0001558370-21-006449.txt : 20210507 0001558370-21-006449.hdr.sgml : 20210507 20210507134925 ACCESSION NUMBER: 0001558370-21-006449 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 82 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210507 DATE AS OF CHANGE: 20210507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: McEwen Mining Inc. CENTRAL INDEX KEY: 0000314203 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 840796160 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33190 FILM NUMBER: 21901637 BUSINESS ADDRESS: STREET 1: SUITE 2800 STREET 2: 150 KING STREET WEST, P.O. BOX 24 CITY: TORONTO STATE: A6 ZIP: M5H 1J9 BUSINESS PHONE: 647-258-0395 MAIL ADDRESS: STREET 1: SUITE 2800 STREET 2: 150 KING STREET WEST, P.O. BOX 24 CITY: TORONTO STATE: A6 ZIP: M5H 1J9 FORMER COMPANY: FORMER CONFORMED NAME: U S GOLD CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: U S SILVER STATE MINING CORP DATE OF NAME CHANGE: 19880706 FORMER COMPANY: FORMER CONFORMED NAME: SILVER STATE MINING CORP DATE OF NAME CHANGE: 19880629 10-Q 1 mux-20210331x10q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

TRANSITION REPORT PURSUANT TO 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.

(Exact name of registrant as specified in its charter)

Colorado

84-0796160

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

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

(Address of principal executive offices) (Zip code)

(866) 441-0690

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, no par value

MUX

New York Stock Exchange (“NYSE”)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 459,187,391 shares outstanding as of May 7, 2021.

MCEWEN MINING INC.

FORM 10-Q

Index

Part I        FINANCIAL INFORMATION

Item 1.

    

Financial Statements

   

3

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020 (unaudited)

3

Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 (unaudited)

4

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited)

5

Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)

6

Notes to Consolidated Financial Statements (unaudited)

7

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

46

Item 4.

Controls and Procedures

48

Part II        OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 4.

Mine Safety Disclosures

49

Item 6.

Exhibits

50

SIGNATURES

51

2

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

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

Three months ended March 31,

2021

    

2020

Revenue from gold and silver sales

$

23,740

$

31,400

Production costs applicable to sales

 

(23,589)

 

(28,387)

Depreciation and depletion

(5,137)

(6,698)

Gross loss

(4,986)

(3,685)

OTHER OPERATING EXPENSES:

Advanced projects

 

(1,799)

 

(2,550)

Exploration

 

(4,956)

 

(3,790)

General and administrative

 

(2,083)

 

(2,064)

Loss from investment in Minera Santa Cruz S.A. (Note 9)

 

(574)

 

(2,676)

Depreciation

 

(75)

 

(115)

Revision of estimates and accretion of asset retirement obligations (Note 11)

 

(911)

 

(660)

Impairment of mineral property interests and plant and equipment (Note 8)

(83,805)

 

(10,398)

 

(95,660)

Operating loss

 

(15,384)

 

(99,345)

OTHER INCOME (EXPENSE):

Interest and other finance expenses, net

 

(509)

 

(1,877)

Other income (Note 4)

1,412

 

937

Total other income (expense)

 

903

 

(940)

Loss before income and mining taxes

(14,481)

(100,285)

Income and mining tax recovery

2,015

1,094

Net loss and comprehensive loss

$

(12,466)

$

(99,191)

Net loss per share (Note 13):

Basic and Diluted

$

(0.03)

$

(0.25)

Weighted average common shares outstanding (thousands) (Note 13):

Basic and Diluted

 

441,794

 

400,370

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

3

MCEWEN MINING INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands of U.S. dollars)

March 31,

December 31,

    

2021

    

2020

 

ASSETS

Current assets:

Cash and cash equivalents

$

47,402

$

20,843

Receivables, prepaids and other assets (Note 6)

 

5,700

 

5,690

Inventories (Note 7)

 

27,910

 

26,964

Total current assets

 

81,012

 

53,497

Mineral property interests and plant and equipment, net (Note 8)

 

334,866

 

329,112

Investment in Minera Santa Cruz S.A. (Note 9)

 

102,768

 

108,326

Inventories, long-term (Note 7)

4,999

4,785

Restricted cash (Note 17)

3,625

3,595

Other assets

 

910

 

621

TOTAL ASSETS

$

528,180

$

499,936

LIABILITIES & SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

35,542

$

36,055

Flow-through share premium (Note 12)

3,736

3,827

Lease liabilities, current portion

2,638

2,440

Asset retirement obligation, current portion (Note 11)

 

3,817

 

3,232

Total current liabilities

 

45,733

 

45,554

Lease liabilities, long-term

2,850

3,056

Debt (Note 10)

24,163

24,080

Debt to related party (Notes 10 and 14)

24,163

24,080

Asset retirement obligation, long-term (Note 11)

 

31,167

 

30,768

Other liabilities

3,114

3,257

Deferred income and mining tax liability

 

3,241

 

3,813

Total liabilities

$

134,431

$

134,608

Shareholders’ equity:

Common shares: 459,188 as of March 31, 2021 and 416,587 as of December 31, 2020 issued and outstanding (in thousands) (Note 12)

$

1,589,763

$

1,548,876

Accumulated deficit

 

(1,196,014)

 

(1,183,548)

Total shareholders’ equity

 

393,749

 

365,328

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY

$

528,180

$

499,936

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

4

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands of U.S. dollars and shares)

Common Stock

 

and Additional

 

Paid-in Capital

Accumulated

 

    

Shares

    

Amount

Deficit

Total

 

Balance, December 31, 2019

 

400,339

$

1,530,702

$

(1,031,223)

$

499,479

Stock-based compensation

 

 

88

 

 

88

Exercise of stock options

 

60

 

62

 

 

62

Net loss

(99,191)

(99,191)

Balance, March 31, 2020

 

400,399

$

1,530,852

$

(1,130,414)

$

400,438

Balance, December 31, 2020

416,587

$

1,548,876

$

(1,183,548)

$

365,328

Stock-based compensation

 

227

227

Sale of flow-through common shares

12,601

10,785

10,785

Exercise of stock options

Sale of shares for cash

30,000

29,875

29,875

Net loss

 

(12,466)

(12,466)

Balance, March 31, 2021

 

459,188

$

1,589,763

$

(1,196,014)

$

393,749

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

5

MCEWEN MINING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands of U.S. dollars)

Three months ended March 31,

2021

    

2020

Cash flows from operating activities:

Net loss

$

(12,466)

$

(99,191)

Adjustments to reconcile net loss from operating activities:

Impairment of mineral property interests and plant and equipment (Note 8)

 

 

83,805

Loss from investment in Minera Santa Cruz S.A., net of amortization (Note 9)

 

574

 

2,676

Depreciation and amortization

 

4,662

 

6,757

Loss on investments (Note 5)

898

Unrealized foreign exchange loss (gain) and adjustment to estimate (Note 11)

 

152

 

(868)

Income and mining tax (recovery)

 

(2,015)

 

(1,094)

Stock-based compensation

 

227

 

88

Revision of estimates and accretion of asset retirement obligations (Note 11)

911

660

Change in non-cash working capital items:

(Increase) decrease in other assets related to operations

 

(1,562)

 

1,234

(Decrease) in liabilities related to operations

(626)

(6,873)

Cash used in operating activities

$

(10,143)

$

(11,908)

Cash flows from investing activities:

Additions to mineral property interests and plant and equipment

$

(10,085)

$

(5,503)

Proceeds from sale of investments, net of investments

 

 

112

Dividends received from Minera Santa Cruz S.A. (Note 9)

 

4,984

 

Cash used in investing activities

$

(5,101)

$

(5,391)

Cash flows from financing activities:

Proceeds from sale of shares, net of issuance costs (Note 12)

$

29,875

$

Sale of flow-through common shares, net of issuance costs (Note 12)

11,966

Proceeds of exercise of stock options

62

Payment of finance lease obligations

(8)

(555)

Cash provided by (used in) financing activities

$

41,833

$

(493)

Effect of exchange rate change on cash and cash equivalents

 

114

Increase (decrease) in cash, cash equivalents and restricted cash

 

26,589

 

(17,678)

Cash, cash equivalents and restricted cash, beginning of period

 

24,438

 

46,500

Cash, cash equivalents and restricted cash, end of period (Note 17)

$

51,027

$

28,822

Supplemental disclosure of cash flow information:

Cash received (paid) during period for:

Interest paid

$

(1,215)

$

(1,289)

Interest received

7

135

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

6

Table of Contents

MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION

McEwen Mining Inc. (the “Company”) was organized under the laws of the State of Colorado on July 24, 1979. The Company is engaged in the exploration, development, production and sale of gold and silver and exploration for copper.

The Company operates in the United States, Canada, Mexico and Argentina.  The Company owns a 100% interest in the Gold Bar gold mine in Nevada, the Black Fox gold mine in Ontario, Canada, the El Gallo gold project and the Fenix silver-gold project in Sinaloa, Mexico, the Los Azules copper deposit in San Juan, Argentina and a portfolio of exploration properties in Nevada, Canada, Mexico and Argentina. It also owns a 49% interest in Minera Santa Cruz S.A. (“MSC”), owner of the producing San José silver-gold mine in Santa Cruz, Argentina, which is operated by the joint venture majority owner, Hochschild Mining plc.

The interim consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are unaudited. While information and note disclosures normally included in financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, the Company believes that the information and disclosures included are adequate and not misleading.

In management’s opinion, the unaudited Consolidated Statements of Operations and Comprehensive Loss (“Statement of Operations”) for the three months ended March 31, 2021 and 2020, the unaudited Consolidated Balance Sheets as at March 31, 2021 and December 31, 2020, the unaudited Consolidated Statement of Changes in Shareholders’ Equity for the three months ended March 31, 2021 and 2020, and the unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s prior audited consolidated financial statements. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the audited financial statements and notes thereto and the summary of significant accounting policies included in the Company’s annual report on Form 10-K for the year ended December 31, 2020. Except as noted below, there have been no material changes in the footnotes from those accompanying the audited consolidated financial statements contained in the Company’s Form 10-K for the year ended December 31, 2020. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Inter-company accounts and transactions have been eliminated.

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

Risks and Uncertainties

COVID-19

The Company continues to closely monitor and respond, as possible, to the ongoing COVID-19 pandemic. As the situation continues to rapidly change globally, ensuring the health and safety of the Company’s employees and contractors is one of the Company’s top priorities. Many jurisdictions including the United States, Canada, Mexico, and Argentina have varied but continued restrictions to travel, public gatherings, and certain business operations. Unlike the year 2020, there were no government-mandated shutdowns or other legally required temporary suspensions of the Company’s operations during Q1 2021.

The long-term impact of the COVID-19 pandemic on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak, variants of the COVID-19 virus, the availability and distribution of vaccinations, and government advisories, restrictions, and financial assistance offered. To ensure a safe working environment for the Company’s employees and contractors, and to prevent the spread of COVID-19, the Company continues to reinforce safety measures at all sites and offices including contact tracing, restricting non-essential travel, and complying with public health orders. The impact of COVID-19 on the global financial markets, the overall economy and the Company are highly uncertain and cannot be predicted. Achieving and maintaining normal operating capacity is also dependent on the continued availability of supplies and contractors, which are out of the Company’s control. If the financial markets and/or the overall economy continue to be impacted, the Company’s results of operations, financial position and cash flows may be further affected. As the situation continues to evolve, the Company will continue to monitor market conditions closely and respond accordingly.

Throughout COVID-19, the Company has raised $12.7 million and $31.5 million through a Canadian Development Expenses (“CDE”) flow-through common share issuance and an equity financing respectively during Q1 2021, and raised $20.2 million in Canadian Exploration Expenditures (“CEE”) financings during 2020. A severe prolonged economic downturn could result in a variety of risks to the business, including access to capital markets when needed on acceptable terms, if at all. The Company has completed various scenario planning analyses to consider the potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary).

El Gallo Project Blockade

On March 15, 2021, the Company reported an illegal blockade at the main access point to the Company’s El Gallo project in Mexico. Certain individuals involved in the blockade believed that the annual payments and infrastructure improvements made to the local communities should increase significantly. The Company has operated harmoniously with local communities since mining began in 2012, and has had a long standing track record of supporting local communities. On March 29, 2021, after operations were briefly disrupted, the Company reported the successful resolution of the concerns raised by the local community members. A 10-year agreement was reached to provide additional support to the communities and greater long-term certainty for the El Gallo project.

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

Recently Adopted Accounting Pronouncements

Income Taxes:  In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740).”  ASU 2019-12 simplifies the accounting for income taxes by reducing existing complexity in the accounting standard.  The update to the accounting standard is effective for the Company for the fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of ASU 2019-12 in 2021 did not have a material impact on the Company’s financial statements and related disclosures.

NOTE 3 OPERATING SEGMENT REPORTING

The Company is a mining and minerals production and exploration company focused on precious metals in the United States, Canada, Mexico, and Argentina. The Company’s chief operating decision maker (“CODM”) reviews the operating results, assesses performance and makes decisions about the allocation of resources to these segments at the geographic region level or major mine/project where the economic characteristics of the individual mines or projects within a geographic region are not alike. As a result, these operating segments also represent the Company’s reportable segments. The Company’s business activities that are not considered operating segments are included in General and Administrative and other and are provided in this note for reconciliation purposes.

The CODM reviews segment income or loss, defined as gold and silver sales less production costs applicable to sales, depreciation and depletion, advanced projects and exploration costs for all segments except for the MSC segment, which is evaluated based on the attributable equity income or loss. Gold and silver sales and production costs applicable to sales for the reportable segments are reported net of intercompany transactions.

Capital expenditures include costs capitalized in mineral property interests and plant and equipment in the respective periods.

Significant information relating to the Company’s reportable operating segments is summarized in the tables below:

Three months ended March 31, 2021

    

USA

    

Canada

Mexico

MSC

    

Los Azules

    

Total

Revenue from gold and silver sales

$

12,893

$

8,561

$

2,286

$

$

$

23,740

Production costs applicable to sales

(13,557)

(6,656)

(3,376)

$

 

(23,589)

Depreciation and depletion

(1,741)

(3,395)

(1)

$

(5,137)

Gross (loss)

(2,405)

(1,490)

(1,091)

(4,986)

Advanced projects

(84)

(623)

(1,092)

$

 

(1,799)

Exploration

(864)

(3,434)

(8)

$

(650)

 

(4,956)

Impairment of mineral property interests and plant and equipment (Note 8)

$

Loss from investment in Minera Santa Cruz S.A.

(574)

$

 

(574)

Segment loss

$

(3,353)

$

(5,547)

$

(2,191)

$

(574)

$

(650)

$

(12,315)

General and Administrative and other

(2,166)

Loss before income and mining taxes

$

(14,481)

Capital expenditures

$

757

$

9,567

$

$

$

$

10,324

Three months ended March 31, 2020

    

USA

    

Canada

    

Mexico

    

MSC

    

Los Azules

    

Total

Revenue from gold and silver sales

$

14,317

$

12,739

$

4,344

$

$

$

31,400

Production costs applicable to sales

(17,032)

(7,207)

(4,148)

(28,387)

Depreciation and depletion

(3,862)

(2,748)

(88)

(6,698)

Gross (loss) profit

(6,577)

2,784

108

(3,685)

Advanced projects

(366)

(1,066)

(1,118)

(2,550)

Exploration

(809)

(2,405)

(576)

(3,790)

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

Impairment of mineral property interests and plant and equipment (Note 8)

(83,805)

(83,805)

Loss from investment in Minera Santa Cruz S.A.

(2,676)

(2,676)

Segment loss

$

(91,557)

$

(687)

$

(1,010)

$

(2,676)

$

(576)

$

(96,506)

General and Administrative and other

(3,779)

Loss before income and mining taxes

$

(100,285)

Capital expenditures

$

1,807

$

3,729

$

$

$

$

5,536

Geographic information

Geographic information includes the long-lived assets balance and revenues presented for the Company’s operating segments, as follows:

Long-lived Assets

Revenue (1)

March 31,

December 31,

Three months ended March 31,

    

2021

    

2020

  

2021

2020

USA

$

46,280

$

46,801

$

12,893

$

14,317

Canada

85,811

78,986

8,561

12,739

Mexico

20,018

20,021

2,286

4,344

Argentina (2)

294,259

299,816

Total consolidated (3)

$

446,368

$

445,624

$

23,740

$

31,400

(1)Presented based on the location from which the product originated.
(2)Includes Investment in MSC of $102.8 million as of March 31, 2021 (December 31, 2020 $108.3 million).
(3)Total excludes $0.8 million related to the Company's ROU office lease asset as the business activities related to corporate are not considered to be a part of the operating segments.

NOTE 4 OTHER INCOME

The following is a summary of other income for the three months ended March 31, 2021 and 2020:

Three months ended March 31,

2021

    

2020

COVID-19 Relief

$

1,111

$

Unrealized and realized (loss) on investments (Note 5)

(898)

Foreign currency (loss) gain

291

1,808

Other income, net

10

27

Total other income

$

1,412

$

937

During the period ending March 31, 2021, the Company recognized $1.1 million (three months ended March 31, 2020 - $nil) of other income through COVID-19 relief from the Canadian government via the Canadian Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) programs.

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

NOTE 5 INVESTMENTS

The following is a summary of the activity in investments for the three months ended March 31, 2021 and 2020:

As at

Additions/

Disposals/

Unrealized

Fair value

December 31,

transfers during

Net (loss) on

transfers during

(loss) on

March 31,

    

2020

    

period

    

securities sold

    

year

    

securities held

    

2021

Marketable equity securities

$

$

$

$

$

$

As at

Additions/

Net gain

Disposals/

Unrealized

Fair value

December 31,

transfers during

(loss) on

transfers during

(loss) on

March 31,

    

2019

    

period

    

securities sold

year

securities held

2020

Marketable equity securities

$

1,885

$

$

(16)

$

(112)

$

(882)

$

875

During the three months ended March 31, 2021, the Company sold marketable equity securities for proceeds of $nil (three months ended March 31, 2020 - $0.1 million).

NOTE 6 RECEIVABLES, PREPAIDS AND OTHER ASSETS

The following is a breakdown of balances in receivables, prepaids and other assets as at March 31, 2021 and December 31, 2020:

    

March 31, 2021

    

December 31, 2020

Government sales tax receivable

$

1,502

$

1,810

Prepaids and other assets

4,198

3,880

Receivables and other current assets

$

5,700

$

5,690

Government sales tax receivable includes $0.7 million of Mexican value-added tax (“VAT”) at March 31, 2021 (December 31, 2020 – $0.9 million). The Company collected $0.6 million of VAT during the three months ended March 31, 2021 (March 31, 2020 – $0.4 million).

NOTE 7 INVENTORIES

Inventories at March 31, 2021 and December 31, 2020 consisted of the following:

    

March 31, 2021

    

December 31, 2020

Material on leach pads

$

21,200

$

21,003

In-process inventory

 

3,377

 

3,922

Stockpiles

 

2,537

 

635

Precious metals

 

1,560

 

1,344

Materials and supplies

 

4,235

 

4,845

Inventories

$

32,909

$

31,749

Less current portion

27,910

26,964

Long-term portion

$

4,999

$

4,785

During the three months ended March 31, 2021, the inventory of Gold Bar and El Gallo were written down to their net realizable value by $1.4 million (March 31, 2020 - $1.2); and $0.8 (March 31, 2020 - $nil), respectively. Of these write-downs, a total of $2.1 million (March 31, 2020 – $1.0 million) was included in production costs applicable to sales and $0.1 million was included in depreciation and depletion (March 31, 2020 - $0.2 million) in the Statement of Operations.

11

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

NOTE 8 MINERAL PROPERTY INTERESTS AND PLANT AND EQUIPMENT

The definition of proven and probable reserves is set forth in the SEC Industry Guide 7. If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are charged to expense based on the units of production method upon commencement of production. The Company’s Gold Bar, Black Fox and San José properties have proven and probable reserves estimated in accordance with SEC Industry Guide 7.

The Company reviews and evaluates its long-lived assets for impairment on a quarterly basis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Once it is determined that impairment exists, an impairment loss is measured as the amount by which the asset carrying value exceeds its estimated fair value.

Upon completion of the analysis for Q1 2021, the Company did not identify any indicators of impairment.

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

NOTE 9 INVESTMENT IN MINERA SANTA CRUZ S.A. (“MSC”) – SAN JOSÉ MINE

The Company accounts for investments over which it exerts significant influence but does not control through majority ownership using the equity method of accounting. In applying the equity method of accounting to the Company’s investment in MSC, MSC’s financial statements, which are originally prepared by MSC in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, have been adjusted to conform with U.S. GAAP. As such, the summarized financial data presented under this heading is in accordance with U.S. GAAP.

A summary of the operating results for MSC for the three months ended March 31, 2021 and 2020 is as follows:

Three months ended March 31,

    

2021

2020

Minera Santa Cruz S.A. (100%)

Revenue from gold and silver sales

$

53,303

$

37,390

Production costs applicable to sales

(36,367)

(28,316)

Depreciation and depletion

(6,953)

(7,327)

Gross profit

9,983

1,747

Exploration

(2,236)

(2,866)

Other expenses(1)

(5,536)

(2,217)

Net income (loss) before tax

$

2,211

$

(3,336)

Current and deferred tax expense

(1,629)

49

Net income (loss)

$

582

$

(3,287)

Portion attributable to McEwen Mining Inc. (49%)

Net income (loss)

$

285

$

(1,611)

Amortization of fair value increments

 

(1,071)

 

(1,385)

Income tax recovery

212

320

Loss from investment in MSC, net of amortization

$

(574)

$

(2,676)

(1) Other expenses include foreign exchange, accretion of asset retirement obligations, and other finance related expenses

The loss from investment in MSC attributable to the Company includes amortization of the fair value increments arising from the initial purchase price allocation and related income tax recovery. The income tax recovery reflects the impact of the devaluation of the Argentine peso against the U.S. dollar on the peso-denominated deferred tax liability recognized at the time of acquisition, as well as income tax rate changes over the periods.

Changes in the Company’s investment in MSC for the three months ended March 31, 2021 and year ended December 31, 2020 are as follows:

March 31, 2021

    

December 31, 2020

Investment in MSC, beginning of period

$

108,326

$

110,183

Attributable net income from MSC

285

2,745

Amortization of fair value increments

 

(1,071)

 

(5,390)

Income tax recovery

212

1,128

Dividend distribution received

 

(4,984)

 

(340)

Investment in MSC, end of period

$

102,768

$

108,326

During the three months ended March 31, 2021, the Company received $5.0 million in dividends from MSC (three months ended March 31, 2020 – $nil).

13

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

A summary of the key assets and liabilities of MSC on a 100% basis as at March 31, 2021, before and after adjustments to fair value on acquisition and amortization of the fair value increments arising from the purchase price allocation, are as follows:

As at March 31, 2021

Balance excluding FV increments

Adjustments

Balance including FV increments

Current assets

$

86,274

$

488

$

86,762

Total assets

$

176,082

$

105,603

$

281,685

Current liabilities

$

(39,203)

$

$

(39,203)

Total liabilities

$

(68,461)

$

(3,502)

$

(71,963)

NOTE 10 DEBT

On August 10, 2018, the Company finalized a $50.0 million senior secured three-year term loan facility with Royal Capital Management Corp., as administrative agent, and the lenders party thereto.  Interest on the loan accrued at the rate of 9.75% per annum with interest due monthly and was secured by a lien on certain of the Company’s and its subsidiaries’ assets.  

On June 25, 2020, the Company entered into an Amended and Restated Credit Agreement (“ARCA”) which refinanced the outstanding $50 million and which terms differed in material respects from the old loan as follows:

Sprott Private Resource Lending II (Collector), LP replaced Royal Capital Management Corp. as the administrative agent.
Sprott Private Resource Lending II (Collector), LP replaced certain lenders. An affiliate of Robert McEwen remains as a lender.
Scheduled repayments of the principal were extended by two years; monthly repayments of principal in the amount of $2.0 million are now due beginning on August 31, 2022 and continuing for 12 months, followed by a final principal payment of $26.0 million, and any accrued interest on August 31, 2023.
The minimum working capital maintenance requirement was reduced from $10.0 million under the original term loan to $nil at June 30, 2020 to December 31, 2020 and from $10.0 million to $2.5 million at March 31, 2021 to the end of 2021. The working capital requirement increases to $5.0 million for March 31, 2022, $7.0 million for June 30, 2022, and $10 million for September 30, 2022 and thereafter.
The Company issued 2,091,700 shares valued at $1,875,000 to the lenders as consideration for the maintenance, continuation, and extension of the maturity date of the loan. The value of the shares plus the unamortized costs of the original term loan will be amortized over the modified term of the loan.

The remaining principal terms of the original agreement remain unchanged. The Company was in compliance with the minimum working capital maintenance requirement as at March 31, 2021.

A reconciliation of the Company’s long-term debt for the three months ended March 31, 2021 and for the year ended December 31, 2020 is as follows:

    

Three months ended March 31, 2021

    

Year ended
December 31, 2020

Balance, beginning of year

$

48,160

$

49,516

Interest expense

 

1,368

 

5,394

Interest payments

 

(1,202)

 

(4,875)

Bonus Interest - Equity based financing fee

(1,875)

Balance, end of year

$

48,326

$

48,160

Less current portion

Long-term portion

$

48,326

$

48,160

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

NOTE 11 ASSET RETIREMENT OBLIGATIONS

The Company is responsible for the reclamation of certain past and future disturbances at its properties. The most significant properties subject to these obligations are the Gold Bar and Tonkin properties in Nevada, the Timmins properties in Canada and the El Gallo Project in Mexico.

A reconciliation of the Company’s asset retirement obligations for the three months ended March 31, 2021 and for the year ended December 31, 2020 are as follows:

March 31, 2021

    

December 31, 2020

Asset retirement obligation liability, beginning balance

$

34,000

$

32,201

Settlements

 

(80)

 

(267)

Accretion of liability

 

487

 

1,901

Adjustment reflecting updated estimates

 

425

 

(54)

Foreign exchange revaluation

152

219

Asset retirement obligation liability, ending balance

$

34,984

$

34,000

Less current portion

3,817

3,232

Long-term portion

$

31,167

$

30,768

The Company’s reclamation expenses for the periods presented consisted of the following:

Three months ended March 31,

2021

2020

Reclamation adjustment reflecting updated estimates

$

425

$

203

Reclamation accretion

486

457

Total

$

911

660

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MCEWEN MINING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2021

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

NOTE 12 SHAREHOLDERS’ EQUITY

Equity Issuances

Equity Financing

On February 9, 2021, the Company completed a registered direct offering of common stock with several existing and new institutional investors and issued 30,000,000 shares priced at $1.05 per share for gross proceeds of $31.5 million. The purpose of this financing was to fund the continued development of the Froome deposit, which is part of the Fox Complex in Timmins, Ontario, and to strengthen the Company’s balance sheet and working capital position. Total issuance costs amounted to $1.7 million for net proceeds of $29.9 million.

Flow-Through Shares Issuance – Canadian Development Expenses (“CDE”)

On January 29, 2021, the Company issued 12,600,600 flow-through common shares priced at $1.01 per share for gross proceeds of $12.7 million. The purpose of this offering was also to fund the development of the Froome deposit. The total proceeds were allocated between the sale of tax benefits and the sale of common shares. The total issuance costs related to the issuance of the flow-through shares was $0.7 million, which are accounted for as a reduction to the common shares. The net proceeds of $12.0 million were allocated between the sale of tax benefits in the amount of $1.2 million and the sale of common shares in the amount of $10.8 million.

The Company is required to spend flow-through share proceeds on flow-through eligible CDE as defined by subsection 66.2(5) of the Income Tax Act (Canada). As of March 31, 2021, the Company has incurred a total of $7.9 million in eligible CDE. The Company expects to fulfill its CDE commitments by the end of 2022.

Flow-Through Shares Issuance – Canadian Exploration Expenditures (“CEE”)

On December 31, 2020, the Company issued an additional 7,669,900 flow-through common shares priced at $1.28 per share for gross proceeds of $