10-Q 1 a14-19761_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIRES EXCHANGE ACT OF 1934

 

For the transition period from                to              

 

Commission File Number: 001-33190

 

MCEWEN MINING INC.

(Exact name of registrant as specified in its charter)

 

Colorado

 

84-0796160

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

150 King Street West, Suite 2800, Toronto, Ontario Canada M5H 1J9

(Address of principal executive offices)  (Zip code)

 

(866) 441-0690

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 x    No o

 

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 x    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o    No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 270,220,384 shares outstanding as of November 5, 2014 (and 28,879,495 exchangeable shares).

 

 

 



Table of Contents

 

MCEWEN MINING INC.

 

FORM 10-Q

 

Index

 

Part I     FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013 (unaudited)

3

 

 

 

 

Consolidated Balance Sheets at September 30, 2014 (unaudited) and December 31, 2013

4

 

 

 

 

Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2014 and 2013 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

40

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

Part II   OTHER INFORMATION

 

 

 

Item 1A.

Risk Factors

42

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

Item 6.

Exhibits

44

 

 

 

SIGNATURES

45

 

2



Table of Contents

 

PART I

 

Item 1.  FINANCIAL STATEMENTS

 

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands of U.S. dollars, except per share)

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

REVENUE:

 

 

 

 

 

 

 

 

 

Gold and silver sales

 

$

8,853

 

$

11,778

 

$

31,620

 

$

35,735

 

 

 

8,853

 

11,778

 

31,620

 

35,735

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Production costs applicable to sales

 

10,997

 

7,907

 

30,424

 

26,778

 

Mine construction costs

 

567

 

662

 

1,723

 

662

 

Mine development costs

 

31

 

85

 

1,754

 

654

 

Exploration costs

 

2,306

 

2,575

 

7,623

 

22,064

 

Property holding costs

 

2,380

 

2,384

 

4,568

 

4,077

 

General and administrative expenses

 

2,549

 

2,496

 

8,989

 

10,905

 

Depreciation

 

239

 

204

 

693

 

731

 

Accretion of asset retirement obligation (note 3)

 

100

 

113

 

309

 

347

 

Loss (income) on investment in Minera Santa Cruz S.A., net of amortization (note 4)

 

4,441

 

(2,040

)

(150

)

(252

)

Impairment of investment in MSC (note 4)

 

 

 

 

95,878

 

Impairment of mineral property interests and property and equipment (note 3)

 

 

6,287

 

120,398

 

34,016

 

(Gain) loss on sale of assets

 

(8

)

(50

)

(26

)

6,741

 

Total costs and expenses

 

23,602

 

20,623

 

176,305

 

202,601

 

Operating loss

 

(14,749

)

(8,845

)

(144,685

)

(166,866

)

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest income

 

347

 

60

 

456

 

199

 

Registration taxes

 

(6,712

)

 

(6,712

)

 

Gain on litigation settlement

 

 

 

 

560

 

Gain (loss) on sales of gold and silver

 

 

51

 

 

(223

)

Foreign currency loss

 

(633

)

(159

)

(932

)

(1,094

)

Total other income (expense)

 

(6,998

)

(48

)

(7,188

)

(558

)

Loss before income taxes

 

(21,747

)

(8,893

)

(151,873

)

(167,424

)

Income tax recovery (note 8)

 

8,714

 

12,157

 

52,705

 

31,025

 

Net (loss) income

 

(13,033

)

3,264

 

(99,168

)

(136,399

)

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale securities, net of taxes

 

(2

)

 

1

 

3

 

Comprehensive (loss) income

 

$

(13,035

)

$

3,264

 

$

(99,167

)

$

(136,396

)

Net (loss) income per share (note 9):

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

$

0.01

 

$

(0.33

)

$

(0.46

)

Diluted

 

$

(0.04

)

$

0.01

 

$

(0.33

)

$

(0.46

)

Weighted average common shares outstanding (thousands) (note 9):

 

 

 

 

 

 

 

 

 

Basic

 

297,164

 

297,125

 

297,162

 

297,001

 

Diluted

 

297,164

 

297,899

 

297,162

 

297,001

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



Table of Contents

 

MCEWEN MINING INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

17,622

 

$

24,321

 

IVA taxes receivable

 

10,873

 

11,591

 

Inventories (note 2)

 

9,202

 

8,800

 

Other current assets

 

2,005

 

2,059

 

Total current assets

 

39,702

 

46,771

 

 

 

 

 

 

 

Mineral property interests (note 3)

 

521,526

 

642,968

 

Restricted time deposits for reclamation bonding (note 3)

 

2

 

5,183

 

Investment in Minera Santa Cruz S.A. (note 4)

 

203,614

 

212,947

 

Property and equipment, net (note 5)

 

18,085

 

15,143

 

Other assets (note 13)

 

531

 

54

 

TOTAL ASSETS

 

$

783,460

 

$

923,066

 

 

 

 

 

 

 

LIABILITIES & SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

18,310

 

$

9,797

 

Current portion of asset retirement obligation (note 3)

 

1,458

 

1,392

 

Total current liabilities

 

19,768

 

11,189

 

 

 

 

 

 

 

Asset retirement obligation, less current portion (note 3)

 

5,976

 

5,855

 

Deferred income tax liability (note 8)

 

106,150

 

158,855

 

Deferred rent expense

 

328

 

 

Other liabilities

 

400

 

400

 

Total liabilities

 

$

132,622

 

$

176,299

 

Commitments and Contingencies (note 13)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, no par value, 500,000 shares authorized;

Common: 268,643 as of September 30, 2014 and 264,913 shares as of December 31, 2013 issued and outstanding

Exchangeable: 29,607 shares as of Septembre 30, 2014 and 32,246 shares as of December 31, 2013 issued and outstanding

 

1,357,934

 

1,354,696

 

Accumulated deficit

 

(706,802

)

(607,634

)

Accumulated other comprehensive loss

 

(294

)

(295

)

Total shareholders’ equity

 

650,838

 

746,767

 

 

 

 

 

 

 

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY

 

$

783,460

 

$

923,066

 

 

Subsequent events (note 14)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

 

 

 

Common Stock

 

Accumulated
Other
Comprehensive

 

Accumulated

 

 

 

 

 

Shares

 

Amount

 

(Loss) Income

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2012

 

296,025

 

$

1,349,777

 

$

(294

)

$

(459,892

)

$

889,591

 

Stock-based compensation

 

 

965

 

 

 

965

 

Exercise of stock options

 

93

 

171

 

 

 

171

 

Shares issued for litigation settlement

 

1,000

 

3,270

 

 

 

3,270

 

Shares issued for Mexico mining concessions

 

41

 

96

 

 

 

96

 

Unrealized gain on available-for-sale securities, net of taxes

 

 

 

3

 

 

3

 

Net loss

 

 

 

 

(136,399

)

(136,399

)

Balance, September 30, 2013

 

297,159

 

$

1,354,279

 

$

(291

)

$

(596,291

)

$

757,697

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2013

 

297,159

 

$

1,354,696

 

$

(295

)

$

(607,634

)

$

746,767

 

Stock-based compensation

 

 

852

 

 

 

852

 

Exercise of stock options

 

697

 

1,382

 

 

 

1,382

 

Shares issued for settlement of accounts payable

 

393

 

1,004

 

 

 

1,004

 

Unrealized gain on available-for-sale securities, net of taxes

 

 

 

1

 

 

1

 

Net loss

 

 

 

 

(99,168

)

(99,168

)

Balance, September 30, 2014

 

298,249

 

$

1,357,934

 

$

(294

)

$

(706,802

)

$

650,838

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands of U.S. dollars)

 

 

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Cash paid to suppliers and employees

 

$

(51,300

)

$

(74,359

)

Cash received from gold and silver sales

 

31,620

 

34,711

 

Dividends received from Minera Santa Cruz S.A.

 

9,483

 

1,242

 

Proceeds from sale of gold and silver bullion

 

 

1,467

 

Lease incentive

 

328

 

 

Interest received

 

456

 

139

 

Cash used in operating activities

 

(9,413

)

(36,800

)

Cash flows from investing activities:

 

 

 

 

 

Acquisition of mineral property interests

 

 

(150

)

Additions to property and equipment

 

(2,691

)

(3,710

)

Decrease to restricted time deposits for reclamation bonding

 

5,181

 

 

Deposit for surety bonds for reclamation bonding

 

(481

)

 

Proceeds from disposal of property and equipment

 

39

 

1,449

 

Cash provided by (used in) investing activities

 

2,048

 

(2,411

)

Cash flows from financing activities:

 

 

 

 

 

Exercise of stock options

 

1,382

 

171

 

Cash provided by financing activities

 

1,382

 

171

 

Effect of exchange rate change on cash and cash equivalents

 

(716

)

(819

)

Decrease in cash and cash equivalents

 

(6,699

)

(39,859

)

Cash and cash equivalents, beginning of period

 

24,321

 

70,921

 

Cash and cash equivalents, end of period

 

$

17,622

 

$

31,062

 

 

 

 

 

 

 

Reconciliation of net loss to cash used in operating activities:

 

 

 

 

 

Net loss

 

$

(99,168

)

$

(136,399

)

Adjustments to reconcile net loss from operating activities:

 

 

 

 

 

Income on investment in Minera Santa Cruz S.A., net of amortization

 

(150

)

(252

)

Impairment of investment in MSC

 

 

95,878

 

Impairment of mineral property interests and property and equipment

 

120,398

 

34,016

 

(Gain) loss on sale of assets

 

(26

)

6,741

 

Lease incentive

 

328

 

 

Income tax recovery

 

(52,705

)

(31,025

)

Gain on litigation settlement

 

 

(560

)

Unrealized loss on gold and silver bullion

 

 

223

 

Proceeds on sale of gold and silver bullion

 

 

1,467

 

Stock-based compensation

 

852

 

965

 

Shares issued to supplier for settlement of accounts payable

 

1,004

 

 

Depreciation

 

693

 

731

 

Accretion of asset retirement obligation

 

309

 

347

 

Amortization of mineral property interests and asset retirement obligations

 

923

 

1,244

 

Foreign exchange loss

 

716

 

819

 

Change in non-cash working capital items:

 

 

 

 

 

Decrease in IVA taxes receivable, net of collection of $5,049 (2013 - $nil)

 

717

 

979

 

(Increase) in other assets related to operations

 

(342

)

(1,078

)

Increase (decrease) in liabilities related to operations

 

7,555

 

(12,138

)

Dividends received from Minera Santa Cruz S.A.

 

9,483

 

1,242

 

Cash used in operating activities

 

$

(9,413

)

$

(36,800

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 1  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations and Basis of Presentation

 

McEwen Mining Inc. (the “Company” or “McEwen Mining”) was organized under the laws of the State of Colorado on July 24, 1979.  Since inception, the Company has been engaged in the exploration for, development of, production and sale of gold and silver. On January 24, 2012, the Company changed its name from US Gold Corporation to McEwen Mining Inc. after the completion of the acquisition of Minera Andes Inc. (“Minera Andes”) by way of a statutory plan of arrangement under the laws of the Province of Alberta, Canada.

 

The Company operates in Argentina, Mexico, and the United States.  It owns a 49% interest in Minera Santa Cruz S.A. (“MSC”), owner and operator of the producing San José mine in Santa Cruz, Argentina, which is controlled by the majority owner of the joint venture, Hochschild Mining plc (‘‘Hochschild’’). It also owns the El Gallo 1 mine in Sinaloa, Mexico. In addition to its operating properties, the Company also holds interests in numerous exploration stage properties and projects in Argentina, Mexico and the United States.

 

The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) has been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.

 

In management’s opinion, the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013, the Consolidated Balance Sheets as at September 30, 2014 (unaudited) and December 31, 2013, the unaudited Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2014  and 2013, and the unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited annual consolidated financial statements.  However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year.  Therefore these financial statements should be read in conjunction with the audited financial statements and notes thereto and summary of significant accounting policies included in the Company’s Form 10-K for the year ended December 31, 2013.  Except as noted below, there have been no material changes in the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s Form 10-K for the year ended December 31, 2013. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All inter-company accounts and transactions have been eliminated.

 

Recently Adopted Accounting Pronouncements

 

Presentation of an Unrecognized Tax Benefit:  In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2013-11 related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for the same jurisdiction’s net operating loss carryforward, a similar tax loss, or tax credit carryforwards. A gross presentation will be required only if such carryforwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax position. The update was effective prospectively for the Company’s fiscal year beginning January 1, 2014. The new guidance affects disclosures only and the adoption had no impact on the Company’s consolidated financial position, results of operations or cash flows.

 

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Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 1  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Foreign Currency Matters: In March 2013, the FASB issued ASU 2013-05 related to Foreign Currency Matters to clarify the treatment of cumulative translation adjustments when a parent sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. The updated guidance also resolves the diversity in practice for the treatment of business combinations achieved in stages in a foreign entity. The update was effective prospectively for the Company’s fiscal year beginning January 1, 2014. The updated guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

 

Recently Issued Accounting Pronouncements

 

Presentation of Financial Statements — Going Concern — Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern: In August 2014, Accounting Standards Codification (“ASC”) 205-40 guidance was amended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the Company’s fiscal year beginning January 1, 2015, with early application permitted. The updated guidance is not expected to have an impact on the Company’s consolidated financial statements.

 

Presentation of Financial Statements and Property, Plant and Equipment — Reporting Discontinued Operations and Disclosures of Components of an Entity:  In April 2014, ASC 205 and ASC 360 guidance was amended to change the requirements for reporting discontinued operations in ASC 205-20. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results when any of the following occurs: (1) the component of an entity or group of components of an entity meets the criteria in ASC 205-20-45-1E to be classified as held for sale; (2) the component of an entity or group of components of an entity is disposed of by sale; or (3) the component of an entity or group of components of an entity is disposed of other than by sale. The update is effective prospectively for the Company’s fiscal year beginning January 1, 2015. The new guidance is not expected to have an impact on the Company’s consolidated financial position, results of operations or cash flows.

 

Revenue from Contracts with Customers: In May 2014, ASC 606 was issued related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The standard will be effective for the Company’s fiscal year beginning January 1, 2017, including interim reporting periods within that year. The Company is evaluating the effect that the updated standard will have on its consolidated financial position, results of operations or cash flows.

 

8



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 2   INVENTORIES

 

Inventories at September 30, 2014 and December 31, 2013 consist of the following:

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

(in thousands)

 

Ore on leach pads

 

$

1,730

 

$

2,749

 

In-process inventory

 

4,417

 

2,681

 

Stockpiles

 

382

 

778

 

Precious metals

 

1,467

 

1,300

 

Materials and supplies

 

1,206

 

1,292

 

Inventories

 

$

9,202

 

$

8,800

 

 

The Company recorded write-downs of $0.6 million, $0.9 million and $0.2 million on its ore on leach pads inventory, in-process inventory, and precious metals inventory, respectively, during the three months ended September 30, 2014, for a total of $1.7 million, to reduce the carrying value of its metal inventories to net realizable value. The write-down was due to a high volume of waste material being extracted, higher operating costs and lower metal prices during the third quarter of 2014. The inventory write-downs of $1.7 million are included as a component of Production Costs Applicable to Sales.

 

NOTE 3   MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS

 

Mineral Property Interests

 

During the second quarter of 2014, the Company recorded an impairment charge of $120.4 million relating to its Los Azules copper exploration project (“Los Azules Project”). The Company conducts a review of potential triggering events for all its mineral projects on a quarterly basis. When events or changes in circumstances indicate that the related carrying amounts may not be recoverable, the Company carries out a review and evaluation of its long-lived assets for impairment, in accordance with its accounting policy. Such a triggering event was identified in the second quarter of 2014 with respect to the Company’s Los Azules Project. The triggering event identified was a contemporaneous acquisition of a copper project located in Argentina, which shared similarities with the Los Azules Project due to its scale, location, and stage of development. Based on the announcement day value of the similar project, the estimated market value per pound of copper equivalent mineralized material from this transaction was below the carrying value per pound of estimated copper equivalent mineralized material of the Los Azules Project, indicating a potential significant decrease in the market price of the Los Azules Project, in accordance with ASC 360-35-21-a, and therefore a requirement to test the Los Azules Project for recoverability. To assist in performing a recoverability test, the Company engaged a third-party valuation firm who used the observed market value per pound of copper equivalent mineralized material based on this contemporaneous and other comparable transactions to estimate the fair value of the Los Azules Project. The carrying value of the property exceeded its estimated fair value, resulting in an impairment charge of $120.4 million, along with a resulting deferred income tax recovery of $22.5 million, being recorded in the Statement of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2014.

 

Impairments recorded in the second and third quarters of 2013 related to the Company’s exploration properties in Santa Cruz, Argentina, and Nevada, respectively. The impairments related to the Santa Cruz properties were primarily due to an unexpected significant decline in gold and silver market prices, continued inflationary pressures and a new tax on mining reserves in the Province, resulting in a depressed market for exploration properties in Argentina. The impairment related to the Nevada properties were a result of the Company allowing certain claims in the West Battle Mountain Complex to lapse, in an effort to rationalize the Company’s mineral property interests and focus its exploration program on more prospective areas. The impairment charges for the Santa Cruz and Nevada properties were of $27.7 million and $6.3 million, respectively, along with a resulting reduction in deferred tax liability and recovery of deferred income taxes of $2.3 million and $2.2 million, respectively.

 

9



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

 

NOTE 3   MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS (Continued)

 

Mineral Property Interests (Continued)

 

Impairment charges were recorded on the following mineral property interests for the three and nine months ended September 30, 2014 and 2013.

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

Name of Property/Complex

 

Segment

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

(in thousands)

 

Telken Tenements

 

Argentina

 

$

 

$

 

$

 

$

13,792

 

Este Tenements

 

Argentina

 

 

 

 

2,784

 

Piramides Tenements

 

Argentina

 

 

 

 

5,079

 

Tobias Tenements

 

Argentina

 

 

 

 

6,074

 

Los Azules Project

 

Argentina

 

 

 

120,398

 

 

West Battle Mountain Complex

 

Nevada

 

 

6,287

 

 

6,287

 

Total impairments

 

 

 

$

 

$

6,287

 

$

120,398

 

$

34,016

 

 

Asset Retirement Obligations

 

The Company is responsible for reclamation of certain past and future disturbances at its properties.  The two most significant properties subject to these obligations are the historic Tonkin property in Nevada and the El Gallo 1 mine in Mexico.

 

The current undiscounted estimate of the reclamation costs for existing disturbances on the Tonkin property to the degree required by the U.S. Bureau of Land Management (“BLM”) and the Nevada Department of Environmental Protection (“NDEP”) was $2.7 million as of September 30, 2014. Expenses are expected to be incurred between the years 2014 and 2040. The Company submitted a mine closure plan to the NDEP and BLM for the Tonkin property during the fourth quarter of 2010.  As at September 30, 2014, the closure plan has already been approved by the NDEP but is still under review by the BLM pursuant to the National Environmental Policy Act. It is possible that reclamation plan cost estimates and bonding requirements may increase as a result of this review. The Company, however, is unable to meaningfully estimate possible increases at this time.

 

For mineral properties in the United States, the Company maintains required reclamation bonding with various governmental agencies. During the third quarter of 2014, the Company replaced its cash bonding of $4.8 million with surety bonds of the same amounts, as discussed in Note 13, Contingencies.

 

The current undiscounted estimate of the reclamation costs for existing disturbances at the El Gallo 1 mine was $4.6 million as of September 30, 2014. Expenses are expected to be incurred between the years 2015 and 2018. Under Mexican regulations, bonding of projected reclamation costs is not required.

 

10



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 3   MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS (Continued)

 

Asset Retirement Obligations (Continued)

 

A reconciliation of the Company’s asset retirement obligations for the nine months ended September 30, 2014 and for the year ended December 31, 2013 are as follows:

 

 

 

Nine months ended

 

Year Ended

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

(in thousands)

 

Asset retirement obligation liability, beginning balance

 

$

7,247

 

$

6,359

 

Settlements

 

(43

)

(60

)

Accretion of liability

 

309

 

461

 

Adjustment reflecting updated estimates

 

(79

)

487

 

Asset retirement obligation liability, ending balance

 

$

7,434

 

$

7,247

 

 

As at September 30, 2014, the current portion of the asset retirement obligation was $1.5 million (December 31, 2013 - $1.4 million).

 

Amortization of Mineral Property Interests and Asset Retirement Costs

 

The definition of proven and probable reserves is set forth in the SEC Industry Guide 7. If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are to be charged to expense based on the units of production method and upon commencement of production. Since the Company has not completed feasibility or other studies sufficient to characterize the mineralized material at El Gallo 1 as proven or probable reserves under the SEC definition, the amortization of the capitalized mineral property interests and asset retirement costs are charged to expense based on the straight-line method over the estimated useful life of the mine. For the three and nine months ended September 30, 2014, the Company recorded $0.3 million and $1.0 million, respectively, of amortization expense related to El Gallo 1, which is included in Production Costs Applicable to Sales in the Statement of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2014, of which $0.1 million and $0.4 million, respectively, related to the amortization of capitalized asset retirement costs.

 

11



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 4   INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) — SAN JOSÉ MINE

 

The Company’s 49% attributable share of operations from its investment in MSC was a loss of $4.4 million for the three months ended September 30, 2014, and income of $0.2 million for the nine months ended September 30, 2014. This compares to income of $2.0 million and $0.3 million for the three and nine months ended September 30, 2013, respectively. These amounts are net of the amortization of the fair value increments arising from the purchase price allocation and related income tax recovery. 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 an increase to the Company’s income from its investment in MSC for the three and nine months ended September 30, 2014.

 

During the first quarter of 2013, it was determined that the cost of sales reported by MSC under U.S. GAAP for the year and three months ended December 31, 2012 was understated, resulting in an overstatement of MSC’s after-tax net income of $3.9 million. As the error was not material to previously-reported consolidated financial statements, the correction was recorded in the three months ended March 31, 2013. As a result, the income from the Company’s equity investment of 49% in MSC includes an adjustment of $1.9 million, resulting in a reduction of the Company’s Income from Investment in MSC for the nine months ended September 30, 2013.

 

During the second quarter of 2013, the Company recorded an impairment charge of $95.9 million on its investment in MSC, primarily as a result of an unexpected and significant decline in gold and silver market prices, continued inflationary pressures during the year, and amendments to the Santa Cruz Provincial Tax Code and Provincial Tax Law, which imposed a new tax on mining reserves in the Province of Santa Cruz. As the loss in value of the investment was considered other than temporary, an impairment of $95.9 million was recorded in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2013.

 

During the fourth quarter of 2013, the Company entered into a vend-in agreement with MSC and subsidiaries of Hochschild pursuant to which both parties agreed to contribute to MSC the mining rights of certain Santa Cruz exploration properties. The carrying value of the Company’s properties of $35.9 million, net of the related deferred tax liability of $17.3 million, was transferred to the Company’s investment in MSC, with no gain or loss recognized upon transfer, and is reflected in the Investment in MSC balance as at December 31, 2013.

 

During the three and nine months ended September 30, 2014, the Company received $2.4 million and $9.5 million in dividends from MSC, respectively, compared to $1.2 million during the same period in 2013.

 

Changes in the Company’s investment in MSC for the nine months ended September 30, 2014 and year ended December 31, 2013 are as follows:

 

 

 

Nine months ended

 

Year ended

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

(in thousands)

 

Investment in MSC, beginning balance

 

$

212,947

 

$

273,948

 

Attributable net income from equity investment

 

149

 

2,126

 

Amortization of fair value increments

 

(9,652

)

(18,425

)

Income tax recovery

 

9,653

 

17,145

 

Dividend distribution

 

(9,483

)

(1,826

)

Impairment of investment in MSC

 

 

(95,878

)

Contribution of Santa Cruz exploration properties, net of tax

 

 

35,857

 

Investment in MSC, ending balance

 

$

203,614

 

$

212,947

 

 

12



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 4   INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) — SAN JOSÉ MINE (Continued)

 

A summary of the operating results from MSC for the three and nine months ended September 30, 2014 and 2013 is as follows:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands)

 

(in thousands)

 

Minera Santa Cruz S.A. (100%)

 

 

 

 

 

 

 

 

 

Net sales

 

$

38,263

 

$

69,663

 

$

148,386

 

$

182,031

 

Production costs applicable to sales

 

(36,136

)

(44,964

)

(117,620

)

(139,373

)

(Loss) income from operations before extraordinary items

 

(5,488

)

5,424

 

304

 

7,988

 

Net (loss) income

 

(5,488

)

5,424

 

304

 

7,988

 

 

 

 

 

 

 

 

 

 

 

Portion attributable to McEwen Mining Inc. (49%)

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,689

)

$

2,658

 

$

149

 

$

3,914

 

Amortization of fair value increments

 

(3,522

)

(3,579

)

(9,652

)

(15,582

)

Income tax recovery

 

1,770

 

2,961

 

9,653

 

11,920

 

(Loss) income on investment in MSC, net of amortization

 

$

(4,441

)

$

2,040

 

$

150

 

$

252

 

 

As at September 30, 2014, MSC had current assets of $98.3 million, total assets of $518.5 million, current liabilities of $56.9 million and total liabilities of $141.6 million on an unaudited basis. These balances include the increase in fair value and amortization of the fair value increments arising from the purchase price allocation and are net of the impairment charge of $95.9 million recorded in the second quarter of 2013. Excluding the fair value increments from the purchase price allocation and the impairment charge recorded in the second quarter of 2013, MSC had current assets of $101.2 million, total assets of $308.9 million, current liabilities of $56.9 million, and total liabilities of $94.5 million as at September 30, 2014.

 

NOTE 5   PROPERTY AND EQUIPMENT

 

As at September 30, 2014 and December 31, 2013, property and equipment consisted of the following:

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

(in thousands)

 

Trucks and trailers

 

$

1,012

 

$

1,041

 

Office furniture and equipment

 

2,057

 

1,163

 

Drill rigs

 

998

 

998

 

Building

 

1,514

 

1,469

 

Land

 

8,699

 

8,672

 

Mining equipment

 

1,452

 

1,206

 

Construction-in-progress

 

6,292

 

3,894

 

Subtotal

 

$

22,024

 

$

18,443

 

Less: accumulated depreciation

 

(3,939

)

(3,300

)

Total

 

$

18,085

 

$

15,143

 

 

The increase in property and equipment from December 31, 2013 to September 30, 2014 was mainly in relation to leasehold improvements to the Company’s corporate office, as well as construction-in-progress assets which include advances the Company made to a supplier for long-lead items for its El Gallo 2 project.

 

Depreciation expense for the three and nine months ended September 30, 2014 was $0.2 million and $0.7 million, respectively (2013 - $0.2 million and $0.7 million, respectively).

 

13



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 6   SHAREHOLDERS’ EQUITY

 

During the nine months ended September 30, 2014, 2.6 million exchangeable shares were converted into common stock.  At September 30, 2014, total outstanding exchangeable shares not exchanged and not owned by the Company or its subsidiaries totaled 29.6 million.

 

During the nine months ended September 30, 2014, the Company issued approximately 697,300 shares of common stock upon exercise of stock options under the Equity Incentive Plan at a weighted average exercise price of $1.98 per share for proceeds of $1.4 million.

 

During the three and nine months ended September 30, 2014, the Company issued approximately 393,190 shares of common stock under an agreement with one of its mining contractors to settle parts of its accounts payable for services rendered above a defined tonnage threshold. As at September 30, 2014, the Company was required to issue a cumulative total of approximately 446,950 common shares. The fair value of the remaining 53,760 outstanding shares of $0.1 million is included in accounts payable and accrued liabilities on the Consolidated Balance Sheet as at September 30, 2014.

 

NOTE 7   STOCK-BASED COMPENSATION

 

During the three and nine months ended September 30, 2014, the Company granted stock options to certain employees and directors for an aggregate of 1.7 million shares of common stock at a weighted average exercise price of $2.90 per share. The options vest equally over a three-year period if the individual remains affiliated with the Company (subject to acceleration of vesting in certain events) and are exercisable for a period of 5 years from the date of issue. During the comparable periods in 2013, stock options granted to employees and directors amounted to 1.7 million shares of common stock at an exercise price of $2.25 per share. The principal assumptions used in applying the Black-Scholes option pricing model for these awards were as follows:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Risk-free interest rate

 

1.01%

 

0.5% to 0.86%

 

1.01%

 

0.50%

 

Dividend yield

 

n/a

 

n/a

 

n/a

 

n/a

 

Volatility factor of the expected market price of common stock

 

70%

 

66% to 69%

 

70%

 

66%

 

Weighted-average expected life of option

 

3.5 years

 

3.5 years

 

3.5 years

 

3.5 years

 

Weighted-average grant date fair value

 

$1.45

 

$1.02

 

$1.45

 

$1.01

 

 

During the three and nine months ended September 30, 2014, the Company recorded stock option expense of $0.2 million and $0.9 million, respectively. This compares to $0.3 million and $1.0 million for the three and nine months ended September 30, 2013.

 

NOTE 8   INCOME TAXES

 

The Company’s income tax expense differs from the amount computed by applying the U.S. federal and state statutory corporate income tax rate of 35% to losses before taxes primarily as a result of valuation allowances being applied to losses and due to changes in the deferred tax liability associated with mineral property interests acquired in the Minera Andes acquisition. This deferred tax liability is impacted by fluctuations in the foreign exchange rate between the Argentine peso and U.S. dollar. For the three and nine months ended September 30, 2014, the Company recorded an income tax recovery of $2.3 million and $23.7 million, respectively, as a result of the Argentine peso devaluation, compared to $9.9 million and $23.6 million for the three and nine months ended September 30, 2013, respectively. Further, the income tax recovery for the nine months ended September 30, 2014 includes $22.5 million associated with the impairment of the Los Azules Project, discussed in Note 3, Mineral Property Interests and Asset Retirement Obligations. This compares to an income tax recovery of $2.2 million and $7.0 million related to mineral property interests sold or impaired in the three and nine months ended September 30, 2013, respectively.

 

14



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 8   INCOME TAXES (Continued)

 

Also in the third quarter of 2014, the Company recorded an adjustment to decrease deferred tax liabilities by $5.8 million to record the tax effect of timing differences related to exploration expenditures incurred in Argentina in prior years and deductible for tax purposes in future years. The adjustment is included in deferred tax recovery in the three and nine months ended September 30, 2014.

 

NOTE 9   NET (LOSS) INCOME PER SHARE

 

Basic net (loss) income per share is computed by dividing the net (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.

 

Below is a reconciliation of the basic and diluted weighted average number of common shares and the computations for basic (loss) income per share for the three and nine months ended September 30, 2014 and 2013:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands, except per share)

 

Net (loss) income

 

$

(13,033

)

$

3,264

 

$

(99,168

)

$

(136,399

)

Weighted average common shares (thousands):

 

 

 

 

 

 

 

 

 

Basic

 

297,164

 

297,125

 

297,162

 

297,001

 

Effect of employee stock-based awards

 

 

774

 

 

 

Diluted

 

297,164

 

297,899

 

297,162

 

297,001

 

Net (loss) income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

$

0.01

 

$

(0.33

)

$

(0.46

)

Diluted

 

$

(0.04

)

$

0.01

 

$

(0.33

)

$

(0.46

)

 

For the three months ended September 30, 2014, options to purchase 3.2 million shares of common stock outstanding at September 30, 2014 (September 30, 2013 — 2.1 million) at an average exercise price of $4.28 per share (September 30, 2013 — $5.01) were not included in the computation of diluted weighted average shares because their exercise price exceeded the average price of the Company’s common stock for the three months ended September 30, 2014 and 2013, respectively. Other outstanding options to purchase 3.2 million shares of common stock were not included in the computation of diluted weighted average shares in the three months ended September 30, 2014 because their effect would have been anti-dilutive.

 

For the nine months ended September 30, 2014, options to purchase 3.2 million shares of common stock outstanding at September 30, 2014 (September 30, 2013 — 2.0 million options) at an average exercise price of $4.28 per share (September 30, 2013 — $5.16) were not included in the computation of diluted weighted average shares because their exercise price exceeded the average price of the Company’s common stock for the three months ended September 30, 2014 and 2013, respectively. Other outstanding options to purchase 3.2 million shares of common stock (September 30, 2013 — 3.6 million options) were not included in the computation of diluted weighted average shares in the nine months ended September 30, 2014 and 2013, respectively, because their effect would have been anti-dilutive.

 

NOTE 10   RELATED PARTY TRANSACTIONS

 

For the three and nine months ended September 30, 2014, the Company incurred and paid $25,237 and $63,755, respectively, to an entity affiliated with the Company’s Chairman and Chief Executive Officer for the use of an aircraft, compared to $9,100 and $79,625 for the three and nine months ended September 30, 2013, respectively.

 

NOTE 11   SEGMENTED INFORMATION

 

McEwen Mining is a mining and minerals exploration, development and production company focused on precious metals in Argentina, Mexico and the United States.  The Company identifies its reportable segments as those consolidated operations that are currently engaged in the exploration for and production of precious metals.  Operations not actively engaged in the exploration for, or production of precious metals, are aggregated at the corporate level for segment reporting purposes.

 

15



Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 11   SEGMENTED INFORMATION (Continued)

 

The financial information relating to the Company’s operating segments as of, and for the three and nine months ended September 30, 2014 and 2013 is as follows:

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

Argentina

 

Mexico

 

U.S.

 

& Other

 

Total

 

 

 

(in thousands)

 

For the three months ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Gold and silver sales

 

$

 

$

8,853

 

$

 

$

 

$

8,853

 

Production costs applicable to sales

 

 

(10,997

)

 

 

(10,997

)

Mine construction costs

 

 

(567

)

 

 

(567

)

Mine development costs

 

 

(31

)

 

 

(31

)

Exploration costs

 

(190

)

(1,201

)

(851

)

(64

)

(2,306

)

General and administrative expenses

 

(210

)

(910

)

(50

)

(1,379

)

(2,549

)

Impairment of mineral property interests and property and equipment

 

 

 

 

 

 

Loss on investment in Minera Santa Cruz S.A. (net of amortization)

 

(4,441

)

 

 

 

(4,441

)

Operating loss

 

(4,915

)

(5,936

)

(2,392

)

(1,506

)

(14,749

)

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Gold and silver sales

 

$

 

$

31,620

 

$

 

$

 

$

31,620

 

Production costs applicable to sales

 

 

(30,424

)

 

 

(30,424

)

Mine construction costs

 

 

(1,723

)

 

 

(1,723

)

Mine development costs

 

 

(1,754

)

 

 

(1,754

)

Exploration costs

 

(940

)

(4,077

)

(2,368

)

(238

)

(7,623

)

General and administrative expenses

 

(563

)

(2,418

)

(163

)

(5,845

)

(8,989

)

Impairment of mineral property interests and property and equipment

 

(120,398

)

 

 

 

(120,398

)

Income on investment in Minera Santa Cruz S.A. (net of amortization)

 

150

 

 

 

 

150

 

Operating loss

 

(122,474

)

(11,134

)

(4,846

)

(6,231

)

(144,685

)

 

 

 

 

 

 

 

 

 

 

 

 

As at September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Investment in Minera Santa Cruz S.A.

 

203,614

 

 

 

 

203,614

 

Mineral property interests

 

337,806

 

11,018

 

172,702

 

 

521,526

 

Total assets

 

544,628

 

58,865

 

173,259

 

6,708

 

783,460

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

Argentina

 

Mexico

 

U.S.

 

& Other

 

Total

 

 

 

(in thousands)

 

For the three months ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Gold and silver sales

 

$

 

$

11,778

 

$

 

$

 

$

11,778

 

Production costs applicable to sales

 

 

(7,907

)

 

 

(7,907

)

Mine construction costs

 

 

(662

)

 

 

(662

)

Mine development costs

 

 

(85

)

 

 

(85

)

Exploration costs

 

(631

)

(1,148

)

(634

)

(162

)

(2,575

)

Income on investment in Minera Santa Cruz S.A. (net of amortization)

 

2,040

 

 

 

 

2,040

 

Impairment of mineral property interests and property and equipment

 

 

 

(6,287

)

 

(6,287

)

Gain on sale of assets

 

10

 

 

40

 

 

50

 

Operating income (loss)

 

1,131

 

393

 

(8,499

)

(1,870

)

(8,845

)

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Gold and silver sales

 

$

 

$

35,735

 

$

 

$

 

$

35,735

 

Production costs applicable to sales

 

 

(26,778

)

 

 

(26,778

)

Mine construction costs

 

 

(662

)

 

 

(662

)

Mine development costs

 

 

(654

)

 

 

(654

)

Exploration costs

 

(14,110

)

(5,582

)

(2,086

)

(288

)

(22,066

)

Income on investment in Minera Santa Cruz S.A. (net of amortization)

 

252

 

 

 

 

252

 

Impairment of investment in MSC

 

(95,878

)

 

 

 

(95,878

)

Impairment of mineral property interests and property and equipment

 

(27,729

)

 

(6,287

)

 

(34,016

)

Gain (loss) on sale of assets

 

(316

)

 

(6,428

)

3

 

(6,741

)

Operating loss

 

(139,297

)

(2,627

)

(17,102

)

(7,840

)

(166,866

)

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Investment in Minera Santa Cruz S.A.

 

212,947

 

 

 

 

212,947

 

Mineral property interests

 

458,203

 

11,984

 

172,781

 

 

642,968

 

Total assets

 

674,269

 

54,131

 

177,248

 

17,418

 

923,066

 

 

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Table of Contents

 

MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 12   FAIR VALUE ACCOUNTING

 

Fair value accounting establishes 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).

 

Assets and liabilities measured at fair value on a recurring basis

 

The following table identifies the fair value of the Company’s financial assets and liabilities which are recorded at fair value as reported in the Consolidated Balance Sheets at September 30, 2014 and December 31, 2013 by level within the fair value hierarchy.  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.

 

 

 

Fair Value as at September 30, 2014

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(in thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

Portion of accounts payable and accrued liabilities recorded at fair value

 

$

105

 

$

 

$

105

 

$

 

 

 

$

105

 

$

 

$

105

 

$

 

 

 

 

Fair Value as at December 31, 2013

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(in thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

Portion of accounts payable and accrued liabilities recorded at fair value

 

177

 

 

177

 

 

 

 

$

177

 

$

 

$

177

 

$

 

 

As at September 30, 2014, accounts payable included an accrual of $0.1 million for the fair value of approximately 53,760 shares of common stock that are required to be issued as part of the settlement of certain amounts due by the Company to one of its vendors, as discussed in Note 6, Shareholders’ Equity. As the Company’s stock is quoted on an active market, this liability is classified within Level 1 of the fair value hierarchy.

 

The fair value of other financial assets and liabilities approximate their carrying values due to their short-term nature and historically negligible credit losses.

 

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MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014

(tabular amounts are in thousands of U.S. dollars, unless otherwise indicated)

 

NOTE 13   COMMITMENTS AND CONTINGENCIES

 

Surety 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, as discussed in Note 4, Mineral Properties and Asset Retirement Obligations. These surety bonds are available for draw down in the event the Company does not perform its 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. 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. As at September 30, 2014, there were $4.8 million of outstanding surety bonds (December 31, 2013 - nil). The annual financing fees are 1.5% of the value of the surety bonds, with an upfront 10% deposit of $0.5 million which is included in Other Assets in the Consolidated Balance Sheet.

 

NOTE 14   SUBSEQUENT EVENTS

 

In October 2014, the Company entered into a transaction with TNR Gold Corp. (“TNR”) (and certain of its subsidiaries) whereby TNR’s back-in right to acquire up to 25% of the equity in certain portions of the Los Azules Project, has been terminated. In exchange for the termination of the back-in right, TNR will receive a 0.4% net smelter royalty on the Los Azules Project, 850,000 shares of the Company’s common stock and, if Company sells all of its interest in the project within thirty six months of closing the transaction, a bonus payment equal to 1% of the gross proceeds.

 

In October 2014, the Company also subscribed, by way of a private placement, 8,333,333 common share units (the “Units”) of Visible Gold Mines Inc. (“Visible Gold”) at a price of C$0.06 per Unit for an aggregate amount of approximately $0.4 million (C$0.5 million). Each Unit consists of one common share and one warrant (the “Transaction”). Each warrant entitles the Company to purchase one additional common share in Visible Gold at a price of $0.10 until April 27, 2016. The common shares and warrants purchased pursuant to the Transaction represent ownership of approximately 10.4% of the issued and outstanding shares of Visible Gold post closing (or approximately 18.9% on a partially diluted basis).

 

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Table of Contents

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

The following discussion updates our plan of operation as of November 7, 2014 for the foreseeable future. It also analyzes our financial condition at September 30, 2014 and compares it to our financial condition at December 31, 2013. Finally, the discussion analyzes our results of our operations for the three and nine months ended September 30, 2014 and compares those results to the three and nine months ended September 30, 2013.  With regard to properties or projects that are not in production, we provide some details of our plan of operation. We suggest that you read this discussion in conjunction with MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS contained in our annual report on Form 10-K for the year ended December 31, 2013.

 

The discussion also presents certain Non-GAAP financial performance measures, such as earnings from mining operations, adjusted net loss, total cash costs, total cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, all-in costs, all-in cost per ounce, and average realized price per ounce, that are important to management in its evaluation of our operating results and which are used by management to compare our performance to what we perceive to be peer group mining companies and relied on as part of management’s decision-making process. Management believes these measures may also be important to investors in evaluating our performance. For a detailed description of each of the Non-GAAP financial performance measures and certain limitations inherent in such measures, please see the discussion under “Non-GAAP Financial Performance Measures” below, beginning on page 34.

 

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 financial and technical information 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 responsibility for the use of project data or the adequacy or accuracy of this information.

 

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Table of Contents

 

CAUTIONARY NOTE TO UNITED STATES INVESTORS — INFORMATION CONCERNING PREPARATION OF RESOURCE AND RESERVE ESTIMATES

 

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

 

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

 

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

 

Canadian regulations permit the disclosure of resources in terms of “contained ounces” provided that the tonnes and grade for each resource are also disclosed; however, the SEC only permits issuers to report “mineralized material” in tonnage and average grade without reference to contained ounces. Under U.S. regulations, the tonnage and average grade described in our reports, news releases and other various publications 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, and to comply with applicable disclosure requirements.

 

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

 

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Table of Contents

 

Overview

 

McEwen Mining Inc. was organized under the laws of the State of Colorado on July 24, 1979.  Since inception, the Company has been engaged in the exploration for, production of, and sale of gold and silver.  Our principal assets consist of our 49% interest in the San José mine in Santa Cruz, Argentina; the El Gallo Complex in Sinaloa, Mexico; the Gold Bar Project in Nevada, United States; the Los Azules Project in San Juan, Argentina, and a large portfolio of exploration properties in Argentina, Nevada and Mexico.

 

In this report, “Au” represents gold; “Ag” represents silver; “oz” represents ounce; “gpt” represents grams per metric tonne; “ft.” represents feet; “m” represents meter; “km” represents kilometer; “sq.” represents square; and C$ refers to Canadian dollars. All of our financial information is reported in United States (U.S.) dollars, unless otherwise noted.

 

Selected Financial and Operating Results

 

The following table summarizes selected financial and operating results of our Company for the three and nine months ended September 30, 2014 and 2013:

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands, unless otherwise indicated)

 

Gold and silver sales

 

$

8,853

 

$

11,778

 

$

31,620

 

$

35,735

 

(Loss) income on investment in Minera Santa Cruz S.A., net of amortization

 

$

(4,441

)

$

2,040

 

$

150

 

$

252

 

(Loss) earnings from mining operations (1) (3)

 

$

(780

)

$

16,261

 

$

17,237

 

$

31,102

 

Net (loss) income

 

$

(13,033

)

$

3,264

 

$

(99,168

)

$

(136,399

)

Net (loss) income per common share - basic and diluted

 

$

(0.04

)

$

0.01

 

$

(0.33

)

$

(0.46

)

Adjusted net loss (3)

 

$

(8,341

)

$

(4,157

)

$

(23,254

)

$

(35,625

)

Adjusted net loss per common share - basic and diluted (3)

 

$

(0.03

)

$

(0.01

)

$

(0.08

)

$

(0.12

)

Consolidated gold ounces (1):

 

 

 

 

 

 

 

 

 

Produced

 

18.0

 

20.5

 

57.0

 

58.5

 

Sold

 

15.6

 

20.9

 

54.3

 

58.8

 

Consolidated silver ounces (1):

 

 

 

 

 

 

 

 

 

Produced

 

757

 

833

 

2,222

 

2,278

 

Sold

 

566

 

814

 

2,046

 

2,240

 

Consolidated gold equivalent ounces (1) (2):

 

 

 

 

 

 

 

 

 

Produced

 

30.6

 

36.5

 

94.0

 

102.3

 

Sold

 

25.1

 

36.5

 

88.4

 

101.9

 

Consolidated average realized price ($/ounce) (1) (3):

 

 

 

 

 

 

 

 

 

Gold

 

$

1,231

 

$

1,378

 

$

1,279

 

$

1,364

 

Silver

 

$

16.48

 

$

23.19

 

$

18.82

 

$

21.96

 

Consolidated costs per gold equivalent ounce sold ($/ounce) (1) (2):

 

 

 

 

 

 

 

 

 

Total cash costs (3)

 

$

1,009

 

$

728

 

$

870

 

$

785

 

All-in sustaining costs (3) (4)

 

$

1,448

 

$

1,036

 

$

1,264

 

$

1,206

 

All-in costs (3)

 

$

1,645

 

$

1,221

 

$

1,454

 

$

1,483

 

Silver : gold ratio (2)

 

60 : 1

 

52 : 1

 

60 : 1

 

52 : 1

 

 


(1)         Includes portion attributable to us from our 49% interest in the San José mine.

(2)         Gold equivalent ounces and costs per gold equivalent ounce for 2014 are calculated using an average silver to gold ratio of 60:1. Prior to 2014, the silver to gold ratio was 52:1.

(3)         Earnings from mining operations, adjusted net loss, total cash costs, all-in sustaining costs, all-in costs, and average realized prices are non-GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non-GAAP Financial Performance Measures” beginning on page 34 for additional information, including definitions of these terms.

(4)         In the fourth quarter of 2013, the Company revised its allocation of exploration expenses to all-in sustaining costs. Prior period figures have been adjusted to conform to the current methodology.

 

Operating and Financial Highlights

 

·                  Gold equivalent production in the third quarter of 2014 totaled 30,642 ounces, which includes 23,811 gold equivalent ounces attributable to us from our 49% interest in the San José mine in Argentina, and 6,831 gold equivalent ounces from the El Gallo 1 mine in Mexico. Production decreased year-over-year due to lower grades at both the El Gallo 1 and San José mines. In addition, production at El Gallo 1 was further negatively impacted by severe rainfall that resulted in lower haulage rates and crusher throughput, and prevented the mining of deeper, higher-grade ore during the quarter.

 

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Table of Contents

 

·                  Total cash costs, all-in sustaining costs and all-in costs per gold equivalent ounce sold for the third quarter of 2014 for all of our operations on a consolidated basis totaled $1,009, $1,448 and $1,645 per ounce, respectively. Total cash costs and all-in sustaining costs at the San José mine for the third quarter of 2014 totaled $873 and $1,217 per gold equivalent ounce, respectively. Total cash costs and all-in sustaining cash costs at our El Gallo 1 mine totaled $1,367 and $1,730 per gold equivalent ounce, respectively. The year-over-year increase in total cash costs per gold equivalent ounce reflect lower grades at both mines, as well as operational challenges at the El Gallo 1 mine. All-in sustaining and all-in costs per gold equivalent ounce also reflect the impact of fewer ounces sold both at the El Gallo 1 and San José mine over which costs are spread.

 

·                  Gold equivalent ounces sold in the third quarter of 2014 totaled 25,058 ounces, which includes 18,153 gold equivalent ounces attributable to us from our 49% interest in the San José mine, and 6,905 gold equivalent ounces from El Gallo 1. The year-over-year decrease in ounces sold reflects the decrease in production at both the El Gallo 1 and San José mine. Further, concentrate shipments from the San José mine have been delayed due to increased fishing activities in the region, which has limited port availability as fishing shipments are given priority over other commercial activities.

 

·                  The average realized price for all of our operations on a consolidated basis in the third quarter of 2014 was $1,231 and $16.48 per ounce of gold and silver sold, respectively. The decrease year-over-year reflects the downward trend of gold and silver prices during the third quarter of 2014. Average realized prices are presented net of adjustments of provisionally priced sales of concentrates.

 

·                  Despite unfavorable production results in the third quarter of 2014 at El Gallo 1, we maintain our original production guidance of 37,500 gold equivalent ounces for the year 2014. In order to meet this full-year forecast of 37,500 gold equivalent ounces, our mining contractor has acquired additional trucks, a second ramp has been constructed to increase mining efficiency, extra water pumps have been installed and a portable crusher is in place to ensure additional crushing capacity. As well, mining of deeper, higher-grade ore has commenced. With production guidance for 2014 at MSC also remaining unchanged, we expect to meet our consolidated production guidance, at the lower-end of the estimated range of 135,000 to 140,000 gold equivalent ounces.

 

·                  At El Gallo 1 our full-year forecasted total cash costs have been revised from $750-850 per gold equivalent ounce sold to $950-$1,050 per ounce, and all-in sustaining costs from $1,100-$1,200 per ounce to $1,200-$1,300 per ounce. The increase in guidance is due to the difficult mining conditions we experienced during the rainy season as well as additional repairs and improvements to the integrity of the solution pond liners and ADR plant. With respect to MSC, we reiterate our guidance of $750-$850 per gold equivalent ounce and $1,100-$1,200 per gold equivalent ounce for total cash costs and all-in sustaining costs, respectively. As a result of our revised guidance for El Gallo 1, our consolidated guidance is revised from $750-$850 to $850-$950 for total cash costs per gold equivalent ounce sold, and from $1,100-$1,200 to $1,225-$1,325 for all-in sustaining costs per gold equivalent ounce sold.

 

·                  We reported a consolidated net loss of $13.0 million, or $0.04 per share for the third quarter of 2014, compared to net income of $3.3 million, or $0.01 per share for the comparable period in 2013. The net loss for the third quarter of 2014 includes a non-recurring registration tax of $6.7 million relating to intercompany financing agreements with certain of our subsidiaries, as well as a write-down of inventory of $1.7 million due to a high volume of waste material being extracted, higher operating costs and lower metal prices during the third quarter of 2014.

 

·                  Our adjusted net loss for the quarter ended September 30, 2014, which removes the impact of the registration taxes discussed above as well as foreign currency gains resulting from the devaluation of the Argentine peso relative to the U.S. dollar, was $8.3 million, or $0.03 per share. This compares to $4.2 million for the comparable period in 2013. The 2013 adjusted net loss excludes impairments of mineral property interests.

 

·                  Our loss from mining operations for the quarter ended September 30, 2014 was $0.8 million, compared to earnings of $16.3 million for the comparable period in 2013.

 

·                  We ended the quarter with $19.1 million in cash and precious metals and no bank debt.

 

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Table of Contents

 

Development and Exploration Activities

 

El Gallo, Sinaloa, Mexico

 

El Gallo 1

 

We completed the construction of the expansion of El Gallo 1 in order to increase capacity from a nominal 3,000 tonnes per day to 4,500 tonnes per day in April 2014. Commissioning has commenced, with the expansion expected to be fully operational during the fourth quarter of 2014.

 

During the third quarter of 2014, we spent $0.6 million in mine constructions costs, which includes $0.3 million on an induction furnace to handle the expected increased doré production from the El Gallo 1 expansion and $0.3 million on road construction from the Lupita pit to the crusher. Mine constructions costs for the nine months ended September 30, 2014 totaled $1.7 million.

 

El Gallo 2

 

A final decision to proceed with the construction of El Gallo 2 has not been made. Any decision to proceed would be based on silver price expectations and securing financing on terms that are more favorable than those that were available to us at the time of filing this report. In order to prepare for a possible construction decision in the future, we have been evaluating possible debt financing alternatives and advancing the construction of the ball mill, which is the longest lead time item associated with the mine. The ball mill is now substantially complete. Pending a decision to proceed with the development of El Gallo 2, we are storing the mill at the manufacturer’s facilities. We expect to disburse the final payment of $1.0 million for the ball mill in the fourth quarter of 2014.

 

For the nine months ended September 30, 2014, we spent $1.8 million on mine development costs, which includes to a payment of $1.4 million for the Land Use Change permit in January 2014. Expenditures for the remainder of 2014 are expected to total approximately $1.1 million, primarily consisting of the $1.0 million final payment for the construction of the ball mill and related storage costs.

 

In the third quarter of 2014, we submitted the last permit for the right-of-way that will connect the El Gallo 2 operation to the Mexican power grid. Approval is expected in the second quarter of 2015. Construction of the mine could begin with power provided by generators with the option of later connecting to the grid. Further, with respect to the Palmarito permit which we submitted in the second quarter of 2014, following the completion of the Secretariat of Environment and Natural Resources’ review, we were instructed to collect additional environmental baseline data. We expect a decision on this permit in the first quarter of 2015 versus the previously disclosed fourth quarter of 2014. This permit would allow the mining of a satellite deposit, Palmarito, which represents approximately 15% of the projected annual silver production at El Gallo 2. Neither the Palmarito or the power line right-of-way permit will prevent construction from proceeding, if and when a positive decision is made.

 

Based on on-going cost savings studies, we believe approximately $150 million in financing would be required in order to complete the mine. The El Gallo 2 feasibility study, which provided an estimate of $180 million for initial capital expenditures, has not been updated to reflect these possible changes.

 

Exploration

 

El Gallo, Sinaloa, Mexico

 

One core drill has continued to operate during the third quarter of 2014. Both exploration and geotechnical holes were drilled at the El Gallo 1 mine area including Samaniego pit and Veta Nueva before moving to the San José del Alamo project approximately 9 miles (14 km) to the north of El Gallo 1 for some infill drilling on the existing resource.  Plans for the fourth quarter of 2014 include continuing to drill at San José and moving to the Twin Domes area located approximately 7 miles (11 km) to the west of El Gallo 1. Additional exploration activities in the quarter included continuing the blast hole program in conjunction with rock and soil sampling at prospects within our existing license grounds.

 

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Table of Contents

 

Gold Bar Project, Nevada, U.S.

 

Gold Bar is located primarily on public lands managed by the BLM. We submitted our Plan of Operations (“POO”) permit application during the fourth quarter of 2013. The POO was determined complete and the BLM has determined that an Environmental Impact Statement (“EIS”) is necessary to fulfill the requirements under the National Environmental Policy Act (“NEPA”). Upon completion of the EIS, the BLM will be able to proceed with the approval determination of the POO.

 

A Request for Proposal has been issued and a third-party consulting firm has been contracted to assist the BLM in the preparation of an EIS for the Gold Bar project. Final permit approval is scheduled for the second quarter of 2016.

 

Expenditures year-to-date as of September 30, 2014 on the Gold Bar project totaled $0.7 million, and are expected to be approximately $0.2 million for the remainder of 2014.

 

South Roberts Project, Nevada, U.S.

 

During the first quarter of 2014, we entered into a joint venture agreement with partner, Kinetic Gold Inc. for the South Roberts project in Nevada. South Roberts is located in the Cortez trend 10 miles (16 km) south-east of the Gold Bar deposit and has never been drilled. Pursuant to our obligations under the joint venture agreement, we continued to evaluate this property and completed in the third quarter of 2014 two holes totaling approximately 2,620 ft. (800 meters) of core drilling. Pending assay results will determine further exploration at this project. Expenditures year-to-date as of September 30, 2014 totaled $0.6 million.

 

Los Azules Project, Argentina

 

The 2013-2014 exploration season started in December 2013 and was completed in March 2014. No significant exploration work was conducted during this 2013-2014 season. Expenditures year-to-date as of September 30, 2014 totaled $0.4 million, and related to baseline studies regarding flora, fauna, water quality and glaciers. Expenditures for the remainder of 2014 are projected to approximately $0.4 million.

 

Santa Cruz Exploration, Argentina

 

We are continuing with our review of our 100% owned properties in the province of Santa Cruz, Argentina with sampling and mapping taking place. We do not expect to complete any significant drilling in 2014. Expenditures year-to-date as of September 30, 2014 totaled $0.1 million.

 

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Table of Contents

 

Results of Operations — MSC (on a 100% basis)

 

Overview

 

The following discussion relates only to MSC and is disclosed on a 100% basis, of which we indirectly own 49%.  We account for our investment in MSC using the equity method.  MSC, the entity which owns and operates the San José mine, is responsible for and has supplied to us all reported results and operational updates from the San José mine.

 

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) for the San José mine for the three and nine month periods ended September 30, 2014 and 2013. Also included below are the production figures on a 49% attributable basis.

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands, unless otherwise indicated)

 

San José Mine - 100%

 

 

 

 

 

 

 

 

 

Tonnes of ore mined

 

138

 

139

 

379

 

391

 

Average grade (gpt):

 

 

 

 

 

 

 

 

 

Gold

 

5.65

 

6.90

 

6.04

 

6.45

 

Silver

 

422

 

472

 

430

 

459

 

Tonnes of ore processed

 

142

 

132

 

418

 

381

 

Average grade (gpt):

 

 

 

 

 

 

 

 

 

Gold

 

5.66

 

6.59

 

5.62

 

6.57

 

Silver

 

388

 

446

 

386

 

435

 

Average recovery (%):

 

 

 

 

 

 

 

 

 

Gold

 

89.2

 

91.9

 

88.5

 

89.8

 

Silver

 

86.9

 

89.5

 

87.0

 

86.6

 

Gold ounces:

 

 

 

 

 

 

 

 

 

Produced

 

23.0

 

25.6

 

66.9

 

72.2

 

Sold

 

17.9

 

24.7

 

61.1

 

69.7

 

Silver ounces:

 

 

 

 

 

 

 

 

 

Produced

 

1,535

 

1,689

 

4,510

 

4,616

 

Sold

 

1,149

 

1,656

 

4,153

 

4,536

 

Gold equivalent ounces (1) :

 

 

 

 

 

 

 

 

 

Produced

 

48.6

 

58.0

 

141.6

 

161.0

 

Sold

 

37.0

 

56.6

 

130.2

 

156.6

 

Net sales

 

$

38,263

 

$

69,663

 

$

148,386

 

$

182,031

 

Gross average realized price ($/ounce) (2) :

 

 

 

 

 

 

 

 

 

Gold

 

$

1,190

 

$

1,407

 

$

1,270

 

$

1,318

 

Silver

 

$

16.47

 

$

23.20

 

$

18.82

 

$

21.93

 

Total cash costs (2)

 

$

32,332

 

$

40,860

 

$

109,368

 

$

125,188

 

Total cash costs per ounce sold ($/ounce) (2):

 

 

 

 

 

 

 

 

 

Gold

 

$

971

 

$

814

 

$

904

 

$

892

 

Silver

 

$

13.02

 

$

12.52

 

$

13.02

 

$

13.93

 

Gold equivalent (1)

 

$

873

 

$

723

 

$

839

 

$

799

 

All-in sustaining costs (2) 

 

$

45,079

 

$

55,218

 

$

145,617

 

$

168,487

 

All-in sustaining costs per ounce sold ($/ounce) (2):

 

 

 

 

 

 

 

 

 

Gold

 

$

1,353

 

$

1,100

 

$

1,204

 

$

1,200

 

Silver

 

$

18.16

 

$

16.93

 

$

17.34

 

$

18.75

 

Gold equivalent (1)

 

$

1,217

 

$

976

 

$

1,117

 

$

1,075

 

Silver : gold ratio (1)

 

60 : 1

 

52 : 1

 

60 : 1

 

52 : 1

 

 

 

 

 

 

 

 

 

 

 

McEwen Mining - 49% attributable share

 

 

 

 

 

 

 

 

 

Ounces produced:

 

 

 

 

 

 

 

 

 

Gold

 

11

 

13

 

33

 

23

 

Silver

 

752

 

828

 

2,210

 

1,434

 

Gold equivalent (1)

 

24

 

28

 

69

 

50

 

 


(1)         Gold equivalent ounces and costs per gold equivalent ounce for 2014 are calculated using an average silver to gold ratio of 60:1. Prior to 2014, the silver to gold ratio was 52:1.

(2)         Total cash costs, all-in sustaining costs and average realized prices are non-GAAP financial performance measures with no standardized definition under U.S. GAAP. See “Non-GAAP Financial Performance Measures” beginning on page 34 for additional information, including definitions of these terms.