McEwen Inc. (MUX) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to McEwen's Second Quarter 2026 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; Ian Ball, Executive Vice Chairman; William Shaver, Chief Operating Officer; Perry Ing, Chief Financial Officer; Jeff Chan, Vice President of Finance; Stefan Spears, Vice President of Corporate Development; Michael Meding, Managing Director of McEwen Copper; and Carmen Diges, General Counsel and Secretary. Other management of the company will also be available to answer questions during the call. Please note, this event is being recorded. [Operator Instructions] I will now turn the conference over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us. I'd like to do something a little different today. You've already seen our financial statements. You've had an opportunity to read our press release. You know our production numbers, our revenue, our costs. Rather than simply repeating those numbers, I'd like to step back and talk about what they really mean because I've learned something over my career, markets are very good at measuring what happened last quarter. They're much less effective at recognizing the value that's being created for the future. So today, I'd like to focus on one question. What really matters? Before I entered the mining business, I spent 18 years in the investment industry as an analyst, portfolio manager, a mutual fund manager and later controlling a member firm of the Toronto Stock Exchange. Every day, my responsibility was to decide where capital should be invested and just as importantly, where it shouldn't. Eventually, I made a decision that surprised many people. I stopped looking for companies that created value and decided to build one instead. That perspective has never left me. I still think like an investor. I still ask the same question I asked 40 years ago. Is this company becoming more valuable? That question I want to answer today. Let's begin with the hard part. This was not a quarter we wanted. Operationally, we fell short of our own expectations. Production was lower than we had planned. Costs remained higher than we consider acceptable. Those results were disappointing to you and to me. We could point to inflation, labor shortages or industry-wide cost pressures, but those explanations don't create shareholder value. Execution does, and our execution wasn't consistently where it needs to be. The most significant operational issue during the quarter was at Gold Bar. We encountered more carbonaceous material than expected in portions of the ore body. Carbonaceous ore presents a metallurgical challenge because it can be -- can absorb -- dissolve gold during leaching, thus reducing recoveries. Simply put, we recovered fewer ounces than we should have. That's on management. The important question today isn't whether we encountered a problem. We did. The important question is whether we understand it and whether we know how to fix it. I believe we do. We've expanded metallurgical testing. We're improving our geological modeling to better identify carbonaceous zones before they're mined. We're modifying mine sequencing and blending strategies, and we're evaluating additional processing improvements to reduce the impact of preg-robbing. These are not overnight solutions, but they're practical, measurable actions that should improve recoveries over time. I've learned something more after 40 years in the mining industry. Nature always has another lesson to teach. Great companies aren't defined by whether they encounter problems. They're defined by how honestly they acknowledge them and how effectively they solve them. And that is what we're doing. Now having said all of that, I don't want anyone to conclude that one difficult quarter defines this company. It doesn't. What really matters isn't whether every quarter is perfect. What really matters is whether every quarter leaves us stronger, smarter and better positioned for the future. And that's where my optimism comes from. Unlike many companies in our industry, our biggest challenge isn't finding metal. It's unlocking more of the value we already own. Our exploration programs continue to demonstrate that our assets have significant room to grow. At the Fox Complex, I don't simply see a mine. I see the emergence of a mining district, Grey Fox, Stock, Whiskey Jack and our other targets continue to strengthen our confidence that we can replace depletion and continue building long-term value through discovery. I've always believed that exploration is one of the highest return investments a mining company can make. Every important discovery begins with a drill hole that challenges yesterday's assumptions. Those discoveries don't simply add ounces. They extend mine life, improve economics, create optionality and ultimately create shareholder value. That philosophy has guided me throughout my career, and it's one of the reasons I remain so excited about our future. And then there's Los Azules. I've spent much of my professional life looking for assets capable of changing the future of the company. Those opportunities are rare. I believe Los Azules is one of them. We're entering a world where artificial intelligence, data centers, electrification, modern power grid and energy security are driving unprecedented demand for copper. At the same time, very few world-class copper projects are advancing towards production. That creates an opportunity for projects with the right scale, the right economics and the right environmental profile. Los Azules has the potential to be one of those projects. The progress we've made over the past year has reduced technical risk, strengthened engineering, advanced permitting and expanded financing discussions. There is still much work ahead, but every milestone moves us closer to unlocking what I believe is one of the most valuable assets in our portfolio. One thing that has remained constant throughout my career is my approach to capital allocation. Shareholders entrust us with their capital. Our responsibility is to treat every dollar as if it were our own because in my case, it is. I've invested a substantial portion of my own wealth in this company because I believe our best years remain ahead of us. That doesn't mean we'll never have disappointing quarters. We will. Mining doesn't work that way. What it does mean is that we will continue confronting problems honestly, investing in opportunities that offer the greatest long-term returns and making decisions based on intrinsic value rather than short-term market sentiment. As I look ahead, I see 4 priorities. First, improve operational execution and recoveries; second, continue expanding our resource base through disciplined exploration; third, advance Los Azules towards becoming one of the world's premier copper projects. And finally, allocate capital with the same discipline that has guided me throughout my career. Those priorities won't necessarily produce the perfect quarter, but I believe they will produce a much stronger company. I'll leave you with one final thought. When I entered the investment business many years ago, I learned that markets eventually recognize value. When I entered the mining business, I learned something equally important. Value has to be created before it can be recognized. That is our job. We still have work to do. We still have challenges to overcome, but I believe we're building a company whose future will be considerably stronger than its recent past. And in the end, that's what really matters. Thank you. Now I'll open it for questions. Operator?

[Operator Instructions] Our first question comes from Jake Sekelsky from Alliance Global Partners.

So just looking at the Gold Bar production target, the multiyear target of 90,000 to 100,000 ounces a year. Can you just touch on the permitting processes for the surrounding deposits that are going to drive this hub-and-spoke model? How should we think about the time line there for tonnage starting to come in from the spokes?

Permitting is about 2 years away. We have to have some water well studies done. And during that period, we'll be coming forward with our production. As you looked at the exploration results coming out of our Eureka properties, we can see that making a large contribution to that production number you spoke of.

Okay. That's helpful. And then just switching gears to Los Azules and the NSR. That seems like a hidden gem in the portfolio a bit. Can you just comment on how you view this asset going forward? I mean, is it something that you expect to keep in the MUX portfolio? Or are there other avenues to unlock value with the NSR that you're looking at over the medium term?

Jake, it's Ian Ball speaking. So just on your point, we've looked at it. We've been doing a lot of work on the tax implications of whether you keep that inside of McEwen or whether you give that to shareholders in a spinout. Right now, it is in a U.S. corporation. And one of the things that we've looked at is, does it make sense for McEwen to hang on to it until Los Azules actually paying. Right now, to make it on a tax-free basis, it would have to go into a U.S. corporation, which has additional corporate governance surrounding it versus going into a Canadian corporation, which would be taxable to shareholders. So the thought right now is keep it inside of McEwen so there's no extra G&A costs associated with running that company and to sort of evaluate it when Los Azules is entering production because then it could obviously incur that extra cost being a U.S. company. We also announced yesterday that we have created a small royalty on this agreement we have with Paragon. We have other royalties within the company. And the thought is we could probably build up that royalty portfolio alongside Los Azules, obviously, as you mentioned being the key royalty. And at some point, it probably does make some sense to look at giving that to shareholders in the way of an IPO because it should trade at a higher valuation based relative to the operating company.

Makes sense. Okay. So maybe over the medium term, kind of build up a bit of a royalty portfolio and potentially spin it out down the road when the timing makes sense.

Yes. I think that's something we would have to consider, yes.

The next question comes from Mike Kozak from Cantor Fitzgerald.

A few questions for me. First, how much cash was in the San José JV at exit Q2? And do you expect any more distributions over the remainder of this year? I know you're already through guidance, but just some color there would be helpful.

Okay, Mike, this is Perry speaking. So at the end of the second quarter, I believe San José had roughly $130 million in U.S. cash and cash equivalents. We're not expecting a further dividend this year. Part of that is due to kind of the Central Bank regulations and the need to pay dividends out of audited surplus earnings. So -- but we're in regular discussions with our partner, Hochschild and the team at San José. So if there's an opportunity to, certainly, we would discuss it. But at this point, we would expect dividends to resume next year.

Got it. Helpful. And then my second one, if I can. In your 10-Q, there was disclosure around, I think, what you're calling an enhanced financing proposal from Finland's export credit agency. Could you give a bit more color there? Like how did Finland of all places come to get potentially involved in Los Azules? What are the next milestones for that proposal to maybe convert into something more definitive? What's the size as it stands right now? Anything you could give there would be helpful.

I'll ask Mike to address that question.

Sure. So as part of our financing, we look into financings for export credit agencies. One of the export credit agencies in Europe that is very active is the Finnish one. And why is that? Yes, because Metso is headquartered there. And Metso is one of the key suppliers for mining equipment, specifically crushing, conveying acid plant, SX-EW and so forth. So we have engaged with the authorities from the ECA actually some years ago already, and we had received prior financing offers, and that is just one part of our overall financing package. We have engaged also North American ECAs. We have engaged Japanese ECAs. We have engaged other European ECAs. We think that the financing through an ECA on top of giving you the financing itself that typically come with good tenders, they typically come with good pricing and they typically come with the political support of the project. While we have the RIGI in place, which gives us good protection in Argentina, this is just another layer to make this project much more robust as we go through the different decades ahead during which the project will be operating. With regards to the amounts, that is depending on the amount of equipment sourced or equipment or engineering sourced from the countries involved. So you can look depending on the ECA, somewhere between $200 million and more than $500 million each. One of the reasons why we engaged Societe Generale was actually to support us bundling all those activities because those activities have been done mostly by myself and Stefan Spears in the past, and they require quite some bench strength to do. So we put on the team, SocGen to support us in getting all this together in an overall project finance.

[Operator Instructions] Our next question comes from Don DeMarco from National Bank.

So Rob, I'll start off with Gold Bar. My question, is the revised guidance based solely on the known reconciliation issues? Or does it include additional conservatism for areas that have not been kept in mind? I'm referring to the higher-than-expected carbonaceous material in certain zones that didn't reconcile with the resource model. I'm just wondering how localized that is and what assumptions you're making going forward?