10-K 1 mux-20161231x10k.htm 10-K mux_Current folio_10K

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

 

 

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

For the fiscal year ended December 31, 2016

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                

Commission file number 001‑33190

MCEWEN MINING INC.

(Name of registrant as specified in its charter)

 

 

Colorado
(State or other jurisdiction of incorporation or organization)

84‑0796160
(I.R.S. Employer Identification No.)

150 King Street West, Suite 2800, Toronto, Ontario Canada
(Address of principal executive offices)

M5H 1J9
(Zip Code)

(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

Name of each exchange on which registered

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‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non‑accelerated filer ☐

Smaller reporting company ☐

 

 

(Do not check if a
smaller reporting company)

 

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

As of June 30, 2016 (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 $1,150,715,238 based on the closing price of $3.85 per share as reported on the NYSE.  There were 299,569,826 shares of common stock outstanding on February 28, 2017

DOCUMENTS INCORPORATED BY REFERENCE:  Portions of the Proxy Statement for the 2017 Annual Meeting of Shareholders are incorporated into Part III, Items 10 through 14 of this report.

 

 

 


 

TABLE OF CONTENTS

PART I 

ITEM 1. 

BUSINESS

ITEM 1A. 

RISK FACTORS

ITEM 1B. 

UNRESOLVED STAFF COMMENTS

19 

ITEM 2. 

PROPERTIES

20 

ITEM 3. 

LEGAL PROCEEDINGS

33 

ITEM 4. 

MINE SAFETY DISCLOSURES

33 

PART II 

ITEM 5. 

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

34 

ITEM 6. 

SELECTED FINANCIAL DATA

35 

ITEM 7. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

37 

ITEM 7A. 

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

60 

ITEM 8. 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

62 

ITEM 9. 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

98 

ITEM 9A. 

CONTROLS AND PROCEDURES

98 

ITEM 9B. 

OTHER INFORMATION

98 

PART III 

ITEM 10. 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

99 

ITEM 11. 

EXECUTIVE COMPENSATION

99 

ITEM 12. 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

99 

ITEM 13. 

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

99 

ITEM 14. 

PRINCIPAL ACCOUNTING FEES AND SERVICES

99 

PART IV 

ITEM 15. 

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

99 

ITEM 16. 

FORM 10-K SUMMARY

99 

SIGNATURES 

100 

EXHIBIT INDEX 

101 

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 of this report for a complete list of those exhibits.

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SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

Please see the note under “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” for a description of special factors potentially affecting forward‑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 43‑101 “Standards of Disclosure for Mineral Projects” (“NI 43‑101”), under the Canadian securities laws because we are listed on the Toronto Stock Exchange (“TSX”) and subject to Canadian securities laws. 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”).

Definitions of terms under NI 43‑101 differ materially from the definitions of those and related terms in Industry Guide 7 (“Industry 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 Industry Guide 7 standards, a “Final” or “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” under Industry 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 Industry Guide 7 and 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”.

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‑production basis as reserves are mined. Unlike these other companies, we depreciate or amortize any capitalized costs based on the most appropriate amortization method, which includes straight‑line or Units-of-production method over the estimated life of the mine, as determined by our internal mine plans. As a result of these and other differences, our financial statements may not be comparable to the financial statements of mining companies that have established reserves.

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

Canadian regulations permit the disclosure of resources in terms of “contained ounces” provided that the tonnes and grade for each resource are also disclosed; however, the SEC only permits issuers to report “mineralized material” in tonnage and average grade without reference to contained ounces. Under U.S. regulations, the tonnage and average grade described herein and other information disseminated to you 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 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.

 

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PART I

ITEM 1.  BUSINESS

History and Organization

We are a mining and minerals production and exploration company focused on precious and base metals in Argentina, Mexico and the United States. On January 24, 2012, we changed our name from US Gold Corporation to McEwen Mining Inc. after the completion of the acquisition of Minera Andes Inc. (“Minera Andes”) by way of a statutory plan of arrangement under the laws of the Province of Alberta, Canada.

We own 100% of the El Gallo 1 mine in the state of Sinaloa, Mexico and a 49% interest in Minera Santa Cruz S.A. (“MSC”), the owner and operator of the producing San José mine in the province of Santa Cruz, Argentina, which is controlled by the majority owner of the joint venture, Hochschild Mining plc (“Hochschild”). In addition to our operating properties, we also hold interests in advanced stage and exploration stage properties and projects in Argentina, Mexico and the United States, including the Gold Bar (“Gold Bar”) and Los Azules (“Los Azules”) projects.

Our objective is to increase the value of our shares through the exploration and extraction of gold, silver and other valuable minerals. Other than the San José mine in Argentina, we generally conduct our exploration 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 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 and Elko, Nevada (U.S.). Our website is www.mcewenmining.com. We make available our periodic reports 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; “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 of our financial information is reported in United States (U.S.) dollars, unless otherwise noted.

Segment Information

Our operating segments include Mexico, MSC, Nevada, and Los Azules. Financial information for each of our reportable segments can be found under Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data, Note 16. Our sales and long-lived assets, based on the location from which they originate, are geographically distributed as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

LongLived Assets

 

 

    

2016

    

2015

    

2014

    

2016

    

2015

    

2014

 

Mexico

 

100

%  

100

%  

100

%  

7

%  

6

%  

2

%

Argentina

 

 —

%  

 —

%  

 —

%  

84

%  

85

%  

82

%

United States

 

 —

%  

 —

%  

 —

%  

9

%  

9

%  

16

%

Canada

 

 —

%  

 —

%  

 —

%  

 —

%  

 —

%  

 —

%

 

Products

The end product at our gold and silver operations is either in the form of doré or concentrate. Production from the El Gallo 1 mine primarily consists of approximately 98% doré and 2% attributed to slag and fine carbon. Doré is an alloy consisting primarily of gold and silver but also containing other impurity metals. Doré is sent to refiners to produce bullion that meets the required market standard of 99.95% gold and 99.9% silver. Under the terms of our refining agreements, the doré bars are refined for a fee, and our share of the refined gold and silver is credited to our account with the refinery. Ore concentrate, or simply concentrate, is raw ore that has been ground finely to a powdery product from which gangue (waste) is removed, thus concentrating the metal component. Slag and fine carbon are by-products of the gold production process left over after gold and silver have been separated which are sent to smelters for further recovery of metals. Production

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from the San José mine generally consists of approximately 48% doré and 52% concentrate.  Concentrates from the San José mine are shipped to third‑party smelters and refineries for further processing to produce useful metals.

During 2016, we reported the following consolidated production attributable to us:

 

 

 

 

 

 

 

 

    

Gold

    

Silver

    

Gold equivalent

Consolidated Production

 

ounces

 

ounces

 

ounces(1)

 

 

 

 

 

 

 

El Gallo 1 mine

 

54,928

 

25,336

 

55,266

San José mine (on 49% basis)

 

46,553

 

3,278,373

 

90,264

Total Production

 

101,481

 

3,303,709

 

145,530

(1)

Calculated using silver to gold ratio of 75:1

Gold and silver doré produced in Mexico is sold at the prevailing spot market price based on the London P.M. Fix.

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 the 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 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 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.

During 2016, total gold and silver sales for the El Gallo 1 mine were $60.4 million and for the San José mine were $236.0 million on a 100% basis. However, since we account for the San José mine using the equity method of accounting, we do not include revenue from the San José mine in the Consolidated Statement of Operations and Comprehensive Income (Loss). 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. Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies—Investments, 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 silver over the past three years and 2017 to the most recent practical date on the London Bullion Market:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold

 

Silver

Year

    

High

    

Low

    

Average

    

High

    

Low

    

Average

 

 

(in dollar per ounce)

2014

 

$

1,385

 

$

1,142

 

$

1,266

 

$

22.05

 

$

15.28

 

$

19.08

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 (through February 27, 2017)

 

 

1,257

 

 

1,151

 

 

1,212

 

 

18.34

 

 

15.95

 

 

17.30

 

On February 27, 2017 the London P.M. fix for gold was $1,257 per ounce and silver was $18.34 per ounce.

Gold and Silver 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 oxidized, the amenability of the material to treatment and related capital and operating costs.

At the El Gallo 1 mine, 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 leach the gold and silver. The gold and silver‑bearing solution is then collected and pumped to an Adsorption – Desorption ‑ Recovery (“ADR”) processing plant consisting of carbon columns, stripping circuits and a precious metal refinery to process gold and silver into doré bars. Doré bars are then shipped from the mine to a third party refiner to obtain bullion.

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The processing plant at the San José mine is composed of conventional crushing, grinding 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 electrowinning 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.

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

There are no Proven and Probable reserves within the meaning of SEC Industry Guide 7 at the El Gallo 1 mine or any of our other properties, except for the San José mine. The portion of Proven and Probable gold and silver Reserves attributable to McEwen Mining from our 49% equity interest in the San José mine, as of December 31, 2016, is presented in Item 2. PropertiesSan José mine, Argentina, on page 26.

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, lease, or acquisition in Mexico, Argentina, or the United States, 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 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‑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.

Acquisition of Lexam VG Gold Inc.

On February 13, 2017, we entered into an Arrangement Agreement with Lexam VG Gold Inc., a corporation existing under the laws of the Province of Ontario, Canada (“Lexam”), pursuant to which we expect to acquire all of the issued and outstanding common shares of Lexam (the “Arrangement”). The Arrangement will be implemented by way of a plan of arrangement and is subject to approval by the Ontario Superior Court of Justice (Commercial List). The effect of the Arrangement will result in Lexam becoming a wholly-owned subsidiary of the Company.

Pursuant to, and subject to the terms and conditions of, the Arrangement Agreement and the plan of arrangement, we expect to acquire all of the issued and outstanding shares of Lexam (the “Lexam Shares”) in exchange for shares of our common stock at a ratio of 0.056 of a share of our common stock for each Lexam Share. If consummated, we expect to issue approximately 12,689,709 shares of common stock, or approximately 4% of the total number of our shares, to Lexam shareholders. In addition, all issued and outstanding options to acquire Lexam Shares will be converted into options to purchase shares of our common stock at a ratio of 0.056 of a share of our common stock for each Lexam Share underlying each such Lexam option. The exchange ratio of 0.056 will not be adjusted for any subsequent changes in market prices of the Lexam Shares or our common stock prior to the closing of the Arrangement.

Consummation of the Arrangement is subject to various conditions, including, among others: (i) the approval of Lexam’s shareholders of the Arrangement and any other necessary actions related thereto; (ii) approval of the Court; (iii) approval of the listing of the shares of our common stock issuable to holders of Lexam Shares on the NYSE and the TSX; (iv)

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holders of not more than five percent of the issued and outstanding Lexam Shares exercising rights of dissent in respect of the Arrangement; (v) the accuracy of each party’s representations and warranties (subject to certain materiality qualifiers); and (vi) the absence of a material adverse effect in respect of each party.

The Arrangement Agreement includes customary representations, warranties, and covenants by the parties, including, among others, a covenant of Lexam not to solicit competing or alternative transactions, subject to certain exceptions to permit Lexam’s Board of Directors to comply with its fiduciary duties, including the right of Lexam to enter into a “Superior Proposal” (as defined in the Arrangement Agreement).

The Arrangement agreement also includes customary deal protection and non-solicitation provisions in favour of the Company, including a break fee of $2.1 million payable to the Company in certain circumstances, and fiduciary out provisions for the benefit of Lexam.  Lexam is entitled to a reverse break fee of the same amount payable in certain other circumstances.

In order to comply with NYSE rules, Mr. Robert R. McEwen, our Chairman and Chief Executive Officer, will not be entitled to receive shares of our common stock in exchange for his Lexam Shares in an amount representing more than 1% of the then issued and outstanding shares of the Company without obtaining the prior approval of our shareholders. We will seek such shareholder approval at our 2017 Annual Meeting of Shareholders. If such shareholder approval is not obtained, we will pay for such excess shares in cash.

Closing of the transaction is expected to occur by May 23, 2017. 

General Government Regulations

In Mexico, Argentina, Canada and the United States, 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:

·

mineral concession rights;

·

surface rights;

·

water rights;

·

mining royalties;

·

environmental laws;

·

mining permits; and

·

land ownership and mining rights (specific to the United States)

We believe that all of our properties are operated in compliance with all applicable governmental laws and regulations.

Customers

Production from our El Gallo 1 mine is either 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”), a Canadian financial institution.  Under the terms of that agreement, dated July 2012, we have the option to sell approximately 90% of the gold and silver contained in doré bars produced at the El Gallo 1 mine prior to the completion of refining by the third party refiner, which normally takes approximately 15 business days.  During the year ended December 31, 2016, 98% of our El Gallo 1 mine sales were to Scotia, of which only 6% ($3.4 million) were made through this doré purchase agreement. We also have an agreement to sell refined metal to a second Canadian financial institution.

During the year ended December 31, 2016, 79% of total sales from the San José mine were made to Republic Metals Corporation, Argo-Heraeus and LS Nikko Copper Inc. Republic Metals, a Florida corporation, is a purchaser of doré and

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accounted for 23% of total sales. Argo-Heraeus, a Swiss company, is a purchaser of doré, which accounted for 26% of total sales. LS Nikko Copper Inc., a South Korean company, is a purchaser of concentrate, which accounted for 30% of total sales. MSC has sales agreement with each of these purchasers.

In the event that our relationship with Scotia or MSC’s relationship with Republic Metals, Argo-Heraeus or LS Nikko Copper Inc. were interrupted for any reason, we believe that we or MSC could locate other purchasers for our products, however any interruption would temporarily disrupt the sale of our products and adversely affect our operating results.

Employees

As of December 31, 2016, we had 293 employees including 256 employees based in Mexico, 6 in Argentina, 10 in the United States, and 21 in Canada. All of our employees based in Canada work in an executive, technical or administrative position, while our employees in Mexico, Argentina and the United States also include laborers, craftsmen, mining, geology and permitting specialists, and information technologists, and various other support roles.

Some of our employees in Mexico are covered by union labor contracts and we believe we have good relations with our employees and their unions. 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, 2016, MSC had 1,172 employees at the San José mine, in Argentina.

 

7


 

ITEM 1A.  RISK FACTORS

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward‑looking statements that may be affected by several risk factors. The following information summarizes all material risks known to us as of the date of filing this report:

Risks Relating to Our Company

We have incurred substantial losses since our inception in 1979 and only became profitable in 2016.

Our first year of profitability, on an annual basis, was 2016. As of December 31, 2016, our accumulated deficit, which includes non‑cash impairment charges, was $919.0 million. In the future, our ability to remain profitable will depend on the profitability of the El Gallo 1 and San José mines, our ability to bring the Gold Bar and El Gallo 2 projects 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 order to continue to be profitable, we seek to identify additional mineralization that can be extracted economically at our operating, advanced-stage 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. As a result, we may suffer significant additional losses in the future and may not continue to be profitable.

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 financing, either in the form of debt or equity financing, to fund development of additional mining operations such as the Gold Bar or El Gallo 2 projects and to continue our exploration activities. Our working capital balance, along with expected cash generated from mining operations at El Gallo 1 mine and any dividends received from MSC, is not expected to be sufficient to allow us to develop Gold Bar or to continue our operations indefinitely. 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 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.

The feasibility of mining at our Gold Bar and El Gallo properties has not been established in accordance with SEC Industry Guide 7, and any funds spent by us on exploration and the advancement of our mineral properties could be lost.

A “Reserve,” as defined by Industry Guide 7 of the SEC, is that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. A Reserve requires a SEC‑compliant feasibility study or other report demonstrating with reasonable certainty that the deposit can be economically extracted and produced. Since we have not received a SEC‑compliant report on any of our properties, we currently have no Reserves as defined by SEC Industry Guide 7, except for our 49% interest in the San José mine, and there are no assurances that we will be able to prove that there are Reserves on our properties.

Substantial expenditures are required to establish Reserves through drilling and the required additional studies and there is no assurance that Reserves will be established. Whether a mineral deposit can be commercially viable depends upon a number of factors, including the particular attributes of the deposit, including size, grade, metallurgical recoveries and proximity to infrastructure; metal prices, which can be highly variable; and government regulations, including environmental and reclamation obligations. If we are unable to establish some or all of our mineralized material as proven or probable Reserves in sufficient quantities to justify commercial operations, our investment in that property may be lost, and the market value of our securities may suffer.

We are required to prepare and file with the Canadian securities regulators estimates of mineralized material in accordance with NI 43‑101. These standards are substantially different from the standards generally permitted to report Reserve and other estimates in reports and other materials filed with the SEC. Under NI 43‑101, we report measured, indicated and inferred resources, measurements which are generally not permitted in filings made with the SEC. U.S. investors are cautioned not to assume that all or any part of measured or indicated resources reported in our Canadian filings will ever be converted into Industry Guide 7 compliant Reserves.

8


 

There are significant risks and uncertainties associated with construction, commencing or expanding production or changing production plans without a current feasibility, pre‑feasibility or scoping study. As such, the El Gallo 2 and Gold Bar properties may ultimately be determined to lack one or more geological, engineering, legal, operating, economic, social, environmental, and other relevant factors reasonably required to serve as the basis for a final decision to successfully complete all or part of these projects.

Fluctuating precious metals and copper prices have and could continue to negatively impact our business.

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. The market price of gold and silver historically has fluctuated significantly, including a significant downward trend that continued through 2015, with a moderate increase in 2016, and is affected by numerous factors beyond our control. These factors include supply and demand fundamentals, 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, global or regional political, economic or banking crises, and a number of other factors. The market price of silver is also affected by industrial demand. The selection of a property for exploration or development, the determination to construct a mine and place it into production, and the dedication of funds necessary to achieve such purposes are decisions that must be made long before the first revenues, if any, from production will be received. Price fluctuations between the time that such decisions are made and the commencement of production can have a material adverse effect on the economics of a mine.

The volatility of mineral prices represents a substantial risk which no amount of planning or technical expertise can fully eliminate. In the event mineral prices decline or remain low for prolonged periods of time, we might be unable to develop our properties, which may adversely affect our results of operations, financial performance and cash flows. Our results of operations have been and could continue to be materially and adversely affected by the impairment of assets. An asset impairment charge may 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.

The volatility in gold, silver and copper prices is illustrated by the following table, which sets forth, for the periods indicated, the average market prices in U.S. dollars per ounce of gold and silver, based on the average daily London P.M. fix, and per pound of copper based on the London Metal Exchange Grade A copper settlement price.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal

    

2012

    

2013

    

2014

    

2015

    

2016

Gold

 

$

1,669

 

$

1,411

 

$

1,288

 

$

1,160

 

$

1,251

Silver

 

 

51.15

 

 

23.79

 

 

19.95

 

 

15.68

 

 

17.14

Copper

 

 

3.61

 

 

3.32

 

 

3.14

 

 

2.45

 

 

2.21

 

As at February 27, 2017, gold, silver and copper prices were $1,257 per ounce, $18.34 per ounce, and $2.69 per pound, respectively.

The figures for our estimated mineralized material are based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.

Unless otherwise indicated, 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 independent geologists and our internal geologists. When making determinations about whether to advance any of our projects to development, we must rely upon such estimated calculations as to the mineralized material and grades of mineralization on our properties. Until ore is actually mined and processed, mineralized material and grades of mineralization must be considered as estimates only.

These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. We cannot ensure 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

9


 

scale tests will be recovered in large‑scale tests under on‑site conditions or in production scale. The estimates contained in our public filings have been determined and valued based on assumed future prices, cut‑off grades and operating costs that may prove to be inaccurate. 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.

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 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.

Our operations in Argentina and Mexico are subject to changes in political conditions, regulations and crime.

Although all of our operations are subject to changes in political conditions, regulations and crime, the Company has substantial investments in Argentina and Mexico and is therefore subject to risks normally associated with the conduct of business in foreign countries. Further, both Argentina and Mexico have undergone significant government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, importation of parts and supplies, income and other taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Changes, if any, in mining or investment policies or shifts in political attitude in any of the jurisdictions in which the Company operates may adversely affect the Company’s operations or profitability. There also is the risk of political violence and increased social tension in both Mexico and Argentina as these countries have experienced periods of crime, and civil and labor unrest. Certain political and economic events such as acts, or failures to act, by government authorities in Argentina and Mexico, and acts of political violence could have a material adverse effect on our ability to operate in the country.

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 subsituted provincial reserve tax by a lower provincial Corporate Social Responsibility (“CSR”) payment and introduced a Patagonic export credit. In 2016, the Patagonic export credit was discontinued.

 

With respect to our El Gallo 1 mine in Mexico, in recent years, there has been a marked increase in the level of violence and crime relating to drug cartels in Sinaloa state, where we operate, and in other regions of Mexico. This may disrupt our ability to carry out exploration and mining activities and affect the safety and security of our employees and contractors. Our exploration and mining activities may be adversely affected in varying degrees by changing government regulations relating to the mining industry or shifts in political conditions, including as a result of periodic elections, that could increase the costs related to our activities or maintaining our properties.

Legislation has been enacted that significantly and adversely affects the mining industry.

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. In addition, the long term corporate tax rate remained at 30% rather than being reduced to 28% as originally proposed. The Mexican Senate approved the provisions of the Tax Reform on October 31, 2013. The effective date of the law was effective January 1, 2014.

10


 

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.

Our business is subject to 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, and, in certain circumstances, strict compliance with anti‑bribery laws may conflict with certain local customs and practices. For example, 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, and often carry substantial penalties. 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 the Company’s affiliates, employees or agents. As such, our corporate policies and processes may not prevent all potential breaches of law or other governance practices. 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 the Company’s reputation, which could have a material adverse effect on our business, financial position and results of operations or cause the market value of our common stock to decline.

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.

Our estimated timetables to achieve production for the Gold Bar and El Gallo 2 properties may not be accurate.

Based on estimates by state and federal agencies and included in a feasibility study completed in 2015, we expect to begin operation of our Gold Bar project in 2018.  However, there is no certainty that the economics estimated in the feasibility study will be realized or that we will be able to begin production within the timelines estimated, if at all.

In regard to El Gallo 2, the final decision to proceed with the construction of our El Gallo 2 project has not been made. The Company plans to continue reviewing cost savings studies. Furthermore, any decision to proceed would be based on silver prices and securing financing on terms that we believe are more favorable to us than those that were available to us at the time of filing this report.

Further, we may also be unable to obtain the necessary permits in a timely manner, on reasonable terms or on terms that provide us sufficient resources to develop our properties. These and other factors may cause us to delay production at Gold Bar and El Gallo 2 properties beyond our current expectations, or cancel our plans entirely.

11


 

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 accessed by 75 miles (120 kilometers) of unimproved dirt road with eight river crossings and two mountain passes both above 13,451 feet (4,100 meters). Even assuming that technical difficulties associated with this remote location can be overcome, the capital costs may make the project uneconomical. According to the NI 43‑101 Preliminary Economic Assessment (“PEA”) filed on November 7, 2013 with an effective date of August 1, 2013, capital costs were estimated to be $3.9 billion initially and $5.5 billion over the life of the mine with an accuracy target of plus or minus 35%. In order for Los Azules to be economically feasible for development, the price of copper would have to achieve and remain at a level high enough to justify the high capital costs estimated for the project. There can be no assurance that these capital cost estimates are accurate, given the inflationary pressure in the mining industry and in Argentina in particular. 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‑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 PEA is preliminary in nature, includes NI 43‑101 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, and there is no certainty that the PEA will be realized. Finally, we may not be able to raise sufficient capital to develop the property; we may not receive the required permits or environmental approvals; we may not be able to construct the necessary power and infrastructure assets; and, we may not be able to attract qualified workers to build such a project, any of which could result in the delay or indefinite postponement of development at the property. Such a result would have a material adverse effect on our Company.

We may acquire additional exploration stage properties and we may face negative reactions if reserves are not located on acquired properties.

We have in the past and may in the future acquire additional exploration 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;

·

labor disputes;

·

potential delays related to social, public health, and community issues;

·

unanticipated variations in grade and other geologic problems;

·

environmental hazards;

·

water conditions;

12


 

·

difficult surface or underground conditions;

·

industrial accidents;

·

metallurgical and other processing problems;

·

mechanical and equipment performance problems;

·

failure of pit walls or dams;

·

unusual or unexpected rock formations;

·

personal injury, fire, flooding, cave‑ins and landslides; 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‑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 to insure against general commercial liability claims and physical assets at our properties in Argentina, 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 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 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.

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, require permits from the 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.

Title to mineral properties can be uncertain, and we are 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 millsite 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 more risky. 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.

13


 

We may be subject to the exclusive jurisdiction of foreign courts which may result in uncertain interpretations and application of laws and regulations in Argentina and Mexico, which could increase the risks of our operations.

If a dispute arises in connection with our operations in Argentina or Mexico, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States or Canada.  The courts in Argentina and Mexico operate under the civil law system, rather than the common law system of the United States.  The application of this different system of law and its processes and rules, including rights of appeal, could result in adverse outcomes to us, should we be required to bring an action to enforce our rights in these jurisdictions.  Such outcomes, in turn, could have an adverse effect on our future cash flows, earnings, results or operations and financial condition.  Further, any dispute with governmental authorities may also adversely affect our relationship with the applicable government, which could impact the development and operation of our current and future projects in Argentina and Mexico.

Enforcement of laws in Argentina and Mexico may depend on and be subject to the interpretation placed upon such laws by the relevant local authority and such authority may adopt a legal interpretation which could differ from advice given to us by local lawyers or even previously, by the relevant local authority itself. 

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 and the United States 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, El Gallo and other properties could require significant additional expenditures.

We are responsible for the reclamation obligations related to disturbances located on all of our properties, including the Tonkin Complex. On February 10, 2014 we submitted to the BLM an amendment to the original Plan of operations for the Tonkin Complex tha 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 regards to 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, 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 phases of our operations are subject to Argentine, Mexican and American 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, 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

14


 

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.

We have transferred our interest in several mining properties over past years, some of which are now being operated by third parties. Under applicable U.S. federal and state environmental laws, as prior owner of these properties, we may be liable for remediating any damage that we 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.

Due to an increased level of non‑governmental organization activity targeting the mining industry, the potential for the government 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 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 and the United States, 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‑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.

Our lack of operating experience may cause us difficulty in managing our growth.

We are currently working towards the development of Gold Bar project in Nevada and El Gallo 2 in Mexico. If we are unable to successfully finance and place these projects into production, our stock price may suffer and you may lose some or all of your investment. Our ability to manage the anticipated growth that we expect will accompany placing one or more of those properties into production will require us to improve and expand our management and our operational systems and controls. If our management is unable to manage growth effectively, our business and financial condition would be materially harmed. In addition, if rapid growth occurs, it may strain our operational, managerial and financial resources.

To the extent that we seek to expand our operations and increase our reserves through acquisitions, we may experience issues in executing acquisitions or integrating acquired operations.

From time to time, we examine opportunities to make selective acquisitions in order to provide increased returns to our shareholders and to expand our operations and reported reserves and, potentially, generate synergies. The success of any acquisition would depend on a number of factors, including, but not limited to:

·

Identifying suitable candidates for acquisition and negotiating acceptable terms;

15


 

·

Obtaining approval from regulatory authorities and potentially the Company’s shareholders;

·

Maintaining our financial and strategic focus and avoiding distraction of management during the process of integrating the acquired business;

·

Implementing our standards, controls, procedures and policies at the acquired business and addressing any pre‑existing liabilities or claims involving the acquired business; and

·

To the extent the acquired operations are in a country in which we have not operated historically, understanding the regulations and challenges of operating in that new jurisdiction.

These prospects, if successfully acquired, could expose us to additional or new risks, particularly those relating to finance, capital, politics, geology and operations.  The acquisition process results in risks such as: increased costs for failed and successful acquisitions, the potential disruption of our business, due diligence risk, less than maximally efficient integration of assets and human capital into our business and potential unknown liabilities, like environmental liabilities associated with acquired businesses, assets and personnel.  We may also require additional capital to acquire a potential target or continue to operate our business after such acquisition.  We may also acquire businesses or assets in jurisdictions in which we do not currently operate, and which may have different risks and risk profile than those related to the jurisdictions in which we now operate.  Should we be required to incur debt as a result of an acquisition, we may be exposed to the risk of leverage and additional equity issued in connection with an acquisition may cause existing shareholders to face dilution.

There can be no assurance that we will be able to conclude any acquisitions successfully, or that any acquisition will achieve the anticipated synergies or other positive results. Any material problems that we encounter in connection with such an acquisition could have a material adverse effect on our business, results of operations, design and effectiveness of controls, and financial position.

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 mining contractor at the El Gallo 1 mine. 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 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 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 or increased costs.

As of December 31, 2016, 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

16


 

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 San José mine or the El Gallo 1 mine 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.

We depend on a limited number of personnel and the loss of any of these individuals could adversely affect our business.

Our company is dependent on key management, namely our Chairman and Chief Executive Officer; our President and Chief Operating Officer; our Senior Vice President and Chief Financial Officer; our Managing Director; our Senior Vice President Projects; our Vice President, Projects; our Vice President, Finance and our General Counsel. Robert R. McEwen (Mr. McEwen), our Chairman and Chief Executive Officer, is responsible for the strategic direction and the oversight of our business. Xavier Ochoa, our President and Chief Operating Officer, Nathan Stubina, our Managing Director; Donald Brown, our Senior Vice President, Projects; and Simon Quick, our Vice President, Projects oversee project development in Mexico, Nevada and Argentina. Carmen Diges, our General Counsel, Andrew Elinesky, our Senior Vice President and Chief Financial Officer, and Andrew Iaboni, our Vice President, Finance are responsible for our public reporting and administrative functions. We rely heavily on these individuals for the conduct of our business. The loss of any of these officers may significantly and adversely affect our business. In that event, we would be forced to identify and retain an individual to replace the departed officer. We may not be able to replace one or more of these individuals on terms acceptable to us. We have no life insurance on the life of any officer, where the Company is the beneficiary.

Some of our directors or officers may have conflicts of interest as a result of their involvement with other natural resource companies.

Some of our directors and officers are directors or officers of other natural resource or mining‑related companies, or may be involved in related pursuits that could present conflicts of interest with their roles at our Company. These associations may give rise to conflicts of interest from time to time. In the event that any such conflict of interest arises, a director who has such a conflict is required to disclose the conflict to the other directors and may be required to abstain from voting on the matter.

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‑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 March 1, 2017, Mr. McEwen beneficially owned approximately 25% of our outstanding shares, or 75.8 million of the 299.6 million shares of McEwen Mining common stock. Another entity beneficially owns 14.6% 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

17


 

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;

·

Volatility in the equities markets;

·

Disappointing results from our exploration or production efforts;

·

Producing at rates lower than those targeted;

·

Political and regulatory risks;

·

Weather conditions, including unusually heavy rains;

·

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.

During the 2016 calendar year, the price of our stock has ranged from a low of $0.96 to a high of $4.92. In addition, stock markets in general have experienced extreme price and volume fluctuations and the market prices of securities have been highly volatile. 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.

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, 2017. 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,

18


 

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 (the “McEwen Mining Board”) 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

None.

19


 

ITEM 2.  PROPERTIES

We classify our mineral properties into the reportable segments consistent with the manner in which they are disclosed in Item 8. Financial Statements and Supplemental Data, Note 16 Operating Segment Reporting and subsequently classify them within each segment by their respective stage of development: “Production Properties”, “Advanced-Stage Properties” and “Exploration Properties”.  Advanced-stage properties consist of properties for which a feasibility study has been completed indicating the presence of mineralized material, and for which we have obtained or are in the process of obtaining the required permitting. Our designation of certain properties as “Production Properties” or “Advanced-stage Properties” should not suggest that we have proven or probable reserves at those properties as defined by the SEC Industry Guide 7.

Our significant production, advanced-stage and exploration properties are described below.

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SEGMENT:  MEXICO

The following map depicts the location of our major properties included in the Mexico Operations segment, which are El Gallo 1 mine and the El Gallo 2 project described in the sections below:

Picture 1

The following table summarizes the Mexico land position of our Company as of December 31, 2016:

 

 

 

 

 

 

 

 

    

Number of

 

 

    

Square

Mexico Mineral Property Interest

 

Claims

 

Hectares

 

Kilometers

El Gallo 1 mine

 

9

 

2,097

 

21

El Gallo 2 project

 

5

 

37,220

 

372

Other Mexico properties

 

36

 

136,748

 

1,368

Total Mexico Properties

 

50

 

176,065

 

1,761

 

Production Properties

El Gallo 1 mine, Mexico (100% owned)

For detailed information on the El Gallo 1 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 through our Mexican subsidiary Pangea Resources Inc.. (“Pangea”), 100% of the El Gallo 1 mine. The El Gallo 1 mine refers to the open‑pit mine and heap leach operation formerly known as the Magistral mine. Modern exploration activities at the Magistral mine and surrounding properties started in early 1995 and were carried out by several companies, mainly in the San Rafael and Samaniego Hill deposit areas, as well as Sagrado Corazón-Central-Lupita deposit area. Commercial production was initiated in 2002 by Nevada Pacific Gold Ltd. and the mine produced approximately 70,000

21


 

ounces of gold from 2002 to 2005 before it was placed on care and maintenance due to higher than anticipated operating costs and a lack of working capital.  We acquired the property in 2007, refurbished the infrastructure and completed the first gold pour in September 2012, with commercial production commencing on January 1, 2013.  During the year ended December 31, 2016, the El Gallo 1 mine produced a total of 54,928 ounces of gold and 25,336 ounces of silver, and a cumulative total of 193,703 ounces of gold and 106,292 ounces of silver since recommencement of commercial production.

The El Gallo 1 mine consists of 8 square miles (21 square km) of concessions held through 100% ownership by Minera Pangea S.A. de C.V. (“Minera Pangea”). 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 January and July of each year on a per hectare basis and in accordance with the amounts provided by the Federal Fees Law.

An annual lease agreement for surface access to the El Gallo 1 mine is currently in place between Minera Pangea and certain of our employees who hold the surface rights. These lease agreements provide for access and site preparation to accommodate exploration activities, drilling, mining and production. The employees who hold the surface rights have commenced the required legal process to convert the land into private ownership so it can be transferred to us. Although the agreements cover a large area around the project, there can be no assurances that additional surface rights will not be required.

Various environmental permits are required in order to perform exploration drilling in Sinaloa State. Permitting requirements are dependent upon the level of disturbance. Exemptions can generally be obtained if drilling occurs in areas where no new disturbance will occur and vegetation will not be removed (agricultural areas, dirt roads, previously mined sites). If drilling occurs on previously undisturbed land and vegetation will be removed, an Environmental Impact Study and Land Use Change are required. Each of the areas where we are currently conducting exploration drilling has the required permit or exemption.

As of the date of filing this report, the El Gallo 1 mine has all of the necessary permits for current operations, of which key permits must be renewed in June 2022. Further permits are or may be required for the satellite deposits included within or near El Gallo 1 mine footprint. Specific permit‑required conditions must be followed during operations including, but not limited to: environmental impact study, land use change, and risk analysis plan.

Location and Access

The El Gallo 1 mine and the surrounding properties are located in the Municipality of Mocorito which is within the State of Sinaloa in northwestern Mexico. It is situated approximately 60 miles (100 kilometers) by air northwest of the Sinaloa state capital city of Culiacan in the western foothills of the Sierra Madre Occidental mountain range. The concessions are located approximately 2.5 miles (4.0 kilometers) by road from the village of Mocorito, approximately 10 miles (16 kilometers) from the town of Guamúchil. Access is either by paved or well maintained, two‑way, dirt roads.

Geology and Mineralization

Gold mineralization in the El Gallo 1 mine area occurs in six known deposits (Samaniego, San Rafael, San Dimas, Sagrado Corazón, Lupita and Central) along two distinct structural trends, northwest and northeast. A northwest trending structural zone hosts the Samaniego and San Rafael deposits. San Dimas also is hosted by a northwest‑striking structure. The second structural trend is northeast‑striking and includes the Sagrado Corazón, Lupita and Central deposits. Along these structural trends the mineralization is located within numerous sub‑structures that may be parallel, oblique or even perpendicular to the principal trends. Mineralization among the various deposits of the El Gallo 1 mine area is generally similar, with the individual structural zones consisting of quartz stockwork, breccia, and local quartz vein mineralization occurring within propylitically altered andesitic volcanic rocks. The Samaniego, San Rafael, Lupita, Sagrado Corazon, Central and San Dimas deposits are characterized by gold accompanied by iron oxide and variable copper, zinc and lead.

Facilities and Infrastructure

The El Gallo 1 mine property has well‑developed infrastructure including electricity, roads and high-speed internet access. There is a truck shop, a warehouse, a fuel depot, two core logging facilities, an explosives magazine, heap leach pads, process ponds, an assay laboratory, three stage crushing plant, an ADR process plant and an administrative office. The laboratory is equipped to process all assays (blasthole samples from the mine, core, chips and soil) and incorporates fire assaying and atomic absorption equipment. Also included is a metallurgical lab capable of processing bottle rolls and columns to determine gold and silver recoveries of ores amenable to cyanide leaching.

22


 

In 2016, we undertook the expansion of the heap leach pad in anticipation of the heap leach reaching its maximum capacity. The leach pad extension was commissioned late in the second quarter of 2016.

There is also access to a local work force that is familiar with mining operations. Mining operations and site security are performed by contractors and the Company has its own workforce in the administrative and processing areas.

The primary water supply for the El Gallo 1 mine comes from two currently operating water wells located 0.9 miles (1.5 km) from the process facility. Wells are powered by a generator that pumps water into a raw water pond, which is then used for operations. The wells combined with local annual precipitation of approximately 32 inches (~830 mm) provide sufficient supply for the El Gallo 1 mine production.

No Proven or Probable Reserves

We have not yet demonstrated the existence of Proven or Probable Reserves at the El Gallo 1 mine as defined by SEC Industry Guide 7.

Royalties

Coeur Mining Inc. a NYSE listed company, held a sliding scale net smelter return royalty (“NSR”) on gold or gold equivalent material recovered from the El Gallo 1 mine and the El Gallo 2 project. In the second quarter of 2016, we bought back the royalty at a cost of $6.3 million which eliminated the royalty payments. The remaining royalties are limited to a 2% NSR on gold or gold equivalent material recovered from the San Dimas deposit.

Advanced-stage Properties

El Gallo 2 Project, Mexico (100% owned)

Overview and History

The El Gallo 2 project is an advanced-stage project. It is also 100% owned by our subsidiary Minera Pangea and is subject to the environmental permitting requirements applicable to the State of Sinaloa previously described.

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 there is no current feasibility study in respect of the El Gallo 2 project. We believe that the figures set out in the FS are historical in nature 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 by the Company. Any decision to proceed would be based on improved silver price expectations, improved project economics, and securing financing on terms that are more favorable than those that were available to the Company at the time of completing the FS. During 2016, we performed further studies on the feasibility and development of the El Gallo 2 project.  However, as of December 31, 2016, no study has been completed.

Access and Location

The El Gallo 2 project is located in the Municipality of Mocorito which is within the State of Sinaloa in northwestern Mexico, 3.0 miles (4.8 km) northwest of our El Gallo 1 mine.

Geology and Mineralization

At the El Gallo 2 project, the mineralization is characterized by siliceous breccia zones and quartz stockwork zones within the predominantly andesitic rock package. These zones often occur at lithologic contacts, particularly contacts of Tertiary porphyry intrusions. Multi‑lithologic breccias zones are often adjacent to these contacts and these breccias are locally mineralized. Mineral zones commonly have gently‑dipping tabular geometry. Often, these zones reflect control by sill contacts of the Tertiary intrusives.

Facilities and Infrastructure

The water supply for the El Gallo 2 project is expected to come from three locally drilled water wells. Required water yields were confirmed through several long‑term pumping tests during the 2013 hydraulic aquifer investigation.

23


 

Exploration

The initial deposit at the El Gallo 2 project was initially discovered in 2008. Prior to the discovery, there was no recorded history of exploration having occurred at the El Gallo 2 project. The first core drilling at the El Gallo 2 project commenced in January 2009 and lasted until September 2011. No significant drilling was completed between 2012 and 2016. We have allocated a portion of our 2017 budget to greenfield and brownfield exploration with the focus on mapping, geophysics and geochemistry work in potentially prospective areas including the corridor between El Gallo 1 mine and the El Gallo 2 project.

No Proven or Probable Reserves

We have not yet demonstrated the existence of proven or probable reserves at the El Gallo 2 project as defined by SEC Industry Guide 7.

Exploration Properties

Our land position related to Exploration Properties in Mexico consists of several claims not associated with a specific project such as Palmarito and Mina Grande among others. The Palmarito silver deposit is a historic silver mine area that had historical production from open pit and underground workings before mining ceased in 1950s.

Since 2008, exploration activities across the license areas have included prospecting, stream sediment, and soil and rock chip geochemistry often 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.

In 2016, we concentrated on some prospective areas in the vicinity of the El Gallo 1 mine; particularly Encuentro South which is located 7 miles (11 km) southwest of the El Gallo 1 mine, where we ran a drill program and identified mineralized material.

We allocated part of its 2017 budget to continue the exploration work, particularly in the area of mapping, as well as geophysics and geochemistry studies with the focus on Encuentro South, Tescalama, Mapiri, Revancha, Mina Grande and Palmarito.

24


 

SEGMENT: MINERA SANTA CRUZ (“MSC”)

The following map depicts the location of our major properties included in MSC’s segment which are the San José mine and other concessions located around the mine:

Mapa

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.

Overview and History

The San José mine (49% McEwen Mining and 51% Hochschild Mining) is an underground operation located approximately 20 km north of Goldcorp’s Cerro Negro project in the northwest corner of the Deseado Massif region of Province of Santa Cruz in Argentina. The San José mine is operated by Minera Santa Cruz (“MSC”), a subsidiary of Hochschild Mining. The mine is part of a larger property, which covers the total area of approximately 1,132 sq. miles. (2,933 sq. km) and consists of 137 mining concessions (consisting of 69 Minas or approved mining claims; 52 Manifestaciones de Descubrimiento, or claims that are in the application process for mining claim status; and 16 Cateos, or claims that are for exploration only). This includes mineral rights that were transferred to MSC pursuant to two separate vend‑in agreements between MSC, our Company and Hochschild, which were completed in October 2013 and October 2015. Under the agreements, we agreed to contribute to MSC the mining rights to a certain number of our Santa Cruz exploration properties, with Hochschild also contributing to MSC certain of its mineral properties located in the same region.

We acquired our interest in the San José mine in connection with our acquisition of Minera Andes, in January 2012. The property was acquired by Minera Andes in 1997, following the completion of a regional geological study. In March 2001 (and subsequently amended by agreements dated May 14, 2002, August 27, 2002, September 10, 2004, and September 17, 2010), an option and joint venture agreement (“OJVA”) was signed between Minera Andes (49%) and

25


 

Hochschild (51%) covering the San José property. Under the terms of the OJVA, a subsidiary of Hochschild acquired a majority interest in the property and title to the San José property and the San José mine is held by MSC, the holding and operating company set up under the terms of the OJVA.  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.

Location and Access

The San José property is located in the District of Perito Moreno, 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 kilometers) south‑southwest of Buenos Aires and 217 miles (350 kilometers) southwest of the Atlantic port of Comodoro Rivadavia. The principal access route to the San José property is an unsealed dirt road section of 20 miles (32 kilometers) and then tarmac road to the port of Comodoro Rivadavia which has scheduled national air services to Buenos Aires, the capital of Argentina, with international air connections. The nearest town is Perito Moreno, which is approximately 19 miles (30 kilometers) west of the San José property.

The San José property is within an arid to semi‑arid area of Argentina, with short, warm summers reaching temperatures above 70°F (21°C) and winters with temperatures commonly below 32°F (0°C). Strong and persistent winds are common especially during the warmer months (October to May). Average rainfall at the site is estimated to be 5.7 inches (144 millimeters) and snowfall amounts to 1.3 inches (32.5 millimeters). Annual average temperature is 48°F (8.9°C). MSC has maintained a weather station at the property since January 2005. Mining and exploration continue year round in this part of Argentina.

Geology and Mineralization

The San José property is located in the Deseado Massif which consists of Paleozoic metamorphic basement rocks uncomfortably 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 as well as many regional prospects. The Formation also hosts some of the mineralization at Saavedra West Zone. 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 m). Mineralization in the San José area occurs as low sulfidation epithermal quartz veins, breccias and stockwork systems accompanying normal‑sinistral faults striking 330° to 340°. The main structural trend of fault and vein systems on the property is west‑northwest to north‑northwest.

Exploration Activities

Minera Andes Inc. staked the San José property in 1997 and the initial exploration work was conducted in the late 1990s. Minera Andes carried out an intensive 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, infrastructure construction and mine development continued from July 2006 to September 2007 and commercial production was declared on January 1, 2008.

From 2009 to 2012, drilling focused on extending certain veins in order to identify new areas of mineralization and extensions as well as increasing resources in the existing veins through continuous infill drilling. After substantial new resources were added during 2012, the exploration focus for 2013 shifted to geological mapping of the southwest sector of the property with the objective of defining new exploration targets leading to the discovery of new veins. In 2014, geological mapping of the San José mining property continued, covering an area of approximately 50,000 hectares. During 2015 the exploration work focused on the reinterpretation of the mapped areas based on information obtained during 2014 and based on historical geophysical data. In 2016, approximately 5,200 meters were drilled in the Colorado Grande and Aguas Vivas zones and further drilling is expected in these zones in 2017.

Facilities and Infrastructure

Infrastructure of 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

26


 

fire assaying and atomic absorption equipment. MSC has installed a satellite‑based telephone/data/internet communication system.

Electricity is provided by an 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. The deposit veins are accessed from three main portals: the Tehuelche Portal, the Kospi Portal and the Güer Aike Portal. The main ramps are located about 164 ft. (50 m) from the vein, depending on the dip of the ore. Cross‑cuts to the ramp are centrally positioned on the vein and usually have an ore pass and a waste/backfill pass.

The processing plant at the San José mine is composed of conventional crushing, grinding and flotation circuits. Approximately one‑half of the silver‑gold flotation concentrate is processed in an intensive cyanide leaching circuit with the dissolved gold and silver recovered by electrowinning of a clarified solution followed by smelting to produce doré. The balance of the flotation concentrate is filtered and shipped to a smelter. Flotation and leached tailings are stored in side‑by‑side engineered, zero discharge facilities. A Merrill Crowe circuit recovers small amounts of gold and silver from the electrowinning discharge solution. In 2012, modifications were undertaken to modify the crushing circuit, in order to increase the mill throughput capacity by 10%, from a nominal 1,500 tonnes per day to 1,650 tonnes per day. The modifications were completed in 2013. In 2013, the capacity of the flotation tailing dam was also increased, followed by the construction of a new tailing dam which was completed in the fourth quarter of 2014, and operational in the first quarter 2015.

Reserves

The reserves information for the San José mine as at December 31, 2016, on a 100% basis, was prepared by Hochschild and audited by P&E Mining Consultants Inc. (“P&E”). In its report dated February 15, 2017, 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 $88.60 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 describes 100% of proven and probable gold and silver reserves of the San José mine, as of December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

    

Tonnes

    

Silver

    

Silver ounces

    

Gold

    

Gold ounces

Reserve Category

 

(in thousands)

 

(grams/tonne)

 

(in millions)

 

(grams/tonne)

 

(in thousands)

Proven

 

1,163.00

 

502.00

 

18.77

 

7.34

 

274.45

Probable

 

654.00

 

401.00

 

8.43

 

6.57

 

138.14

Proven & Probable

 

1,817.00

 

465.00

 

27.20

 

7.06

 

412.60

 

27


 

SEGMENT: LOS AZULES

Exploration Properties

The following map depicts the location of our major exploration properties in Los Azules segment:

Picture 2

28


 

The following table summarizes the land position related to Los Azules segment as of December 31, 2016:

 

 

 

 

 

 

 

 

    

Number of

    

 

    

Square

Argentina Mineral Property Interest

 

Claims

 

Hectares

 

Kilometers

Los Azules project

 

321

 

32,723

 

327

Chonchones project

 

139

 

17,264

 

173

Laganoso project

 

49

 

9,800

 

98

La Cerrada project

 

128

 

13,250

 

132

Other Argentina properties

 

23

 

11,261

 

113

Total Argentina Properties

 

660

 

84,298

 

843

 

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 of San Juan Province, Argentina near the border with Chile. We acquired this property, along with other Argentina exploration properties and our interest in the San José mine, in connection with the acquisition of Minera Andes in January 2012.

In October 2014, we terminated the option held by TNR Gold Corp (“TNR”) to acquire a minority ownership position in Los Azules (the “Back‑In Right Option”). In exchange for the termination of the Back‑In Right Option, we issued 850,000 shares of our common stock to TNR, and granted a 0.4% net smelter royalty on Los Azules. Further, if we sell all of our interest in the project within 36 months of closing the transaction on October 16, 2014, we will grant a bonus payment equal to 1% of the gross proceeds of such transaction to TNR.

Location and Access

The property is located at approximately 31o 13’30” south latitude and 70o 13’50” west longitude and about 4 miles (6 km) east of the Chilean‑Argentine border. We currently hold 321 claims which encompasses 32,723 ha (327 sq. km) that surround a large alteration zone that is approximately 5 miles (8 km) long by 1.2 miles (2 km) wide. It is accessible by unimproved dirt roads except for seasonal closures in winter. The elevation at the site ranges between 11,500 feet to 14,750 feet (3,500 m to 4,500 m) 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 ft. (1,000 mt.) below surface.

Exploration Activities

Drilling conditions in the area are difficult, especially in highly faulted zones and in areas of unconsolidated 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 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 195,210 ft. (59,500 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. However, we allocated a significant portion of our exploration budget to 2016-2017 season to perform additional drilling. As of December 31, 2016, minimal drilling was performed as a drilling campaign was expected to commence in January 2017.

In November 2013, we filed a NI 43‑101 Preliminary Economic Assessment (“PEA”) prepared by Samuel Engineering Inc. In 2016, we engaged Hatch Ltd to perform a case study and provide feedback on the project. As of December 31, 2016, the study was not completed.

29


 

Facilities and Infrastructure

There are currently limited facilities or infrastructure located at the project site which mainly includes portable camp structure and drill platforms.

Other Exploration Properties

Our other exploration properties are located in the Province of San Juan. No significant drilling took place during 2016.

SEGMENT: NEVADA

The following map depicts the location of our major properties in Nevada segment, including Gold Bar project and exploration properties which are fully owned by us or subject to joint venture agreements:

Picture 9

The following table summarizes the land position related to our properties in Nevada as of December 31, 2016:

 

 

 

 

 

 

 

 

    

Number of

    

Square

    

Square

Nevada Mineral Property Interest

 

Claims

 

Miles

 

Kilometers

Gold Bar project

 

1,196

 

37

 

97

Tonkin project

 

1,390

 

43

 

113

Limo project

 

665

 

21

 

54

BMX project

 

573

 

18

 

46

Other Nevada properties

 

1,169

 

37

 

95

Total Nevada Properties

 

4,993

 

156

 

405

 

30


 

Advanced-stage Properties

Gold Bar Project, Nevada (100% owned)

Overview and History

The Gold Bar project is a proposed mine project which, if constructed, would consist of a conventional open pit mine with an oxide gold heap leach recovery circuit. The property is located within the Battle Mountain – Eureka – Cortez gold trend in Eureka County, central Nevada, and covers an area of 37 sq. miles (97 sq. km) contained in 1,196 claims. The property was previously mined from 1987 to 1994 by Atlas Precious Metals Inc. The Gold Bar project is currently in the permitting phase which commenced in 2012.

On October 27, 2015 we published a Feasibility Study (“FS”) completed by SRK Consulting with a report date of December 3, 2015 and effective date of September 19, 2015. The FS is available on SEDAR at www.sedar.com under the Company’s profile, and is subject to the assumptions and conditions set forth therein. Although the FS report is compliant with NI 43-101, the reserves do not comply with SEC Industry Guide 7 because the project is not fully permitted. Based on the FS, initial capital expenditures for the project are estimated at $60.4 million including an allocation of $4.8 million for contingencies.

In January 2016, we executed an agreement with NV Gold Corporation, an unaffiliated corporation, to acquire the Afgan- Kobeh project, now known as Gold Bar South, consisting of 122 mining claims located approximately 3 miles (5 km) from the Gold Bar project. The project’s close proximity to the anticipated Gold Bar processing facility and immediate resource expansion targets presents an opportunity to extend Gold Bar’s mine life at a low cost. The latest technical report completed for Afgan-Kobeh project by Mine Development Associates was issued with a report date of June 13, 2011. Although the technical report is compliant with NI 43-101, it does not comply with SEC Industry Guide 7.

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). Northwest‑trending and northeast‑trending structures cut the area and the project’s mineralization is localized in an apparent northwest‑trending horst of McColley Canyon Formation which is cut by a series of northeast‑trending structures.

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) and trace elements (antimony, arsenic, mercury, and barium). Carlin‑Type deposits are deposits that are restricted to a small part of the North American Cordillera in northern Nevada and northwest Utah.

Three‑dimensional modeling by our geologists has led to the identification of an unconformity (erosional surface) between the basement and gold host rocks at the Gold Bar project. Channels in this unconformity were filled with porous limestone, which then acted as preferred pathways for gold mineralization. Much of the gold mineralization in the area occurs in the porous limestone above these channels.

31


 

Facilities and Infrastructure

There are currently no facilities or infrastructure located at the project.

Permitting Activities

Since 2012, we have continued to advance the permitting process for construction and production. Since the formal permitting process began, we may not perform any drilling activities within the production area subject to the Plan of Operations (“POO”). During this time, we have continued to advance the Gold Bar project by completing baseline studies in support of the BLM and State of Nevada permitting required for mine development and construction. We also drilled and pump‑tested one potential water well location for future mining operations.

We submitted our POO permit application in 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 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 expected to be obtained by late 2017.

No Proven or Probable Reserves

We have not yet demonstrated the existence of proven or probable reserves at the Gold Bar Complex as defined by SEC Industry Guide 7.

Exploration Properties

Tonkin property (100% owned)

The Tonkin property represents our largest holding within the Battle Mountain‑Eureka Trend in Eureka County, Nevada at approximately 43 sq. miles (113 sq. km). The Tonkin property consists of the Tonkin Springs deposit and a 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 bioxidation to treat the problematic sulphide ore. Due to cost escalation and recovery issues associated with the refractory and preg‑robbing carbonaceous mineralogy, the operation was shut down and not restarted. The mine site is currently placed on care-and-maintenance and the Company continues to advance its reclamation program.

The Company continues to perform the evaluation work with respect to the Tonkin Springs deposit. No significant drilling took place in 2016.

Other Exploration Properties

No significant drilling or exploration activities took place in any of these properties during the year 2016. The Company continues to rationalize its mineral property interests in Nevada in an effort to focus its exploration efforts on prospective areas.

We generally hold mineral interests in Nevada through patented and unpatented lode mining and mill site claims, leases of unpatented mining claims, and joint venture and other agreements. Unpatented mining claims are held subject to paramount title in the United States. In order to retain these claims, we must pay annual maintenance fees to the BLM, and to the counties within which the claims are located. Rates for these jurisdictions vary and may change over time. Other obligations which must be met include continuing assessment work, obtaining and maintaining necessary regulatory permits, and lease and option payments to claim owners.

 

 

32


 

ITEM 3.  LEGAL PROCEEDINGS

We are not currently subject to any material legal proceedings, and 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

As we have no mines located in the U.S. or any of its territories, the disclosure required by this Item is not applicable.

 

33


 

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, 2015 to December 31, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

NYSE

 

TSX (C$)

 

NYSE

 

TSX (C$)

For the year ended December 31,

    

High

    

Low

    

High

    

Low

    

High

    

Low

    

High

    

Low

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

2.13

 

$

0.96

 

$

2.84

 

$

1.41

 

$

1.40

 

$

0.90

 

$

1.71

 

$

1.14

Second Quarter

 

 

3.85

 

 

1.80

 

 

4.99

 

 

2.36

 

 

1.15

 

 

0.92

 

 

1.38

 

 

1.15

Third Quarter

 

 

4.92

 

 

3.33

 

 

6.44

 

 

4.38

 

 

1.04

 

 

0.65

 

 

1.36

 

 

0.84

Fourth Quarter

 

 

3.74

 

 

2.51

 

 

4.93

 

 

3.40

 

 

1.18

 

 

0.79

 

 

1.64

 

 

1.05

 

As of February 28, 2017, there were 299,569,826 shares of our common stock outstanding, which were held by approximately 4,867 stockholders of record. As noted above, the exchangeable shares were fully redeemed in the third quarter of 2016. 

Transfer Agent

Computershare Investor Services Inc. 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. The transfer agent in Canada is Computershare Investor Services at 100 University Ave., 8th Floor, Toronto ON, M5J 2Y1 and its telephone number is 1‑800‑564‑6253.

Dividend Policy

On June 18, 2015, our Board of Directors and the board of our subsidiary Exchange Co., declared the first dividend, which is defined as a return of capital since we have accumulated losses from operations and cannot distribute from retained earnings. This was the first distribution or return of capital since inception.  The annual return of capital was determined as $0.01 per share of common stock and exchangeable shares, payable semi-annually.  The first semi-annual return of capital installment of $0.005 per share was paid on August 17, 2015, with further distributions following semi-annually as planned. The latest semi-annual return of capital installment of $0.005 per share was paid on February 14, 2017.  Whether future return of capital distributions will be declared depends upon our future growth, earnings and cash needs.

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 in the quarter ended December 31, 2016.

34


 

Securities Authorized for Issuance Under Equity Compensation Plans

Set out below is information as of December 31, 2016 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance. This information relates to our 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

 

4,719,299

 

$

2.41

 

5,294,563

Equity compensation plans not approved by security holders(1)

 

2,300

 

$

4.91

 

Total

 

4,721,599

 

 

 

 

5,294,563

(1)

In connection with certain acquisitions completed in 2007, we assumed stock options covering 812,918 shares of our common stock. Following certain exercises and expirations of 810,618 options between 2007 and 2016, a total of 2,300 options remained exercisable at December 31, 2016.

The options that we assumed in connection with the 2007 acquisitions were not approved by our security holders. These options were exercisable at price of $4.91 and expired in January 2017. 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, 2016 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, 2011 in our common stock and the two other stock market indices, and assumes the reinvestment of dividends, if any.

Picture 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

    

2011

    

2012

    

2013

    

2014

    

2015

    

2016

McEwen Mining (MUX)

 

$

100

 

$

113

 

$

58

 

$

33

 

$

31

 

$

87

NYSE Arca Gold Bugs Index

 

 

100

 

 

89

 

 

40

 

 

33

 

 

22

 

 

37

NYSE Composite Index

 

 

100

 

 

113

 

 

139

 

 

145

 

 

136

 

 

148

 

 

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. The data for 2012 reflects the acquisition of Minera Andes effective January 24, 2012. You should read this data in conjunction with the

35


 

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,

 

    

2016

   

2015

  

2014

 

2013

  

2012

 

 

(in thousands except per share amounts)

Operating data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

60,388

 

$

72,956

 

$

45,303

 

$

45,982

 

$

5,966

Income (loss) on investment in Minera Santa Cruz S.A.

 

 

12,951

 

 

2,414

 

 

(5,284)

 

 

846

 

 

20,835

Operating income (loss)(1)

 

 

15,347

 

 

(49,333)

 

 

(410,191)

 

 

(200,397)

 

 

(91,405)

Other income (expenses)

 

 

1,959

 

 

4,323

 

 

(8,922)

 

 

(710)

 

 

(2,493)

Net income (loss)(1)

 

 

21,055

 

 

(20,450)

 

 

(311,943)

 

 

(147,742)

 

 

(66,654)

Basic income (loss) per share

 

$

0.07

 

$

(0.07)

 

$

(1.05)

 

$

(0.50)

 

$

(0.26)

Diluted income (loss) per share

 

 

0.07

 

 

(0.07)

 

 

(1.05)

 

$

(0.50)

 

$

(0.26)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at December 31,

 

    

2016

    

2015

    

2014

    

2013

    

2012

 

 

(in thousands)

Balance sheet data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,440

 

$

25,874

 

$

12,380

 

$

24,321

 

$

70,921

Available-for-sale investments

 

 

8,543

 

 

1,032

 

 

1,082

 

 

2

 

 

3

Gold and silver bullion

 

 

 

 

 

 

 

 

 

 

1,690

IVA taxes receivable

 

 

4,304

 

 

10,032

 

 

11,739

 

 

11,591

 

 

9,150

Inventories

 

 

26,620

 

 

14,975

 

 

12,404

 

 

8,800

 

 

7,262

Property and equipment, net

 

 

14,252

 

 

15,759

 

 

17,896

 

 

15,143

 

 

12,767

Mineral property interests

 

 

242,640

 

 

237,245

 

 

287,812

 

 

642,968

 

 

767,067

Investment in Minera Santa Cruz S.A.

 

 

162,320

 

 

167,107

 

 

177,018

 

 

212,947

 

 

273,948

Other assets

 

 

2,199

 

 

3,061

 

 

2,627

 

 

7,294

 

 

8,129

Total assets

 

$

498,318

 

$

475,085

 

$

522,958

 

$

923,066

 

$

1,150,937

Current liabilities

 

$

20,581

 

$

22,039

 

$

24,082

 

$

11,189

 

$

25,195

Deferred income tax liability

 

 

23,665

 

 

26,899

 

 

51,899

 

 

158,855

 

 

229,522

Other longterm liabilities

 

 

11,033

 

 

7,855

 

 

5,763

 

 

6,255

 

 

6,629

Shareholders’ equity

 

 

443,039

 

 

418,292

 

 

441,214

 

 

746,767

 

 

889,591

Total liabilities and shareholders’ equity

 

$

498,318

 

$

475,085

 

$

522,958

 

$

923,066

 

$

1,150,937

(1)

Includes a non‑cash expense of $50,600, $353,736, $62,963, and $18,468 relating to the write‑downs of mineral property interests, and property and equipment in 2015, 2014, 2013, and 2012, 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.

36


 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following discussion updates our plan of operation as of March 1, 2017 for the foreseeable future. It also discusses our results of operations for three fiscal years ended December 31, 2016, 2015 and 2014 and our financial condition at December 31, 2016 and 2015, with a particular emphasis on the year ended December 31, 2016. With regard to properties or projects that are not in production, we provide some details of our plan of operation.

The discussion also presents certain non‑GAAP financial performance measures, such as earnings from mining operations, total cash costs, total cash cost per ounce, all‑in sustaining costs, all‑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 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, on page 52.

The discussion also includes references to “Advanced-stage Properties”, which are defined as properties for which a feasibility study has been completed indicating the presence of mineralized material, and that have obtained or are in the process of obtaining the required permitting. Our designation of certain properties as “Advanced-stage Properties” should not suggest that we have proven or probable reserves at those properties as defined by the SEC Industry Guide 7.

In addition, as described under Critical Accounting Policies section below, we define “Mine Development Costs” as the costs incurred to design and construct mining and processing facilities, including 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.  Since no proven and probable reserves have been established on any of our properties except for our 49% interest in the San José mine, mine development costs are not capitalized at any of the our properties, but rather are expensed as incurred, and allocated within “Mine Development Costs” in the Consolidated Statement of Operations and Comprehensive Income (Loss).

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

Reliability of Information: 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 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 document.

 

37


 

Index to Management’s Discussion and Analysis:

 

 

2016 Operating and Financial Highlights

2016 highlights are included below and discussed further in Results of Consolidated Operations:

·

We reported $60.4 million in gold and silver sales, from the sale of 48,902 gold equivalent ounces by our El Gallo 1 mine.

·

We realized average prices of $1,235 and $16.77 per ounce of gold and silver, respectively, sold by the El Gallo 1 mine, and $1,242 and $17.28 per ounce of gold and silver, respectively, sold by the San José mine.

·

The El Gallo 1 mine reported gold equivalent production of 55,266 ounces, comprised of gold and silver production of 54,928 ounces and 25,336 ounces, respectively.  Production was in line with our upwardly revised 2016 production guidance. 

·

The San José mine also met its 2016 production guidance, achieving 184,213 gold equivalent ounces, comprised of 95,006 ounces of gold and 6,690,558 ounces of silver, based on a 100% basis, or 90,264 gold equivalent ounces, represented by 46,553 ounces of gold and 3,278,373 ounces of silver, based on the 49% basis attributable to us.

·

The El Gallo 1 mine reported total cash costs of $524 and all-in sustaining costs of $610 per gold equivalent ounce, which were below revised guidance of $550 and $620 per gold equivalent ounce, respectively.

·

The San José mine reported total cash costs of $760 and all-in sustaining costs of $954 per gold equivalent ounce, which were below guidance of $780 and $990 per gold equivalent ounce, respectively.

·

We reported net income of $21.1 million, or $0.07 per share for the year. 

·

Income from our investment in MSC was $13.0 million for the year, and we received $17.7 million in dividends during the year.

·

At year end, we reported $58.8 million in cash, investments and precious metals valued at the London P.M. Fix spot price and no short-term bank indebtedness(1).


(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 52. 

38


 

Selected Consolidated Financial and Operating Results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Year ended

 

 

 

December 31,

 

December 31,

 

 

    

2016

    

2015

    

2016

    

2015

    

2014

 

 

 

(in thousands, except otherwise stated)

 

Gold and silver sales

 

$

11,162

 

$

11,411

 

$

60,388

 

$

72,956

 

$

45,303

 

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

 

$

(838)

 

$

6,378

 

$

12,951

 

$

2,414

 

$

(5,284)

 

Net (loss) income

 

$

(4,491)

 

$

(14,988)

 

$

21,055

 

$

(20,450)

 

$

(311,943)

 

Net (loss) income per common share

 

$

(0.01)

 

$

(0.05)

 

$

0.07

 

$

(0.07)

 

$

(1.05)

 

Consolidated gold ounces(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

 

20.3

 

 

25.5

 

 

101.5

 

 

110.3

 

 

84.4

 

Sold

 

 

21.9

 

 

21.6

 

 

97.6

 

 

105.7

 

 

80.3

 

Consolidated silver ounces(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

 

839

 

 

982

 

 

3,304

 

 

3,316

 

 

3,196

 

Sold

 

 

851

 

 

791

 

 

3,487

 

 

3,142

 

 

3,114

 

Consolidated gold equivalent ounces(1)(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

 

31.5

 

 

38.5

 

 

145.5

 

 

154.5

 

 

137.6

 

Sold

 

 

33.2

 

 

32.1

 

 

144.0

 

 

147.6

 

 

132.2

 

Silver : gold ratio(2)

 

 

75 : 1

 

 

75 : 1

 

 

75 : 1

 

 

75 : 1

 

 

60 : 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 are based on prevailing spot prices at the beginning of the year. The silver to gold ratio used for 2016 and 2015 was 75:1; the ratio for 2014 was 60:1.

 

Consolidated Financial Performance

For the year ended December 31, 2016 we recorded net income of $21.1 million, or $0.07 per share, compared to a net loss of $20.5 million, or $0.07 per share, in 2015, as a result of the strong performance achieved by both the El Gallo 1 and the San José mines in 2016.

Despite a 22% decrease in the number of gold equivalent ounces sold by the El Gallo 1 mine, our Mexican operation contributed $60.4 million in revenues.  In addition, San José delivered strong results from which we recognized income of $13.0 million from our attributable investment in MSC, which coupled with the absence of impairment charges recorded in the year, contributed to the net income reported in 2016.  Furthermore, MSC paid dividends of $17.7 million attributable to us during 2016.

As a result, we also improved our cash position by 45% with cash and cash equivalents increasing from $25.9 million in 2015 to $37.4 million in 2016. 

Results of Consolidated Operations

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 in gold equivalent ounces sold during 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. 

Production costs applicable to salesProduction costs applicable to sales 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, which relate to engineering and development expenditures incurred at our advanced-stage properties, increased to $3.9 million in 2016 from $1.2 million in 2015, and was comprised of $2.7 million at Gold Bar

39


 

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 19% 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, as a result 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 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 as a result 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.

Year ended December 31, 2015 compared to 2014

Revenue. Gold and silver sales increased by $27.7 million or 61% to $73.0 million in 2015, from $45.3 million in 2014 due to higher number of ounces sold during the year at our El Gallo 1 mine, partially offset by a decrease in the average realized prices of gold and silver during the year.

Production costs applicable to sales.  Although 75% more ounces were sold in 2015 compared to 2014, production costs applicable to sales decreased by $6.0 million, to $34.6 million in 2015 from $40.6 million in 2014.  The decrease was the direct result of higher mineral average grades processed, coupled with lower average strip ratios and haulage costs when compared to 2014.

Operating Income (Expenses)

Mine construction costs decreased to $nil in 2015, from $1.7 million in 2014 as a result of getting the El Gallo 1 mine processing capacity expansion fully operational in the fourth quarter of 2014.

Mine development costs decreased to $1.2 million in 2015, from $1.9 million in 2014, due to a $1.1 million decrease in expenditures incurred at El Gallo 2, partly offset by $0.4 million expenditures at our Gold Bar project, which were incurred during the fourth quarter of 2015, when the positive feasibility study was completed.

Exploration costs in 2015 decreased to $8.8 million, from $11.3 million in 2014, reflecting the continuous reduction in exploration expenditures and drilling activities across most projects, in an effort to conserve capital.

40


 

Property holding costs decreased by $2.1 million year-over-year, to $4.3 million in 2015, compared to $6.4 million in 2014, as a result of dropping non-essential claims mainly at our projects in Nevada.

During 2015, we recognized income of $2.4 million from our investment in MSC, net of amortization of fair value increments. This compares to a loss of $5.3 million recognized during 2014. The change in MSC’s operating results during 2015, despite the decrease in revenue and average realized prices of gold and silver, was the result of inflation outpacing the devaluation of the Argentine peso which was offset by MSC’s management efforts to maintain costs and the effect of the fair value increments that resulted in gains on revaluation of the deferred tax liability.

During 2015, we recorded an $11.8 million impairment charge to our investment in MSC, triggered by the significant decline of silver prices in 2015, as well as a decline in the observed market value of comparable transactions in South America, indicating a potential significant decrease in the market price of the exploration properties owned by MSC. In comparison, we recorded a $21.2 million impairment charge on our investment in MSC during the year ended 2014.

Impairment of mineral property interests for 2015 decreased to $50.6 million from $353.7 million in 2014 as the write-downs recorded in 2015 were only $37.2 million for the Nevada properties and $11.4 million for Los Azules, whereas 2014 included a $228.3 million impairment charge to the Los Azules project, $27.0 million impairment of certain exploration properties in Argentina, and $98.4 million impairment of the Nevada properties.

Other income (expenses)

Other income (expense) improved by $13.2 million in 2015, from other expense of $8.9 million in 2014 to other income of $4.3 million in 2015, mainly due to the absence in 2015 of registration taxes related to our Argentinean entities accrued in 2014 in the amount of $6.8 million.  Further, the improvement in other income was also the result of the foreign exchange gain position obtained as a result of the devaluation of the Mexican Peso and Canadian dollar observed during 2015, and the insurance proceeds received from the theft of gold in concentrate stolen from our refinery in Mexico, in April 2015.

Recovery of income taxes

Recovery of income taxes decreased to $24.6 million in 2015, from $107.2 million in 2014 due to $62.7 million lower tax recoveries associated with lower impairments noted above, coupled with $14.2 million lower tax recovery in 2014  resulting from the devaluating Argentine peso on peso-denominated deferred income tax liabilities, and $5.8 million resulting from the tax effect of temporary differences determined in 2014. 

Liquidity and Capital Resources

We had working capital of $58.0 million at December 31, 2016, which consisted of $78.6 million of current assets and $20.6 million of current liabilities.  The increase in working capital of $25.6 million from 2015 is attributable to the strong performance delivered by the El Gallo 1 mine, which translated into strong operational cash flows, coupled with higher dividends distributed by MSC for a total of $17.7 million.  Overall, cash increased to $37.4 million in 2016, from $25.9 million in 2015.  We believe that our working capital at year-end 2016 is sufficient to satisfy any obligations due in the next 12 months, and to fund ongoing operations, development and corporate activities over the next 12 months.

If we make a positive production decision to develop either of our advanced-stage properties, Gold Bar or the El Gallo 2, we will need to raise additional capital of approximately $60 million or $150 million, respectively (under existing estimates), given that each property’s estimated capital costs significantly exceed our available working capital. In such case, we would explore several financing methods to complete the required development and construction stages, which may include incurring debt, issuing additional equity, equipment leasing and other forms of financing. Our ability to build either the Gold Bar or the El Gallo 2 projects is dependent on one or several of the alternatives being completed. 

Net cash provided by operations was $25.2 million and $15.6 million for 2016 and 2015, respectively, while we used $14.9 million of cash from operations in 2014.  The significant changes from one year to the next are summarized as follows:

·

$17.7 million dividend received from MSC in 2016, compared to $0.5 million in 2015 and $9.5 million in 2014,

·

$9.5 million VAT collected in Mexico in 2016, compared to $6.0 million in 2015, and $5.0 million in 2014, and

·

$59.5 million cash received from gold and silver sales in 2016, compared to $70.2 million in 2015 and $43.8 million in 2014, resulting from the lower number of ounces sold during 2016, mentioned above.

41


 

Cash used in investing activities was $10.1 million in 2016, and $1.9 million in 2015, compared to cash provided by investing activities of $1.5 million in 2014, primarily due to the following factors:

·

During 2016, we spent $6.0 million on the acquisition of mineral property interests, primarily to acquire a royalty related to our Mexican mine, in an effort to improve our cash flow for the mine, compared to $nil in each of 2015 and 2014.

·

During 2016, we spent $4.4 million investing in equity securities, compared to $1.1 million and $0.4 million in 2015 and 2014, respectively. 

·

During 2016, we collected $1.0 million as reimbursement of the deposit for unutilized equipment, compared to $nil in each of 2015 and 2014.

We used $3.2 million in financing activities in 2016, compared to 2015 and 2014, when our financing activities provided cash of $0.1 million and $2.3 million in 2014, respectively, primarily as a result of:

·

The $3.4 million repayment of the bank credit facility obtained by our Mexican subsidiary in 2016, compared to $1.8 million repaid in 2015, and $nil in 2014.

·

The $3.0 million return of capital to our shareholders in 2016, compared to $1.5 million in 2015, and $nil in 2014.

·

$3.7 million proceeds received from stock options exercised in 2016, compared to $nil in 2015 and $2.3 million in 2014.

42


 

Results of Operations—Mexico Segment

The Mexico segment includes: the El Gallo 1 mine, the El Gallo 2 advanced-stage project, and exploration properties naighbourng the El Gallo area.

El Gallo 1 mine

El Gallo 1 mine is a gold operating unit, 100% owned by us.  The mine is located in Sinaloa, Mexico.

Overview

The following table sets out production totals, sales totals, total cash costs, and all‑in sustaining cash costs (on a gold equivalent basis) for the El Gallo 1 mine for the three months ended December 31, 2016 and 2015, and for the years ended December 31, 2016, 2015, and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Year ended

 

 

 

December 31,

 

December 31,

 

 

 

2016

  

2015

 

2016

  

2015

 

2014

 

 

 

(in thousands, except otherwise stated)

 

Tonnes of mineralized material mined

 

 

347

 

 

256

 

 

1,048

 

 

1,209

 

 

1,271

 

Average grade gold (gpt)

 

 

1.14

 

 

3.58

 

 

1.32

 

 

3.37

 

 

1.40

 

Tonnes of mineralized material processed

 

 

320

 

 

279

 

 

1,108

 

 

1,128

 

 

1,462

 

Average grade gold (gpt)

 

 

1.46

 

 

4.20

 

 

2.14

 

 

3.41