McEwen Mining Production Down. Capital Raise Needed.

McEwen Mining Chief Owner Rob McEwen. (c) McEwen Mining. Used with permission.

In my conversation last month with Rob McEwen, he was full of optimism for gold going forward, predicting (again) that the price of gold will ultimately soar to $5,000/ounce. According to McEwen, “When we start seeing interest rates moving up, it’s going to become more difficult for governments, corporations and individuals to deal with the rising interest rate. That’s when you have a period where people will start to look for gold.” Click to access my full interview with McEwen Mining’s Chief Owner Rob McEwen on BlogTalkRadio.com/NataliePace.
 
There are likely to be a few potholes on that yellow brick road, however. In the April 16, 2018 first quarter production report, McEwen Mining indicated that gold and silver production is down 27% from the fourth quarter 2017. Part of this is explained by regularly scheduled maintenance at the San Jose Mine in Argentina. However, last year the drop in production between the 4th quarter and 1st quarter was only 6%. This portends bad news in the 1st quarter 2018 earnings results which should be released sometime in early May.

Going forward, the new Black Fox mine will contribute to production, and there will be a new McEwen mine opening in Nevada. However, production in Mexico will continue to decline. McEwen Mining's SVP of Exploration Sylvain Guerard believes that “Black Fox remains under explored and there is room for additional discoveries.” At Gold Bar in Nevada, the company continues to develop new exploration targets. Rob McEwen reminded everyone on the earnings call of Feb. 26, 2018 that 2017-2019 will be years of building, toward the ultimate goal of McEwen Mining qualifying for inclusion on the S&P500. This requires wisdom, vision and M&A on the part of executives and patience from investors.

As of April 16, 2018, McEwen had $52 million in cash, cash equivalents and precious metals, with no debt. The company needs about $67-$68 million in 2018 for the new Gold Bar Mine in Nevada, according to McEwen Mining CFO Andrew Elinesky. That means there will be a capital raise in 2018, which could be equity or debt, or a combination. That means that current investors, including Rob McEwen who owns 24% of McEwen Mining, are very likely to be diluted. There is also talk of the current dividend being suspended.
 
There are few executives with the track record of Rob McEwen. Rob is the current Chief Owner of McEwen Mining and the former chairman and CEO of Goldcorp, a company he took from $500 million to over $8.5 billion in value, with a 31% annual compound growth rate during his tenure (yes, that beats Buffett). In his 20+ years in the industry, Rob has become a respected thought leader. He was appointed to the Order of Canada and is on the board of trustees for the X Prize. He’s an executive well worth banking on.
 
My long-term prognosis for gold and McEwen Mining remains optimistic. However, the recent dive in production at McEwen, and the expected dismal 1st quarter 2018 earnings report, combined with a capital raise, could be more than investors can stomach. The last few years have been rough on gold bugs. That might continue in the short-term, particularly for McEwen Mining investors.
 
McEwen is trading near its 52-week low. However, in 2015, the price did dive below a dollar a share. There is no authorized share repurchase plan at this time to help keep the share price buoyant. I would expect volatility in the McEwen Mining share price as the news of the production report and the first quarter reports hit the mainstream media.

Natalie Wynne Pace is the co-creator of the Earth Gratitude project and the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is (aka You Vs. Wall Street). She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical).

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