Any changes will, in turn, influence production guidance.
We caution you not to put undue reliance on these forward-looking statements, which speak only as of the date of this report. Further, the information contained in this document or incorporated herein by reference is a statement of our present intention and is based on present facts and assumptions, and may change at any time and without notice, based on changes in such facts or assumptions. Readers should not place undue reliance on forward‑lookingforward-looking statements.
Risk Factors Impacting Forward‑Looking Statements
RISK FACTORS IMPACTING FORWARD-LOOKING STATEMENTS
The important factors that could prevent us from achieving our stated goals and objectives include, but are not limited to, those set forth in other “Risk Factors” section in this report and the following:
| ·
● | | our ability to raise funds required for the execution of our business strategy; |
| ·
● | the effects of pandemics such as COVID-19 on health in our operating jurisdictions and the world-wide, national, state and local responses to such pandemics; |
| ● | our ability to secure permits or other regulatory and government approvals needed to operate, develop or explore our mineral properties and projects; |
| ·
● | | decisions of foreign countries, banks and courts within those countries; |
| ·
● | | unexpected changes in business, economic, and political conditions; |
| ·
● | | operating results of MSC; |
| ·
● | | fluctuations in interest rates, inflation rates, currency exchange rates, or commodity prices; |
| ·
● | | timing and amount of mine production; |
| ·
● | | our ability to retain and attract key personnel; |
| ·
● | | technological changes in the mining industry; |
| ·
● | | changes in operating, exploration or overhead costs; |
| ·
● | | access and availability of materials, equipment, supplies, labor and supervision, power and water; |
| ·
● | | results of current and future exploration activities; |
| ·
● | | results of pending and future feasibility studies or the expansion or commencement of mining operations without feasibility studies having been completed; |
| ·
● | | changes in our business strategy; |
| ·
● | | interpretation of drill hole results and the geology, grade and continuity of mineralization; |
| ·
● | | the uncertainty of reserve estimates and timing of development expenditures; |
| ·
● | | litigation or regulatory investigations and procedures affecting us; |
| ·
● | | local and community impacts and issues including criminal activity and violent crimes; |
| ·
● | | accidents, public health issues, and labor disputes; |
| ·
● | | our continued listing on a public exchange; |
| ·
● | | uncertainty relating to title to mineral properties; and |
| ·
● | | changes in relationships with the local communities in the areas in which we operate. |
We undertake no responsibility or obligation to update publicly these forward‑lookingforward-looking statements, except as required by law and may update these statements in the future in written or oral statements. Investors should take note of any future statements made by or on our behalf.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our exposure to market risks includes, but is not limited to, the following risks: changes in foreign currency exchange rates, equity price risks, commodity price fluctuations, credit risk and creditinflationary risk. We do not use derivative financial instruments as part of an overall strategy to manage market risk.
Further, our participation in the joint venture with Hochschild for the 49% interest held at MSC creates additional risks because, among other things, we do not exercise decision-making power over the day-to-day activities at MSC; however, implications from our partner’s decisions may result in us having to provide additional funding to MSC or in a decrease in our percentage of ownership.
Foreign Currency Risk
In general, the depreciationdevaluation of non-U.S. dollar currencies with respect to the U.S. dollar has a positive effect on our costs and liabilities which are incurred outside the U.S. while it has a negative effect on our assets denominated in non-U.S. dollar currency. Although we transact most of our business in U.S. dollars, some expenses, labor, operating supplies and property and equipment are denominated in Canadian dollars, Mexican pesos or Argentine pesos.
Since 2008, the Argentine peso has been steadily devaluing against the U.S. dollar by 10-35%10% to 53% on an annual basis. As noted in the graph below, during the year ended December 31, 2017,2020 the Argentine peso devalued 17%29% compared to devaluations of 22%37% and 28%53% in 20162019 and 2015.2018 respectively. During the year ended December 31, 2017,2020, the Mexican peso increased in value by 7%devalued 5% against the US dollar, compared to devaluationsan increase in value of 20% during 20165% in 2019 and 2015.a decrease in value of 5% in 2018.
For the same period in 2017,During 2020, the Canadian dollar increased in value by 4% in 2017,2%, compared to the same increase in value of 2% in 2019 and a 3% increase duringdecrease in value of 5% in 2018.
The following table illustrates changes in the 2016 year.value of these currencies compared to the U.S. dollar in the twelve months ended December 31, 2020:
The value of cash and cash equivalents denominated in foreign currencies also fluctuates with changes in currency exchange rates. Appreciation of non‑U.S.non-U.S. dollar currencies results in a foreign currency gain on such investments and a depreciation in non‑U.S.non-U.S. dollar currencies results in a loss. We have not utilized material market risk‑sensitiverisk-sensitive instruments to manage our exposure to foreign currency exchange rates but may do so in the future actively manage our exposure to foreign currency exchange rate risk.future. We hold minor portions of our cash reserves in non‑U.S.non-U.S. dollar currencies.
Based on our Canadian cash balance of $10.7 million (C$13.6 million) at December 31, 2020, a 1% change in the Canadian dollar would result in a gain/loss of $0.1 million in the Consolidated Statements of Operations and Comprehensive (Loss) Income. We also hold negligible portions of our cash reserves in Mexican and Argentine pesos, with effect of a 1% change in these respective currencies resulting in gains/losses immaterial for disclosure purposes.
Further, we are also subject to foreign currency risk on the fluctuation of the Mexican peso on our VAT receivable balance. As of December 31, 2017, we also had cash and cash equivalent balances in2020, our VAT receivable balance was 18,250,711 Mexican pesos. The total balance of 7,375,818 Mexican pesos, was held by our subsidiary as of December 31, 2017, which was equivalent to approximately $0.4$0.9 million, for which a 1% change in the Mexican peso would have resulted in a gain/loss of $0.01less than $0.1 million in the Consolidated StatementStatements of Operations and Comprehensive (Loss) Income. Income.
We also have Argentinian peso cash and cash equivalent holdings. The total balance of 49,097,386 Argentinian pesos was held by our subsidiary as of December 31, 2017, which was equivalent to approximately $2.6 million, for which a 1% change in the Argentinian peso would have resulted in a gain/loss of $0.03 million in the Consolidated Statement of Operations and Comprehensive (Loss) Income.
Based on our Canadian dollar holdings of $6.8 million (C$8.5 million) at December 31, 2017, a 1% change in the Canadian dollar would result in a gain/loss of $0.07 million in the Consolidated Statement of Operations and Comprehensive (Loss) Income.
MSC holds a portion of its local cash balances in Argentine pesos and is therefore exposed to the effects of this continued devaluation and also the risk that there may be a sudden severe devaluation of the Argentine peso. A severe devaluation could result in material foreign exchange losses as reported in U.S. dollars.
We are also subject to foreign currency risk on the fluctuation of the Mexican peso on our VAT receivable balance. As of December 31, 2017, our VAT receivable balance was 103,096,392 Mexican pesos, net of provision, equivalent to approximately $5.2 million, for which a 1% change in the Mexican peso would have resulted in a gain/loss of $0.1 million in the Consolidated Statement of Operations and Comprehensive (Loss) Income.
We do not hold significant liabilities in non-U.S. dollar currencies.
Equity Price Risk
We have in the past sought and will likely in the future seek to acquire additional funding by sale of common stock.stock or other equity securities. Movements in the price of our common stock have been volatile in the past and may also be volatile in the future. As a result, there is a risk that we may not be able to sell common stockequity securities at an acceptable price to meet future funding requirements.
We have invested and may continue to invest in shares of common stock of other entities in the mining sector. Some of our investments may be highly volatile and lack liquidity caused by lower trading volumes. As a result, we are inherently exposed to fluctuations in the fair value of our investments, which may result in gains or losses upon their valuation.
Commodity Price Risk
We produce and sell gold and silver, therefore changes in the market price of gold and silver could significantly affect our results of operations and cash flows in the future. Change in the price of gold and silver could materially affect our revenues. Based on our revenues from gold and silver sales of $104.8 million for the year ended December 31, 2020, a 10% change in the price of gold and silver would have had an impact of approximately $10.5 million on our revenues. Changes in the price of gold and silver can also affect the provisionally-priced sales that we make under agreements with refiners and other purchasers of our products. At December 31, 2020, we had no gold or silver sales subject to final pricing. Decreases in the market price of gold or silver can also significantly affect the value of our product inventory, stockpiles and leach pads, and it may be necessary to record a write-down to net realizable value.
We have in the past and may in the future hold a portion of our treasury in gold and silver bullion, where the value is recorded at the lower of cost or market. Gold and silver prices fluctuate widely from time to time. At December 31, 2017,may affect the value of any bullion that we had no gold or silverhold in treasury.
We do not hedge any of our sales and are therefore subject to final pricing. Based on our revenues from gold and silver sales of $67.5 million for the year ended December 31, 2017, a 10% changeall changes in the price of gold and silver would have had an impact of approximately $6.7 million on our revenues.commodity prices.
Silver and gold prices have also a material impact on MSC’s results of operations. MSC has embedded derivatives arising from the sale of concentrate and doré which were provisionally priced at the time the sale was recorded. Therefore, fluctuations in gold and silver prices could have a significant impact on MSC’s results of operations.
Credit Risk
We may be exposed to credit loss through our precious metals and doré sales agreements with Canadian financial institutions and refineries if these institutionscustomers are unable to make payment in accordance with the terms of the agreement.agreements. However, based on the history and financial condition of our counterparties, we do not anticipate any of the financial institutions willor refineries to default on their obligations.obligation. As of December 31, 2017,2020, we do not believe we have any significant credit exposure associated with precious metals orand our doré sales agreements.
In Mexico, we are exposed to credit loss regarding our VAT taxes receivable if the Mexican tax authorities are unable or unwilling to make payments in accordance with our monthly filings. Timing of collection on VAT receivables is uncertain
as VAT refund procedures require a significant amount of information and follow‑up.follow-up. The risk is mitigated to the extent that the VAT receivable balance can be applied against future income taxes payable. However, at this time we are uncertain when, if ever, our Mexican operations will generate sufficient taxable operating profits to offset this receivable against taxes payable. We continue to face risk on the collection of our VAT receivables, which amount to $0.9 million as at December 31, 2020.
In Nevada and Ontario, Canada we are required to provide security to cover our projected reclamation costs. WeAs at December 31, 2020, we have surety bonds of $36.5$31.8 million in place to satisfy bonding requirements for this purpose. The bonds have an annual fee of 2%2.3% of their value. Although we do not believe we have any significant credit exposure associated with these bonds, we are exposed to the risk that the surety bonds may no longer be accepted by the governmental agencies as satisfactory reclamation coverage, in which case we would be required to replace the surety bonding with cash.
Interest rate risk
Our outstanding debt consists of various equipment leases and the senior secured credit facility. As the debt is at fixed rates, we consider our interest rate risk exposure to be insignificant at this time.
Inflationary Risk
Argentina has experienced a significant amount of inflation over the last ten years and has now been classified as a highly inflationary economy. ASC 830 defines a hyperinflationary economy as one where the cumulative inflation rate exceeds 100% over the last three years which precede the reporting period. In this scenario, ASC 830 requires companies to change the functional currency of its foreign subsidiaries operating in a highly inflationary economy, to match the company’s reporting currency. In our case, the functional currency of all our Argentine subsidiaries has always been our reporting currency, the U.S. dollar. As such, we do not expect the classification of Argentina’s economy as a highly inflationary economy, to change our financial reporting methodology.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements: | | |
| | |
Management’s Report on Internal Control Over Financial Reporting | | 7170 |
| | |
Reports of Independent Registered Public Accounting Firm | | 7271 |
| | |
Consolidated StatementStatements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 | | 7675 |
| | |
Consolidated Balance Sheets as of December 31, 20172020 and 20162019 | | 7776 |
| | |
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017, 20162020, 2019 and 20152018 | | 7877 |
| | |
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162020, 2019 and 20152018 | | 7978 |
| | |
Notes to Consolidated Financial Statements | | 8079 |
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Securities Exchange Act of 1934 defines internal control over financial reporting in Rule 13a‑15(f)13a-15(f) and 15d‑15(f)15d-15(f) as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ·
● | | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ·
● | | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the board of directors of the Company; and |
| ·
● | | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
On October 2, 2017, the McEwen Mining Inc. acquired 100% of the Black Fox Complex from Primero Mining Corporation. The financial information for this acquisition is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 19 to the Consolidated Financial Statements. As permitted by Securities and Exchange Commission guidance, management's evaluation of the Company's internal control over financial reporting did not include an evaluation of the internal controls of the Black Fox Complex and management's conclusion regarding the effectiveness of the Company's internal control over financial reporting does not extend to the internal controls at the Black Fox Complex. The Black Fox Complex represents 9% and 5% of the Company’s total and net assets, respectively. As of December 31, 2017; Black Fox contributed 17% of McEwen Mining Inc.’s revenues and reported a 7% net income, which contributed to reduce McEwen Mining Inc.’s consolidated net loss.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2020. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based upon its assessment, management concluded that, as of December 31, 2017,2020, the Company’s internal control over financial reporting was effective based upon those criteria.
Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of McEwen Mining Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of McEwen Mining Inc. (the "Company") as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations and comprehensive (loss) income,, changes in shareholders’ equity and cash flows for each of the three years thenin the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements").In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its consolidated cash flows for each of the three years thenin the period ended December 31, 2020 in conformity with U.S. generally accepted accounting principles.
Report on Internal Control Overover Financial Reporting
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Entity’sCompany’s internal control over financial reporting as of December 31, 2017,2020, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 21, 2018March 10, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
/s/ Ernst & Young LLPThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| | |
| | Valuation of Inventory at the Gold Bar mine |
Description of the Matter | | At December 31, 2020, the carrying value of the Company’s inventory was $31.7 million, of which $15.6 million pertained to leach pad inventory at the Gold Bar gold mine in Nevada, USA. The determination of the net realizable value of the inventory at the Gold Bar mine requires management to make estimates of the expected amount of gold to be recovered. The Company discloses significant judgments, estimates and assumptions in respect of these estimates in Note 8 of the consolidated financial statements. |
| | Auditing management’s estimate of recoverable gold on the leach pads was complex and required specialized knowledge due to the highly judgmental nature of the assumptions. Significant assumptions included the life of mine recovery rate and the grade of mineralized material placed on the leach pad. |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the quantities of material placed on the pad, the grade determination, the recovery percentage, and the calibration process to assess whether the recovery rate is appropriate. Our substantive audit procedures included, among others, evaluating the reasonableness of the above noted significant assumptions used in the recoverable gold calculation. As each of the key inputs were determined by a specialist, we also assessed the competence and objectivity of management’s specialist by evaluating their professional qualifications, experience, and their use of accepted industry practices. In addition, we evaluated the methodologies used by management’s specialist by understanding the life of mine plan for ore to be placed on the pad, timing of the leaching cycle and the grade determination. We also engaged our internal mining specialist to assess the appropriateness of the Gold Bar gold recovery model and performed a sensitivity analysis to assess the impact of the recovery rate on the ending inventory balance. We reperformed management’s calculation of the leach pad inventory value to verify mathematical accuracy. We assessed the adequacy of the Company’s disclosure in Note 8 to the consolidated financial statements. |
| | Impairment of Long-lived Assets at the Gold Bar Mine |
Description of the Matter | | During the year ended December 31, 2020, the Company recorded an $83.8 million impairment related to Gold Bar plant and equipment and mineral property interests. As disclosed in Note 9 of the consolidated financial statements, the Company reviews and evaluates its long-lived assets for impairment on a quarterly basis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Once it is determined that an impairment exists, an impairment loss is measured as the amount by which the carrying value of the asset or asset group tested for impairment exceeds its fair value. Auditing the Company’s impairment analysis involved a high degree of subjectivity due to the significant estimation uncertainty and judgement applied by management in determining the fair value of the Gold Bar asset group. Significant assumptions included discount rates and long-term gold prices used in the discounted cash flow analysis. In addition, significant judgment and specialized industry knowledge and techniques were required to assess management’s estimated quantities of resource and reserves, the valuation methods applied by management, assumptions of the future operating costs, capital costs and production levels at Gold Bar due to its limited operating history. |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's processes to determine the fair value of the asset group and measure the long-lived asset impairment. This included controls over management's review of the significant assumptions underlying the fair value determination. Our audit procedures included, among others, assessing significant assumptions underlying the fair value determination. We involved our valuation specialist to assist in evaluating the discount rates against current industry and economic trends as well as company-specific risk premiums. We also involved our valuation specialist to compare long-term gold prices against market data including a range of analyst forecasts. We performed sensitivity analyses over changes in the discount rates and long-term gold prices assumptions to the fair value of the Gold Bar asset group. We involved our geology specialist to assist in understanding and evaluating management’s adjustment to the original reserves and resources and factors that the Company considered in the determination of the updated reserves and resources used in the impairment analysis. In addition, we evaluated the competency |
| | and objectivity of management’s qualified persons through consideration of their professional qualifications, experience, and their use of accepted industry practices. To evaluate future operating and capital costs and future productions levels, we compared historical estimates and current estimates of the cost assumptions and production levels used in the undiscounted cash flow against actual results. To test estimates of the fair value of mineralization not included in the life of mine plans, we involved our valuation specialists to assist in inspecting and evaluating management’s analysis supporting the anticipated economics, including comparing the observable relevant transactions to existing operations. We assessed the adequacy of the Company’s disclosure in Note 9 to the consolidated financial statements. |
We have served as the Company's auditor since 2016.
/s/ Ernst & Young LLP
Toronto, Canada
February 21, 2018March 10, 2021
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of McEwen Mining Inc.
Opinion on Internal Control over Financial Reporting
We have audited McEwen Mining Inc.’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, McEwen Mining Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Black Fox Complex (“Black Fox”) which is included in the 2017 consolidated financial statements of McEwen Mining Inc. and constituted 9% and 5% of McEwen Mining Inc.’s total and net assets, respectively. As of December 31, 2017; Black Fox contributed 17% of McEwen Mining Inc.’s revenues and reported a 7% net income, which contributed to reduce McEwen Mining Inc.’s consolidated net loss, for the year then ended. Our audit of internal control over financial reporting of McEwen Mining Inc. also did not include an evaluation of the internal control over financial reporting of Black Fox.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of McEwen Mining Inc. (the "Company")the Company as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations and comprehensive (loss) income,, changes in shareholders’ equity and cash flows for each of the three years thenin the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements") and our report dated February 21, 2018March 10, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Overover Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Toronto, Canada
February 21, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
McEwen Mining Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows of McEwen Mining Inc. (the “Company”) for the year ended December 31, 2015 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company, and its cash flows for the year ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
We served as the Company’s auditor from 2009 to 2015.
Toronto, Canada
March 11, 201610, 2021
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(LOSS)
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of U.S. dollars, except per share amounts)
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 | |
REVENUE: | | | | | | | | | | | |
Gold and silver sales | | | $ | 67,465 | | $ | 60,388 | | $ | 72,956 | |
Other revenue | | | | 259 | | | — | | | — | |
| | | | 67,724 | | | 60,388 | | | 72,956 | |
COSTS AND EXPENSES: | | | | | | | | | | | |
Production costs applicable to sales | | | | 45,180 | | | 28,133 | | | 34,607 | |
Mine development costs | | | | 3,837 | | | 3,866 | | | 1,169 | |
Exploration costs | | | | 17,714 | | | 7,959 | | | 8,798 | |
Property holding costs | | | | 3,879 | | | 3,536 | | | 4,336 | |
General and administrative costs | | | | 18,872 | | | 12,734 | | | 12,045 | |
Loss (income) from investment in Minera Santa Cruz S.A., net of amortization (note 7) | | | | 44 | | | (12,951) | | | (2,414) | |
Depreciation | | | | 1,453 | | | 1,169 | | | 942 | |
Revision of estimates and accretion of asset reclamation obligations (note 8) | | | | 2,061 | | | 595 | | | 429 | |
Impairment of investment in Minera Santa Cruz S.A. (note 7) | | | | — | | | — | | | 11,777 | |
Impairment of mineral property interests and property and equipment (notes 5 and 6) | | | | 711 | | | — | | | 50,600 | |
Total costs and expenses | | | | 93,751 | | | 45,041 | | | 122,289 | |
Operating (loss) income | | | | (26,027) | | | 15,347 | | | (49,333) | |
OTHER (EXPENSE) INCOME: | | | | | | | | | | | |
Interest and other (expense) income: | | | | (938) | | | 835 | | | 2,404 | |
Gain on sale of assets | | | | 11 | | | 24 | | | 13 | |
Gain on sale of marketable equity securities (note 3) | | | | 840 | | | 22 | | | — | |
Other-than-temporary impairment on marketable equity securities (note 3) | | | | (356) | | | (882) | | | — | |
Unrealized (loss) gain on derivatives (note 3) | | | | (227) | | | 1,379 | | | — | |
Foreign currency (loss) gain | | | | 694 | | | 581 | | | 1,906 | |
Total other income | | | | 24 | | | 1,959 | | | 4,323 | |
(Loss) Income before income and mining taxes | | | | (26,003) | | | 17,306 | | | (45,010) | |
Income and mining tax recovery (note 9) | | | | 15,369 | | | 3,749 | | | 24,560 | |
Net (loss) income | | | | (10,634) | | | 21,055 | | | (20,450) | |
OTHER COMPREHENSIVE (LOSS) INCOME: | | | | | | | | | | | |
Reclassification of unrealized gain on marketable securities disposed of during the period, net of taxes (note 3) | | | | (840) | | | — | | | — | |
Other-than-temporary impairment on marketable equity securities (note 3) | | | | 356 | | | 882 | | | — | |
Unrealized gain (loss) on marketable equity securities, net of $0.5 million, $0.5 million and $nil, tax benefit, respectively | | | | 1,818 | | | 1,609 | | | (949) | |
Comprehensive (loss) income | | | $ | (9,300) | | $ | 23,546 | | $ | (21,399) | |
Net (loss) income per share (note 12): | | | | | | | | | | | |
Basic | | | $ | (0.03) | | $ | 0.07 | | $ | (0.07) | |
Diluted | | | $ | (0.03) | | $ | 0.07 | | $ | (0.07) | |
Weighted average common shares outstanding (thousands) (note 12): | | | | | | | | | | | |
Basic | | | | 313,887 | | | 298,772 | | | 300,341 | |
Diluted | | | | 313,887 | | | 300,474 | | | 300,341 | |
| | | | | | | | | | | |
Return of capital distribution declared per common share (note 10) | | | $ | 0.010 | | $ | 0.005 | | $ | 0.010 | |
| | | | | | | | |
| | | | | | | | |
| 2020 | | 2019 | | 2018 |
Revenue from gold and silver sales | $ | 104,789 | | $ | 117,019 | | $ | 128,175 |
Production costs applicable to sales | | (108,827) | | | (83,280) | | | (81,014) |
Depreciation and depletion | | (22,910) | | | (24,753) | | | (15,079) |
Gross (loss) profit | | (26,948) | | | 8,986 | | | 32,082 |
| | | | | | | | |
OTHER OPERATING EXPENSES: | | | | | | | | |
Advanced projects | | (11,681) | | | (9,520) | | | (15,063) |
Exploration | | (15,861) | | | (37,744) | | | (36,576) |
General and administrative | | (9,201) | | | (12,785) | | | (11,125) |
Loss from investment in Minera Santa Cruz S.A. (Note 10) | | (1,517) | | | (8,754) | | | (11,865) |
Depreciation | | (405) | | | (566) | | | (1,178) |
Revision of estimates and accretion of asset retirement obligations (Note 13) | | (1,788) | | | (3,531) | | | (3,464) |
Impairment of mineral property interests and plant and equipment (Note 9) | | (83,805) | | | — | | | — |
Other operating (Note 4) | | (1,968) | | | — | | | — |
| | (126,226) | | | (72,900) | | | (79,271) |
Operating loss | | (153,174) | | | (63,914) | | | (47,189) |
| | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | |
Interest and other finance expense, net | | (7,434) | | | (6,817) | | | (1,619) |
Other income (Note 5) | | 6,893 | | | 7,140 | | | 1,168 |
Total other (expense) income | | (541) | | | 323 | | | (451) |
Loss before income and mining taxes | | (153,715) | | | (63,591) | | | (47,640) |
Income and mining tax recovery | | 1,390 | | | 3,844 | | | 2,770 |
Net loss and comprehensive loss | $ | (152,325) | | $ | (59,747) | | $ | (44,870) |
| | | | | | | | |
Net loss per share (Note 15): | | | | | | | | |
Basic and Diluted | $ | (0.38) | | $ | (0.17) | | $ | (0.13) |
Weighted average common shares outstanding (thousands) (Note 15): | | | | | | | | |
Basic and Diluted | | 403,457 | | | 361,845 | | | 337,297 |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
MCEWEN MINING INC.
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
(in thousands of U.S. dollars)
| | | | | | | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 27,153 | | $ | 37,440 | |
Investments (note 3) | | | 7,971 | | | 8,543 | |
Value added taxes receivable | | | 5,250 | | | 4,304 | |
Inventories (note 4) | | | 31,951 | | | 26,620 | |
Restricted cash (note 21) | | | 10,000 | | | — | |
Other current assets | | | 4,539 | | | 1,667 | |
Total current assets | | | 86,864 | | | 78,574 | |
Mineral property interests, net (note 5) | | | 293,437 | | | 242,640 | |
Plant and equipment, mine development and construction in progress, net (note 6) | | | 51,046 | | | 14,252 | |
Investment in Minera Santa Cruz S.A. (note 7) | | | 150,064 | | | 162,320 | |
Other assets (note 4 and note 13) | | | 10,718 | | | 532 | |
TOTAL ASSETS | | $ | 592,129 | | $ | 498,318 | |
LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued liabilities | | $ | 34,880 | | $ | 20,044 | |
Flow-through share premium (note 10) | | | 1,643 | | | — | |
Current portion of capital lease liabilities (note 20) | | | 470 | | | — | |
Current portion of asset retirement obligation (note 8) | | | 646 | | | 537 | |
Total current liabilities | | | 37,639 | | | 20,581 | |
Asset retirement obligation, less current portion (note 8) | | | 24,076 | | | 9,306 | |
Deferred income and mining tax liability (note 9) | | | 8,430 | | | 23,665 | |
Capital lease liabilities, less current portion (note 20) | | | 81 | | | — | |
Other liabilities | | | 630 | | | 1,727 | |
Total liabilities | | $ | 70,856 | | $ | 55,279 | |
| | | | | | | |
Shareholders’ equity: | | | | | | | |
Common stock, no par value, 500,000 shares authorized (in thousands); | | | | | | | |
Common: 337,051 as of December 31, 2017 and 299,570 as of December 31, 2016 issued and outstanding (in thousands) (note 10) | | | 1,444,056 | | | 1,360,345 | |
Warrants (note 10) | | | 3,823 | | | — | |
Accumulated deficit | | | (929,606) | | | (918,972) | |
Accumulated other comprehensive income | | | 3,000 | | | 1,666 | |
Total shareholders’ equity | | | 521,273 | | | 443,039 | |
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | | $ | 592,129 | | $ | 498,318 | |
| | | | | | | |
| | December 31, | | December 31, | |
| | 2020 | | 2019 | |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 20,843 | | $ | 46,452 | |
Investments (Note 6) | | | — | | | 1,885 | |
Receivables, prepaids and other assets (Note 7) | | | 5,690 | | | 5,265 | |
Inventories (Note 8) | | | 26,964 | | | 38,376 | |
Total current assets | | | 53,497 | | | 91,978 | |
Mineral property interests and plant and equipment, net (Note 9) | | | 329,112 | | | 418,791 | |
Investment in Minera Santa Cruz S.A. (Note 10) | | | 108,326 | | | 110,183 | |
Inventories, long-term (Note 8) | | | 4,785 | | | 9,603 | |
Restricted cash (Note 19) | | | 3,595 | | | 48 | |
Other assets | | | 621 | | | 620 | |
TOTAL ASSETS | | $ | 499,936 | | $ | 631,223 | |
| | | | | | | |
LIABILITIES & SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and accrued liabilities | | $ | 36,055 | | $ | 34,070 | |
Flow-through share premium (Note 14) | | | 3,827 | | | — | |
Debt, current portion (Note 12) | | | — | | | 5,000 | |
Debt to related party, current portion (Notes 12 and 16) | | | — | | | 5,000 | |
Lease liabilities, current portion (Note 11) | | | 2,440 | | | 2,115 | |
Asset retirement obligation, current portion (Note 13) | | | 3,232 | | | 2,610 | |
Total current liabilities | | | 45,554 | | | 48,795 | |
Lease liabilities, long-term (Note 11) | | | 3,056 | | | 5,018 | |
Debt (Note 12) | | | 24,080 | | | 19,758 | |
Debt to related party (Notes 12 and 16) | | | 24,080 | | | 19,758 | |
Asset retirement obligation, long-term (Note 13) | | | 30,768 | | | 29,591 | |
Other liabilities | | | 3,257 | | | 3,910 | |
Deferred income and mining tax liability | | | 3,813 | | | 4,914 | |
Total liabilities | | $ | 134,608 | | $ | 131,744 | |
| | | | | | | |
Shareholders’ equity: | | | | | | | |
Common shares: 416,587 as of December 31, 2020 and 400,339 as of December 31, 2019 issued and outstanding (in thousands) (Note 14) | | $ | 1,548,876 | | $ | 1,530,702 | |
Accumulated deficit | | | (1,183,548) | | | (1,031,223) | |
Total shareholders’ equity | | | 365,328 | | | 499,479 | |
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | | $ | 499,936 | | $ | 631,223 | |
The accompanying notes are an integral part of these consolidated financial statements.
Commitments and contingencies: note 13.Note 18
Subsequent event: Note 23
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of U.S. dollars except share amounts)and shares)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | | | Other | | | | | | | |
| | Common Stock | | Warrants | | Comprehensive | | Accumulated | | | | |
| | Shares | | Amount | | Amount | | Income (Loss) | | Deficit | | Total | |
Balance, December 31, 2014 | | 300,100 | | $ | 1,360,668 | | $ | — | | $ | 124 | | $ | (919,577) | | $ | 441,215 | |
Stock-based compensation (note 11) | | — | | | 1,305 | | | — | | | — | | | — | | | 1,305 | |
Return of capital distribution (note 10) | | — | | | (1,503) | | | — | | | — | | | — | | | (1,503) | |
Share repurchase (note 10) | | (1,896) | | | (1,769) | | | — | | | — | | | — | | | (1,769) | |
Shares issued for settlement of accounts payable | | 430 | | | 443 | | | — | | | — | | | — | | | 443 | |
Unrealized loss on available-for-sale securities (note 3) | | — | | | — | | | — | | | (949) | | | — | | | (949) | |
Net loss | | — | | | — | | | — | | | — | | | (20,450) | | | (20,450) | |
Balance, December 31, 2015 | | 298,634 | | $ | 1,359,144 | | $ | — | | $ | (825) | | $ | (940,027) | | $ | 418,292 | |
Stock-based compensation (note 11) | | — | | | 1,039 | | | — | | | — | | | — | | | 1,039 | |
Return of capital distribution (note 10) | | — | | | (2,986) | | | — | | | — | | | — | | | (2,986) | |
Share repurchase (note 10) | | (558) | | | (582) | | | — | | | — | | | — | | | (582) | |
Exercise of stock options (note 11) | | 1,494 | | | 3,730 | | | — | | | — | | | — | | | 3,730 | |
Other-than-temporary impairment on marketable equity securities (note 3) | | — | | | — | | | — | | | 882 | | | — | | | 882 | |
Unrealized gain on available-for-sale securities, net of taxes (note 3) | | — | | | — | | | — | | | 1,609 | | | — | | | 1,609 | |
Net income | | — | | | — | | | — | | | — | | | 21,055 | | | 21,055 | |
Balance, December 31, 2016 | | 299,570 | | $ | 1,360,345 | | $ | — | | $ | 1,666 | | $ | (918,972) | | $ | 443,039 | |
Stock-based compensation (note 11) | | — | | | 1,311 | | | — | | | — | | | — | | | 1,311 | |
Shares issued in connection with the acquisition of Lexam VG Gold (note 10) | | 12,687 | | | 38,141 | | | — | | | — | | | — | | | 38,141 | |
Shares issued for cash (note 10) | | 20,700 | | | 39,397 | | | — | | | — | | | — | | | 39,397 | |
Warrants issued in connection with the equity issuance (note 10) | | — | | | — | | | 3,823 | | | — | | | — | | | 3,823 | |
Issuance of flow-through common shares (note 10) | | 4,000 | | | 7,799 | | | — | | | — | | | — | | | 7,799 | |
Exercise of stock options (note 11) | | 94 | | | 122 | | | — | | | — | | | — | | | 122 | |
Return of capital distribution (note 10) | | — | | | (3,059) | | | — | | | — | | | — | | | (3,059) | |
Other-than-temporary impairment on marketable equity securities (note 3) | | — | | | — | | | — | | | 356 | | | — | | | 356 | |
Reclassification of unrealized gain on marketable securities disposed of during the period, net of taxes (note 3) | | — | | | — | | | — | | | (840) | | | — | | | (840) | |
Unrealized gain on available-for-sale securities, net of taxes (note 3) | | — | | | — | | | — | | | 1,818 | | | — | | | 1,818 | |
Net loss | | — | | | — | | | — | | | — | | | (10,634) | | | (10,634) | |
Balance, December 31, 2017 | | 337,051 | | $ | 1,444,056 | | $ | 3,823 | | $ | 3,000 | | $ | (929,606) | | $ | 521,273 | |
| | | | | | | | | | | | |
| | Common Stock | | | | | | | |
| | and Additional | | | | | | | |
| | Paid-in Capital | | Accumulated | | | | |
| | Shares | | Amount | | Deficit | | Total | |
Balance, December 31, 2017 | | 337,051 | | $ | 1,447,879 | | $ | (926,606) | | $ | 521,273 | |
Stock-based compensation | | — | | | 269 | | | — | | | 269 | |
Sale of flow-through common shares | | 6,634 | | | 11,145 | | | — | | | 11,145 | |
Exercise of stock options | | 182 | | | 192 | | | — | | | 192 | |
Shareholder distributions | | — | | | (3,372) | | | — | | | (3,372) | |
Sale of common shares for cash | | 515 | | | 918 | | | — | | | 918 | |
Common shares issued for acquisition of mineral property interests | | 178 | | | 391 | | | — | | | 391 | |
Net loss | | — | | | — | | | (44,870) | | | (44,870) | |
Balance, December 31, 2018 | | 344,560 | | $ | 1,457,422 | | $ | (971,476) | | $ | 485,946 | |
Stock-based compensation | | — | | | 694 | | | — | | | 694 | |
Exercise of stock options | | 535 | | | 544 | | | — | | | 544 | |
Units issued for cash, net of share issue costs | | 53,880 | | | 69,467 | | | — | | | 69,467 | |
Sale of shares in ATM offering | | 1,010 | | | 1,851 | | | — | | | 1,851 | |
Shares issued for acquisition of mineral property interests | | 354 | | | 724 | | | — | | | 724 | |
Net loss | | — | | | — | | | (59,747) | | | (59,747) | |
Balance, December 31, 2019 | | 400,339 | | $ | 1,530,702 | | $ | (1,031,223) | | $ | 499,479 | |
Stock-based compensation | | — | | | 613 | | | — | | | 613 | |
Sale of flow-through common shares | | 13,968 | | | 15,478 | | | — | | | 15,478 | |
Exercise of stock options | | 135 | | | 138 | | | — | | | 138 | |
Shares issued for debt refinancing | | 2,092 | | | 1,875 | | | — | | | 1,875 | |
Shares issued for acquisition of mineral property interests | | 53 | | | 70 | | | — | | | 70 | |
Net loss | | — | | | — | | | (152,325) | | | (152,325) | |
Balance, December 31, 2020 | | 416,587 | | $ | 1,548,876 | | $ | (1,183,548) | | $ | 365,328 | |
The accompanying notes are an integral part of these consolidated financial statements.
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
| | | | | | | | | | |
| | Year ended December 31, | |
| | 2017 | | 2016 | | 2015 | |
Cash flows from operating activities: | | | | | | | | | | |
Cash paid to suppliers and employees | | $ | (95,871) | | $ | (52,340) | | $ | (55,260) | |
Cash received from revenue | | | 67,724 | | | 59,517 | | | 70,178 | |
Dividends received from Minera Santa Cruz S.A. (note 7) | | | 12,212 | | | 17,738 | | | 548 | |
Interest paid | | | — | | | (5) | | | (156) | |
Interest received | | | 501 | | | 276 | | | 287 | |
Cash (used in) provided by operating activities | | | (15,434) | | | 25,186 | | | 15,597 | |
Cash flows from investing activities: | | | | | | | | | | |
Additions to mineral property interests (note 5) | | | (3,492) | | | (5,985) | | | — | |
Additions to property and equipment (note 6) | | | (5,077) | | | (1,174) | | | (777) | |
Investment in marketable equity securities (note 3) | | | — | | | (4,419) | | | (1,114) | |
Proceeds from sale of investments (note 3) | | | 2,155 | | | 470 | | | — | |
Acquisition of Lexam VG Gold, net of cash and cash equivalents acquired (note 19) | | | (840) | | | — | | | — | |
Acquisition of Black Fox, net of cash and cash equivalents acquired (note 19) | | | (27,251) | | | — | | | — | |
Proceeds from disposal of property and equipment (note 6) | | | 33 | | | 994 | | | 13 | |
Cash used in investing activities | | | (34,472) | | | (10,114) | | | (1,878) | |
Cash flows from financing activities: | | | | | | | | | | |
Proceeds from equity issuance (note 10) | | | 42,453 | | | — | | | — | |
Proceeds from warrants issuance (note 10) | | | 4,122 | | | — | | | — | |
Share and warrant issuance costs (note 10) | | | (3,353) | | | — | | | — | |
Issuance of flow-through common shares (note 10) | | | 9,994 | | | — | | | — | |
Flow-through common share issuance costs (note 10) | | | (551) | | | — | | | — | |
Proceeds from short-term bank indebtedness | | | — | | | — | | | 5,171 | |
Repayment of short-term bank indebtedness | | | — | | | (3,395) | | | (1,776) | |
Return of capital distribution (note 10) | | | (3,059) | | | (2,986) | | | (1,503) | |
Share repurchase (note 10) | | | — | | | (582) | | | (1,769) | |
Proceeds from the exercise of stock options (note 11) | | | 121 | | | 3,730 | | | — | |
Cash provided by (used) in financing activities | | | 49,727 | | | (3,233) | | | 123 | |
Effect of exchange rate change on cash and cash equivalents | | | (108) | | | (273) | | | (348) | |
(Decrease) increase in cash, cash equivalents and restricted cash | | | (287) | | | 11,566 | | | 13,494 | |
Cash, cash equivalents and restricted cash, beginning of period | | | 37,440 | | | 25,874 | | | 12,380 | |
Cash, cash equivalents and restricted cash, end of period (note 21) | | $ | 37,153 | | $ | 37,440 | | $ | 25,874 | |
| | | | | | | | | | |
Reconciliation of net (loss) income to cash (used in) provided by operating activities: | | | | | | | | | | |
Net (loss) income | | $ | (10,634) | | $ | 21,055 | | $ | (20,450) | |
Adjustments to reconcile net (loss) income from operating activities: | | | | | | | | | | |
Loss (Income) from investment in Minera Santa Cruz S.A., net of amortization (note 7) | | | 44 | | | (12,951) | | | (2,414) | |
Impairment of investment in Minera Santa Cruz S.A. | | | — | | | — | | | 11,777 | |
Impairment of mineral property interests and property and equipment (note 5) | | | 711 | | | — | | | 50,600 | |
Other-than-temporary impairment on marketable equity securities (note 3) | | | 356 | | | 882 | | | — | |
(Gain) loss on disposal of fixed assets (note 6) | | | (11) | | | 517 | | | (13) | |
Recovery of deferred income taxes (note 9) | | | (15,675) | | | (3,749) | | | (24,560) | |
(Gain) on sale of marketable securities (note 3) | | | (840) | | | (22) | | | — | |
Stock-based compensation (note 11) | | | 1,309 | | | 1,039 | | | 1,305 | |
Depreciation | | | 3,378 | | | 1,169 | | | 942 | |
Revision of estimates and accretion of asset reclamation obligations (note 8) | | | 2,061 | | | 595 | | | 429 | |
Adjustment to the asset retirement obligation estimate (note 8) | | | 1,008 | | | 1,530 | | | 135 | |
Amortization of mineral property interests and asset retirement obligations | | | 3,198 | | | 2,413 | | | 1,288 | |
Foreign exchange gain | | | 108 | | | 273 | | | 348 | |
Unrealized loss (gain) on derivative investments (note 3) | | | 227 | | | (1,379) | | | — | |
Change in non-cash working capital items: | | | | | | | | | | |
Shares issued to supplier for settlement of accounts payable | | | — | | | — | | | 443 | |
(Increase) decrease in VAT taxes receivable, net of collection of $5,864 (2016 - $9,523) | | | (945) | | | 5,813 | | | 1,707 | |
(Increase) in other assets related to operations | | | (12,756) | | | (11,156) | | | (3,003) | |
Increase (decrease) in liabilities related to operations | | | 815 | | | 1,419 | | | (3,485) | |
Dividends received from Minera Santa Cruz S.A. (note 7) | | | 12,212 | | | 17,738 | | | 548 | |
Cash (used in) provided by operating activities | | $ | (15,434) | | $ | 25,186 | | $ | 15,597 | |
(in thousands of U.S. dollars)
| | | | | | | | |
| |
| 2020 | | 2019 | | 2018 |
Cash flows from operating activities: | | | | | | | | |
Net loss | $ | (152,325) | | $ | (59,747) | | $ | (44,870) |
Adjustments to reconcile net loss from operating activities: | | | | | | | | |
Impairment of mineral property interests and plant and equipment (Note 9) | | 83,805 | | | — | | | — |
Loss from investment in Minera Santa Cruz S.A., net of amortization (Note 10) | | 1,517 | | | 8,754 | | | 11,865 |
Loss on disposal of fixed assets | | — | | | 96 | | | 77 |
Depreciation and amortization | | 23,090 | | | 25,543 | | | 16,425 |
Loss (gain) on investments (Note 6) | | 619 | | | (5,259) | | | 3,324 |
Unrealized foreign exchange loss (gain) and adjustment to estimate (Note 13) | | 278 | | | 919 | | | (1,903) |
Income and mining tax (recovery) | | (1,390) | | | (3,844) | | | (2,770) |
Stock-based compensation | | 612 | | | 694 | | | 269 |
Revision of estimates and accretion of asset retirement obligations (Note 13) | | 1,788 | | | 3,531 | | | 3,464 |
Change in non-cash working capital items: | | | | | | | | |
Decrease (increase) in other assets related to operations | | 12,696 | | | (17,484) | | | 20,896 |
Increase (decrease) in liabilities related to operations | | 1,437 | | | 7,270 | | | (6,290) |
Cash (used in) provided by operating activities | $ | (27,873) | | $ | (39,527) | | $ | 487 |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Additions to mineral property interests and plant and equipment | $ | (13,373) | | $ | (29,707) | | $ | (81,321) |
Proceeds from disposal of property and equipment | | — | | | — | | | 84 |
Investment in marketable equity securities (Note 5) | | — | | | — | | | (1,384) |
Proceeds from sale of investments, net of investments (Note 6) | | 1,266 | | | 6,769 | | | 2,895 |
Dividends received from Minera Santa Cruz S.A. (Note 10) | | 340 | | | 8,877 | | | 10,385 |
Cash used in investing activities | $ | (11,767) | | $ | (14,061) | | $ | (69,341) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from sale of units, net of issuance costs (Note 14) | $ | — | | $ | 69,467 | | $ | — |
Sale of flow-through common shares, net of issuance costs (Note 14) | | 19,644 | | | — | | | 14,095 |
Proceeds of loan from related party (Note 12 and Note 16) | | — | | | — | | | 25,000 |
Proceeds of loan (Note 12) | | — | | | — | | | 25,000 |
Debt issuance costs and lender fees (Note 12) | | — | | | — | | | (908) |
Proceeds of at-the-market share sale (Note 14) | | — | | | 1,851 | | | 918 |
Proceeds of exercise of stock options | | 138 | | | 544 | | | 192 |
Payment of finance lease obligations | | (2,204) | | | (1,855) | | | (485) |
Shareholders' distribution (Note 14) | | — | | | — | | | (3,372) |
Cash provided by financing activities | $ | 17,578 | | $ | 70,007 | | $ | 60,440 |
Effect of exchange rate change on cash and cash equivalents | | — | | | (408) | | | 1,750 |
(Decrease) increase in cash, cash equivalents and restricted cash | | (22,062) | | | 16,011 | | | (6,664) |
Cash, cash equivalents and restricted cash, beginning of year | | 46,500 | | | 30,489 | | | 37,153 |
Cash, cash equivalents and restricted cash, end of year (Note 19) | $ | 24,438 | | $ | 46,500 | | $ | 30,489 |
| | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash received (paid) during year for: | | | | | | | | |
Interest paid | $ | (5,131) | | $ | (5,218) | | $ | (1,923) |
Interest received | | 159 | | | 133 | | | 372 |
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted)
NOTE 1 THE COMPANY
NATURE OF OPERATIONS
McEwen Mining Inc. (the “Company”) was organized under the laws of the State of Colorado on July 24, 1979. The Company is engaged in the exploration, development, production and sale of gold and silver. On January 24, 2012, the Company changed its name from U.S. Gold Corporation to McEwen Mining Inc. after the completion of the acquisition of Minera Andes Inc. by way of a statutory plan of arrangement under the laws of the Province of Alberta, Canada.silver and exploration for copper.
The Company operates in Argentina, Mexico, the United States, Canada, Mexico and Canada.Argentina. The Company owns a 100% interest in the Gold Bar mine in Nevada, the Black Fox gold mine in Ontario, Canada, the El Gallo Project in Sinaloa, Mexico, the Fenix silver-gold project in Sinaloa, Mexico, the Los Azules copper deposit in San Juan, Argentina, and a portfolio of exploration properties in Nevada, Canada, Mexico and Argentina. It also owns a 49% interest in Minera Santa Cruz S.A. (“MSC”), owner of the producing San José silver-gold mine in Santa Cruz, Argentina, which is operated by the joint venture majority owner, of the joint venture, Hochschild Mining plc. It owns
During the year (Note 14) and operates the El Gallo 1 mine in Sinaloa, Mexico and the Black Fox Complex in Timmins, Ontario, Canada. In addition,subsequent to year end (Note 23) the Company ownsclosed on $64.4 million in gross proceeds from equity financings. As a result of this, the Los Azules copper deposit in San Juan, Argentina,Company believes it has sufficient liquidity along with funds generated from ongoing operations, to fund anticipated cash requirements for operations, capital expenditures and working capital purposes. As a result, the El Gallo 2 project in Sinaloa, Mexico,previously disclosed going concern note has been removed, as substantial doubt no longer exists regarding the Gold Bar project in Nevada inCompany’s ability to meet its obligations as they become due within one year after the United States, and a portfolio of exploration properties in Argentina, Mexico, Nevada, and Timmins.date that the financial statements are issued.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates:
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the Company’s consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to environmental reclamation and closure obligations; asset useful lives utilized for depletion, depreciation, amortization and accretion calculations; estimates of fair value of equity investment and asset groups used inthe impairment testing; estimates oftest; recoverable gold in leach pad inventory; estimates regardingcurrent and long-term inventory; mine development capitalization costs; the collectability of value added taxes receivable; estimates of fair values of assets and liabilities acquired in business combinations; estimates of reserves; valuation allowances for deferred tax assets; and estimate of income and mining tax provisions andprovisions; reserves for contingencies and litigation.litigation and costs and relief funds related to COVID-19. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ significantly from these estimates.
References to “C$” refer to Canadian currency.
COVID-19:
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 virus a global pandemic. As a result of the pandemic, many jurisdictions, including the United States, Canada, Mexico and Argentina, instituted restrictions on travel, public gatherings, and certain business operations. Even absent of government-mandated shut downs, the Company was required to temporarily suspend operations at its mines to protect the health and safety of its employees and contractors. This resulted in temporary shutdowns of all or a portion of operations at all of the Company’s mine sites at the start of Q2 2020. Since that date, all of the Company’s operations, have successfully recommenced operations. During the fourth quarter of 2020, operations at the San José mine were briefly suspended as a result of a significant increase in infections in the Santa Cruz region.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
The temporary shutdowns adversely impacted the Company’s operations, cash flow, and liquidity in the second quarter of 2020 and some of these effects continued into the third and fourth quarters. In addition to the adverse effect on revenue, the Company incurred costs in connection with the shutdowns and subsequent ramp-up. This, in turn, adversely affected the Company’s liquidity. The long-term impact of the COVID-19 outbreak on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak, the availability and distribution of vaccinations, and government advisories and restrictions. These developments and the impact of COVID-19 on the global financial markets, the overall economy and the Company are highly uncertain and cannot be predicted. Achieving and maintaining normal operating capacity is also dependent on the continued availability of supplies, which is out of the Company’s control. If the financial markets and/or the overall economy continue to be impacted, the Company’s results of operations, financial position and cash flows may be further affected. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly. The Company has completed various scenario planning analyses to consider potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary).
Basis of Consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated. Investments over which the Company exerts significant influence but does not control through majority ownership are accounted for using the equity method, as described in Investments, below.
Cash and Cash Equivalents:Equivalents and Restricted Cash:
The Company considers cash in banks, deposits in transit, and highly liquid term deposits with original maturities of three months or less at the date of acquisition to be cash and cash equivalents. Because of the short maturity of these instruments, the carrying amounts approximate their fair value. The Company classifies Restricted cash is excluded from cashbetween short term and cash equivalents and is included in long-term assets, except for, flow through share proceeds which appear as a separate line in current assets.long term based on the restrictions.
Investments:
The Company accounts for investments over which the Company exerts significant influence but does not control through majority ownership using the equity method of accounting pursuant to ASC Topic 323, Investments – Equity Method and Joint Ventures. Under thisthe equity method, the Company’s investment is initially recognized at cost in the Consolidated Balance Sheet and subsequently increased or decreased to recognize the Company's share of earningsincome and losses is includedof the investee, dividends received from the investee and for impairment losses after the initial recognition date. The Company's share of income and losses of the investee and impairment losses are recognized in the Consolidated StatementStatements of Operations and Comprehensive Income (Loss) and(“Statement of Operations”) during the balanceperiod. Refer to Impairment of Long-lived Assets for the investment is adjusted by the same amount. Under the equity method, dividends received from an investee are recorded as decreases in the investment account, not as income. If and when there has been a loss in value that is other than a temporary decline, the carrying value is reduced to its fair value.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Company’s policy on impairment.
The Company accounts for its investmentCompany’s investments in marketable equity securities as available for sale securities and warrants on equity interestare measured at fair value at each period end with changes in publicly traded securities as held for trading securitiesfair value recognized in accordance with ASC guidance on accounting for certain investments in debt and equity securities. Unrealized gains and losses on these securities are accounted for through Other Comprehensive Income (“OCI”) except for gain and losses on warrants which are included in Other Income (Expense)net (loss) income in the Statement of Operations and Comprehensive Income (Loss). The Company periodically evaluates whether declines in fair values of its investments below the Company’s carrying value are other‑than‑temporary in accordance with ASC guidance. Declines in fair value below the Company’s carrying value deemed to be other‑than‑temporary are charged to operations.ASU 2016-01.
Value Added Taxes Receivable:
In Mexico, Argentina, and Canada, value added taxes (“VAT” and “HST”, respectively) are assessed on purchases of materials and services and sales of products. Businesses are generally entitled to recover the taxes they have paid related to purchases of materials and services, either as a refund or as a credit against future taxes payable. In Argentina, except at the San José mine, the Company expenses all VAT as their recoverability is uncertain.
Stockpiles, Material on Leach Pads, In‑processIn-process Inventory, Precious Metals Inventory and Materials and Supplies: Stockpiles, material on leach pads, in-process inventory, precious metals inventory and materials and supplies (collectively, “Inventories”) are accounted for using the weighted average cost method and are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product based
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale.a saleable form. Write-downs of stockpiles, material on leach pads, in-process inventory, precious metals inventory and materials and supplies,Inventories resulting from net realizable value impairments are reported as a component of production costs applicable to sales. The current portion of stockpiles, material on leach pad, in-process inventory and materials and suppliesInventories is determined based on the expected amounts to be processed and/or recovered within the next 12 months. Stockpiles, material on leach pads, in‑process inventory and materials and supplies not expected to be processed withintwelve months of the next 12 months,balance sheet date, with the remaining portion, if any, are classified as long‑term.long-term.
Stockpiles represent mineralized material extracted from the mine and available for processing. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, an estimate of the contained metals (based on assay data) and the estimated metallurgical recovery rates. Costs are allocated to stockpiles based on current mining costs incurred including applicable overhead relating to mining operations. Material is removed from the stockpile at an average cost per tonne.
Mineralized material on leach pads is the orematerial that is placed on pads where it is treated with a chemical solution that dissolves the gold contained in the oremineralized material over a period of months.time. Costs are attributed to the oremineralized material on leach pads based on current mining costs and processing costs incurred uprelated to the point of placing the ore on the pad. Costs are removed from the leach pad inventory based on the average cost per estimated recoverable ounce of gold on the leach pad as the gold is recovered. The estimates of recoverable gold on the leach pads are calculated from the quantities of oremineralized material placed on the leach pads (measured tonnes added to the leach pads), the grade of oremineralized material placed on the leach pads (based on assay data) and a recovery percentage.
In general, leach pads recover between 50% and 95% of the recoverable ounces in the first year of leaching, declining each year thereafter until the leaching is complete. The cumulative metallurgical recovery rate for gold production at the El Gallo 1 mine from September 2012 (start of production) to December 31, 2017 was approximately 57% (2016 – 59%). AlthoughWhile the quantities of recoverable gold placed on the leach pads are periodically reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored, and the engineering estimates are refined based on actual results over time.
The current portion of ore on leach pads inventory is determined based on the expected amounts to be processed within the next twelve months. Ore on leach pads inventory not expected to be processed or used within the next twelve months is classified as long-term.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
In-process inventories represent materials that are currently in the process of being converted to a saleable product. In-process material is measured based on assays of the material from the various stages of the Adsorption – Desorption – Recovery (“ADR”) process and the projected recoveries of the respective plants.processing. Costs are allocated to in-process inventories based on the costs of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs incurred to that point in the process.
Precious metal inventories include gold and silver doré and bullion that is unsold and held at the Company’s or the refinery’s facilities. Costs are allocated to precious metal inventories based on costs of the respective in-process inventories incurred prior to the refining process plus applicable refining costs.
Materials and supplies inventories are comprised of chemicals, reagents, spare parts and consumable parts used in drillingoperating and other operating activities. Cost includes applicable taxes and freight.
Proven and Probable Reserves:
The definition of proven and probable reserves is set forth in SEC Industry Guide 7.7 (Guide 7). Proven reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of the reserves are well‑established.well-established. Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observations.
Mineral Property Interests and Plant and Equipment:
Mineral property interests: Mineral property interests Plant and Equipment and Mine Development costs
Mineral property interests: Mineral property interests include acquired interests in production, advanced-stagerepresent capitalized expenditures related to the development of mineral properties and exploration stage properties, which are considered tangible assets.expenditures arising from property acquisitions. The amount capitalized relating to afor an acquired mineral
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
property interest represents its fair value at the time of acquisition, either as an individual asset purchase or as a part of a business combination provided that a reasonable expectation exists that the property includes mineral resources.combination.
The value of mineral property interests is primarily driven by the nature and amount of mineralized material believed to be contained in the properties. When proven and probable reserves as defined by SEC Industry Guide 7 exist, the relevant capitalized costs and mineral property interests are to be charged to expense based on the units of production method and upon commencement of production. However, when a property does not contain mineralized material that satisfies the definition of proven and probable reserves, the amortization of the capitalized costs and mineral property interests are charged to expense based on the most appropriate method, which includes straight-line method and units-of-production method over the estimated useful life of the mine, as determined by our internal mine plans.
Mine Development Costs: Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines (“pre-stripping”) and building of access paths and other infrastructure to gain access to the ore body at underground mines. Capitalization of mine developmentDevelopment costs that meetare charged to operations in the definition of an asset begins onceyear incurred as Advanced Projects until proven and probable reserves as defined by SEC Industry Guide 7 have been defined. These costs would be capitalized to Mineral Property Interests. Absent of proven and probable reserves, as defined by SEC Industry Guide 7, thesemet, after which they are capitalized. Where multiple open pits exist at a mine, pre-stripping costs are chargedcapitalized separately to expense as incurred.each pit. Production commences when saleable minerals, beyond a de minimis amount, are produced.
During the production phase of a mine, costs incurred to provide access to reserves and resources that will be produced in future periods that would not have otherwise been accessible are capitalized and included in the carrying amount of the related mineral property interest.
Drilling and related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at obtaining additional information, providing greater definition of the ore body or converting non-reserve mineralization to proven and probable reserves and the benefit is expected to be realized over a period beyond one year. All other drilling and related costs are expensed as incurred.incurred as Exploration or Advanced Projects. Exploration costs include costs incurred to identify new mineral resources, evaluate potential resources, and convert mineral resources into proven and probable reserves. However, drilling costs specifically incurred during the production stage for the purpose of operational ore control during the production stage rather than obtaining additional information on the ore body are expensed and allocated to inventory costs and then included as a component of Productionproduction costs applicable to sales as the revenue from the sale of inventory occurs.
Pre-stripping costs incurred to access the ore body at an open pit mine prior to the production stage are capitalized during the development phase of the mine provided that theon a unit-of-production basis over proven and probable reserves, have been defined. Where multiple open pits exist atas defined by Guide 7. When a mine, pre-strippingproperty does not contain mineralized material that satisfies the definition of proven and probable reserves, the amortization of the capitalized costs are capitalized separatelyis charged to each pit. The production stage commences whenexpense based on the commercial production point has been achieved. Stripping costs incurred during the production stage of a mine are included as part of inventory costsmost appropriate method, which includes straight-line method and then included as a component of Production costs applicable to sales as the revenue from the sale of inventory occurs.
All capitalized mine development costs are amortized using the units of productionunits-of-production method over the estimated useful life of the ore body based on recoverable ounces to be mined from proven and probable reserves. However, costs incurred to access specific areas that only provide benefit over the life of that area are amortized over the estimated life of that specific area.mine, as determined by internal mine plans.
Plant and Equipment: For properties where the Company has established proven and probable reserves as defined by SEC Industry Guide 7, expenditures for plant and equipment and expenditures that extend the useful lives of existing plant and equipment are capitalized and recorded at cost. The cost capitalized for plant and equipment includes borrowing costs incurred that are attributable to qualifying plant and equipment. Plant and equipment are depreciated using the straight-line method over the estimated productive liveslife of the asset.
For properties where the Company did not establish proven and probable reserves as defined by SEC Industry Guide 7, substantially all costs, including design, engineering, construction, and installation of equipment are expensed as incurred. Only certain types ofincurred, unless the equipment which havehas alternative uses or significant salvage value, may bein which case the equipment is capitalized without proven and probable reserves.at cost.
Construction-in-progress (CIP)(“CIP”) costs: Assets under construction are capitalized as Construction-in-progressconstruction-in-progress until the asset is available for operational use.its intended use, at which point costs are transferred to the appropriate category of plant and equipment or mineral property interest and amortized. The cost of construction-in-progress comprises itsthe purchase price of the asset and any costs directly attributable to bringing it into working condition for its intended use. Assets under construction are not amortized until the end of the construction period or once commercial production is achieved. Upon achieving the production stage, the capitalized construction costs are transferred to the appropriate category of Plant and Equipment.
Impairment of Long-livedLong-Lived Assets:
The Company reviews and evaluates its long-lived assets for impairment on a quarterly basis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Once it is determined that impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its estimated fair value. For the purpose of recognition and measurement of impairment, the Company groups its long-lived assets by specific mine or project, as this represents the lowest level for which there are identifiable cash flows.flows exist.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
For asset groups where an impairment indicator is identified, an impairment loss is determined if the carrying amount of the asset group exceeds the recoverable amount as determined using the undiscounted future net cash flows method orflows. An impairment loss, if any, is the amount by which the carrying amount exceeds the discounted future net cash flows method, future cash flows are estimated based on quantities of recoverable mineralized material, expected gold and silver prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The term “recoverable mineralized material” refers to the estimated amount of gold or other commodities that will be obtained after taking into account losses during processing and treatment of mineralized material. The Company’s estimates of future cash flows are based on numerous assumptions and itflows. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold, silver and other commodity prices, production levels and costs of capital are each subject to significant risks and uncertainties.
For asset groups where the Company is unable to determine a reliable estimate of undiscounted future net cash flows, the Company adopts a market approach to estimate fair value by using a combination of observed market value per square mile and observed market value per ounce or pound of mineralestimated mineralized material based on comparable transactions.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Asset Retirement Obligation reclamation(“ARO”), Reclamation and Remediation Costs:
Provisions for environmental rehabilitation are made in respect of the estimated future costs of closure and restoration and rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation costs: The Company records the fair value of a liability for an asset retirement obligation (“ARO”)disturbed areas) in the accounting period that it is incurred if a reasonable estimate of fair value can be made.when the related environmental disturbance occurs. The associated asset retirement costs, including periodic adjustments, if any, are capitalized as part of the carrying amount of the long-lived asset when proven or probable reserves exist or if they relate to an acquired mineral property interest.interest; otherwise, the costs are charged to the operations. Periodic accretion is recorded to ARO and charged to operations. Subsequent upward ARO cost revisions are capitalized only with respect to properties with proven or probable reserves, these being San Jose, Black Fox and Gold Bar. Upward adjustments to the
The fair value of the ARO on properties that do not contain proven or probable reserves are charged to expense. The fair value ofan ARO is measured by discounting the expected cash flows adjusted for inflation, using a credit-adjusted risk free rate of interest. The Company prepares estimates of the timing and amounts of expected cash flows when an ARO is incurred, which are updated to reflect changes in facts and circumstances. Estimation of the fair value of AROs requires significant judgment, including amount of cash flows, timing of reclamation, inflation rate and credit risk.
Ongoing environmentalLease Accounting:
Contracts are analyzed to identify whether the contract contains an operating or financing lease according to ASC 842, adopted by the Company effective January 1, 2019 using the modified retrospective transition method. If a contract is determined to contain a lease, the Company will include lease payments (the lease liability) and reclamation expenditures are debited against the ARO liability as incurredright-of-use asset (“ROU”) representing the right to the extentunderlying asset for the lease term within the Consolidated Balance Sheets. Lease liabilities are disclosed as a distinct line item within the Consolidated Balance Sheets, whereas, the ROU asset is included in mineral property interests and plant and equipment. Related depreciation and amortization expense and interest expense for finance leases, and rent expense for operating leases is recorded within the Statement of Operations. For leases with a term of twelve months or less, an accounting policy election is made to not recognize lease assets and lease liabilities. The Company has elected to account for non-lease components as part of the lease component to which they relaterelate.
Operating and ROU asset balances and lease liabilities are recognized at the commencement date of the lease based on the present value of the future lease payments over the lease term. The Company utilizes the incremental borrowing rate (“IBR”) in determining the present value of the future lease payments. IBR represents the rate of interest that a lessee would have to pay to borrow an amount equal to the ARO liability and to expense tolease payments on a collateralized basis over a similar term in a similar economic environment. Each lease’s IBR is determined by using the extent they do not.average bond yield ratings for comparable companies.
Revenue Recognition:
Revenue consists of sales valueproceeds received and expected to be received for the Company’s principal products, gold and silver. The Company currently does not earn revenue from any products other than gold and silver. Revenue is recognized when title to gold and silver passes to the buyer and when collectability is reasonably assured. Title passes to the buyer based on terms of the sales contract.contract, usually upon delivery of the product. Product pricing is determined under the sales agreements which are referenced against active and freely traded commodity markets, for example, the London Bullion Market for both gold and silver, in an identical form to the product sold.
Gold and silver doré produced from the San José mine is sold at the prevailing spot market price based on the London A.M. fix, while concentrates are sold at the prevailing spot market price based on either the London P.M. fix or average of the London A.M. and London P.M. fix depending on the sales contract. Concentrates are provisionally priced, whereby the selling price is subject to final
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
adjustments at the end of a period ranging from 30 to 90 days after delivery to the customer. The final price is based on the market price of the precious metal content at the relevant quotation point stipulated in the contract. Due to the time elapsed between shipment and the final settlement with the buyer, MSC must estimate the prices at which sales of metals will be settled. At the end of each financial reporting period, previously recorded provisional sales are adjusted to estimated settlement metals prices based on relevant forward market prices until final settlement with the buyer.
TheIn addition to selling refined bullion at spot, the Company entered into ahas doré sales agreementpurchase agreements in place with a Canadian financial institution in July 2012.institutions and refineries. Under that agreement,the agreements, the Company has the option to sell to the institution approximately 90% of the gold and silver contained in doré bars prior to the completion of refining by the third party refiner, which normally takes approximately 15 business days.refiner. Revenue is recognized when the Company has provided irrevocable instructions to the refiner to transfer to the purchaser the refined ounces sold upon final processing outturn, and when payment of the purchase price for the purchased doré or bullion has been made in full by the purchaser.
Other Revenue: Other There is no judgement involved in revenue is comprised ofrecognition as revenue earned from a toll milling arrangement at the Black Fox Complex. Revenue is recognized when title topayment has been made by the purchaser and the product passes to the customer.has been delivered.
Property Holding Costs: Holding costs to maintain a property are expensed in the period they are incurred. These costs include security and maintenance expenses, lease and claim fees and payments, and environmental monitoring and reporting costs.
Exploration Costs: Exploration costs include costs incurred to identify new mineral resources, evaluate potential resources, and convert mineral resources into proven and probable reserves. Exploration costs are expensed as incurred.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Foreign Currency:
The functional currency for the Company’s operations is the U.S. dollar. All monetary assets and liabilities denominated in a currency which is not the U.S. dollar are translated at current exchange rates at each balance sheet date and the resulting adjustments are included in a separate line item under other income (expense). RevenueRevenues and expenseexpenses in foreign currencies are translated at the average monthly exchange rates for the corresponding period.
Stock‑Based
Stock-Based Compensation:
The Company accounts for stock options at fair value as prescribed in ASC 718. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock option. The Company'sCompany’s estimates may be impacted by certain variables including, but not limited to, stock price volatility, employee stock option exercise behavior and estimates of forfeitures.
Flow-throughFlow-Through Common Shares:
Current Canadian tax legislation permits mining entities to issue flow-through common shares to investors wherebyby which the deductions for tax purposes related to resource exploration and evaluation expenditures may be claimed by investors instead of the entity, subject to a renouncement process. Under ASC 740, proceeds from the issuance of flow-through common shares are allocated first to the common stock based on the underlying quoted price of common shares and the residual amount is allocated to the sale of tax benefits, which is classified as a liability. AsIn the future, as the Company incurs qualifying exploration and evaluation expenditures to fulfill its obligation, the liability is drawn down and the sale of tax benefits is recognized in the Consolidated Statement of Operations and Comprehensive Loss (Income) as a reduction of deferred tax expense.
Income and Mining Taxes:
The Company accounts for income and mining taxes under ASC 740 using the liability method, recognizing certain temporary differences between the financial reporting basis of liabilities and assets and the related tax basis for such liabilities and assets. This method generates either a net deferred income and mining tax liability or asset for the Company, as measured by the statutory tax rates in effect. The Company derives the deferred income and mining tax charge or benefit by recording the change in either the net deferred income and mining tax liability or asset balance for the year. The Company records a valuation allowance against any portion of those deferred income and mining tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income and mining tax asset will not be realized.
Comprehensive Income (Loss): Income:
In addition to net income or loss, comprehensive income or loss includes allis included in changes in equity during a period, such as cumulative unrecognized changesperiod.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in fair valuethousands of marketable equity securities classified as available‑for‑sale or other investments.U.S. dollars, unless otherwise noted) (Continued)
Per Share Amounts:
Basic earningsincome or loss per share includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted average number of common and exchangeable shares outstanding during the period. Diluted earnings or lossincome per share reflectreflects the potential dilution of securities that could share in the earnings of the Company and areis computed in accordance with the treasury stock method based on the average number of common shares and dilutive common share equivalents outstanding. The diluted earnings or loss are calculated using the treasury stock method and only forOnly those instruments that that result in a reduction in income per share are included in the calculation.calculation of diluted (loss) income per share.
Loans and borrowings: Borrowings:
Borrowings are recognized initially at fair value, net of financing costs incurred, and subsequently measured at amortized cost. Any difference between the amounts originally received and the redemption value of the debt is recognized in the consolidated statementStatements of operations Operations over the period to maturity using the effective interest method. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period they occur.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Fair Value of Financial Instruments:
Fair value accounting as prescribed in ASC Section 825, utilizesestablishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Loans and borrowings: Borrowings are recognized initially at fair value, net of financing costs incurred, and subsequently measured at amortized cost. Any difference between the amounts originally received and the redemption value of the debt is recognized in the Consolidated Statement of Operations and Comprehensive (Loss) Income over the period to maturity using the effective interest method. Fair Value of Financial Instruments: Fair value accounting, as prescribed in ASC Section 820, utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: | |
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
Recently Adopted Accounting Pronouncements
Accounting for Government Assistance: In June 2020, the Company analogized guidance to account for the COVID-19 relief funds received from the United States Small Business Administration (“SBA”) and the Canada Revenue Agency (“CRA”). The ability to analogize standards from other GAAP sources is provisioned under ASC 105-05-2 when guidance is not provided for certain transactions under US GAAP. The adoption of the standard had a material impact on the financial statements as of December 31, 2020 with no impact noted in prior years. Under this policy, the Company has recognized the income from the relief funds in the Statement of Cash Flows – Restricted Cash: Operations, as the criteria for recognition of the funds have been met.
Changes to the Disclosure Requirements for Fair Value Measurement: In November 2016,August 2018, the FASB issued ASU 2016-18, Statement of Cash Flow - Restricted Cash (ASU 2016-18). ASU 2016-18 requires that an entity's statement of cash flows explain the change during the period in that entity's total cash and cash equivalents, including amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted cash and restricted cash equivalents will no longer be shown as specific line items within the statement of cash flows. Additionally, an entity is required to reconcile the cash and cash equivalents on its balance sheet2018- 13, “Fair Value Measurement (ASC 820): Disclosure Framework – Changes to the cash and cash equivalent balances presented in its statement of cash flows.Disclosure Requirements for Fair Value Measurement”. This update modifies the disclosure requirements for fair value measurements by removing, modifying, or adding disclosures. ASU 2016-182018-13 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017 with early2019. The adoption permitted. The Company early adopted the guidance within ASU 2016-18 as of December 31, 2017. The impact of ASU 2016-18 on its financial statements was as follows: (1) changes2018-13 in restricted cash balances are no longer shown in the statements of cash flows, as these balances are included in the beginning and ending cash balances in the statements of cash flows; and (2) included within Note 21 is a reconciliation between cash balances presented on our balance sheets with the amounts presented in the statements of cash flows. The Company2020 did not have anya material restricted cash or restricted cash equivalent items in any interim period duringimpact on the year endedCompany’s financial statements and related disclosures.
Recently Issued Accounting Pronouncements
Income Taxes: In December 31, 2017 and 2016.
Compensation – Stock Compensation – Improvements to Employee Share-Based Payment Accounting: In March 2016, the2019, FASB issued ASU No. 2016-09, which changes how companies account for certain aspects of share-based payment awards to employees, including2019-12 “Income Taxes (Topic 740).” ASU 2019-12 simplifies the accounting for income taxes forfeitures, and statutory tax withholding requirements, as well as classificationby reducing complexity in the statement of cash flows.accounting standards. The update to the standard is effective for the Company for fiscal years beginning after December 5, 2016, with early adoption permitted. Adoption of this guidance by the Company, effective January 1, 2017, had no impact on the consolidated financial statements or disclosures.
Recently Issued Accounting Pronouncements
Compensation – Stock Compensation – Scope of Modification Accounting:In July 2017, the FASB issued ASU No. 2017-11 which addresses narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The update to the standard is effective for the Company for fiscal years beginning after December 15, 2018,2020, with early applicationadoption permitted. The Company is currently evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09 which provides clarity and reduces diversity in practice with respect to the modification of terms or conditions of a share-based payment award. The update to the standard is effective for the Company for fiscal years beginning after December 15, 2017, with early application permitted. The Company is currently evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
NOTE 3 OPERATING SEGMENT REPORTING
Business Combinations:Definition of a business: In January 2017 the FASB issued ASU No. 2017-01 which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activitiesMcEwen Mining is a business.mining and minerals production and exploration company focused on precious metals in the United States, Canada, Mexico, and Argentina. The updateCompany’s chief operating decision maker (“CODM”) reviews the operating results, assesses performance and makes decisions about allocation of resources to these segments at the standard is effective forgeographic region level or major mine/project where the Company for annual periods beginning after December 15, 2017, with early application permitted. The Company is currently evaluatingeconomic characteristics of the effect of this amendment and the impact it may have onindividual mines or projects within a geographic region are not alike. As a result, these operating segments also represent the Company’s consolidated financial statements.
Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory: In October 2016 the FASB issued ASU No. 2016-16, to modify the current exception to income tax accounting that required companies to defer the income tax effect of certain intercompany transactions. ASU No. 2016-16 only allows companies to defer the income tax effect of intercompany inventory transactions under an exception to the guidance on income taxes that currently applies to intercompany sales and transfers of all assets.reportable segments. The update to the standard is effective for the Company beginning January 1, 2018, with early application permitted as of the beginning of an annual period. The Company is currently evaluating the effect of this amendment and the impact it will have on the Company’s consolidated financial statements.
Revenue from Contracts with Customers: In 2016, the FASB issued four separate accounting standard updates regarding Topic 606: ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2017-13. These ASUs outline amendments to Topic 606 which are not yet effective, including reporting revenue gross versus net, identifying performance obligations and licensing and narrow-scope improvements and practical expedients. The effective date and transition requirements for the amendments listed in these updates are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09) which is January 1, 2018, with earlier application permitted. The Company will not be early adopting Topic 606.
The new guidance permits two methods of adoption: (i) the full retrospective method, under which comparative periods would be restated, and the cumulative impact of applying the standard would be recognized as at January 1, 2017, the earliest period presented; and (ii) the modified retrospective method, under which comparative periods would not be restated and the cumulative impact of applying the standard would be recognized at the date of initial adoption, January 1, 2018. The Company will utilize the modified retrospective approach.
Under the modified retrospective method, the Company will apply the guidance retrospectively only to the most current period presented in the financial statements. To do so, the company will recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings as of January 1, 2018. The standard allows entities to elect to apply the modified retrospective method to either all contracts as of the initial date or only to contractsbusiness activities that are not completed as of such date.considered operating segments are included in General and Administrative and other and are provided in this note for reconciliation purposes.
The Company will electCODM reviews segment income or loss, defined as gold and silver sales less production costs applicable to applysales, depreciation and depletion, advanced projects, and exploration costs, for all segments except for the method onlyMSC segment which is evaluated based on the attributable equity income or loss pickup. Gold and silver sales and production costs applicable to new contractssales for the reportable segments are reported net of intercompany transactions.
Production costs applicable to sales for the El Gallo project were $15.7 million for the year ended December 31, 2020 (in the year ended December 31, 2019 - $18.5 million) and contractsincluded $8.4 million of residual leaching spending in the year, net of $3.0 million capitalized in inventory (in the year ended December 31, 2019 - $8.2 million, net of $3.4 million capitalized in inventory) with the remaining balance of production costs applicable to sales of $7.3 million (in the year ended December 31, 2019 - $10.3 million) corresponds to opening leach pad inventory costs that have not been completedare included as of January 1, 2018. As a result,production costs applicable to sales.
Capital expenditures include costs capitalized in mineral property interests and plant and equipment in the Company will present comparative periods under legacy GAAP and recognize a cumulative catch-up adjustmentrespective periods.
Significant information relating to the opening balance of retained earnings (if any) as of January 1, 2018, onlyCompany’s reportable operating segments for contracts that are not completed and will disclose the method of application accordinglyperiods presented is summarized in the financial statements.tables below:
As of December 31, 2017, the Company performed a comprehensive analysis of all significant sales contracts, including those contracts of MSC, to determine the effect of this amendment and the impact it will have on the Company’s consolidated financial statements. As of December 31, 2017 the Company does not anticipate any material impact to revenue recognition except for additional disclosure requirements. Management will continue to monitor any changes to the existing standard as well as industry developments to determine whether any further changes are required to the accounting strategy.
| | | | | | | | | | | | | | | | | | |
Year ended December 31, 2020 | | USA | | | Canada | | Mexico | | MSC | | Los Azules | | Total |
Revenue from gold and silver sales | | $ | 48,884 | | $ | 41,452 | | $ | 14,453 | | $ | — | | $ | — | | $ | 104,789 |
Production costs applicable to sales | | | (58,465) | | | (34,639) | | | (15,723) | | | — | | $ | — | | | (108,827) |
Depreciation and depletion | | | (11,785) | | | (10,883) | | | (242) | | | — | | $ | — | | | (22,910) |
Gross (loss) | | | (21,366) | | | (4,070) | | | (1,512) | | | — | | | — | | | (26,948) |
| | | | | | | | | | | | | | | | | | |
Advanced projects | | | (1,071) | | | (6,088) | | | (4,522) | | | — | | $ | — | | | (11,681) |
Exploration | | | (6,777) | | | (6,450) | | | (513) | | | — | | $ | (2,121) | | | (15,861) |
Impairment of mineral property interests and plant and equipment (Note 9) | | | (83,805) | | | — | | | — | | | — | | $ | — | | | (83,805) |
Loss from investment in Minera Santa Cruz S.A. | | | — | | | — | | | — | | | (1,517) | | $ | — | | | (1,517) |
Other operating | | | (1,390) | | | (578) | | | — | | | — | | | — | | | (1,968) |
Segment loss | | $ | (114,409) | | $ | (17,186) | | $ | (6,547) | | $ | (1,517) | | $ | (2,121) | | $ | (141,780) |
General and Administrative and other | | | | | | | | | | | | | | | | | | (11,935) |
Loss before income and mining taxes | | | | | | | | | | | | | | | | | $ | (153,715) |
| | | | | | | | | | | | | | | | | | |
Capital expenditures | | $ | 4,821 | | $ | 9,104 | | $ | — | | $ | — | | $ | — | | $ | 13,925 |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
| | | | | | | | | | | | | | | | | | |
Year ended December 31, 2019 | | USA | | Canada | | Mexico | | MSC | | Los Azules | | Total |
Revenue from gold and silver sales | | $ | 43,847 | | $ | 50,058 | | $ | 23,114 | | $ | — | | $ | — | | $ | 117,019 |
Production costs applicable to sales | | | (33,614) | | | (31,121) | | | (18,545) | | | — | | | — | | | (83,280) |
Depreciation and depletion | | | (10,934) | | | (13,271) | | | (548) | | | — | | | — | | | (24,753) |
Gross (loss) profit | | | (701) | | | 5,666 | | | 4,021 | | | — | | | — | | | 8,986 |
| | | | | | | | | | | | | | | | | | |
Advanced projects | | | (649) | | | (1,636) | | | (7,235) | | | — | | | — | | | (9,520) |
Exploration | | | (8,554) | | | (25,779) | | | — | | | — | | | (3,411) | | | (37,744) |
Loss from investment in Minera Santa Cruz S.A. | | | — | | | — | | | — | | | (8,754) | | | — | | | (8,754) |
Segment loss | | $ | (9,904) | | $ | (21,749) | | $ | (3,214) | | $ | (8,754) | | $ | (3,411) | | $ | (47,032) |
General and Administrative and other | | | | | | | | | | | | | | | | | | (16,559) |
Loss before income and mining taxes | | | | | | | | | | | | | | | | | $ | (63,591) |
| | | | | | | | | | | | | | | | | | |
Capital expenditures | | $ | 18,806 | | $ | 11,464 | | $ | — | | $ | — | | $ | — | | $ | 30,270 |
| | | | | | | | | | | | | | | | | | |
Year ended December 31, 2018 | | USA | | Canada | | Mexico | | MSC | | Los Azules | | Total |
Revenue from gold and silver sales | | $ | — | | $ | 62,024 | | $ | 66,151 | | $ | — | | $ | — | | $ | 128,175 |
Production costs applicable to sales | | | — | | | (43,095) | | | (37,919) | | | — | | | — | | | (81,014) |
Depreciation and depletion | | | — | | | (12,972) | | | (2,107) | | | — | | | — | | | (15,079) |
Gross profit | | | — | | | 5,957 | | | 26,125 | | | — | | | — | | | 32,082 |
| | | | | | | | | | | | | | | | | | |
Advanced projects | | | (7,959) | | | — | | | (7,104) | | | — | | | — | | | (15,063) |
Exploration | | | (5,174) | | | (22,032) | | | (2,241) | | | — | | | (7,129) | | | (36,576) |
Loss from investment in Minera Santa Cruz S.A. | | | — | | | — | | | — | | | (11,865) | | | — | | | (11,865) |
Segment (loss) income | | $ | (13,133) | | $ | (16,075) | | $ | 16,780 | | $ | (11,865) | | $ | (7,129) | | $ | (31,422) |
General and Administrative and other | | | | | | | | | | | | | | | | | | (16,218) |
Loss before income and mining taxes | | | | | | | | | | | | | | | | | $ | (47,640) |
| | | | | | | | | | | | | | | | | | |
Capital expenditures | | $ | 84,713 | | $ | 12,584 | | $ | 171 | | $ | — | | $ | — | | $ | 97,468 |
Geographic information
Geographic information includes the following long-lived assets balances and revenues presented for the Company’s operating segments:
| | | | | | | | | | | | | | | |
| | Long-lived Assets | | Revenue (1) |
| | December 31, | | December 31, | | Year ended December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
USA | | $ | 46,801 | | $ | 135,854 | | $ | 48,884 | | $ | 43,847 | | $ | — |
Canada | | | 78,986 | | | 77,147 | | | 41,452 | | | 50,058 | | | 62,024 |
Mexico | | | 20,021 | | | 23,551 | | | 14,453 | | | 23,114 | | | 66,151 |
Argentina (2) | | | 299,816 | | | 302,598 | | | — | | | — | | | — |
Total consolidated (3) | | $ | 445,624 | | $ | 539,150 | | $ | 104,789 | | $ | 117,019 | | $ | 128,175 |
| (1) | Presented based on the location from which the product originated. |
| (2) | Includes Investment in MSC of $108.3 million as of December 31, 2020 (December 31, 2019 - $110.2 million). |
| (3) | Total excludes $0.8 million related to the Company’s ROU office lease asset as the business activities related to corporate are not considered to be a part of the operating segments. |
Leases – Amendments: In February 2016, the FASB issued ASU 2016-02 which core principle is that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from the previous GAAP. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal year, with early adoption permitted. The ASU requires a modified retrospective transition method with the option to elect a package of practical expedients. The Company is evaluating the effect of this amendment and the impact it may have on the Company’s consolidated financial statements.
Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities: In January 2016, the FASB issued ASU No. 2016-01, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company beginning January 1, 2018. The Company is currently evaluating the effect of this amendment and the impact it will have on the Company’s consolidated financial statements.
NOTE 3 INVESTMENTS
The Company’s investment portfolio consists of marketable equity securities and warrants of certain publicly-traded companies. The Company classifies the marketable equity securities as available-for-sale securities, which are recorded at fair value based upon quoted market prices. The warrants are recorded at fair value using the Black-Scholes option pricing model. The following is a summary of the balances as of December 31, 2017 and December 31, 2016:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Other | | Statement of | | | |
| | Opening | | Additions | | Disposals | | Comprehensive | | Operations | | Fair Value |
| | balance | | during | | during | | Income (Loss) | | (Loss) | | end of the |
As of December 31, 2017 | | (January 1) | | year | | year | | (pre-tax) | | Income | | year |
Marketable equity securities | | $ | 6,749 | | $ | — | | $ | (2,163) | | $ | 1,334 | | $ | 484 | | $ | 6,404 |
Warrants | | | 1,794 | | | — | | | — | | | — | | | (227) | | | 1,567 |
Investments | | $ | 8,543 | | $ | — | | $ | (2,163) | | $ | 1,334 | | $ | 257 | | $ | 7,971 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Other | | Statement of | | | |
| | Opening | | Additions | | Disposals | | Comprehensive | | Operations | | Fair Value |
| | balance | | during | | during | | Income (Loss) | | (Loss) | | end of the |
As of December 31, 2016 | | (January 1) | | year | | year | | (pre-tax) | | Income | | year |
Marketable equity securities | | $ | 1,032 | | $ | 4,004 | | $ | (470) | | $ | 3,043 | | $ | (860) | | $ | 6,749 |
Warrants | | | — | | | 415 | | | — | | | — | | | 1,379 | | | 1,794 |
Investments | | $ | 1,032 | | $ | 4,419 | | $ | (470) | | $ | 3,043 | | $ | 519 | | $ | 8,543 |
As of December 31, 2017, the cost of the marketable equity securities and warrants was approximately $3.3 million (December 31, 2016 - $4.9 million).
The gains and losses for available-for-sale securities are not reported in Net (Loss) Income of the Consolidated Statement of Operations and Comprehensive (Loss) Income until the securities are sold or if there is an other-than-temporary decline in fair value below cost. For the year ended December 31, 2017, the Company recorded a gain, net of tax, in other comprehensive income, of $1.8 million. The gain was recorded in accumulated other comprehensive income and is reported as a separate line item in the shareholders' equity section of the balance sheet. In the comparable period ending December 31, 2016, the Company recorded a gain, net of tax, in other comprehensive income, of $1.6 million.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
As gold and silver can be sold through numerous gold and silver market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product. In 2020, 2019 and 2018, sales to Bank of Nova Scotia and Asahi Refining Inc. were $33.0 million (32%) and $67.0 million (64%), $103.6 million (89%) and $4.9 million (4%), and $123.5 million (96%) and $nil, respectively, of the total gold and silver sales.
NOTE 4 OTHER OPERATING
During 2020, the yearCompany temporarily suspended operations at its Gold Bar and Black Fox mine sites as measures to combat COVID-19. Costs incurred while operations were suspended total $0.9 million at Gold Bar and $0.6 million at Black Fox during the twelve months ended December 31, 2017,2020. In addition, the Gold Bar operational shutdown was extended while the Company sold marketable equity securitiesconducted a thorough review of its resource and mine plan during Q2 2020. Upon completion of this review, the Company commenced a controlled and phased ramp up of operations through the remainder of the second quarter. Costs incurred due to the resource review were $0.5 million.
NOTE 5 OTHER INCOME
The following is a summary of other income (expense) for proceeds of $2.2 million. The Company realized a gain of $0.8 million, which is included in the Consolidated Statement of Operations and Comprehensive (Loss) Income. During the yearyears ended December 31, 2016, marketable equity securities were sold for proceeds of $0.5 million for a realized gain of $0.1 million.2020, 2019, and 2018:
| | | | | | | | |
| Year ended December 31, |
| 2020 | | 2019 | | 2018 |
COVID-19 Relief | $ | 6,420 | | $ | — | | $ | — |
Unrealized and realized (loss) gain on investments (Note 6) | | (619) | | | 5,259 | | | (3,324) |
Foreign currency gain | | 1,078 | | | 1,697 | | | 3,922 |
Other income, net | | 14 | | | 184 | | | 570 |
Total other income | $ | 6,893 | | $ | 7,140 | | $ | 1,168 |
On May 13, 2016,In response to COVID-19, the United States and Canadian governments enacted significant relief measures to support businesses directly and adversely impacted by the pandemic. During 2020, the Company participatedsecured $1.9 million of relief from the US government under the paycheck protection (“PPP”) program. The funds are fully forgivable as long as sufficient eligible expenditures are incurred in a private placement with Golden Predator Mining Corp. (“Golden Predator”) under which it acquired 3,125,000 units, each unit consisting of one common share and one common share purchase warrant (“warrant”), for24 week period. The income from the PPP program is recognized on a total cost of $0.4 million. Using proportional allocation, the Company allocated $0.2 millionsystematic basis as the cost base for each of the common shares and warrants. Subsequently, on July 21, 2016, the Company participated in another private placement with Golden Predator under which it acquired an additional 1,500,000 units, each unit consisting of one common share and one-half of one warrant, for a total cost of $0.9 million. Using proportional allocation, the Company allocated $0.7 million as the cost base to the common shares and $0.2 million to the warrants.
The Company maintains a portfolio of warrants on equity interests in publicly-traded securities for investment purposes whicheligible forgivable expenditures are not used in any hedging activities.incurred. As the warrants meet the definition of derivative instruments, unrealized gains or losses arising from their revaluation are recorded in the Consolidated Statement of Operations and Comprehensive (Loss) Income. During the year ended December 31, 2017, the Company recorded an unrealized loss of $0.2 million (December 31, 2016 – $1.4 million gain and December 31, 2015 – $nil, respectively).
During the year ended December 31, 2017, the Company reviewed its investment portfolio to determine if any security was other-than-temporarily impaired (“OTTI”). An OTTI security would require the Company to record an impairment charge in the Statement of Operations and Consolidated (Loss) Income in the period any such determination is made. In making this judgment, the Company evaluated, among other factors, the duration and extent to which the fair value of a security was less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis. From this assessment, the Company concluded that the fair value of certain marketable equity securities exhibited a prolonged decline in share price due to deterioration of the issuer’s results; therefore, the decline in these marketable equity securities was considered OTTI. Accordingly, the Company recognized an impairment loss of $0.4 million in the Consolidated Statement of Operations and Comprehensive (Loss) Income for the year ended December 31, 2017. In the comparable periods ending December 31, 2016 and 2015, the Company recorded an impairment loss of $0.9 million and $nil, respectively.
NOTE 4 INVENTORIES
Inventories at December 31, 2017 and 2016 consist of2020, the following:
| | | | | | | |
| | December 31, 2017 | | December 31, 2016 | |
Material on leach pads | | $ | 9,188 | | $ | 14,267 | |
In-process inventory | | | 5,486 | | | 4,953 | |
Stockpiles | | | 1,168 | | | 1,102 | |
Precious metals | | | 12,902 | | | 5,035 | |
Materials and supplies | | | 3,207 | | | 1,263 | |
Current Inventories | | $ | 31,951 | | $ | 26,620 | |
During the year ended December 31, 2017 and 2016, no write-downs of inventory were recorded by the Company.
A portion of leach pad inventories in thefull amount of $10.4 million (December 31, 2016 - $nil) is expected to be recovered beyond twelve months and thus has been includedrecognized as other income, as the Company is reasonably assured that it is in Other assets.compliance with the forgiveness criteria of incurring the eligible expenses for forgiveness within the required time frame. The Company also secured $4.5 million of government relief in Canada through the Canadian Emergency Wage Subsidy program all of which has been recognized in other income.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
NOTE 6 INVESTMENTS
The Company’s investment portfolio consisted of marketable equity securities and warrants of certain publicly-traded companies.
The following is a summary of the activity in investments for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | |
| | As at | | Additions/ | | | | Disposals/ | | Unrealized | | Fair value |
| | December 31, | | transfers during | | Net (loss) on | | transfers during | | (loss) on | | December 31, |
| | 2019 | | period | | securities sold | | year | | securities held | | 2020 |
Marketable equity securities | | $ | 1,885 | | $ | — | | $ | (619) | | $ | (1,266) | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | |
| | As at | | Additions/ | | Net gain | | Disposals/ | | Unrealized | | Fair value |
| | December 31, | | transfers during | | (loss) on | | transfers during | | gain on | | December 31, |
| | 2018 | | period | | securities sold | | year | | securities held | | 2019 |
Marketable equity securities | | $ | 2,718 | | $ | 2,314 | | $ | 3,396 | | $ | (7,279) | | $ | 736 | | $ | 1,885 |
Warrants | | | 413 | | | — | | | 1,127 | | | (1,540) | | | — | | | — |
Investments | | $ | 3,131 | | $ | 2,314 | | $ | 4,523 | | $ | (8,819) | | $ | 736 | | $ | 1,885 |
During the years ended December 31, 2020, 2019 and 2018, the Company sold marketable equity securities for $1.3 million, $6.8 million and $2.9 million, respectively.
As of December 31, 2020, the cost of the marketable equity securities was $nil (December 31, 2019 – $1.3 million).
NOTE 7 RECEIVABLES AND OTHER CURRENT ASSETS
Receivables and other current assets as at December 31, 2020 and 2019 consisted of the following:
| | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Government sales tax receivable | | $ | 1,810 | | $ | 2,658 |
Prepaids and other assets | | | 3,880 | | | 2,607 |
Receivables and other current assets | | $ | 5,690 | | $ | 5,265 |
Government sales tax receivable includes $0.9 million of Mexican VAT at December 31, 2020 (December 31, 2019 – $0.7 million). The Company collected $1.4 million of VAT during the year ended December 31, 2020 (December 31, 2019 and 2018 – $2.2 million and $8.3 million, respectively).
Prepaids and other assets primarily contains $2.2 million in prepaid insurance and $1.1 million property holding and other miscellaneous deposits (December 31, 2019 – $0.7 and $1.4 million respectively).
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
NOTE 5 MINERAL PROPERTY INTERESTS8 INVENTORIES
Inventories at December 31, 2020 and 2019 consist of the following:
| | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Material on leach pads | | $ | 21,003 | | $ | 37,328 |
In-process inventory | | | 3,922 | | | 3,847 |
Stockpiles | | | 635 | | | 1,384 |
Precious metals | | | 1,344 | | | 1,038 |
Materials and supplies | | | 4,845 | | | 4,382 |
Inventories | | $ | 31,749 | | $ | 47,979 |
Less current portion | | | 26,964 | | | 38,376 |
Long-term portion | | $ | 4,785 | | $ | 9,603 |
During the year ended December 31, 2017, 2020, the Company acquired additional mineral property interests in connection with acquisitionsinventory of Lexam VG Gold Inc. (“Lexam”) and the Black Fox, Complex, referGold Bar and El Gallo were written down to Note 19Acquisitions. During the their net realizable value by $1.9 million (year ended December 31, 2017,2019 - $nil); $12.4 million (year ended December 31, 2019 - $nil); and $1.7 million (year ended December 31, 2019 - $1.7 million), respectively. Of these write-downs, a total of $13.9 million (year ended December 31, 2019 - $1.7 million) was included in production costs applicable to sales and $2.1 million was included in depreciation and depletion (year ended December 31, 2019 - $nil) in the Company capitalized $3.3 million (2016 – $nil)Statement of expenditures relating to mine development and delineation.Operations.
On April 19, 2016, the Company completed the acquisition of the sliding scale net smelter return royalty (the “Royalty”) on the El Gallo 1 mine and El Gallo 2 project, previously requiring payment of 3.5% of gross revenue less allowable deductions, eventually reducing to 1%. The total purchase price was $6.3 million and consisted of a $5.3 million payment at closing and a deferred payment of $1.0 million due on June 30, 2018, conditional that the El Gallo 1 mine and El Gallo 2 project are in operation at that time.NOTE 9 MINERAL PROPERTY INTERESTS AND PLANT AND EQUIPMENT
The total cost and carrying value of the Royalty was accounted for as an addition to mineral property interests. The cost was allocatedinterests and plant and equipment at December 31, 2020 and 2019 are as follows:
| | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Mineral property interests, cost | | $ | 314,719 | | $ | 339,374 |
Less: accumulated depletion | | | (34,601) | | | (28,154) |
Mineral property interests, carrying value | | $ | 280,118 | | $ | 311,220 |
| | | | | | |
Plant and equipment, cost | | | | | | |
Land | | $ | 8,804 | | $ | 8,746 |
Construction in progress | | | 2,945 | | | 2,961 |
Plant and equipment | | | 72,188 | | | 133,014 |
Subtotal | | $ | 83,937 | | $ | 144,721 |
Less: accumulated depreciation | | | (34,943) | | | (37,150) |
Plant and equipment, carrying value | | $ | 48,994 | | $ | 107,571 |
| | | | | | |
Mineral property interests and plant and equipment, carrying value | | $ | 329,112 | | $ | 418,791 |
Additions to El Gallo 1 mineplant and El Gallo 2 project based on the relative fair value of the estimated future royalty payments for each project. The allocation resulted in approximately $5.1 million allocated to the El Gallo 1 mine and $1.2 million allocated to the El Gallo 2 project. The $1.0 million conditional deferred payment has been included under current other liabilitiesequipment as of December 31, 2017. The Royalty ceased accruing2020 include $nil of capitalized interest related to the Gold Bar mine (December 31, 2019 – $1.4 million). On February 16, 2019, first production occurred at the endGold Bar mine and related construction-in-progress costs were transferred into the appropriate category of March 2016.plant and equipment and amortized.
The
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Mineral property interest carrying values for all of the mineral properties held by the Company asvalue at December 31, 20172020 and 20162019 includes the following:
| | | | | | | | | | | |
Name of Property/Complex | | State/Province | | Country | | 2020 | | 2019 | |
Fox Complex | | Ontario | | Canada | | $ | 17,580 | | $ | 14,627 | |
Lexam | | Ontario | | Canada | | | 41,595 | | | 41,595 | |
Los Azules Copper Project | | San Juan | | Argentina | | | 191,490 | | | 191,490 | |
Tonkin Properties | | Nevada | | United States | | | 4,833 | | | 4,833 | |
Gold Bar Project | | Nevada | | United States | | | 14,675 | | | 48,492 | |
Battle Mountain Complex | | Nevada | | United States | | | 785 | | | 785 | |
El Gallo Project | | Sinaloa | | Mexico | | | 3,353 | | | 3,591 | |
Fenix Project Properties | | Sinaloa | | Mexico | | | 5,807 | | | 5,807 | |
Total mineral property interests | | | | | | $ | 280,118 | | $ | 311,220 | |
Black Fox and Gold Bar mineral property interest are noted below:
| | | | | | | | | | | |
Name of Property/Complex | | State/Province | | Country | | 2017 | | 2016 | |
Black Fox Complex | | Ontario | | Canada | | $ | 11,364 | | $ | — | |
Lexam | | Ontario | | Canada | | | 41,595 | | | — | |
Los Azules Copper Project | | San Juan | | Argentina | | | 191,490 | | | 191,490 | |
Tonkin Properties | | Nevada | | United States | | | 4,833 | | | 4,833 | |
Gold Bar Project | | Nevada | | United States | | | 31,317 | | | 31,180 | |
North Battle Mountain Properties | | Nevada | | United States | | | 785 | | | 785 | |
El Gallo 1 Mine | | Sinaloa | | Mexico | | | 6,246 | | | 8,545 | |
El Gallo 2 Properties | | Sinaloa | | Mexico | | | 5,807 | | | 5,807 | |
Total Mineral Property Interests | | | | | | $ | 293,437 | | $ | 242,640 | |
depleted based on the units of production method from production commencement date over the estimated proven and probable reserves.
For the year ended December 31, 2017, the Company recorded $2.3 million (2016 - $2.4 million and 2015 - $1.3 million) of amortization expense related to theThe El Gallo 1Project is depleted and depreciated using the straight line or units-of-production method over the stated mine whichlife, as the project does not have proven and probable reserves compliant with Guide 7.
The definition of proven and probable reserves is included in Production Costs Applicable to Salesset forth in the StatementGuide 7. If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are charged to expense based on the units of Operations and Comprehensive (Loss) Income.
For the year ended December 31, 2017, the Company recorded $0.9 million (2016 and 2015 – $nil)production method upon commencement of amortization expenses related to theproduction. The Company’s Gold Bar, Black Fox mine, which is includedand San José properties have proven and probable reserves estimated in Production Costs Applicable to Sales in the Statement of Operations and Comprehensive (Loss) Income.accordance with SEC Industry Guide 7.
The Company conducts a review of potential triggering events for impairment for all its mineral projects on a quarterly basis. Whenbasis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable,recoverable.
As part of the analysis conducted in Q1 2020, the Company carries out a reviewdetermined that indicators of impairment existed for the long-lived assets at the Gold Bar mine and evaluationthat the long-lived assets at the Gold Bar mine were likely not recoverable on an undiscounted basis. The fair value of its long-lived assets. In the years ended December 31, 2017Gold Bar mine was estimated using the discounted cash flow method, coupled with an in-situ resource multiple for mineralized material not included in the life of mine plan. Future cash flows were estimated based on estimated quantities of recoverable mineralized material, expected gold prices, estimated production levels, operating costs, capital requirements and 2016, no such triggering events were identified with respectreclamation costs, all based on the life-of-mine plan using the preliminary estimated resources. The in-situ resource multiple applied to the Company’s Nevada, Argentina, Mexico, or Timmins properties.mineralized material not included in the life-of-mine plan was estimated by evaluating observable market transactions. The Company concluded that the carrying value of the long-lived assets at the Gold Bar mine was impaired and recorded a non-cash impairment charge reducing plant and equipment and mineral property interests by the amount of $83.8 million.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
For the year ended December 31, 2015, the Company recognized impairments on its Argentina and Nevada properties and portion of Mexico construction-in-progress, for an aggregate of $50.6 million. For the Nevada properties, an initial $29.7 million impairment was recorded in the second quarter of 2015 when the Company performed a strategic review of its mineral property interests from which a decision was made to allow certain non-essential claims and portions of claims, included within the Gold Bar project and Tonkin property, to lapse on the September 1, 2015 renewal date. Subsequently, during the fourth quarter of 2015 an additional $7.5 million was recorded given the continuous decline in the observed market value of the Nevada properties. The deferred income tax recoveries resulting from the Nevada impairments made in the second quarter and fourth quarter of 2015 were $10.4 million and $2.2 million, respectively. The Company used the market approach to estimate the fair value of the impaired properties.
Further, when performing the recoverability test for the Los Azules project and El Gallo 2 project asset groups in the fourth quarter of 2015, the Company noted that the carrying value of each of the asset groups exceeded their estimated fair value, resulting in a total impairment charge for Los Azules project and El Gallo 2 project asset groups of $11.4 million and $2.0 million, respectively, along with a resulting deferred income tax recovery of $1.3 million and $nil, respectively, being recorded in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2015. The Company used the market approach to estimate the fair value of the impaired properties.
Based on the above, impairment charges were recorded on the following mineral property interests for the years ended December 31, 2017, 2016, and 2015:
| | | | | | | | | | | | |
Name of Property/Complex | | Segment | | 2017 | | 2016 | | 2015 | |
Los Azules Project | | Argentina | | | — | | | — | | | 11,399 | |
Gold Bar Project | | Nevada | | | — | | | — | | | 20,847 | |
Tonkin Properties | | Nevada | | | — | | | — | | | 14,939 | |
North Battle Mountain Properties | | Nevada | | | — | | | — | | | 1,443 | |
Property, plant and equipment | | Mexico | | | — | | | — | | | 1,972 | |
Total impairment | | | | $ | — | | $ | — | | $ | 50,600 | |
NOTE 6 PLANT AND EQUIPMENT, MINE DEVELOPMENT AND CONSTRUCTION IN PROGRESS
As of December 31, 2017 and 2016, property and equipment consisted2020 no further indicators of impairment have been noted for Gold Bar.
The following table sets forth a summary of the following:
| | | | | | |
| | December 31, 2017 | | December 31, 2016 |
Land | | $ | 8,699 | | $ | 8,699 |
Plant and equipment | | | 43,257 | | | 8,505 |
Construction-in-progress | | | 8,178 | | | 2,812 |
Subtotal | | $ | 60,134 | | $ | 20,016 |
Less: accumulated depreciation | | | (9,088) | | | (5,764) |
| | $ | 51,046 | | $ | 14,252 |
quantitative and qualitative information related to the unobservable inputs used in the calculation of the Company’s non-recurring Level 3 fair value measurement of the Gold Bar mine:
Construction-in-progress included the following costs:
| | | | | | | | | December 31, 2017 | | December 31, 2016 | Gold Bar project | | $ | 6,011 | | $ | — | Black Fox mine | | | 67 | | | — | El Gallo 2 project | | | 2,100 | | | 2,812 | | | $ | 8,178 | | $ | 2,812 |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
| | | | | | | | |
| | |
| | Date of Fair Value Measurement | | Valuation Technique | | Unobservable Input | | Range/ Weighted Average |
| | | | | | | | |
Gold Bar Mine | | March 31, 2020 | | Discounted Cash Flow | | Discount Rate | | 9% |
| | | | | | Long Term Gold Price | | $1,430/oz |
| | | | | | United States Inflation Index | | 2% |
The Gold Bar project construction-in-progress includes deposits for long-lived capital equipmentestimated future cash flows are based on numerous assumptions and expenditures for mobilization, design and engineering, and earthwork.
El Gallo 2 project construction-in-progress includes certain equipment which has not been delivered in 2017. In 2017, an impairment charge of $0.7 million was recorded against this equipment to reflect the decline in fair value.uncertainties. It is uncertain ifpossible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold prices, production levels and when this equipment can be utilized in current operations.costs of capital are each subject to significant risks and uncertainties.
In the second quarter of 2016, the Company reached an agreement with a separate contractor, whereby the Company was refunded its equivalent deposit less costs incurred for the equipment design. The total amount of the deposit was $1.5 million, of which $1.0 million was refunded. The remaining $0.5 million was recorded under development costs in the Consolidated Statement of Operations and Comprehensive Income (Loss) for 2016.
NOTE 710 INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) - SAN JOSÉ MINE
As noted in Note 2, Summary of Significant Accounting Policies - Investments, theThe Company accounts for investments over which it exerts significant influence but does not control through majority ownership using the equity method of accounting. In applying the equity method of accounting to the Company’s investment in MSC, MSC’s financial statements, which are originally prepared by MSC in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, have been adjusted to conform with U.S. GAAP. As such, the summarized financial data presented under this heading is in accordance with U.S. GAAP.
The Company’s 49% attributable shareA summary of operations from its investment inthe operating results of MSC was loss of $0.1 million for the year ended December 31, 2017, compared to an income2020, 2019, and 2018 is as follows:
| | | | | | | | | | |
| | Year ended December 31, | |
| | 2020 | | 2019 | | | 2018 | |
Minera Santa Cruz S.A. (100%) | | | | | | | | | | |
Revenue from gold and silver sales | | $ | 219,020 | | $ | 263,887 | | $ | 213,096 | |
Production costs applicable to sales | | | (138,182) | | | (159,915) | | | (151,779) | |
Depreciation and depletion | | | (29,809) | | | (69,995) | | | (52,200) | |
Gross profit | | | 51,029 | | | 33,977 | | | 9,117 | |
Exploration | | | (10,446) | | | (10,635) | | | (5,884) | |
Other expenses(1) | | | (30,515) | | | (13,065) | | | (12,840) | |
Net income (loss) before tax | | $ | 10,068 | | $ | 10,277 | | $ | (9,607) | |
Current and deferred tax expense | | | (4,466) | | | (14,556) | | | (10,934) | |
Net income (loss) | | $ | 5,602 | | $ | (4,279) | | $ | (20,541) | |
| | | | | | | | | | |
Portion attributable to McEwen Mining Inc. (49%) | | | | | | | | | | |
Net income (loss) | | $ | 2,745 | | $ | (2,097) | | $ | (10,065) | |
Amortization of fair value increments | | | (5,390) | | | (9,448) | | | (9,730) | |
Income tax recovery | | | 1,128 | | | 2,791 | | | 7,930 | |
Loss from investment in MSC, net of amortization | | $ | (1,517) | | $ | (8,754) | | $ | (11,865) | |
(1) Other expenses include foreign exchange, accretion of $13.0 million for the year ended December 31, 2016asset retirement obligations and income of $2.4 million for the year ended December 31, 2015. These amounts are net of the amortization of the fair value increments arising from the Company’s purchase price allocation, net of impairment charges, andother finance related income tax recovery.expenses.
Included in the income tax recovery is the impact of fluctuations in the exchange rate between the Argentine peso and the U.S. dollar on the peso-denominated deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes. As a devaluation of the Argentine peso relative to the U.S. dollar results in a recovery of deferred income taxes, the impact has been a decrease to the Company’s loss, or an increase to the Company’s income, from its investment in MSC. Furthermore, on December 29, 2017 the Senate of Argentina passed a significant tax reform to the Country’s tax system. The law changes the corporate tax rate from 35% to 25% by 2020. As a result of the tax reform, the Company recorded a $5.6 million deferred tax recovery corresponding to the deferred tax liability on the fair value increments arising from the Company’s purchase price allocation.
In 2015, the Company recorded an impairment charge of $11.8 million on its investment in MSC, primarily as a result of the significant decline in long-term estimated silver market prices, as well as in the observed market value of comparable transactions in South America, which indicated a likely significant decrease in the value of the exploration properties owned by MSC. These factors caused the Company to assess that there was a decline in fair value of its investment in MSC that was other than temporary. As the loss in value of the investment was considered other than temporary, an impairment of $11.8 million was recorded in the Company’s Consolidated Statement of Operations and Comprehensive (Loss) Income for the year ended December 31, 2015. No impairments were recorded to 2017 or 2016.
During the year ended December 31, 2017, the Company received $12.2 million in dividends from MSC, compared to $17.7 million in 2016.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Shutdown costs related to the COVID-19 pandemic for MSC were recognized in other expenses and totaled $11.4 million for the year ended December 31, 2020.
The loss from investment in MSC attributable to the Company includes amortization of the fair value increments arising from the initial purchase price allocation and related income tax recovery. The income tax recovery reflects the impact of devaluation of the Argentine peso against the U.S. dollar on the peso-denominated deferred tax liability recognized at the time of acquisition, as well as income tax rate changes over the periods.
Changes in the Company’s investment in MSC for the year ended December 31, 20172020 and 20162019 are as follows:
| | | | | | |
| | December 31, 2017 | | December 31, 2016 |
Investment in MSC, beginning of the period | | $ | 162,320 | | $ | 167,107 |
Attributable net income from MSC | | | (2,328) | | | 15,961 |
Amortization of fair value increments | | | (9,632) | | | (12,274) |
Income tax recovery | | | 11,916 | | | 9,264 |
Dividend distribution received | | | (12,212) | | | (17,738) |
Investment in MSC, end of the period | | $ | 150,064 | | $ | 162,320 |
| | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Investment in MSC, beginning of year | | $ | 110,183 | | $ | 127,814 |
Attributable net income (loss) from MSC | | | 2,745 | | | (2,097) |
Amortization of fair value increments | | | (5,390) | | | (9,448) |
Income tax recovery | | | 1,128 | | | 2,791 |
Dividend distribution received | | | (340) | | | (8,877) |
Investment in MSC, end of year | | $ | 108,326 | | $ | 110,183 |
A summary of the operating results fromkey assets and liabilities of MSC for the year ended December 31, 2017, 2016, and 2015 is as follows:
| | | | | | | | | | |
| | Year ended December 31, | |
| | 2017 | | 2016 | | | 2015 | |
Minera Santa Cruz S.A. (100%) | | | | | | | | | | |
Net Sales | | $ | 227,093 | | $ | 235,961 | | $ | 186,095 | |
Production costs applicable to sales | | | (177,180) | | | (173,679) | | | (158,615) | |
Net (loss) income | | | (4,750) | | | 32,574 | | | (5,835) | |
| | | | | | | | | | |
Portion attributable to McEwen Mining Inc. (49%) | | | | | | | | | | |
Net (loss) income | | $ | (2,328) | | $ | 15,961 | | $ | (2,859) | |
Amortization of fair value increments | | | (9,632) | | | (12,274) | | | (10,669) | |
Income tax recovery | | | 11,916 | | | 9,264 | | | 15,942 | |
(Loss) income from investment in MSC, net of amortization | | $ | (44) | | $ | 12,951 | | $ | 2,414 | |
As at December 31, 2017, MSC had current assets of $104.4 million, total assets of $406.5 million, current liabilities of $46.0 million2020, before and total liabilities of $100.3 million. These balances include the increase in fair value and amortization of theafter adjustments for fair value increments arising from the Company’s purchase price allocation, are as follows:
| | | | | | | | | |
As at December 31, 2020 | | Balance excluding FV increments | | Adjustments | | Balance including FV increments |
Current assets | | $ | 94,965 | | $ | 362 | | $ | 95,327 |
Total assets | | $ | 186,438 | | $ | 107,821 | | $ | 294,259 |
| | | | | | | | | |
Current liabilities | | $ | (40,396) | | $ | — | | $ | (40,396) |
Total liabilities | | $ | (69,255) | | $ | (3,936) | | $ | (73,191) |
NOTE 11 LEASE LIABILITIES
The Company’s lease obligations include equipment, vehicles and office space. Leased assets are net ofincluded in plant and equipment (Note 9). The terms and conditions contained in the impairment charges. Excluding the fair value increments from the purchase price allocation and impairment charges, MSC had current assets of $103.7 million, total assets of $248.3 million, currentCompany’s leases do not contain variable components.
Lease liabilities of $46.0 million, and total liabilities of $72.2 million as at December 31, 2017.2020 and 2019 are as follows:
NOTE 8 ASSET RETIREMENT OBLIGATIONS
| | | | | | |
| | Total discounted lease liabilities |
| | December 31, 2020 | | December 31, 2019 |
Finance leases | | $ | 4,735 | | $ | 6,229 |
Operating lease | | | 761 | | | 904 |
Lease liabilities | | $ | 5,496 | | $ | 7,133 |
Current portion | | | (2,440) | | | (2,115) |
Long-term portion | | $ | 3,056 | | $ | 5,018 |
TheOn January 1, 2019, the Company is responsible for reclamation of certain pastadopted ASC 842, “Leases,” under a modified retrospective transition method and future disturbances at its properties. The most significant properties subject to these obligations are the Tonkin property in Nevada, the El Gallo 1 mine in Mexico, and the Timmins properties in Canada.
The Final Plan for Permanent Closure (“FPPC”) and the Amended Plan of Operations for the Tonkin property was approved by the Nevada Division of Environmental Protection (“NDEP”) and by the Bureau of Land Management (“BLM”) pursuantrecorded a nominal cumulative-effect adjustment to the Findingopening accumulated deficit balance.
Lease liabilities at December 31, 2020 are recorded using a weighted average discount rate of No Significant Impact in March 20126.83% and September 2015,8.73%, respectively, for finance and operating leases and have average remaining lease terms of two years and four years, respectively. Subsequently, on October 3, 2015, the BLM requested an updated bonding requirement in the amount of $3.6 million, which is covered by the Company’s surety bond facility.
The Company assumed a reclamation obligation of $11.2 million related to the Black Fox Complex as a part of the acquisition of the Black Fox Complex (see Note 19 for additional details regarding the acquisition). The amount of the reclamation obligation is based on the 2017 Closure Cost Update approved by the Ministry of Northern Development and Mines (“MNDM”) which is based on the 2010 Closure Plan Amendment also approved by the MNDM. The Company is currently in the process of filing an amended Closure Plan with the MNDM in 2018, approval of which is anticipated in the fourth quarter of 2018. The Company also assumed the $16.5 million (C$20.5) million bonding requirement with the MNDM as a part of the acquisition, which is covered by the Company’s surety bond facility.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
During the year ended December 31, 2020, the Company recorded $1.3 million (December 31, 2019 – $1.8 million) in interest and other finance costs related to leases. A breakdown of the lease related costs for the year ended December 31, 2020 and 2019 are as follows:
| | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Finance leases: | | | | | | |
Amortization of ROU assets | | $ | 878 | | $ | 1,123 |
Interest expense | | | 392 | | | 517 |
Total | | $ | 1,270 | | $ | 1,640 |
| | | | | | |
Operating lease: | | | | | | |
Rent expense | | $ | 194 | | $ | 193 |
Future minimum undiscounted lease payments as at December 31, 2020 are as follows:
| | | | | | | | | | | | | | | | | | |
| | Payments due by period |
| | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Total |
Operating lease obligation | | $ | 228 | | $ | 230 | | $ | 234 | | $ | 156 | | $ | — | | $ | 848 |
Finance lease obligations | | | 2,467 | | | 2,186 | | | 274 | | | 24 | | | — | | | 4,951 |
Total future minimum lease payments | | $ | 2,695 | | $ | 2,416 | | $ | 508 | | $ | 180 | | $ | — | | $ | 5,799 |
Less: Imputed interest | | | | | | | | | | | | | | | | | | (303) |
Total | | | | | | | | | | | | | | | | | | 5,496 |
NOTE 12 LONG-TERM DEBT
On August 10, 2018, the Company finalized a $50.0 million senior secured three year term loan facility with Royal Capital Management Corp., as administrative agent, and the lenders party thereto. Interest on the loan accrued at the rate of 9.75% per annum with interest due monthly and the loan was collateralized by a lien on certain of the Company’s and its subsidiaries’ assets.
On June 25, 2020, the Company entered into an Amended and Restated Credit Agreement (“ARCA”) which refinanced the outstanding $50 million and which terms differed in material respects from the original loan as follows:
| ● | Sprott Private Resource Lending II (Collector), LP replaced Royal Capital Management Corp. as the administrative agent. |
| ● | Sprott Private Resource Lending II (Collector), LP replaced certain lenders. An affiliate of Robert McEwen remains as a lender. |
| ● | Scheduled repayments of the principal are extended by two years. Monthly repayments of principal in the amount of $2.0 million are due beginning on August 31, 2022 and continuing for 12 months, followed by a final principal payment of $26.0 million plus any accrued interest on August 31, 2023. |
| ● | The minimum working capital maintenance requirement was reduced from $10.0 million under the original term loan to $nil at June 30, 2020 to December 31, 2020 and from $10.0 million to $2.5 million at March 31, 2021 to the end of 2021. The working capital requirement increases to $5.0 million for March 31, 2022, $7.0 million for June 30, 2022, and $10 million for September 30, 2022 and thereafter. |
| ● | The Company issued 2,091,700 shares valued at $1,875,000 to the lenders as bonus interest, accounted for as a financing cost. The value of the shares plus the unamortized costs of the original term loan will be amortized over the modified term of the loan. |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
The Company accrued $0.1remaining principal terms of the original agreement remain unchanged.
A reconciliation of the Company’s long-term debt for the year ended December 31, 2020 and 2019 is as follows:
| | | | | | | |
| | December 31, 2020 | | December 31, 2019 | |
Balance, beginning of year | | $ | 49,516 | | $ | 49,206 | |
Interest expense | | | 5,394 | | | 5,185 | |
Interest payments | | | (4,875) | | | (4,875) | |
Bonus Interest - Equity based financing fee | | | (1,875) | | | — | |
Balance, end of year | | $ | 48,160 | | $ | 49,516 | |
Less current portion | | | — | | | 10,000 | |
Long-term portion | | $ | 48,160 | | $ | 39,516 | |
During the year ended December 31, 2020, $nil of interest was capitalized in plant and equipment (year ended December 31, 2019 – $0.6 million, relatedcapitalized to disturbances at the Gold Bar project in the fourth quarter. This amount is expected to increase quarterly as the project undergoes development through 2018. This obligation is covered by the Company’s surety bond facility.mine).
Under current Mexican regulations, surety bonding of projected reclamation costs is not required.
The Company’s reclamation expenses consisted of the following:
| | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
Reclamation Adjustment reflecting updated estimates | | $ | 1,426 | | $ | 89 | | $ | — |
Reclamation Accretion | | | 635 | | | 506 | | | 429 |
Total | | $ | 2,061 | | $ | 595 | | $ | 429 |
The Company’s asset retirement obligations for years ended December 31, 2017 and 2016 are as follows:
| | | | | | |
| | 2017 | | 2016 |
Asset retirement obligation liability, beginning of the period | | $ | 9,843 | | $ | 7,784 |
Settlements | | | (126) | | | (66) |
Accretion of liability | | | 635 | | | 506 |
Acquisitions and divestitures | | | 11,803 | | | — |
Adjustment reflecting updated estimates | | | 2,561 | | | 1,619 |
Foreign exchange revaluation | | | 6 | | | — |
Asset retirement obligation liability, ending balance | | $ | 24,722 | | $ | 9,843 |
Current portion | | | (646) | | | (537) |
Non-current portion | | $ | 24,076 | | $ | 9,306 |
NOTE 9 INCOME AND MINING TAXES
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, the Company has not completed the accounting for the tax effects of enactment of the Act; however, in certain cases as described below, the Company has made a reasonable estimate of the effects on the existing deferred tax balances and the one-time transition tax.13 ASSET RETIREMENT OBLIGATIONS
The Company remeasuredis responsible for reclamation of certain deferred tax assetspast and liabilities based onfuture disturbances at its properties. The most significant properties subject to these obligations are the rates at which they are expected to reverseGold Bar and Tonkin properties in Nevada, the future, which is generally 21%. However,Timmins properties in Canada, and the Company is still analyzing certain aspectsEl Gallo Project in Mexico.
A reconciliation of the ActCompany’s asset retirement obligations for the years ended December 31, 2020 and refining2019 are as follows:
| | | | | |
| December 31, 2020 | | December 31, 2019 |
Asset retirement obligation liability, beginning balance | $ | 32,201 | | $ | 29,402 |
Settlements | | (267) | | | (513) |
Accretion of liability | | 1,901 | | | 1,680 |
Adjustment reflecting updated estimates | | (54) | | | 1,012 |
Foreign exchange revaluation | | 219 | | | 620 |
Asset retirement obligation liability, ending balance | $ | 34,000 | | $ | 32,201 |
Less current portion | | 3,232 | | | 2,610 |
Long-term portion | $ | 30,768 | | $ | 29,591 |
The adjustment reflecting updated estimates during the calculations, which could potentially affect the measurement of these balances or potentially give riseyear ended December 31, 2020 primarily relates to new deferred tax amounts. The provisional amount recorded related to the re-measurement of the deferred tax balance wasa $0.1 million increase in obligations in Nevada (2019 – included a reduction of $4.2$5.3 million to deferred tax liabilities, and a reduction of $23.7 million to the deferred tax assets, which have a valuation allowance provided against them.
The one-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from US income taxes. Based on preliminary calculations the Company will have $nil payable under the one-time transition tax. The Company has not yet completed the calculation as it continues to review the eligibility of foreign tax credits, along with earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from US federal taxation.
On December 29, 2017 the Senate of Argentina passed a significant tax reform to the country’s tax system. The law changes the corporate tax rate from 35% to 25% by 2020. As a result of the tax reform, the Company recorded a $3.9 million reduction to deferred tax liabilities on certain Argentine assets acquired in the 2012 Minera Andes acquisition and a reductionestimated environmental obligations for the Black Fox mine offset by an increase of $12.4$4.3 million to our deferred tax assets, whichfor the estimated environmental obligations for the Gold Bar mine).
Reclamation expense in the Statement of Operations includes adjustments for updates in the reclamation liability for properties that do not have a full valuation allowance provided against them.reserves in compliance with Guide 7. Reclamation accretion for all properties is as follows:
| | | | | | | | |
| Year ended December 31, |
| 2020 | | 2019 | | 2018 |
Reclamation adjustment reflecting updated estimates | $ | (113) | | $ | 1,851 | | $ | 2,259 |
Reclamation accretion | | 1,901 | | | 1,680 | | | 1,205 |
Total | $ | 1,788 | | | 3,531 | | $ | 3,464 |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
The Company’s deferred income and mining tax benefit consisted of:
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
United States | | $ | 10,349 | | $ | 515 | | $ | (442) |
Foreign | | | 5,020 | | | 3,234 | | | 25,002 |
Deferred tax benefit | | $ | 15,369 | | $ | 3,749 | | $ | 24,560 |
The Company’s net (loss) income before income and mining tax consisted of:
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
United States | | $ | (19,913) | | $ | (13,959) | | $ | (19,935) |
Foreign | | | (6,090) | | | 31,265 | | | (25,075) |
Net (loss) income before tax | | $ | (26,003) | | $ | 17,306 | | $ | (45,010) |
A reconciliation of the tax provision for 2017, 2016 and 2015 at statutory U.S. Federal and State income tax rates to the actual tax provision recorded in the financial statements is computed as follows:
| | | | | | | | | | |
Expected tax recovery at | | 2017 | | 2016 | | 2015 | |
(Loss) income before income and mining taxes | | $ | (26,003) | | $ | 17,306 | | $ | (45,010) | |
Statutory tax rate | | | 35% | | | 34% | | | 34% | |
US Federal and State tax recovery at statutory rate | | | (9,101) | | | 5,884 | | | (15,303) | |
Reconciling items: | | | | | | | | | | |
Equity pickup in MSC | | | (16) | | | (4,533) | | | (821) | |
Impairment of MSC | | | — | | | — | | | 4,004 | |
Deferred foreign income inclusion | | | 21,002 | | | — | | | — | |
Foreign tax credits | | | (16,628) | | | — | | | — | |
Tax rate changes | | | 28,048 | | | — | | | — | |
Revisions to prior year estimates | | | (573) | | | (828) | | | 906 | |
Adjustment for foreign tax rates | | | 115 | | | (501) | | | (1,230) | |
Other permanent differences | | | (1,761) | | | 818 | | | (15,694) | |
Unrealized foreign exchange rate (loss)/gain | | | 2,469 | | | 5,972 | | | 9,389 | |
NOL expires and revisions | | | (2,233) | | | 586 | | | 1,215 | |
Valuation allowance | | | (36,691) | | | (11,147) | | | (7,026) | |
Tax benefit | | $ | (15,369) | | $ | (3,749) | | $ | (24,560) | |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as at December 31, 2017 and 2016 respectively are presented below:
| | | | | | | |
| | 2017 | | 2016 | |
Deferred tax assets: | | | | | | | |
Net operating loss carryforward | | $ | 72,078 | | $ | 96,312 | |
Mineral Properties | | | 59,905 | | | 14,195 | |
Other temporary differences | | | 862 | | | 1,114 | |
Total gross deferred tax assets | | | 132,845 | | | 111,621 | |
Less: valuation allowance | | | (123,648) | | | (111,621) | |
Net deferred tax assets | | $ | 9,197 | | $ | — | |
Deferred tax liabilities: | | | | | | | |
Acquired mineral property interests | | | (17,627) | | | (23,655) | |
Total deferred tax liabilities | | $ | (17,627) | | $ | (23,655) | |
Total net deferred tax liability | | $ | (8,430) | | $ | (23,655) | |
The Company reviews the measurement of its deferred tax assets at each balance sheet date.
As at December 31, 2017 the Company recognized a deferred tax asset to the extent of the deferred tax liability recognized on the acquired mineral property interests associated with the Gold Bar project, in the amount of $6.4 million. During the fourth quarter the Company commenced construction of the project, and is now able to reasonably estimate when the temporary difference associated with the deferred tax liability will reverse. The reversal is expected to occur over the same time period as existing tax assets, which have previously been provided for by the valuation allowance. On the basis of available information at December 31, 2017, the Company has provided a valuation allowance for certain of its deferred assets where the Company believes it is more likely than not that some portion or all of such assets will be realized. The change in valuation allowance of approximately $12 million primarily reflects an increase in relation to the Black Fox acquisition, partially offset by the reduction to tax assets pursuant to the recent tax reforms.
The table below summarizes changes to the valuation allowance:
| | | | | | | | | | | | |
For the year ended December 31, | | Balance at
beginning of period | | Additions(a) | | Deductions(b) | | Balance at
end of period |
2017 | | $ | 111,621 | | $ | 51,220 | | $ | (39,193) | | $ | 123,648 |
2016 | | | 122,768 | | | 1,430 | | | (12,577) | | | 111,621 |
2015 | | | 129,794 | | | 6,873 | | | (13,899) | | | 122,768 |
| (a)
| | The additions to valuation allowance mainly results from the Company and its subsidiaries incurring losses and exploration expenses for tax purposes which do not meet the more-likely-than-not criterion for recognition of deferred tax assets.
|
| (b)
| | The reductions to valuation allowance mainly results from release of valuation allowance, reductions in deferred tax rates, expiration of the Company's tax attributes and foreign exchange reductions of tax attributes in Mexico and Argentina.
|
The deferred tax liability related to the Minera Andes acquisition was $6.2 million as at December 31, 2017 (2016 - $12.6 million).
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
As at December 31, 2017 and 2016, the Company did not have any income-tax related accrued interest and tax penalties.
The following table summarizes the Company’s losses that can be applied against future taxable profit:
| | | | | | | |
Country | | Type of Loss | | Amount | | Expiry Period |
United States(a) | | Non-operating losses | | $ | 165,654 | | 2018-2037 |
Mexico | | Non-operating losses | | | 33,355 | | 2018-2027 |
Canada(a) | | Non-operating losses | | | 29,906 | | 2018-2037 |
Argentina(a) | | Non-operating losses | | | 78,964 | | 2018-2022 |
| (a)
| | The losses in the United States, Canada, and Argentina are part of multiple consolidating groups, and therefore, may be restricted in use to specific projects.
|
The Company or its subsidiaries file income tax returns in Canada, the United States, Mexico, and Argentina. These tax returns are subject to examination by local taxation authorities provided the tax years remain open to audit under the relevant statute of limitations. The following summarizes the open tax years by major jurisdiction:
United States: 2014 to 2017
Canada: 2010 to 2017
Mexico: 2013 to 2017
Argentina: 2013 to 2017
NOTE 1014 SHAREHOLDERS’ EQUITY
Capital distributionsEquity Issuances
During the year endedFlow-Through Shares Issuance
On December 31, 2017, the Company paid two semi-annual distribution on February 14 and August 17, totaling $0.01 (December 31, 2016 - $0.01) per share of common stock, for a total distribution of $3.1 million (December 31, 2016 - $3.0 million). In light of the Tax and Jobs Act, enacted on December 22, 2017, the Company incurred a one-time transition tax on earnings of certain foreign subsidiaries, that were previously tax deferred. As a result of the inclusion of its subsidiaries’ foreign earnings, the Company will be in a taxable income position. As a result, the distributions made during 2017 have been re-characterized as taxable dividends.
Equity offerings
The Company issued 12,687,035 shares of common stock as part of the Lexam acquisition completed on April 26, 2017. See Note 19 Acquisitions.
On September 22, 2017,2020, the Company issued 20,700,000 common shares and 10,350,000 warrants for net proceeds of $43.2 million, after deducting issuance costs of $3.4 million. Each common share purchased entitled the holder to receive half a warrant, and each whole warrant entitles the holder to purchase one common share at a price of $2.70. Warrants are exercisable at any time prior to September 28, 2018, after which the warrants will expire and be of no value.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
The Company concluded that both common shares and warrants are equity-linked financial instruments and should be accounted for permanently in the Shareholder’s Equity section in the Consolidated Balance Sheet, with no requirement to subsequently revalue any of the instruments. Based on the relative fair values, the Company allocated $39.4 million to common shares and $3.8 million to warrants, net of issuance costs. The Company used the Black-Scholes pricing model to determine the fair value of warrants using the following assumptions:
| | | |
Risk-free interest rate | | 1.56 | % |
Dividend yield | | 0.36 | % |
Volatility factor of the expected market price of common stock | | 71 | % |
Weighted-average expected life | | 53 weeks | |
Weighted-average grant date fair value | $ | 0.40 | |
All 10,350,000 warrants remain outstanding and unexercised as of December 31, 2017.
Flow-through shares
On December 19, 2017, the Company issued 4,000,000an additional 7,669,900 flow-through common shares (within the meaning of subsection 66(15) of the Income Tax Act (Canada)) priced at $2.50$1.28 per share for totalgross proceeds of $10$9.8 million. The purpose of thethis offering iswas to fund generativeexploration activities on the Company’s properties in the Timmins region of Canada. The total proceeds were allocated between the sale of tax benefits and the sale of common shares. NaN issuance costs were incurred as part of this issuance. Proceeds of $9.8 million were allocated between the sale of tax benefits in the amount of $2.1 million and the sale of common shares in the amount of $7.7 million.
On September 10, 2020, the Company issued 6,298,166 flow-through common shares priced at $1.65 per share for gross proceeds of $10.4 million. The purpose of this offering was to fund exploration activities on the Company’s properties in the Timmins region of Canada. The total proceeds were allocated between the sale of tax benefits and the sale of common shares. The total issuance costs related to the issuance of the flow-through shares was $0.5$0.6 million, which are accounted for as a reduction to the common shares. The Company has also recorded a liability fornet proceeds of $9.8 million were allocated between the flow-through premium receivedsale of tax benefits in the amount of $1.6$2.0 million which was accounted forand the sale of common shares in the amount of $7.8 million.
The Company is required to spend flow-through share proceeds on flow-through eligible Canadian exploration expenditures (“CEE”) as defined by subsection 66(15) of the Income Tax Act (Canada). To date, the Company has incurred a reductiontotal of $1.9 million in eligible CEE. The Company expects to fulfill its CEE commitments by the end of 2022.
June 2020 Amended and Restated Credit Agreement
Pursuant to the common share proceeds. The obligation is fulfilled when eligible expenditures are incurred.
The proceeds of the flow-through shares offering are shown as Restricted cashARCA executed on the Consolidated Balance Sheet.
Share repurchase
During the twelve months ended December 31, 2016June 25, 2020, the Company repurchased 557,991issued 2,091,700 shares of common stock (December 31, 2015 – 1,896,442to the lenders as consideration for the maintenance, continuation, and the extension of the maturity date of the loan. The Company valued the shares at $1.9 million.
Shares Issued for Acquisition of common stock), all of which have been cancelled, at a total cost of $0.6 million (December 31, 2015 - $1.8 million). The share repurchase program expired on September 30, 2016. No further repurchase programs were initiated duringMineral Property Interests
During the year ended December 31, 2017.2020, the Company issued a total of 53,600 shares of common stock for the acquisition of mineral interests adjacent to Gold Bar, valued at $0.1 million (year ended December 31, 2019 - issued 353,570 shares of common stock for the acquisition of mineral interests adjacent to Gold Bar).
NOTE 11 STOCK BASED COMPENSATIONNovember 2019 Offering
On November 20, 2019 (the “November Offering”), the Company issued 37,750,000 Units at $1.325 per Unit, for net proceeds of $46.6 million (net of issuance costs of $3.5 million). Each Unit consisted of 1 share of common stock and one-half of one warrant. Each whole warrant is exercisable at any time for 1 share of common stock of the Company at a price of $1.7225, subject to customary adjustments, expiring five years from the date of issuance. The warrants provide for cashless exercise under certain conditions. The warrants under the November Offering are listed for trading on an over the counter market.
The Company concluded that both common stock and warrants are equity-linked financial instruments and should be accounted for permanently in the shareholders’ equity section in the Consolidated Balance Sheets, with no requirement to subsequently revalue any of the instruments. Of the net proceeds of $46.6 million, $37.3 million was allocated to common stock and $9.3 million was allocated to warrants, based on their relative fair values at issuance.
The Company used the Black-Scholes pricing model to determine the fair value of warrants issued in connection with the November Offering using the following assumptions:
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
| | | | | | | |
| | | | | November 20, 2019 | |
Risk-free interest rate | | | | | | 1.55 | % |
Dividend yield | | | | | | 0.00 | % |
Volatility factor of the expected market price of common stock | | | | | | 60 | % |
Weighted-average expected life | | | | | | 5 years | |
Weighted-average grant date fair value | | | | | $ | 0.52 | |
All 21,706,250 warrants issued under the November Offering remain outstanding and unexercised as at December 31, 2020.
March 2019 Offering
On March 29, 2019, the Company issued 14,193,548 Units at $1.55 per Unit, for net proceeds of $20.3 million (net of issuance costs of $1.7 million). Each Unit consisted of 1 share of common stock and one-half of one warrant. Each whole warrant is exercisable at any time for 1 share of common stock at a price of $2.00, subject to customary adjustments, expiring three years from the date of issuance. The warrants issued under the offering are not listed for trading.
On March 29, 2019, the Company also issued 1,935,484 Subscription Receipts at $1.55 per Subscription Receipt to certain executive officers, directors, employees and consultants. Upon shareholder and NYSE approval on May 23, 2019, the Subscription Receipts were converted into 1,935,484 Units for net proceeds of $2.6 million (net of issuance costs of $0.4 million). All Units issued under the offering have identical terms.
At-the-Market (“ATM”) Offering
Pursuant to an equity distribution agreement dated November 8, 2018, the Company was permitted to offer and sell from time to time shares of its common stock having an aggregate offering price of up to $90.0 million, with the net proceeds to fund working capital and general corporate purposes. During the three months ended March 31, 2019, the Company issued an aggregate of 1,010,545 shares of common stock for proceeds of $1.9 million. The Company terminated the agreement on March 13, 2019.
Stock Options
The Company’s Amended and Restated Equity Incentive Plan (“Plan”) allows for equity awards to be granted to employees, consultants, advisors, and directors. The Plan is administered by the Compensation Committee of the Board of Directors (“Committee”), which determines the terms pursuant to which any award is granted. The Committee may delegate to certain officers the authority to grant awards to certain employees (other than such officers), consultants and advisors.The number of shares of common stock reserved for issuance thereunder is 17.5 million shares, including shares issued under the Plan before it was amended, with no more than 1 million shares subject to grants of options to an individual in a calendar year. The Plan also provides for the grant of incentive options under Section 422 of the Internal Revenue Code (the “Code”), which provide potential tax benefits to the recipients compared to non-qualified options. At December 31, 2017, 5,283,1372020, 2,308,550 awards were authorized and available for issuance under the Plan (December 31, 20162019 – 5,294,5634,221,023 awards).
During the year ended December 31, 2017, 94,0002020, 135,000 shares of common stock (December 31, 20162019 – 1,494,085)535,000) were issued upon exercise of stock options under the Plan, at a weighted average exercise price of $1.30 (2016 - $2.51)$1.02 (2019 – $1.02) per share for proceeds of $0.1 million (2016 - $3.7(2019 – $0.5 million).
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Shareholder Distributions
During the year ended December 31, 2020 and December 31, 2019 the Company did not make any shareholder distributions.
Pursuant to the ARCA (Note 12), the Company is prevented from paying any dividends on its common stock, so long as the loan is outstanding.
Stock-Based Compensation
The following table summarizes information about stock options outstanding under the Plan outstanding at December 31, 2017:2020:
| | | | | | | | | | | | |
| | | | | | | | Weighted | | | | |
| | | | | Weighted | | Average | | | | |
| | | | | Average | | Remaining | | | | |
| | | Number of | | Exercise | | Contractual | | Intrinsic | |
| | | Shares | | Price | | Life (Years) | | Value | |
| | | | | | | | | | | | |
| | | | | | | Weighted | | | | | |
| | | | Weighted | | Average | | | | | |
| | | | Average | | Remaining | | | | | |
| | Number of | | Exercise | | Contractual | | Intrinsic | | |
| | Shares | | Price | | Life (Years) | | Value | | |
| | (in thousands, except per share and year data) | | |
Balance at December 31, 2015 | | 6,954 | | $ | 2.49 | | 4.1 | | $ | 98 | | |
| | | (in thousands, except per share and year data) | |
Balance at December 31, 2017 | | | 4,906 | | $ | 2.45 | | 2.6 | | $ | 2,564 | |
Granted | | 645 | | | 3.99 | | — | | | — | | | 375 | | | 1.90 | | — | | | — | |
Exercised | | (1,457) | | | 2.48 | | — | | | 1,601 | | | (171) | | | 1.02 | | — | | | 195 | |
Forfeited | | (1,422) | | | 3.45 | | — | | | — | | | (405) | | | 3.99 | | — | | | — | |
Expired | | — | | | — | | — | | | — | | | (462) | | | 2.27 | | — | | | — | |
Balance at December 31, 2016 | | 4,720 | | $ | 2.41 | | 3.4 | | $ | 4,388 | | |
Balance at December 31, 2018 | | | 4,243 | | $ | 2.33 | | 2.0 | | $ | 1,475 | |
Granted | | 338 | | | 2.99 | | — | | | — | | | 3,050 | | | 1.73 | | — | | | — | |
Exercised | | (94) | | | 1.30 | | — | | | 87 | | | (535) | | | 1.01 | | — | | | 419 | |
Forfeited | | (37) | | | 4.28 | | — | | | — | | | (700) | | | 2.56 | | — | | | — | |
Expired | | (21) | | | 5.00 | | — | | | — | | | (789) | | | 2.90 | | — | | | — | |
Balance at December 31, 2017 | | 4,906 | | $ | 2.45 | | 2.6 | | $ | 2,564 | | |
Exercisable at December 31, 2017 | | 3,438 | | $ | 2.48 | | 2.2 | | $ | 1,686 | | |
Balance at December 31, 2019 | | | 5,269 | | $ | 2.00 | | 3.0 | | $ | 364 | |
Granted | | | 5,097 | | | 1.22 | | — | | | — | |
Exercised | | | (135) | | | 1.02 | | — | | | 10 | |
Forfeited | | | (1,968) | | | 2.18 | | — | | | 2 | |
Expired | | | (1,251) | | | 1.19 | | — | | | — | |
Balance at December 31, 2020 | | | 7,012 | | $ | 1.55 | | 4.2 | | $ | 53 | |
Exercisable at December 31, 2020 | | | 919 | | $ | 3.02 | | 2.6 | | $ | — | |
Stock options have been granted to key employees, directors and consultants under the Plan. Options to purchase shares under the Plan were granted at or above market value of the common stock as of the date of the grant. During the year ended December 31, 2017,2020, the Company granted stock options to certain employees and directors for an aggregate of 0.35.1 million shares of common stock (2016 - 0.6(2019 – 3.1 million, 2015 - 2.72018 – 0.4 million) at a weighted average exercise price of $2.99$1.22 per share (2016(2019 – $3.99, 2015 - $1.03)$1.73, 2018 – $1.90). The options vest equally over a three-year period if the individuals remain affiliated with the Company (subject to acceleration of vesting in certain events) and are exercisable for a period of 5five years from the date of grant.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
The fair value of the options granted under the Plan was estimated at the date of grant, using the Black-Scholes option-pricing model, with the following weighted-average assumptions:
| | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 |
Risk-free interest rate | | | 1.46% to 1.60% | | | 1.13% to 1.21% | | | 1.10% to 1.79% |
Dividend yield | | | 0.31% to 0.36% | | | 0.24% to 0.27% | | | 0% to 1.15% |
Volatility factor of the expected market price of common stock | | | 72% to 74% | | | 74% | | | 73% to 74% |
Weighted-average expected life of option | | | 3.5 years | | | 5.0 years | | | 5.0 years |
Weighted-average grant date fair value | | $ | 2.99 | | $ | 2.36 | | $ | 0.49 |
| | | | | | | | | |
| | | 2020 | | | 2019 | | | 2018 |
Risk-free interest rate | | | .157% to .322% | | | 1.45% to 1.87% | | | 2.67% to 2.89% |
Dividend yield | | | 0.00% | | | 0.00% | | | 0.36% to 0.53% |
Volatility factor of the expected market price of common stock | | | 59% | | | 58% | | | 63% to 64% |
Weighted-average expected life of option | | | 3.5 years | | | 3.5 years | | | 3.5 years |
Weighted-average grant date fair value | | $ | 1.22 | | $ | 1.73 | | $ | 1.90 |
During the year ended December 31, 2017,2020, the Company recorded stock option expense of $1.4$0.6 million (2016 -$1.0(2019 – $0.7 million, 2015 - $1.32018 – $0.3 million) while the corresponding fair value of awards vesting in the period was $1.3$0.1 million (2016 - $1.3(2019 – $0.4 million and 2015 - $1.52018 – $0.7 million).
At December 31, 2017,2020, there was $0.7 million (2016 - $1.4 million 2015(2019 – $1.0 million, 2018 - $1.6$0.4 million) of unrecognized compensation expense related to 1.56.1 million (2016(2019 – 2.53.0 million, 20152018 – 4.20.7 million) unvested stock options outstanding. This cost is expected to be recognized over a weighted-average period of approximately 1.3 years (2016 - 1.6 years 2015(2019 – 1.61.5 years, 2018 – 1.4 years).
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
The following table summarizes the status and activity of non-vested stock options for the year ended December 31, 2017,2020, for the Company’s Plan and the replacement options from the acquisition of Lexam (see Note 19 Acquisitions):Lexam:
| | | | | | |
| | | | | Weighted Average |
| | | | | Grant Date |
| | | Number of | | Fair Value |
| | | Shares | | Per Share |
| | | | | | |
| | | | Weighted | |
| | | | Average | |
| | Number of | | Grant Date | |
| | Shares | | Fair Value | |
| | (in thousands, except per share amounts) | |
| | | (in thousands, except per share amounts) |
Non-vested, beginning of year | | 2,463 | | $ | 1.08 | | 3,034 | | $ | 0.64 |
Granted | | 392 | | $ | 1.69 | | 5,097 | | $ | 0.40 |
Cancelled/Forfeited | | (19) | | $ | 1.85 | | (1,172) | | $ | 0.60 |
Vested | | (1,357) | | $ | 1.08 | | (866) | | $ | 0.71 |
Non-vested, end of year | | 1,479 | | $ | 1.24 | | 6,093 | | $ | 0.44 |
NOTE 1215 NET (LOSS) INCOMELOSS PER SHARE
Basic net income (loss) income per share is computed by dividing the net income or (loss) income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per share is computed similarly except that the weighted average number of common shares is increased to reflect all dilutive instruments. Diluted net (loss) income per share is calculated using the treasury stock method. In applying the treasury stock method, employee stock options with an exercise price greater than the average quoted market price of the common shares for the period outstanding are not included in the calculation of diluted net (loss) income per share as the impact is anti-dilutive. Potentially dilutive instruments are not considered in calculating the diluted loss per share, as their effect would be anti-dilutive.
Below is a reconciliation of the basic and diluted weighted average number of common shares and the computations for basic and diluted net (loss) income per share and diluted (loss) income for the years ended December 31, 2017, 20162020, 2019 and 2015:
| | | | | | | | | | | |
| | | Year ended December 31, | |
| | | 2017 | | 2016 | | 2015 | |
| | | (in thousands, except per share amounts) | |
Net (loss) income | | | $ | (10,634) | | $ | 21,055 | | $ | (20,450) | |
| | | | | | | | | | | |
Weighted average common shares outstanding: | | | | 313,887 | | | 298,772 | | | 300,341 | |
Effect of employee stock-based awards | | | | — | | | 1,702 | | | — | |
Diluted shares outstanding: | | | | 313,887 | | | 300,474 | | | 300,341 | |
| | | | | | | | | | | |
Net (loss) income per share: | | | | | | | | | | | |
Basic | | | $ | (0.03) | | $ | 0.07 | | | (0.07) | |
Diluted | | | $ | (0.03) | | $ | 0.07 | | | (0.07) | |
2018:
Options
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
| | | | | | | | | | | |
| | | Year ended December 31, | |
| | | 2020 | | 2019 | | 2018 | |
|
| | | (amounts in thousands, unless otherwise noted) | |
Net loss | | | $ | (152,325) | | $ | (59,747) | | $ | (44,870) | |
| | | | | | | | | | | |
Weighted average common shares outstanding: | | | | 403,457 | | | 361,845 | | | 337,297 | |
Diluted shares outstanding: | | | | 403,457 | | | 361,845 | | | 337,297 | |
| | | | | | | | | | | |
Net loss per share - basic and diluted | | | $ | (0.38) | | $ | (0.17) | | $ | (0.13) | |
For the years ended December 31, 2020, 2019 and 2018, all outstanding options to purchase 2.2 million shares of common stock at an average exercise price of $3.97 at December 31, 2017and share purchase warrants were not included inexcluded from the computationrespective computations of diluted weighted average shares outstanding because their exercise price exceeded the average price of the Company’s common stock for the year ended December 31, 2016 and their effect would have been anti-dilutive. Warrants to purchase 10.35 million shares of common stock at a price of $2.70 were not included in the computation of diluted weighted average shares outstanding because their effect would have been anti-dilutive. In 2017 and 2015,loss per share, as the Company was in a loss position, and all potentially dilutive instruments were anti-dilutive and therefore not included in the calculation of diluted net loss per share.
NOTE 16 RELATED PARTY TRANSACTIONS
The Company incurred the following expense in respect to the related parties outlined below during the periods presented:
| | | | | | | | |
| Year ended December 31, |
| 2020 | | 2019 | | 2018 |
Lexam L.P. | $ | 99 | | $ | 133 | | $ | 91 |
REVlaw | | 158 | | | 188 | | | 266 |
The Company has the following outstanding accounts payable balance in respect to the related parties outlined below:
| | | | | |
| December 31, 2020 | | December 31, 2019 |
Lexam L.P. | $ | 72 | | $ | — |
REVlaw | | 90 | | | 22 |
An aircraft owned by Lexam L.P. (which is controlled by Robert R. McEwen, limited partner and beneficiary of Lexam L.P. and the Company’s Chairman and Chief Executive Officer) has been made available to the Company in order to expedite business travel. In his role as Chairman and Chief Executive Officer of the Company, Mr. McEwen must travel extensively and frequently on short notice. Mr. McEwen is able to charter the aircraft from Lexam L.P. at a preferential rate approved by the Company’s independent board members under a policy whereby only the variable expenses of operating this aircraft for business related travel are eligible for reimbursement by the Company.
REVlaw is a company owned by Ms. Carmen Diges, General Counsel of the Company. The legal services of Ms. Diges as General Counsel and other support staff, as needed, are provided by REVlaw in the normal course of business and have been recorded at their exchange amount.
An affiliate of Mr. McEwen participated as a lender in the $50.0 million term loan by providing $25.0 million of the total $50.0 million funding and continued as such under the ARCA. During the year ended December 31, 2020, the Company paid $2.4 million (year ended December 31, 2019 – $2.4 million) in interest to this affiliate.Furthermore, pursuant to the ARCA, 1,045,850 shares of common stock valued at $0.9 million were issued to the affiliate.The payments to the affiliate of Mr. McEwen are on the same terms as the non-affiliated lender (Note 12).
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
NOTE 13 COMMITMENTS AND CONTINGENCIES
Commitments
At December 31, 2017, the Company’s commitments include long-term operating leases covering office space, land and equipment purchase commitments, exploration expenditures, option payments on properties and reclamation costs for the following minimum amounts:
| | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
| | (in thousands) |
Operating lease obligations (office rent) | | $ | 400 | | $ | 368 | | $ | 300 | | $ | 240 | | $ | 230 | | $ | 197 | | $ | 1,735 |
Operating lease obligations (mining and surface rights) | | | 3,994 | | | 436 | | | 442 | | | 442 | | | 437 | | | — | | | 5,751 |
Exploration (including $10.0 million flow-through shares) | | | 11,554 | | | — | | | — | | | — | | | — | | | — | | | 11,554 |
Construction | | | 11,344 | | | — | | | — | | | — | | | — | | | — | | | 11,344 |
Reclamation costs(1) | | | 639 | | | 448 | | | 3,883 | | | 3,974 | | | 3,181 | | | 30,807 | | | 42,932 |
Total | | $ | 27,931 | | $ | 1,252 | | $ | 4,625 | | $ | 4,656 | | $ | 3,848 | | $ | 31,004 | | $ | 73,316 |
| (1)
| | Amounts presented represent the undiscounted uninflated future payments.
|
For the year ended December 31, 2017, the Company had rental expense under operating leases of $0.4 million (2016 - $0.4 million; 2015 - $0.5 million).
Reclamation Bonds
As part of its ongoing business and operations, the Company is required to provide bonding for its environmental reclamation obligations in the United States and Canada. Pursuant to the requirements imposed by United States Bureau of Land Management (“BLM”), the Company has Nevada bonding obligations of $19.9 million which primarily pertains to the Tonkin property and the Gold Bar property reclamation requirements. Under current Mexican regulations, bonding of projected reclamation costs is not required. Under Canadian regulations, the Company was required to deposit approximately $0.1 million with respect to its Timmins properties acquired from Lexam. The $0.1 million is recorded as restricted cash in Other assets. Furthermore, under Canadian regulations, the Company has bonding obligations of $16.5 million (C$20.6 million) with respect to the Black Fox Complex.
Surety Bonds
The Company satisfies its reclamation bonding obligations in the United States and Canada through the use of surety bonds. These surety bonds are available for draw down by the beneficiary in the event the Company does not perform its reclamation obligations. If the specific reclamation requirements are met, the beneficiary of the surety bonds will release the instrument to the issuing entity. The Company believes it is in compliance with all applicable bonding obligations and will be able to satisfy future bonding requirements, through existing or alternative means, as they arise.
On June 23, 2017, the Company replaced its previous surety facility by entering into a new $20.0 million surety facility, carrying an annual financing fee of 2%, with no requirement for an initial deposit and the financing fee payable only on draw down amounts. The $0.5 million deposit associated with the previous facility and recorded in Other assets was released and received by the Company in July 2017. Effective July 1, the Company drew down $3.6 million for the Tonkin project and $1.3 million for other exploration projects in Nevada.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
On August 25, 2017, the BLM in Nevada accepted the Company’s bond in the amount of $15.0 million to provide reclamation coverage for operations on the Gold Bar property. On August 25, 2017, the Company drew down $15.0 million on the existing surety to satisfy the bonding requirements for the Gold Bar project.
In connection with the Black Fox acquisition, as described in Note 19 Acquisitions, the Company extended its existing $20.0 million surety facility to include the necessary bonding to satisfy the Black Fox closure plan. The terms of the credit facility remain the same, with no requirement for an initial deposit and an annual financing fee of 2%. Black Fox has bonding requirements of $16.5 million (C$20.6 million).
Flow-Through Common Shares
The Company raised $10.0 million (C$12.88 million) during 2017 on a Canadian flow-through tax basis. The Company is required to spend this amount on Canadian Exploration Expenditures and renounce the associated tax benefit before December 31, 2018. As at December 31, 2017, $nil has been spent. The Company expects to meet this commitment.
Streaming Agreement
As part of the acquisition of the Black Fox Complex, the Company assumed a gold purchase agreement (streaming contract) related to production, if any, from certain claims. The Company is obligated to sell 8% of gold production from the Black Fox mine and 6.3% at the adjoining Pike River property (Black Fox Extension) to Sandstorm Gold Ltd. at the lesser of market price or $531 per ounce (with inflation adjustments of up to 2% per year) until 2090.
The Company records revenue on these shipments based on the contract price at the time of delivery to the customer. During the year ended December 31, 2017 subsequent to the acquisition of Black Fox, the company recorded revenue of $0.4 million (2016 - $nil).
Short-term Bank Indebtedness
On November 30, 2017, Compañia Minera Pangea, S.A. de C.V. (“CMP”), a wholly-owned subsidiary of the Company, executed a line of credit agreement with Banco Nacional de Comercio Exterior, S.N.C., a Mexican federal development banking institution (“Bancomext”). The line of credit allows CMP to borrow up to 120,000,000 Mexican pesos (approximately $6.4 million based on a market exchange rate of 19.64 Mexican pesos to 1 US dollar, as published by Bloomberg on November 30, 2017). Borrowing under the Line of Credit will be available for one (1) year from November 30, 2017.
Interest payments under the Line of Credit are due quarterly beginning with any borrowing and a final payment of all principal and accrued interest is due twenty-four (24) months following the date of the first withdrawal. CMP is permitted to prepay any amounts owed without penalty. The interest rate for each advance is as agreed upon by the parties prior to each advance, and will be reviewed and adjusted on a quarterly basis.
CMP is permitted to use the proceeds from the line of credit (i) to finance up to 90% of the value added tax (“VAT”) refunds related to the cost of its El Gallo 1 mining project, (ii) as working capital, and (iii) for other expenses related to CMP’s mining activity. Borrowings under the line of credit are secured by a lien on all VAT collections received by CMP.
The line of credit will be immediately due and payable in the event of a failure to pay principal or interest when due, or for a breach of other covenants set forth in the line of credit. All amounts due under the line of credit have been irrevocably and unconditionally guaranteed by the Company.
As of December 31, 2017, no funds had been withdrawn from the line of credit.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Other potential contingencies
The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company conducts its operations so as to protect public health and the environment, and believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.
The Company and its predecessors have transferred their interest in several mining properties to third parties throughout its history. The Company could remain potentially liable for environmental enforcement actions related to its prior ownership of such properties. However, the Company has no reasonable belief that any violation of relevant environmental laws or regulations has occurred regarding these transferred properties.
NOTE 14 RELATED PARTY TRANSACTIONS17 FAIR VALUE ACCOUNTING
As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Assets and liabilities measured at fair value on a recurring basis
The Company incurredfollowing tables identify the following expense (income)Company’s assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy as at December 31, 2020 and 2019, as reported in respect to the related parties outlined below:Consolidated Balance Sheets:
| | | | | | | | | | | | |
| | | | Year ended December 31, | |
| | | | 2017 | | 2016 | | 2015 | |
Lexam L.P. | | | | $ | 152 | | $ | 187 | | $ | 104 | |
Lexam VG Gold | | | | | (33) | | | 85 | | | (1) | |
Noblegen Inc. | | | | | 40 | | | — | | | — | |
REVlaw | | | | | 330 | | | 124 | | | 59 | |
Inventus | | | | | (36) | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
| | Fair value as at December 31, 2020 | | Fair value as at December 31, 2019 |
| | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
Marketable equity securities | | $ | — | | $ | — | | $ | — | | $ | 1,885 | | $ | — | | $ | 1,885 |
Total investments | | $ | — | | $ | — | | $ | — | | $ | 1,885 | | $ | — | | $ | 1,885 |
The Company hasCompany's investments as at December 31, 2019 mainly consist of marketable equity securities which are exchange-traded and are valued using quoted market prices in active markets and as such are classified within Level 1 of the following outstanding accounts payable (receivable) balance in respectfair value hierarchy. The fair value of the investments is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.
The fair value of other financial assets and liabilities were assumed to approximate their carrying values due to their short-term nature and historically negligible credit losses.
Debt is recorded at a carrying value of $48.2 million at December 31, 2020 (December 31, 2019 - $49.5 million) and approximates its fair value, given our recent refinancing.
Impairment of Mineral Property
During the related parties outlined below:
| | | | | | | | |
| | | | Year ended December 31, |
| | | | 2017 | | 2016 |
Lexam VG Gold | | | | $ | — | | $ | 27 |
REVlaw | | | | | 17 | | | 148 |
Inventus | | | | | (36) | | | — |
An aircraft owned by Lexam L.P. (which is controlled by Robert R. McEwen, limited partner and beneficiary of Lexam L.P. and the Company’s Chairman and Chief Executive Officer) has been made available toyear ended December 31, 2020, the Company in order to expedite business travel. In his role as Chairman and Chief Executive Officerrecorded an impairment of long-lived assets at the Gold Bar Mine totaling $83.8 million based on Level 3 inputs. See Note 9 for details.
NOTE 18 COMMITMENTS AND CONTINGENCIES
Commitments
The following are minimum commitments of the Company Mr. McEwen must travel extensivelyas at December 31, 2020, and frequently on short notice. Mr. McEwen is able to charterrelated payments due over the aircraft from Lexam L.P. at a preferential rate approved by the Company’s independent board members under a policy whereby only the variable expenses of operating this aircraft for business related travel are eligible for reimbursement by the Company.following five years:
| | | | | | | | | | | | | | | | | |
| | Payments due by period |
| | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Mining and surface rights | | $ | 2,233 | | $ | 492 | | $ | 488 | | $ | 470 | | $ | 443 | $ | 4,126 |
Reclamation costs(1) | | | 2,819 | | | 5,363 | | | 5,510 | | | 564 | | | 27,428 | | 41,684 |
Long-term debt (Note 12) | | | 4,875 | | | 14,712 | | | 42,139 | | | — | | | — | | 61,726 |
Lease obligations (Note 11) | | | 2,695 | | | 2,416 | | | 508 | | | 180 | | | — | | 5,799 |
Total | | $ | 12,622 | | $ | 22,983 | | $ | 48,645 | | $ | 1,214 | | $ | 27,871 | $ | 113,335 |
| (1) | Amounts presented represent the undiscounted uninflated future payments. |
On April 26, 2017, the Company completed the acquisition of 100% of the issued and outstanding securities of Lexam and Lexam became a wholly-owned subsidiary of the Company. See Note 19 Acquisitions. Prior to the acquisition, Robert R. McEwen was the Non-Executive Chairman of Lexam and held a 27% ownership in Lexam and the Company shared services with Lexam including rent, personnel, office expenses and other administrative services. Historically, these transactions were in the normal course of business.
Robert R. McEwen is also a significant shareholder of Noblegen Inc., a company that develops processes to commercially cultivate microorganisms with applications in different industries. The metallurgical services provided by Noblegen Inc. are in the normal course of business and have been recorded at their exchange amount.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Reclamation Bonds
REVlawAs part of its ongoing business and operations, the Company is required to provide bonding for its environmental reclamation obligations in the United States and Canada. These bonding obligations are satisfied by surety bonds, as discussed below. Pursuant to the requirements imposed by the United States Bureau of Land Management (“BLM”), the Company has Nevada obligations of $20.1 million which primarily pertains to the Tonkin and Gold Bar properties. Under Canadian regulations, the Company has bonding obligations of $11.7 million (C$15.0 million) with respect to the Fox Complex. Furthermore, under Canadian regulations, the Company was required to deposit approximately $0.1 million with respect to its Timmins properties acquired from Lexam; the $0.1 million is recorded as restricted cash (Note 19).
Surety Bonds
As at December 31, 2020, the Company has a company owned by Ms. Carmen Diges, General Counselsurety facility in place to cover substantially all of its bonding obligations, which include $20.1 million of bonding in Nevada and $11.7 million (C$15.0 million) of bonding in Canada. The terms of the Company.facility carry an annual financing fee of 2.3% and require a deposit of 12%. The legal services of Ms. Diges as General Counsel and one other membersurety bonds are available for draw down by the beneficiary in the event the Company does not perform its reclamation obligations. If the specific reclamation requirements are met, the beneficiary of the legal department are provided by REVlaw insurety bonds will release the normal course of business and have been recorded at their exchange amount.
Robert R. McEwen is a significant shareholder of Inventus Mining Corp. (“Inventus”). Stefan Spears, Special Projects, is the CEO and Chairman of Inventus. As responsible of Special Projects, he provides consulting servicesinstrument to the Company in areas unrelated to Inventus.issuing entity. The Company provides custom milling services to Inventus whichbelieves it is in compliance with all applicable bonding obligations and will be able to satisfy future bonding requirements, through existing or alternative means, as they arise. As at December 31, 2020, the normal courseCompany held $3.6 million in restricted cash as deposit against the surety facility (Note 19).
Streaming Agreement
As part of businessthe acquisition of the Fox Complex in 2017, the Company assumed a gold purchase agreement (streaming contract) related to production, if any, from certain claims. Under the streaming contract, the Company is obligated to sell 8% of gold production from the Black Fox mine and has been recorded at their exchange amount.
NOTE 15 OPERATING SEGMENT REPORTING
McEwen Mining is a mining and minerals exploration company focused on precious metals in Argentina, Mexico, Canada, and6.3% from the United States. The Company’s chief operating decisions maker (“CODM”) reviews the operating results, assesses performance and makes decisions about allocation of resourcesadjoining Pike River property (Black Fox Extension) to these segmentsSandstorm Gold Ltd. at the geographic region levellesser of market price or major mine/project where$561 per ounce (with inflation adjustments of up to 2% per year) until 2090.
The Company records revenue on these shipments based on the economic characteristicscontract price at the time of delivery to the individual mines or projects are not alike.customer. During the year ended December 31, 2020, the Company recorded revenue of $1.2 million (2019 – $1.5 million) related to the gold stream sales.
Flow-through Eligible Expenses
As of December 31, 2020, the Company completed 2 rounds of flow-through share issuance’s (Note 14) closing on September 10, 2020 and December 31, 2020. As a result, these operating segments also represent the Company’s reportable segments. Company is committed to spend $18.3 million on CEE at its Timmins operations in Canada by the end of 2022. Through December 31, 2020, the Company has incurred $1.9 million in eligible expenses of required flow-through spend.
Other potential contingencies
The Company’s businessmining and exploration activities that are not considered operating segmentssubject to various laws and not providedregulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company conducts its operations so as to protect public health and the CODM for reviewenvironment, and believes its operations are includedmaterially in Corporatecompliance with all applicable laws and otherregulations. The Company has made, and are providedexpects to make in this note for reconciliation purposes.the future, expenditures to comply with such laws and regulations.
The CODM reviews segment (loss) income, defined as goldCompany and silver sales less production costs applicableits predecessors have transferred their interest in several mining properties to sales, mine development costs, exploration costs, property holding costs and general and administrative expensesthird parties throughout its history. The Company could remain potentially liable for all segments except for the MSC segment which is evaluated based on the attributable equity income. Gold and silver sales and production costs applicableenvironmental enforcement actions related to sales for the reportable segments are reported net of intercompany transactions.
In 2017, the Company completed the acquisition of Lexam, which included a portfolio of exploration projects, and certain assets and liabilities of the Black Fox Complex, all of which are located in Timmins, Ontario, Canada. These assets are managed together as a single operating segment by the CODM. Accordingly, the Company separately reported segment (loss) income attributable to Canada beginning in 2017. The updated composition of segments reflects the distinct economic characteristic of each mine/project.
its prior
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
ownership of such properties. However, the Company has no reasonable belief that any violation of relevant environmental laws or regulations has occurred regarding these transferred properties.
NOTE 19 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Significant information relatingThe following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the Company’s reportable operating segments is summarizedtotal of the same such amounts shown in the tables below:
| | | | | | | | | | | | | | | | | | |
Year ended December 31, 2017 | | Mexico | | MSC | | Los Azules | | USA | | | Canada | | Total |
Gold and silver sales | | $ | 55,845 | | $ | — | | $ | — | | $ | — | | $ | 11,620 | | $ | 67,465 |
Other revenue | | | — | | | — | | | — | | | — | | | 259 | | | 259 |
Production costs applicable to sales | | | (35,292) | | | — | | | — | | | — | | | (9,888) | | | (45,180) |
Revision of estimates and accretion of reclamation obligations | | | (326) | | | — | | | — | | | (300) | | | (1,435) | | | (2,061) |
Mine development costs | | | (745) | | | — | | | — | | | (3,092) | | | — | | | (3,837) |
Exploration costs | | | (5,610) | | | — | | | (7,923) | | | (2,132) | | | (1,544) | | | (17,209) |
Property holding costs | | | (2,131) | | | — | | | (56) | | | (1,667) | | | (25) | | | (3,879) |
Impairment of mineral property interests and property and equipment | | | (711) | | | — | | | — | | | — | | | — | | | (711) |
General and administrative costs | | | (3,772) | | | — | | | (1,242) | | | (1,927) | | | (92) | | | (7,033) |
Income (loss) from investment in Minera Santa Cruz S.A. (net of amortization) | | | — | | | (44) | | | — | | | — | | | — | | | (44) |
Segment income (loss) | | $ | 7,258 | | $ | (44) | | $ | (9,221) | | $ | (9,118) | | $ | (1,105) | | $ | (12,230) |
Corporate and other | | | | | | | | | | | | | | | | | | |
Other exploration costs | | | | | | | | | | | | | | | | | $ | (505) |
General and administrative costs | | | | | | | | | | | | | | | | | | (11,839) |
Depreciation | | | | | | | | | | | | | | | | | | (1,453) |
Interest and other expense | | | | | | | | | | | | | | | | | | (938) |
Gain on sale of assets | | | | | | | | | | | | | | | | | | 11 |
Gain on sale of marketable equity securities | | | | | | | | | | | | | | | | | | 840 |
Other-than-temporary impairment on marketable equity securities | | | | | | | | | | | | | | | | | | (356) |
Unrealized (loss) gain on derivatives | | | | | | | | | | | | | | | | | | (227) |
Foreign currency gain | | | | | | | | | | | | | | | | | | 694 |
Net (loss) before income and mining taxes | | | | | | | | | | | | | | | | | $ | (26,003) |
| | | | | | | | | | | | | | | | | | |
Year ended December 31, 2016 | | Mexico | | MSC | | Los Azules | | USA | | Canada | | Total |
Gold and silver sales | | $ | 60,388 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 60,388 |
Production costs applicable to sales | | | (28,133) | | | — | | | — | | | — | | | — | | | (28,133) |
Mine development costs | | | (1,174) | | | — | | | — | | | (2,692) | | | — | | | (3,866) |
Exploration costs | | | (4,100) | | | — | | | (1,649) | | | (1,973) | | | — | | | (7,722) |
Property holding costs | | | (1,642) | | | — | | | (405) | | | (1,489) | | | — | | | (3,536) |
General and administrative costs | | | (2,688) | | | — | | | (646) | | | (228) | | | — | | | (3,562) |
Income (loss) from investment in Minera Santa Cruz S.A. (net of amortization) | | | — | | | 12,951 | | | — | | | — | | | — | | | 12,951 |
Segment income (loss) | | $ | 22,651 | | $ | 12,951 | | $ | (2,700) | | $ | (6,382) | | $ | — | | $ | 26,520 |
Corporate and other | | | | | | | | | | | | | | | | | | |
Other exploration costs | | | | | | | | | | | | | | | | | $ | (237) |
General and administrative costs | | | | | | | | | | | | | | | | | | (9,172) |
Depreciation | | | | | | | | | | | | | | | | | | (1,169) |
Revision of estimates and accretion of reclamation obligations | | | | | | | | | | | | | | | | | | (595) |
Interest and other income | | | | | | | | | | | | | | | | | | 835 |
Gain on sale of assets | | | | | | | | | | | | | | | | | | 24 |
Gain on sale of marketable securities | | | | | | | | | | | | | | | | | | 22 |
Other-than-temporary impairment on marketable equity securities | | | | | | | | | | | | | | | | | | (882) |
Unrealized gain on derivatives | | | | | | | | | | | | | | | | | | 1,379 |
Foreign currency gain | | | | | | | | | | | | | | | | | | 581 |
Net income before income and mining taxes | | | | | | | | | | | | | | | | | $ | 17,306 |
TableConsolidated Statements of ContentsCash Flows:
MCEWEN MINING INC.
| | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Cash and cash equivalents | | $ | 20,843 | | $ | 46,452 |
Restricted cash - non-current (Note 18) | | | 3,595 | | | 48 |
Total cash, cash equivalents, and restricted cash | | $ | 24,438 | | $ | 46,500 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCash and Cash equivalents includes proceeds received from Flow-through financings (Note 14) completed in 2020 for a total of $19.9 million which are committed towards being spent on eligible CEE in 2021 and 2022.
December 31, 2017Restricted cash – non-current (Note 18) contains $3.6 million in deposits held against our surety facility.
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
| | | | | | | | | | | | | | | | | | |
Year ended December 31, 2015 | | Mexico | | MSC | | Los Azules | | USA | | Canada | | Total |
Gold and silver sales | | $ | 72,956 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 72,956 |
Production costs applicable to sales | | | (34,607) | | | — | | | — | | | — | | | — | | | (34,607) |
Mine development costs | | | (761) | | | — | | | — | | | (408) | | | — | | | (1,169) |
Exploration costs | | | (4,526) | | | — | | | (1,481) | | | (2,517) | | | — | | | (8,524) |
Property holding costs | | | (2,471) | | | — | | | (356) | | | (1,509) | | | — | | | (4,336) |
General and administrative costs | | | (3,953) | | | — | | | (647) | | | (203) | | | — | | | (4,803) |
Income (loss) from investment in Minera Santa Cruz S.A. (net of amortization) | | | — | | | 2,414 | | | — | | | — | | | — | | | 2,414 |
Segment income (loss) | | $ | 26,638 | | $ | 2,414 | | $ | (2,484) | | | (4,637) | | $ | — | | $ | 21,931 |
Corporate and other | | | | | | | | | | | | | | | | | | |
Other exploration costs | | | | | | | | | | | | | | | | | $ | (274) |
General and administrative costs | | | | | | | | | | | | | | | | | | (7,242) |
Depreciation | | | | | | | | | | | | | | | | | | (942) |
Revision of estimates and accretion of reclamation obligations | | | | | | | | | | | | | | | | | | (429) |
Impairment of mineral property interests and property and equipment | | | | | | | | | | | | | | | | | | (50,600) |
Impairment of investment in Minera Santa Cruz S.A. | | | | | | | | | | | | | | | | | | (11,777) |
Interest and other income | | | | | | | | | | | | | | | | | | 2,404 |
Gain on sale of assets | | | | | | | | | | | | | | | | | | 13 |
Foreign currency gain | | | | | | | | | | | | | | | | | | 1,906 |
Net loss before income and mining taxes | | | | | | | | | | | | | | | | | $ | (45,010) |
Geographic information
| | | | | | | | | | | | | | | |
| | Long-lived Assets | | Revenue(1) |
| | Year ended December 31, | | Year ended December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2015 |
Canada | | $ | 85,179 | | $ | 663 | | $ | 11,879 | | $ | — | | $ | — |
Mexico | | | 35,446 | | | 27,582 | | | 55,845 | | | 60,388 | | | 72,956 |
USA | | | 43,086 | | | 37,620 | | | — | | | — | | | — |
Argentina(2) | | | 341,554 | | | 353,879 | | | — | | | — | | | — |
Total consolidated | | $ | 505,265 | | $ | 419,744 | | $ | 67,724 | | $ | 60,388 | | $ | 72,956 |
| (1)
| | Presented based on the location from which the product originated.
|
| (2)
| | Includes Investment in MSC of $151.0 million as of December 31, 2017 (December 31, 2016 - $162.0 million).
|
As gold and silver can be sold through numerous gold and silver market traders worldwide, the Company is not economically dependent on a limited number of customers for the sale of its product. In 2017, 2016 and 2015, sales to Bank of Nova Scotia were $65.9 million (94%), $58.1 million (96%), and $67.2 million (92%), respectively, of total gold and silver sales.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Capital Expenditures information
Capital expenditures includes acquisitions of Property and Equipment and Mineral Property Interests, net of dispositions and amortization.
| | | | | | | | | |
| | Capital Expenditures |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
Mexico | | $ | 939 | | $ | 5,401 | | $ | 700 |
Los Azules | | | - | | | — | | | 2 |
Canada | | | 4,301 | | | — | | | — |
USA | | | 6,271 | | | 764 | | | 62 |
Total segment capital expenditures | | $ | 11,511 | | $ | 6,165 | | $ | 764 |
Corporate and other | | | | | | — | | | — |
Consolidated total for capital expenditures | | $ | 11,511 | | $ | 6,165 | | $ | 764 |
NOTE 16 FAIR VALUE ACCOUNTING
Assets and liabilities measured at fair value on a recurring basis20 INCOME AND MINING TAXES
The following tables identifyCompany’s deferred income and mining tax benefit consisted of:
| | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
United States | | $ | 817 | | $ | 2,420 | | $ | 2,185 |
Foreign | | | 573 | | | 1,424 | | | 585 |
Deferred tax benefit | | $ | 1,390 | | $ | 3,844 | | $ | 2,770 |
The Company’s net loss before income and mining tax consisted of:
| | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
United States | | $ | (127,524) | | $ | (22,319) | | $ | (27,001) |
Foreign | | | (26,191) | | | (41,272) | | | (20,639) |
Loss before income and mining taxes | | $ | (153,715) | | $ | (63,591) | | $ | (47,640) |
A reconciliation of the Company’s assetstax provision for 2020, 2019 and liabilities measured2018 at fair value on a recurring basis (at least annually) by level withinstatutory U.S. Federal and State income tax rates to the fair value hierarchy as at December 31, 2017 and 2016, as reportedactual tax provision recorded in the Consolidated Balance Sheets. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input thatfinancial statements is significant to the fair value measurement.
| | | | | | | | | | | | | |
| | Fair Value as at December 31, 2017 | |
| | Total | | Level 1 | | Level 2 | | Level 3 | |
Assets: | | | | | | | | | | | | | |
Investments | | $ | 7,971 | | $ | 6,404 | | $ | 1,567 | | $ | — | |
Total | | $ | 7,971 | | $ | 6,404 | | $ | 1,567 | | $ | — | |
| | | | | | | | | | | | | |
| | Fair Value as at December 31 2016 | |
| | Total | | Level 1 | | Level 2 | | Level 3 | |
Assets: | | | | | | | | | | | | | |
Investments | | $ | 8,543 | | $ | 6,749 | | $ | 1,794 | | $ | — | |
Total | | $ | 8,543 | | $ | 6,749 | | $ | 1,794 | | $ | — | |
computed as follows:
The Company's investments mainly consist of marketable equity securities which are exchange-traded and are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the investments is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.
Furthermore, as noted in Note 3 Investments, the Company’s investments also include warrants to purchase common stock of certain extractive industry companies. Since these warrants are not traded on an active market, they are valued using the Black-Scholes option pricing model, and classified within Level 2 of the fair value hierarchy. The main inputs used in the valuation of the warrants are volatility, interest rate, dividend yield and exercise price of the instruments.
The fair value of other financial assets and liabilities were assumed to approximate their carrying values due to their short-term nature and historically negligible credit losses.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
| | | | | | | | | |
Expected tax recovery at | | 2020 | | 2019 | | 2018 |
Loss before income and mining taxes | | $ | (153,715) | | $ | (63,591) | | $ | (47,640) |
Statutory tax rate | | | 21% | | | 21% | | | 21% |
US Federal and State tax expense at statutory rate | | | (32,280) | | | (13,354) | | | (10,004) |
Reconciling items: | | | | | | | | | |
Equity pickup in MSC | | | 374 | | | 2,626 | | | 2,966 |
Deferred foreign income inclusion | | | 795 | | | 598 | | | 5,963 |
Realized flow-through expenditures | | | 496 | | | 3,150 | | | 2,100 |
Realized flow-through premium | | | (338) | | | (2,954) | | | (1,675) |
Tax rate changes | | | (147) | | | 976 | | | — |
Adjustment for foreign tax rates | | | (2,043) | | | (200) | | | 40 |
Other permanent differences | | | (7,062) | | | 8,540 | | | 4,419 |
Unrealized foreign exchange rate (loss)/gain | | | 4,663 | | | (1,095) | | | (6,935) |
NOL expires and revisions | | | 1,066 | | | 810 | | | (120) |
Valuation allowance | | | 33,086 | | | (2,941) | | | 476 |
Income and mining tax recovery | | $ | (1,390) | | $ | (3,844) | | $ | (2,770) |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as at December 31, 2020 and 2019 respectively are presented below:
| | | | | | | |
| | 2020 | | 2019 | |
Deferred tax assets: | | | | | | | |
Net operating loss carryforward | | $ | 66,085 | | $ | 57,667 | |
Mineral Properties | | | 66,038 | | | 60,299 | |
Other temporary differences | | | 30,999 | | | 14,356 | |
Total gross deferred tax assets | | | 163,122 | | | 132,322 | |
Less: valuation allowance | | | (154,298) | | | (121,212) | |
Net deferred tax assets | | $ | 8,824 | | $ | 11,110 | |
Deferred tax liabilities: | | | | | | | |
Acquired mineral property interests | | | (12,637) | | | (16,024) | |
Total deferred tax liabilities | | $ | (12,637) | | $ | (16,024) | |
Deferred income and mining tax liability | | $ | (3,813) | | $ | (4,914) | |
The Company reviews the measurement of its deferred tax assets at each balance sheet date. On the basis of available information at December 31, 2020, the Company has provided a valuation allowance for certain of its deferred assets where the Company believes it is more likely than not that some portion or all of such assets will not be realized. The change in valuation allowance of approximately $33.1 million primarily reflects the impact of losses during the year from impairments and operations.
The table below summarizes changes to the valuation allowance:
| | | | | | | | | | | | |
For the year ended December 31, | | Balance at
beginning of year | | Additions(a) | | Deductions(b) | | Balance at
end of year |
2020 | | $ | 121,212 | | $ | 39,794 | | $ | (6,708) | | $ | 154,298 |
2019 | | | 124,153 | | | 2,104 | | | (5,045) | | | 121,212 |
2018 | | | 123,648 | | | 12,232 | | | (11,727) | | | 124,153 |
| (a) | The additions to valuation allowance mainly result from the Company and its subsidiaries incurring losses and exploration expenses for tax purposes which do not meet the more-likely-than-not criterion for recognition of deferred tax assets. |
| (b) | The reductions to valuation allowance mainly result from release of valuation allowance, expiration of the Company’s tax attributes, foreign exchange reductions of tax attributes in Canada, Mexico and Argentina and inflationary adjustments to tax attributes in Argentina. |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
As at December 31, 2020 and 2019, the Company did not have any income-tax related accrued interest and tax penalties.
The following table summarizes the Company’s losses that can be applied against future taxable profit:
| | | | | | | |
Country | | Type of Loss | | Amount | | Expiry Period |
United States(a) | | Net-operating losses | | $ | 167,784 | | 2027-Unlimited |
Mexico | | Net-operating losses | | | 37,117 | | 2022-2030 |
Canada(a) | | Net-operating losses | | | 35,888 | | 2025-2040 |
Argentina(a) | | Net-operating losses | | | 41,522 | | 2021-2025 |
| (a) | The losses in the United States, Canada, and Argentina are part of multiple consolidating groups, and therefore, may be restricted in use to specific projects. |
The Company or its subsidiaries file income tax returns in the United States, Canada, Mexico, and Argentina. These tax returns are subject to examination by local taxation authorities provided the tax years remain open to audit under the relevant statute of limitations. The following summarizes the open tax years by major jurisdiction:
United States: 2017 to 2020
Canada: 2013 to 2020
Mexico: 2016 to 2020
Argentina: 2016 to 2020
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
NOTE 1721 UNAUDITED SUPPLEMENTARY QUARTERLY INFORMATION
The following table summarizes unaudited supplementary quarterly information for the years ended December 31, 2017, 2016,2020 and 2015.2019.
| | | | | | | | | | | | | |
| | Three months ended | |
| | March 31, 2017 | | June 30, 2017 | | September 30, 2017 | | December 31, 2017 | |
| | (unaudited) (in thousands, except per share) | |
Net (loss) | | $ | (3,018) | | $ | (1,712) | | $ | (8,072) | | $ | 2,169 | |
Net (loss) per share: | | | | | | | | | | | | | |
Basic | | $ | (0.01) | | $ | (0.01) | | $ | (0.03) | | $ | 0.01 | |
Diluted | | $ | (0.01) | | $ | (0.01) | | $ | (0.03) | | $ | 0.01 | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic | | | 299,575 | | | 308,523 | | | 314,077 | | | 313,887 | |
Diluted | | | 299,575 | | | 308,523 | | | 314,077 | | | 313,887 | |
| | | | | | | | | | | | | |
| | Three months ended | |
| | March 31, 2016 | | June 30, 2016 | | September 30, 2016 | | December 31, 2016 | |
| | (unaudited) (in thousands, except per share) | |
Net income (loss) | | $ | 12,985 | | $ | 8,353 | | $ | 4,208 | | $ | (4,491) | |
Net income (loss) per share: | | | | | | | | | | | | | |
Basic | | $ | 0.04 | | $ | 0.03 | | $ | 0.01 | | $ | (0.01) | |
Diluted | | $ | 0.04 | | $ | 0.03 | | $ | 0.01 | | $ | (0.01) | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic | | | 298,242 | | | 298,237 | | | 298,510 | | | 299,518 | |
Diluted | | | 298,554 | | | 299,791 | | | 301,045 | | | 301,102 | |
| | | | | | | | | | | | |
| | Three months ended |
| | March 31, 2020 | | June 30, 2020 | | September 30, 2020 | | December 31, 2020 |
|
| | (unaudited) (in thousands, except per share) |
Revenue from gold and silver sales | | $ | 31,400 | | $ | 18,291 | | $ | 27,395 | | $ | 27,703 |
Gross (loss) | | | (3,685) | | | (8,875) | | | (701) | | | (13,687) |
Net (loss) | | | (99,191) | | | (19,814) | | | (9,778) | | | (23,542) |
Net (loss) per share: | | | | | | | | | | | | |
Basic and diluted | | $ | (0.25) | | $ | (0.05) | | $ | (0.02) | | $ | (0.06) |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic and diluted | | | 400,370 | | | 400,513 | | | 403,887 | | | 408,959 |
| | | | | | | | | | | | | |
| | Three months ended | |
| | March 31, 2015 | | June 30, 2015 | | September 30, 2015 | | December 31, 2015 | |
| | (unaudited) (in thousands, except per share) | |
Net (loss) income | | $ | 6,021 | | $ | (14,116) | | $ | 2,633 | | $ | (14,988) | |
Net (loss) income per share: | | | | | | | | | | | | | |
Basic | | $ | 0.02 | | $ | (0.05) | | $ | 0.01 | | $ | (0.05) | |
Diluted | | | 0.02 | | | (0.05) | | | 0.01 | | | (0.05) | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic | | | 297,255 | | | 300,530 | | | 300,530 | | | 300,107 | |
Diluted | | | 297,266 | | | 300,530 | | | 300,530 | | | 300,107 | |
| | | | | | | | | | | | | |
| | Three months ended | |
| | March 31, 2019 | | June 30, 2019 | | September 30, 2019 | | December 31, 2019 | |
|
| | (unaudited) (in thousands, except per share) | |
Revenue from gold and silver sales | | $ | 15,583 | | $ | 36,383 | | $ | 32,691 | | $ | 32,362 | |
Gross profit | | | 1,429 | | | 4,677 | | | 1,619 | | | 1,261 | |
Net (loss) | | | (10,136) | | | (13,014) | | | (11,465) | | | (25,132) | |
Net (loss) per share: | | | | | | | | | | | | | |
Basic and diluted | | $ | (0.02) | | $ | (0.04) | | $ | (0.03) | | $ | (0.07) | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic and diluted | | | 345,497 | | | 346,998 | | | 362,175 | | | 378,543 | |
NOTE 1822 COMPARATIVE FIGURES
Certain amounts in prior year information hasyears have been reclassified to conform withto the current year’s presentation. Reclassified amounts were not material to the financial statements and relate to the presentation of Other Operating Expenses. Advanced projects in the Statement of Operations includes mine development costs, property holding and general and administrative costs associated with advanced stage projects. Exploration in the Statement of Operations includes exploration expenses, property holding and general and administrative costs associated with exploration stage projects. General andAdministrative in the Statement of Operations include corporate (head office) general and administrative costs.
NOTE 19 ACQUISITIONS23 SUBSEQUENT EVENTS
Acquisition of Lexam VG.February 2021 equity financing:
OnApril 26, 2017, February 9, 2021, the Company completed a registered direct offering with several existing and new institutional investors and issued 30,000,000 shares of common stock priced at $1.05 per share for gross proceeds of $31.5 million.
January 2021 flow-through financing:
On January 29, 2021, the acquisition of 100% of theCompany issued and outstanding12,600,600 flow-through common shares priced at $1.01 per share for gross proceeds of Lexam by the way of an Arrangement Agreement dated February 13, 2017 and related Plan of Arrangement (the “Arrangement”). Pursuant to the Arrangement, each common share of Lexam was exchanged for 0.056 of a common share of the Company and each option to purchase a common share of Lexam was exchanged for a replacement option entitling the holder to acquire 0.056 share of the Company’s common stock.$12.7 million.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172020
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Gold Bar Resource and Reserve estimate update:
On January 7, 2021, the Company updated the resource and reserve numbers for the Gold Bar Mine. A net reduction of 16% in estimated reserves results in a revised Probable Reserve Estimate of 302,000 recoverable gold ounces. This change in reserve estimate is an update to the analysis in Q1-2020. The potential mine life is in the range of 5 to 7 years based on the currently estimated reserves.
MSC Dividend received:
On January 28, 2021 we received a dividend of $2.5 million from MSC.
The Company’s total purchase price of $39.2 million was comprised of 12,687,035 common shares issued from treasury valued at $3.00 per share, share replacement awards of $0.1 million and transaction costs totaling $1.0 million. The Lexam acquisition was accounted for as an asset acquisition and transaction costs associated with the acquisition were capitalized to the Mineral Property Interests acquired, consistent with the Company’s Mineral Property Interests accounting policy. The primary purpose of the acquisition was to add gold resources to the Company’s resource base in a premier geopolitically stable mining jurisdiction.
The following table sets out the allocation of the purchase price to assets acquired and liabilities assumed, based on management’s estimates of relative fair value:
| | | |
Total purchase price:
| | | |
Common shares issued for acquisition
| | $
| 38,141 |
Transaction fees incurred
| | | 1,017 |
| | $
| 39,158 |
Fair value of assets acquired and liabilities assumed:
| | | |
Mineral property interests
| | $
| 41,595 |
Cash and cash equivalents
| | | 177 |
Other current assets
| | | 86 |
Other assets
| | | 312 |
Accounts payable and accrued liabilities
| | | (288) |
Reclamation obligations
| | | (570) |
Deferred income tax liabilities
| | | (2,154) |
| | $
| 39,158 |
The Mineral property interests acquired include a 100% interest in the Buffalo Ankerite, Fuller and Davidson Tisdale prospects and a 61% interest in the Paymaster prospect all located in Timmins, Ontario. The remaining 39% interest in the Paymaster property is held by Goldcorp Inc., a joint venture partner. Certain properties are also subject to a net profit interest (“NPI”) in the 10% to 20% range, payable to an unrelated third party.
Acquisition of Black Fox Complex
On August 25, 2017, the Company entered into an Asset Purchase Agreement (the “APA”) with Primero Mining Corp. (“Primero”), whereby the Company, through its wholly-owned subsidiary, purchased and assumed the Purchased Assets and Assumed Liabilities as defined within the APA related to the Black Fox Complex for total cash consideration of $27.5 million, which is the purchase price of $35.0 million less closing adjustments. The Black Fox Complex includes the Black Fox mine site, mill, property, plant and equipment and adjacent exploration properties located in Township of Black River-Matheson, Ontario, Canada. The Company concluded that the acquired assets and assumed liabilities constitute a “business” under U.S. GAAP and accordingly, the acquisition was accounted for as a business combination rather than an asset acquisition. The transaction was completed on October 6, 2017.
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Preliminary fair value measurements of assets acquired and liabilities assumed were made during the fourth quarter of 2017. The Company continues to evaluate the available information, and the purchase price allocation is subject to finalization of the Company’s analysis of the fair value of the assets and liabilities as of closing date of the transaction . Accordingly, the purchase price allocation is preliminary and adjustments, if any, could be material. The following table summarizes the amounts assigned to the assets acquired and liabilities assumed as of the acquisition date.
| | | |
Total purchase price:
| | | |
Purchase price
| | $
| 35,000 |
Adjustments to purchase price
| | | (7,500) |
| | $
| 27,500 |
Fair value of assets acquired and liabilities assumed:
| | | |
Cash
| | $
| 249 |
Accounts Receivable
| | | 470 |
Prepaids
| | | 63 |
Inventory
| | | 4,704 |
Mineral Property Interests
| | | 8,954 |
Plant and Equipment
| | | 33,683 |
Accounts Payable
| | | (5,247) |
Accrued Liabilities
| | | (3,213) |
Short term capital lease liability
| | | (557) |
Asset retirement obligation
| | | (11,233) |
Long term capital lease liability
| | | (172) |
Deferred tax liability
| | | (201) |
Net assets acquired in acquisition
| | $
| 27,500 |
The Company determined that the book value of the accounts receivables included in the purchase price allocation approximates their fair value due to their short-term nature. The gross contractual amounts of the receivables approximates their fair value as the Company has determined that the value of contractual cash flows not expected to be collected are insignificant.
The Company recognized $1.3 million of acquisition-related costs associated with the acquisition of the Black Fox Complex. These costs were expensed and were included in General and Administrative expenses.
The amounts of revenue and income from operations associated with the Black Fox Complex acquisition included in our consolidated statements of comprehensive income for 2017 are as follows:
| | | |
| | 2017 |
Gold and silver sales | | $ | 11,620 |
Net (loss) income | | | 757 |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents consolidated results assuming the Black Fox Complex acquisition occurred on January 1, 2016. The unaudited pro forma financial information does not give effect to potential synergies that could result from the transactions and is not necessarily indicative of the results of future operations.
| | | | | | |
| | Twelve Months Ended, December 31 |
Unaudited Combined Pro Forma Results of Operations (in thousands) | | 2017 (Unaudited) | | 2016 (Unaudited) |
Gold and silver sales | | $ | 131,072 | | $ | 131,983 |
Net (loss) Income | | | (1,093) | | | 17,462 |
| | | | | | |
Pro forma net (loss) income per share | | | | | | |
Basic | | $ | (0.00) | | $ | 0.06 |
Diluted | | | (0.00) | | | 0.06 |
Significant adjustments to the pro forma information above include:
| ·
| | Expensed exploration costs incurred in connection with properties with no SEC Industry Guide 7 reserves.
|
| ·
| | Revision of depreciation costs to correspond to the fair value of assets acquired and the Black Fox life of mine plan.
|
| ·
| | Revision of accretion expense updated for (i) discount rate to a credit-adjusted-risk-free rate as required by US GAAP, (ii) 2017 closure costs estimate approved by the MNDM and (iii) the Company’s revised life of mine plan.
|
| ·
| | Adjustments to eliminate historical impairment charges resulting from events unrelated to the business combination and not expected to have a continuing impact on the Company post-acquisition.
|
| ·
| | Adjustments to increase interest income as the combined entity does not have outstanding debt offset by decreases to interest income as a result of increasing the finance charge related to the surety bonds and increase to lease interest expense as a result of differences identified in effective interest rates.
|
| ·
| | Various adjustments to remove one-time items not expected to have a continuing impact on the Company post acquisition.
|
NOTE 20 CAPITAL LEASES
As a part of the Black Fox acquisition, the Company acquired certain capital lease obligations related to the use of mining equipment at the Black Fox mine. This equipment continues to be reported as a part of the Company’s property, plant and equipment with amortization booked on a straight line basis over the estimated useful life of the asset.
| | | | | | | | | | | | |
| | | | | | | | Year Ended December 31, |
| | | Interest Rates | | Maturities | | | 2017 | | 2016 |
Capital Lease Obligations | | | 4.74 -10.09% | | 2018 - 2019 | | | $ | 551 | | $ | - |
| | | | | | | | | 551 | | | - |
Less current portion | | | | | | | | | 470 | | | - |
Long-term capital lease obligations | | | | | | | | $ | 81 | | $ | - |
Table of Contents
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(tabular amounts are in thousands of U.S. dollars, unless otherwise noted) (Continued)
NOTE 21 RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
| | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Cash and cash equivalents | | $ | 27,153 | | $ | 37,440 |
Restricted cash | | | 10,000 | | | - |
Restricted cash included in other long-term assets | | | - | | | - |
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | | $ | 37,153 | | $ | 37,440 |
Amounts included in restricted cash represent the proceeds of the sale of flow-through common shares (within the meaning of subsection 66(15) of the Income Tax Act (Canada)) as described in Note 10 Shareholders’ Equity. The proceeds are required by the Income Tax Act (Canada) to be used as payment for generative exploration activities at the Company’s Canadian properties. The entire proceeds will be utilized to fund exploration activities during 2018, at which point the restriction will lapse.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
The change in our independent registered accountants was disclosed in a Form 8-K dated November 27, 2015 and filed with the SEC on December 3, 2015. No other information is required by this Item.
ITEM 9A. CONTROLS AND PROCEDURES
During the fiscal period covered by this report, our management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e)13a-15(e) and 15d‑15(e)15d-15(e) of the Exchange Act). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the required time periods specified in the Commission’s rules and forms and are designed to ensure that information required to be disclosed in our reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the year ended December 31, 2017, McEwen acquired the Black Fox Complex. The financial information for this acquisition is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 19 to the Consolidated Financial Statements. As permitted by the U.S. Securities and Exchange Commission, the Company excluded this acquisition from its evaluation of the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2017 due to the complexity associated with assessing internal controls during integration efforts.
There hashave been no changechanges in ourthe Company's internal control over financial reporting during the most recent fiscal quarteryear ended December 31, 2020 that hashave materially affected, or that isare reasonably likely to materially affect, ourthe Company's internal control over financial reporting. McEwen continues to implement its internal control structure over the operations of the acquired business discussed above.
Management’s report on internal control over financial reporting and the attestation report of Ernst & Young LLP, an independent registered public accounting firm, are included in Item 8. Financial Statements and Supplementary Data of this annual report on Form 10‑K.10-K.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Pursuant to General Instruction G of Form 10‑K,10-K, the information contained in this Item 10 is incorporated by reference to our Definitive Proxy Statement for our 20182021 Annual Meeting of Shareholders, expected to be filed with the SEC on or before April 30, 2018.2021.
The Company has a code of business conduct and ethics that applies to all of its employees, officers and directors. The code of business conduct and ethics is available on our website at www.mcewenmining.com and we will post any amendments to, or waivers, from, the code of ethics on that website.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in this Item 11 is incorporated by reference from our Definitive Proxy Statement for our 20182020 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information contained in this Item 12 is incorporated by reference from our Definitive Proxy Statement for our 20182020 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information contained in this Item 13 is incorporated by reference to our Definitive Proxy Statement for our 20182020 Annual Meeting of Shareholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information contained in this Item 14 is incorporated by reference to our Definitive Proxy Statement for our 20182020 Annual Meeting of Shareholders.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The exhibits listed in the accompanying exhibit indexthis Item 15 are filed or furnished (except where otherwise indicated) as part of this report:
| | |
3.1.1 | | Second Amended and Restated Articles of Incorporation of the Company as filed with the Colorado Secretary of State on January 20, 2012 (incorporated by reference from the Current Report on Form 8-K filed with the SEC on January 24, 2012, Exhibit 3.1, File No. 001-33190) |
3.1.2 | | Articles of Amendment to the Second Amended and Restated Articles of Incorporation of the Company as filed with the Colorado Secretary of State on January 24, 2012 (incorporated by reference from the Current Report on Form 8-K filed with the SEC on January 24, 2012, Exhibit 3.2, File No. 001-33190) |
3.2 | | Amended and Restated Bylaws of the Company (incorporated by reference from the Current Report on Form 8-K filed with the SEC on March 12, 2012, Exhibit 3.2, File No. 001-33190) |
4.1 | | Description of Capital Stock (incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 16, 2020, Exhibit 4.1, File No. 001-33190) |
4.2 | | Form of Warrant issued by the Company in connection with November 2019 financing (incorporated by reference from the Current Report on Form 8-K filed with the SEC on November 22, 2019, Exhibit 4.1, File No. 001-33190) |
4.3 | | Form of Warrant issued by the Company in connection with March 2019 financing (incorporated by reference from the Current Report on Form 8-K filed with the SEC on March 29, 2019, Exhibit 4.1, File No. 001-33190) |
10.1* | | Amended and Restated Equity Incentive Plan dated as of March 17, 2015 (incorporated by reference from the Current Report on Form 8-K filed with the SEC on May 29, 2015, Exhibit 4.1, File No. 001-33190) |
10.2* | | Form of Stock Option Agreement for executives of the Company (incorporated by reference from the Annual Report on Form 10-K filed with the SEC on March 11, 2016, Exhibit 10.3, File No. 001-33190) |
10.3 | | Form of Indemnification Agreement between the Company and its officers and directors (incorporated by reference from the Current Report on Form 8-K dated December 7, 2005, Exhibit 10.1, File No. 000-09137) |
10.4 | | Amended and Restated Credit Agreement among the Company, as Borrower, the Lenders party to the Agreement and Sprott Private Resource Lending II (Collector), LP, as Administrative Agent, dated June 25, 2020 (incorporated by reference from the Current Report on Form 8-K filed with the SEC on June 29, 2020, Exhibit 10.1, File No. 001-33190) |
10.5 | | Employment Agreement between the Company and Anna Ladd-Kruger, dated October 2, 2020 (incorporated by reference from the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 filed with the SEC on October 29, 2020, Exhibit 10.1, File No. 001-33190) |
10.6 | | Placement Agency Agreement among the Company, Cantor Fitzgerald & Co, and Roth Capital Partners dated February 5, 2021 (incorporated by reference from the Current Report on Form 8-K filed with the SEC on February 9, 2021, Exhibit 10.1, File No. 001-33190) |
10.7 | | Form of Securities Purchase Agreement, dated as of February 5, 2021 between the Company and Certain Purchasers (incorporated by reference from the Current Report on Form 8-K filed with the SEC on February 9, 2021, Exhibit 10.2, File No. 001-33190) |
10.9.1 | | Option and Joint Venture Agreement, by and among Minera Andes Inc., Minera Andes S.A., and Mauricio Hochschild & CIA. LTDA., dated March 15, 2001 (the “OJVA”) (incorporated by reference from the Annual Report on Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12, File No. 001-33190) |
10.9.2 | | First Amendment to OJVA, dated May 14, 2002 (incorporated by reference from the Annual Report on Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.1, File No. 001-33190) |
10.9.3 | | Second Amendment to OJVA, dated August 27, 2002 (incorporated by reference from the Annual Report on Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.2, File No. 001-33190) |
10.9.4 | | Third Amendment to OJVA, dated September 10, 2004 (incorporated by reference from the Annual Report on Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.3, File No. 001-33190) |
10.9.5 | | Fourth Amendment to OJVA, dated September 17, 2010 (incorporated by reference from the Annual Report on Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.4, File No. 001-33190) |
10.13 | | Form of Securities Purchase Agreement between the Company and the purchaser in the March 2019 offering (incorporated by reference from the Current Report on Form 8-K filed with the SEC on March 29, 2019, Exhibit 10.2, File No. 001-33190) |
21+ | | List of subsidiaries of the Company |
23.1+ | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm |
23.2+ | | Consent of P&E Mining Consultants Inc., Mining Engineers |
23.3+ | | Consent of Independent Mining Consultants Inc. |
23.4+ | | Consent of Mine Technical Services Ltd. |
31.1+ | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Robert R. McEwen, principal executive officer. |
31.2+ | | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Anna Ladd-Kruger, principal financial officer. |
32+ | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert R. McEwen and Anna Ladd-Kruger. |
95+ | | Mine safety disclosure |
101+ | | The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 are filed herewith, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Audited Consolidated Statements of Operations and Other Comprehensive (Loss) for the years ended December 31, 2020, 2019 and 2018, (ii) the Audited Consolidated Balance Sheets as of December 31, 2020 and 2018, (iii) the Audited Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018, (iv) the Audited Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018, and (v) the Notes to the Audited Consolidated Financial Statements |
104+ | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Management contract or compensatory plan or arrangement. |
+ | Filed or furnished with this report. |
ITEM 16. FORM 10-K SUMMARY
None
SIGNATURES
SIGNATURES
In accordance withPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Companyregistrant has duly caused this Reportreport to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| | MCEWEN MINING INC. |
| | MCEWEN MINING INC.
|
| By: | /s/ ROBERT R. MCEWEN |
Dated: February 21, 2018March 10, 2021 | | Robert R. McEwen, |
| | Chairman of the Board of Directors and |
| | Chief Executive Officer |
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, this Reportreport has been signed below by the following persons on behalf of the Companyregistrant and in the capacities and on the dates indicated.
/s/ ROBERT R. MCEWEN | | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | | February 21, 2018March 10, 2021
|
Robert R. McEwen | | | | |
| | | | |
/s/ ANDREW ELINESKYANNA-LADD KRUGER | | Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)
| | February 21, 2018March 10, 2021
|
Andrew ElineskyAnna-Ladd Kruger
| | | | |
| | | | |
/s/ ALLEN V. AMBROSE | | Director | | February 21, 2018March 10, 2021
|
Allen V. Ambrose | | | | |
| | | | |
/s/ MICHELE L. ASHBY | | Director | | February 21, 2018March 10, 2021
|
Michele L. Ashby | | | | |
| | | | |
/s/ LEANNE M. BAKER
| | Director
| | February 21, 2018
|
Leanne M. Baker
| | |
| | | | |
/s/ RICHARD W. BRISSENDEN | | Director | | February 21, 2018March 10, 2021
|
Richard W. Brissenden | | | | |
| | | | |
/s/ GREGORY P. FAUQUIER | | Director | | February 21, 2018March 10, 2021
|
Gregory P. Fauquier | | | | |
| | | | |
/s/ DONALD R. M. QUICK | | Director | | February 21, 2018March 10, 2021
|
Donald Quick | | | | |
| | | | |
/s/ MICHAEL L. STEIN | | Director | | February 21, 2018
March 10, 2021 |
Michael L. Stein | | | | |
| | | | |
/s/ ROBIN DUNBAR | | Director | | February 21, 2018
March 10, 2021 |
Robin Dunbar | | | | |
| | |
2.1
| | Arrangement Agreement, dated February 13, 2017, by and between the Company and Lexam VG Gold Inc. (incorporated by reference from the Report on Form 8-K filed with the SEC on February 17, 2017, Exhibit 2.1, File No. 001-33190)
|
2.2
| | Asset Purchase Agreement Between the Company and Primero Mining Corp. dated August 25, 2017 (incorporated by reference from the report on Form 8-K/A filed with the SEC on September 1, 2017, Exhibit 2.1, File No. 001-33190)
|
3.1.1
| | Second Amended and Restated Articles of Incorporation of the Company as filed with the Colorado Secretary of State on January 20, 2012 (incorporated by reference from the Report on Form 8‑K filed with the SEC on January 24, 2012, Exhibit 3.1, File No. 001‑33190)
|
3.1.2
| | Articles of Amendment to the Second Amended and Restated Articles of Incorporation of the Company as filed with the Colorado Secretary of State on January 24, 2012 (incorporated by reference from the Report on Form 8‑K filed with the SEC on January 24, 2012, Exhibit 3.2, File No. 001‑33190)
|
3.2
| | Amended and Restated Bylaws of the Company (incorporated by reference from the Report on Form 8‑K filed with the SEC on March 12, 2012, Exhibit 3.2, File No. 001‑33190)
|
4.1
| | Form of Warrant issued to Security Holders (incorporated by reference from the report on Form 8-K filed with the SEC on September 22, 2017, Exhibit 4.1, File No. 001-33190)
|
10.1*
| | Amended and Restated Equity Incentive Plan dated as of March 17, 2015 (incorporated by reference from the report on Form 8-K filed with the SEC on May 29, 2015, Exhibit 4.1, File No. 001-33190)
|
10.2*
| | Form of Stock Option Agreement for executives of the Company (incorporated by reference for the Form 10-K filed with the SEC on March 11, 2016, Exhibit 10.3, File No. 001-33190)
|
10.4
| | Form of Indemnification Agreement between the Company and its officers and directors (incorporated by reference from the Report on Form 8‑K dated December 7, 2005, Exhibit 10.1, File No. 000‑09137)
|
10.7*+
| | Employment Agreement between the Company and Donald Brown dated August 8, 2016
|
10.8*
| | Employment Agreement between the Company and Xavier Ochoa dated September 2, 2016 (incorporated by reference from the Report on Form 8 K filed with the SEC on September 12, 2016, Exhibit 10.1, File No. 001 33190)
|
10.9*
| | English summary of an Agreement between Andes Corporacion Minera S.A and Xavier Ochoa dated September 6, 2016 (incorporated by reference from the Report on Form 8 K filed with the SEC on September 12, 2016, Exhibit 10.2, File No. 001 33190)
|
10.10
| | English Summary of Line of Credit Agreement, dated and finalized November 30, 2017 between Banco Nacional de Comercio Exterior S.N.C.and Compañia Minera Pangea S.A. de C.V. (incorporated by reference to Form 8-K filed with the SEC on December 4, 2017, Exhibit 10.1, File No. 001-33190)
|
10.11
| | Guaranty and Subordination Agreement, dated November 30, 2017, by McEwen Mining Inc. for the benefit of El Banco Nacional de Comercio Exterior, S.N.C. (incorporated by reference to Form 8-K filed with the SEC on December 4, 2017, Exhibit 10.2, File No. 001-33190)
|
10.12
| | Option and Joint Venture Agreement, by and among Minera Andes Inc., Minera Andes S.A., and Mauricio Hochschild & CIA. LTDA., dated March 15, 2001 (the “OJVA”) (incorporated by reference for the Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12, File No. 001-33190).
|
10.12.1
| | First Amendment to OJVA, dated May 14, 2002. (incorporated by reference for the Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.1, File No. 001-33190)
|
10.12.2
| | Second Amendment to OJVA, dated August 27, 2002. (incorporated by reference for the Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.2, File No. 001-33190)
|
10.12.3
| | Third Amendment to OJVA, dated September 10, 2004. (incorporated by reference for the Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.3, File No. 001-33190)
|
10.12.4
| | Fourth Amendment to OJVA, dated September 17, 2010. (incorporated by reference for the Form 10-K filed with the SEC on March 1, 2017, Exhibit 10.12.4, File No. 001-33190)
|
16
| | Letter from KPMG LLP dated December 3, 2015 addressed to the SEC (incorporated by reference to Form 8-K filed with the SEC on December 3, 2015, Exhibit 16.1, File No. 001-33190)
|
21+
| | List of subsidiaries of the Company
|
23.1+
| | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
|
23.2+
| | Consent of KPMG LLP, Independent Registered Public Accounting Firm.
|
31.1+
| | Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 for Robert R. McEwen.
|
31.2+
| | Certification pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 for Andrew Elinesky.
|
32+
| | Certification pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 for Robert R. McEwen and Andrew Elinesky
|
101+
| | The following materials from the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Audited Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015, (ii) the Audited Consolidated Balance Sheets as of December 31, 2017 and 2016, (iii) the Audited Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015, (iv) the Audited Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015, and (v) the Notes to the Audited Consolidated Financial Statements.
|
*Management contract or compensatory plan or arrangement.
+Filed with this report.
