Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - McEwen Mining Inc. | a14-14042_1ex31d2.htm |
EX-31.1 - EX-31.1 - McEwen Mining Inc. | a14-14042_1ex31d1.htm |
EX-32 - EX-32 - McEwen Mining Inc. | a14-14042_1ex32.htm |
EXCEL - IDEA: XBRL DOCUMENT - McEwen Mining Inc. | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIRES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-33190
MCEWEN MINING INC.
(Exact name of registrant as specified in its charter)
Colorado |
|
84-0796160 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
150 King Street West, Suite 2800, Toronto, Ontario Canada M5H 1J9
(Address of principal executive offices) (Zip code)
(866) 441-0690
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
o |
|
|
Accelerated filer |
x |
| |||||
Non-accelerated filer |
o |
(Do not check if a smaller reporting company) |
Smaller reporting company |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 267,344,048 shares outstanding as of August 4, 2014 (and 30,073,043 exchangeable shares).
MCEWEN MINING INC.
FORM 10-Q
Part I FINANCIAL INFORMATION |
| |
|
|
|
Item 1. |
Financial Statements |
3 |
|
|
|
|
3 | |
|
|
|
|
Consolidated Balance Sheets at June 30, 2014 (unaudited) and December 31, 2013 |
4 |
|
|
|
|
5 | |
|
|
|
|
Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited) |
6 |
|
|
|
|
7 | |
|
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | |
|
|
|
43 | ||
|
|
|
45 | ||
|
|
|
|
|
|
45 | ||
|
|
|
47 | ||
|
|
|
48 |
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except per share)
|
|
Three months ended June 30, |
|
Six months ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
REVENUE: |
|
|
|
|
|
|
|
|
| ||||
Gold and silver sales |
|
$ |
11,637 |
|
$ |
10,459 |
|
$ |
22,767 |
|
$ |
23,957 |
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
11,637 |
|
10,459 |
|
22,767 |
|
23,957 |
| ||||
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
| ||||
Production costs applicable to sales |
|
10,900 |
|
8,278 |
|
19,427 |
|
18,871 |
| ||||
Mine construction costs |
|
217 |
|
|
|
1,156 |
|
|
| ||||
Mine development costs |
|
155 |
|
98 |
|
1,723 |
|
569 |
| ||||
Exploration costs |
|
2,637 |
|
4,889 |
|
5,317 |
|
19,489 |
| ||||
Property holding costs |
|
734 |
|
316 |
|
2,188 |
|
1,693 |
| ||||
General and administrative |
|
3,213 |
|
4,217 |
|
6,440 |
|
8,409 |
| ||||
Depreciation |
|
229 |
|
245 |
|
454 |
|
527 |
| ||||
Accretion of asset retirement obligation (note 3) |
|
108 |
|
121 |
|
209 |
|
234 |
| ||||
(Income) loss on investment in Minera Santa Cruz S.A., net of amortization (note 4) |
|
2,438 |
|
1,551 |
|
(4,591 |
) |
1,788 |
| ||||
Impairment of investment in MSC (note 4) |
|
|
|
95,878 |
|
|
|
95,878 |
| ||||
Impairment of mineral property interests and property and equipment (note 3) |
|
120,398 |
|
27,729 |
|
120,398 |
|
27,729 |
| ||||
(Gain) loss on sale of assets |
|
(18 |
) |
6,791 |
|
(18 |
) |
6,791 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total costs and expenses |
|
141,011 |
|
150,113 |
|
152,703 |
|
181,978 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating loss |
|
(129,374 |
) |
(139,654 |
) |
(129,936 |
) |
(158,021 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
34 |
|
68 |
|
109 |
|
139 |
| ||||
Gain on litigation settlement |
|
|
|
|
|
|
|
560 |
| ||||
Unrealized loss on gold and silver bullion |
|
|
|
(274 |
) |
|
|
(274 |
) | ||||
Foreign currency gain (loss) |
|
284 |
|
(1,226 |
) |
(299 |
) |
(935 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total other income (expense) |
|
318 |
|
(1,432 |
) |
(190 |
) |
(510 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Loss before income taxes |
|
(129,056 |
) |
(141,086 |
) |
(130,126 |
) |
(158,531 |
) | ||||
Income tax recovery (note 8) |
|
25,034 |
|
12,405 |
|
43,991 |
|
18,868 |
| ||||
Net loss |
|
(104,022 |
) |
(128,681 |
) |
(86,135 |
) |
(139,663 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
OTHER COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on available-for-sale securities, net of taxes |
|
2 |
|
|
|
3 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive loss |
|
$ |
(104,020 |
) |
$ |
(128,681 |
) |
$ |
(86,132 |
) |
$ |
(139,663 |
) |
Net loss per share (note 9): |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
(0.35 |
) |
$ |
(0.43 |
) |
$ |
(0.29 |
) |
$ |
(0.47 |
) |
Diluted |
|
$ |
(0.35 |
) |
$ |
(0.43 |
) |
$ |
(0.29 |
) |
$ |
(0.47 |
) |
Weighted average common shares outstanding (thousands) (note 9): |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
297,164 |
|
297,097 |
|
297,162 |
|
296,938 |
| ||||
Diluted |
|
297,164 |
|
297,097 |
|
297,162 |
|
296,938 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MCEWEN MINING INC.
(in thousands)
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||
|
|
(Unaudited) |
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
15,149 |
|
$ |
24,321 |
|
IVA taxes receivable |
|
14,483 |
|
11,591 |
| ||
Inventories (note 2) |
|
10,170 |
|
8,800 |
| ||
Other current assets |
|
2,279 |
|
2,059 |
| ||
Total current assets |
|
42,081 |
|
46,771 |
| ||
|
|
|
|
|
| ||
Mineral property interests (note 3) |
|
521,884 |
|
642,968 |
| ||
Restrictive time deposits for reclamation bonding (note 3) |
|
4,817 |
|
5,183 |
| ||
Investment in Minera Santa Cruz S.A. (note 4) |
|
210,425 |
|
212,947 |
| ||
Property and equipment, net (note 5) |
|
16,972 |
|
15,143 |
| ||
Other assets |
|
91 |
|
54 |
| ||
TOTAL ASSETS |
|
$ |
796,270 |
|
$ |
923,066 |
|
|
|
|
|
|
| ||
LIABILITIES & SHAREHOLDERS EQUITY |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable and accrued liabilities |
|
$ |
12,238 |
|
$ |
9,797 |
|
Current portion of asset retirement obligation (note 3) |
|
1,455 |
|
1,392 |
| ||
Total current liabilities |
|
13,693 |
|
11,189 |
| ||
|
|
|
|
|
| ||
Asset retirement obligation, less current portion (note 3) |
|
5,940 |
|
5,855 |
| ||
Deferred income tax liability (note 8) |
|
114,864 |
|
158,855 |
| ||
Other liabilities |
|
400 |
|
400 |
| ||
Total liabilities |
|
$ |
134,897 |
|
$ |
176,299 |
|
|
|
|
|
|
| ||
Shareholders equity: |
|
|
|
|
| ||
Common stock, no par value, 500,000 shares authorized; Common: 266,597 as of June 30, 2014 and 264,913 shares as of December 31, 2013 issued and outstanding |
|
|
|
|
| ||
Exchangeable: 30,623 shares as of June 30, 2014 and 32,246 shares as of December 31, 2013 issued and outstanding |
|
1,355,434 |
|
1,354,696 |
| ||
Accumulated deficit |
|
(693,769 |
) |
(607,634 |
) | ||
Accumulated other comprehensive loss |
|
(292 |
) |
(295 |
) | ||
Total shareholders equity |
|
661,373 |
|
746,767 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES & SHAREHOLDERS EQUITY |
|
$ |
796,270 |
|
$ |
923,066 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (UNAUDITED)
(in thousands)
|
|
Common Stock |
|
Accumulated |
|
Accumulated |
|
|
| ||||||
|
|
Shares |
|
Amount |
|
(Loss) Income |
|
Deficit |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, December 31, 2012 |
|
296,025 |
|
$ |
1,349,777 |
|
$ |
(294 |
) |
$ |
(459,892 |
) |
$ |
889,591 |
|
Stock-based compensation |
|
|
|
686 |
|
|
|
|
|
686 |
| ||||
Exercise of stock options |
|
48 |
|
95 |
|
|
|
|
|
95 |
| ||||
Shares issued for litigation settlement |
|
1,000 |
|
3,270 |
|
|
|
|
|
3,270 |
| ||||
Shares issued for Mexico mining concessions |
|
41 |
|
96 |
|
|
|
|
|
96 |
| ||||
Net loss |
|
|
|
|
|
|
|
(139,663 |
) |
(139,663 |
) | ||||
Balance, June 30, 2013 |
|
297,114 |
|
$ |
1,353,924 |
|
$ |
(294 |
) |
$ |
(599,555 |
) |
$ |
754,075 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, December 31, 2013 |
|
297,159 |
|
$ |
1,354,696 |
|
$ |
(295 |
) |
$ |
(607,634 |
) |
$ |
746,767 |
|
Stock-based compensation |
|
|
|
609 |
|
|
|
|
|
609 |
| ||||
Exercise of stock options |
|
60 |
|
129 |
|
|
|
|
|
129 |
| ||||
Unrealized gain on available-for-sale securities, net of taxes |
|
|
|
|
|
3 |
|
|
|
3 |
| ||||
Net loss |
|
|
|
|
|
|
|
(86,135 |
) |
(86,135 |
) | ||||
Balance, June 30, 2014 |
|
297,220 |
|
$ |
1,355,434 |
|
$ |
(292 |
) |
$ |
(693,769 |
) |
$ |
661,373 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MCEWEN MINING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
Six months ended June 30, |
| ||||
|
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Cash paid to suppliers and employees |
|
$ |
(37,085 |
) |
$ |
(58,521 |
) |
Cash received from gold and silver sales |
|
22,767 |
|
23,197 |
| ||
Dividends received from Minera Santa Cruz S.A. |
|
7,113 |
|
|
| ||
Proceeds from sale of gold and silver bullion |
|
|
|
510 |
| ||
Interest received |
|
109 |
|
139 |
| ||
Cash used in operating activities |
|
(7,096 |
) |
(34,675 |
) | ||
Cash flows from investing activities: |
|
|
|
|
| ||
Acquisition of mineral property interests |
|
|
|
(150 |
) | ||
Additions to property and equipment |
|
(2,297 |
) |
(225 |
) | ||
Decrease to restrictive time deposits for reclamation bonding |
|
367 |
|
|
| ||
Proceeds from disposal of property and equipment |
|
31 |
|
|
| ||
Cash used in investing activities |
|
(1,899 |
) |
(375 |
) | ||
Cash flows from financing activities: |
|
|
|
|
| ||
Exercise of stock options |
|
129 |
|
95 |
| ||
Cash provided by financing activities |
|
129 |
|
95 |
| ||
Effect of exchange rate change on cash and cash equivalents |
|
(306 |
) |
(1,193 |
) | ||
Decrease in cash and cash equivalents |
|
(9,172 |
) |
(36,148 |
) | ||
Cash and cash equivalents, beginning of period |
|
24,321 |
|
70,921 |
| ||
Cash and cash equivalents, end of period |
|
$ |
15,149 |
|
$ |
34,773 |
|
|
|
|
|
|
| ||
Reconciliation of net loss to cash used in operating activities: |
|
|
|
|
| ||
Net loss |
|
$ |
(86,135 |
) |
$ |
(139,663 |
) |
Adjustments to reconcile net income (loss) from operating activities: |
|
|
|
|
| ||
(Income) loss on investment in Minera Santa Cruz S.A., net of amortization |
|
(4,591 |
) |
1,788 |
| ||
Impairment of investment in MSC |
|
|
|
95,878 |
| ||
Impairment of mineral property interests and property and equipment |
|
120,398 |
|
27,729 |
| ||
(Gain) loss on sale of assets |
|
(18 |
) |
6,791 |
| ||
Income tax recovery |
|
(43,991 |
) |
(18,868 |
) | ||
Gain on litigation settlement |
|
|
|
(560 |
) | ||
Unrealized loss on gold and silver bullion |
|
|
|
274 |
| ||
Stock-based compensation |
|
609 |
|
686 |
| ||
Depreciation |
|
454 |
|
527 |
| ||
Accretion of asset retirement obligation |
|
209 |
|
234 |
| ||
Amortization of mineral property interests and asset retirement obligations |
|
626 |
|
956 |
| ||
Foreign exchange loss |
|
306 |
|
1,193 |
| ||
Change in non-cash working capital items: |
|
|
|
|
| ||
Increase in other assets related to operations |
|
(4,516 |
) |
(1,534 |
) | ||
Increase (decrease) in liabilities related to operations |
|
2,440 |
|
(10,616 |
) | ||
Dividends received from Minera Santa Cruz S.A. |
|
7,113 |
|
|
| ||
Cash used in operating activities |
|
$ |
(7,096 |
) |
$ |
(35,185 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
McEwen Mining Inc. (the Company or McEwen Mining) was organized under the laws of the State of Colorado on July 24, 1979. Since inception, the Company has been engaged in the exploration for, development of, production and sale of gold and silver. On January 24, 2012, the Company changed its name from US Gold Corporation to McEwen Mining Inc. after the completion of the acquisition of Minera Andes Inc. (Minera Andes) by way of a statutory plan of arrangement under the laws of the Province of Alberta, Canada.
The Company operates in Argentina, Mexico, and the United States. It owns a 49% interest in Minera Santa Cruz S.A. (MSC), owner and operator of the producing San José mine in Santa Cruz, Argentina, which is controlled by the majority owner of the joint venture, Hochschild Mining plc (Hochschild). It also owns the El Gallo 1 mine in Sinaloa, Mexico, where production resumed in September 2012. In addition to its operating properties, the Company also holds interests in numerous exploration stage properties and projects in Argentina, Mexico and the United States.
The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) has been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.
In managements opinion, the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013, the Consolidated Balance Sheets as at June 30, 2014 (unaudited) and December 31, 2013, the unaudited Consolidated Statement of Changes in Shareholders Equity for the six months ended June 30, 2014 and 2013, and the unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, contained herein, reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Companys financial position, results of operations and cash flows on a basis consistent with that of the Companys 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 summary of significant accounting policies included in the Companys Form 10-K for the year ended December 31, 2013. Except as noted below, there have been no material changes in the footnotes from those accompanying the audited consolidated financial statements contained in the Companys Form 10-K for the year ended December 31, 2013.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
Recently Adopted Accounting Pronouncements
Presentation of an Unrecognized Tax Benefit: In July 2013, ASC guidance was issued related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for the same jurisdictions net operating loss carryforward, a similar tax loss, or tax credit carryforwards. A gross presentation will be required only if such carryforwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax position. The update was effective prospectively for the Companys fiscal year beginning January 1, 2014. The new guidance affects disclosures only and the adoption had no impact on the Companys consolidated financial position, results of operations or cash flows.
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Matters: In March 2013, ASC guidance was issued related to Foreign Currency Matters to clarify the treatment of cumulative translation adjustments when a parent sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. The updated guidance also resolves the diversity in practice for the treatment of business combinations achieved in stages in a foreign entity. The update was effective prospectively for the Companys fiscal year beginning January 1, 2014. The updated guidance had no impact on the Companys consolidated financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
Presentation of Financial Statements (ASC 205) and Property, Plant and Equipment (ASC 360) Reporting Discontinued Operations and Disclosures of Components of an Entity: In April 2014, ASC guidance was amended to change the requirements for reporting discontinued operations in ASC 205-20. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on an entitys operations and financial results when any of the following occurs: (1) the component of an entity or group of components of an entity meets the criteria in ASC 205-20-45-1E to be classified as held for sale; (2) the component of an entity or group of components of an entity is disposed of by sale; (3) the component of an entity or group of components of an entity is disposed of other than by sale. The update is effective prospectively for the Companys fiscal year beginning January 1, 2015. The new guidance is not expected to have an impact on the Companys consolidated financial position, results of operations or cash flows.
Revenue from Contracts with Customers (ASC 606): In May 2014, ASC 606 was issued related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The standard will be effective for the Companys fiscal year beginning January 1, 2017, including interim reporting periods within that year. The Company is evaluating the effect that the updated standard will have on its consolidated financial position, results of operations or cash flows.
NOTE 2 INVENTORIES
Inventories at June 30, 2014 and December 31, 2013 consist of the following:
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||
|
|
(in thousands) |
| ||||
Ore on leach pads |
|
$ |
4,133 |
|
$ |
2,749 |
|
In-process inventory |
|
3,185 |
|
2,681 |
| ||
Stockpiles |
|
|
|
778 |
| ||
Precious metals |
|
1,438 |
|
1,300 |
| ||
Materials and supplies |
|
1,414 |
|
1,292 |
| ||
Inventories |
|
$ |
10,170 |
|
$ |
8,800 |
|
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 3 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS
Mineral Property Interests
During the second quarter of 2014, the Company recorded an impairment charge of $120.4 million relating to its Los Azules copper exploration project (Los Azules Project). The Company conducts a review of potential triggering events for all its mineral projects on a quarterly basis. When events or changes in circumstances indicate that the related carrying amounts may not be recoverable, the Company carries out a review and evaluation of its long-lived assets for impairment, in accordance with its accounting policy. Such a triggering event was identified in the second quarter of 2014 with respect to the Companys Los Azules Project. The triggering event identified was a recently announced acquisition of a copper project located in Argentina, which shares similarities with the Los Azules Project due to its scale, location, and stage of development. Based on the announcement day value of the similar project, the estimated market value per pound of copper equivalent mineralized material from this transaction was below the carrying value per pound of copper equivalent mineralized material of the Los Azules Project, indicating a potential significant decrease in the market price of its Los Azules Project, in accordance with ASC 360-35-21-a, and therefore a requirement to test the Los Azules Project for recoverability. To assist in performing a recoverability test, the Company engaged a third-party valuation firm who used the observed market value per pound of copper equivalent mineralized material based on this recent and other comparable transactions to estimate the fair value of the Los Azules Project. The carrying value of the property exceeded its estimated fair value, resulting in an impairment charge of $120.4 million, along with a resulting deferred income tax recovery of $22.5 million, being recorded in the Statement of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2014.
Impairments recorded in the second quarter of 2013 related to the Companys exploration properties in Santa Cruz, Argentina. The impairments were primarily due to an unexpected significant decline in gold and silver market prices, continued inflationary pressures and a new tax on mining reserves in the Province, resulting in a depressed market for exploration properties in Argentina. An impairment charge of $27.7 million, along with a resulting reduction in deferred tax liability and recovery of deferred income taxes of $2.3 million, were included in the Statement of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2013.
Based on the above, impairment charges were recorded on the following mineral property interests for the three and six months ended June 30, 2014 and 2013.
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
| ||||||||
Name of Property/Complex |
|
Segment |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
(in thousands) |
| ||||||||||
Telken Tenements |
|
Argentina |
|
$ |
|
|
$ |
13,792 |
|
$ |
|
|
$ |
13,792 |
|
Este Tenements |
|
Argentina |
|
|
|
2,784 |
|
|
|
2,784 |
| ||||
Piramides Tenements |
|
Argentina |
|
|
|
5,079 |
|
|
|
5,079 |
| ||||
Tobias Tenements |
|
Argentina |
|
|
|
6,074 |
|
|
|
6,074 |
| ||||
Los Azules Copper Project |
|
Argentina |
|
120,398 |
|
|
|
120,398 |
|
|
| ||||
Total impairments |
|
|
|
$ |
120,398 |
|
$ |
27,729 |
|
$ |
120,398 |
|
$ |
27,729 |
|
Asset Retirement Obligations
The Company is responsible for reclamation of certain past and future disturbances at its properties. The two most significant properties subject to these obligations are the historic Tonkin property in Nevada and the El Gallo 1 mine in Mexico.
The current undiscounted estimate of the reclamation costs for existing disturbances on the Tonkin property to the degree required by the U.S. Bureau of Land Management (BLM) and the Nevada Department of Environmental Protection (NDEP) was $2.7 million as of June 30, 2014. Expenses are expected to be incurred between the years 2014 and 2040. The Company submitted a mine closure plan to the NDEP and BLM for the Tonkin property during the fourth quarter of 2010. As at June 30, 2014, the closure plan has already been approved by the NDEP but is still under review by the BLM pursuant to the National Environmental Policy Act. It is possible that reclamation plan cost estimates and bonding requirements may increase as a result of this review. The Company, however, is unable to meaningfully estimate possible increases at this time.
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 3 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS (Continued)
Asset Retirement Obligations (Continued)
For mineral properties in the United States, the Company maintains required reclamation bonding with various governmental agencies. At December 31, 2013, the Company had cash bonding in place of $5.2 million. During the second quarter of 2014, cash bonding requirements were reduced by $0.4 million, to $4.8 million at June 30, 2014. Subsequent to June 30, 2014, the Company replaced its cash bonding with surety bonds of the same amounts. The annual fees are 1.5% of the value of the surety bonds, with an upfront 10% deposit.
The current undiscounted estimate of the reclamation costs for existing disturbances at the El Gallo 1 mine was $4.6 million as of June 30, 2014. Expenses are expected to be incurred between the years 2014 and 2018. Under Mexican regulations, surety bonding of projected reclamation costs is not required.
A reconciliation of the Companys asset retirement obligations for the six months ended June 30, 2014 and for the year ended December 31, 2013 are as follows:
|
|
Six months ended |
|
Year Ended |
| ||
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||
|
|
(in thousands) |
| ||||
Asset retirement obligation liability, beginning balance |
|
$ |
7,247 |
|
$ |
6,359 |
|
Settlements |
|
(18 |
) |
(60 |
) | ||
Accretion of liability |
|
209 |
|
461 |
| ||
Adjustment reflecting updated estimates |
|
(42 |
) |
487 |
| ||
Asset retirement obligation liability, ending balance |
|
$ |
7,396 |
|
$ |
7,247 |
|
As at June 30, 2014, the current portion of the asset retirement obligation was $1.5 million (December 31, 2013 - $1.4 million).
Amortization of Mineral Property Interests and Asset Retirement Costs
The definition of proven and probable reserves is set forth in the SEC Industry Guide 7. If proven and probable reserves exist at the Companys properties, the relevant capitalized mineral property interests and asset retirement costs are to be charged to expense based on the units of production method and upon commencement of production. Since the Company has not completed feasibility or other studies sufficient to characterize the mineralized material at El Gallo 1 as proven or probable reserves, the amortization of the capitalized mineral property interests and asset retirement costs are charged to expense based on the straight-line method over the estimated useful life of the mine. For the three and six months ended June 30, 2014, the Company recorded $0.3 million and $0.6 million, respectively, of amortization expense related to El Gallo 1, which is included in Production Costs Applicable to Sales in the Statement of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2014, of which $0.1 million and $0.1 million, respectively, related to the amortization of capitalized asset retirement costs.
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 4 INVESTMENT IN MINERA SANTA CRUZ S.A. (MSC) SAN JOSÉ MINE
The Companys 49% attributable share of earnings from its investment in MSC was a loss of $2.4 million for the three months ended June 30, 2014, and income of $4.6 million for the six months ended June 30, 2014. This compares to losses of $1.6 million and $1.8 million for the three and six months ended June 30, 2013. These amounts are net of the amortization of the fair value increments arising from the purchase price allocation and related income tax expense. Included in the income tax expense is the impact of fluctuations in the exchange rate between the Argentine peso and the U.S. dollar on the peso-denominated deferred tax liability associated with the investment in MSC recorded as part of the acquisition of Minera Andes. As a devaluation of the Argentine peso relative to the U.S. dollar results in a recovery of deferred income taxes, the impact has been an increase to the Companys income from its investment in MSC for the three and six months ended June 30, 2014.
During the first quarter of 2013, it was determined that the cost of sales reported by MSC under U.S. GAAP for the year and three months ended December 31, 2012 was understated, resulting in an overstatement of MSCs after-tax net income of $3.9 million. As the error was not material to previously-reported consolidated financial statements, the correction was recorded in the three months ended March 31, 2013. As a result, the income from the Companys equity investment of 49% in MSC includes an adjustment of $1.9 million, resulting in a reduction of the Companys Income from Investment in MSC for the six months ended June 30, 2013.
During the second quarter of 2013, the Company recorded an impairment charge of $95.9 million on its investment in MSC, primarily as a result of an unexpected and significant decline in gold and silver market prices, continued inflationary pressures during the year, and amendments to the Santa Cruz Provincial Tax Code and Provincial Tax Law, which imposed a new tax on mining reserves in the Province of Santa Cruz. As the loss in value of the investment was considered other than temporary, an impairment of $95.9 million was recorded in the Companys Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2013.
During the fourth quarter of 2013, the Company entered into a vend-in agreement with MSC and subsidiaries of Hochschild pursuant to which both parties agreed to contribute to MSC the mining rights of certain Santa Cruz exploration properties. The carrying value of the Companys properties of $35.9 million, net of the related deferred tax liability of $17.3 million, was transferred to the Companys investment in MSC, with no gain or loss recognized upon transfer.
During the three and six months ended June 30, 2014, the Company received $3.2 million and $7.1 million in dividends from MSC, respectively, compared to $nil during the same period in 2013. The Company received an additional dividend payment of 8.1 million Argentine pesos in July 2014, equivalent to approximately $1.0 million based on foreign exchange rates at the date of the dividend receipt, and expects another payment of 8.1 million pesos in the third quarter of 2014, equivalent to approximately $1.0 million based on foreign exchange rates as at June 30, 2014.
Changes in the Companys investment in MSC for the six months ended June 30, 2014 and year ended December 31, 2013 are as follows:
|
|
Six months ended |
|
Year ended |
| ||
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||
|
|
(in thousands) |
| ||||
Investment in MSC, beginning balance |
|
$ |
212,947 |
|
$ |
273,948 |
|
Income from equity investment |
|
2,838 |
|
2,126 |
| ||
Amortization of fair value increments |
|
(6,130 |
) |
(18,425 |
) | ||
Income tax recovery |
|
7,883 |
|
17,145 |
| ||
Dividend distribution |
|
(7,113 |
) |
(1,826 |
) | ||
Impairment of investment in MSC |
|
|
|
(95,878 |
) | ||
Contribution of Santa Cruz exploration properties, net of tax |
|
|
|
35,857 |
| ||
Investment in MSC, ending balance |
|
$ |
210,425 |
|
$ |
212,947 |
|
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 4 INVESTMENT IN MINERA SANTA CRUZ S.A. (MSC) SAN JOSÉ MINE (Continued)
A summary of the operating results from MSC for the three and six months ended June 30, 2014 and 2013 is as follows:
|
|
Three months ended June 30, |
|
Six months ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
(in thousands) |
|
(in thousands) |
| ||||||||
Minera Santa Cruz S.A. (100%) |
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
$ |
53,234 |
|
$ |
68,556 |
|
$ |
110,123 |
|
$ |
112,369 |
|
Production costs applicable to sales |
|
(41,847 |
) |
(57,606 |
) |
(81,484 |
) |
(94,409 |
) | ||||
(Loss) income from operations before extraordinary items |
|
(390 |
) |
124 |
|
5,792 |
|
2,564 |
| ||||
Net (loss) income |
|
(390 |
) |
124 |
|
5,792 |
|
2,564 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Portion attributable to McEwen Mining Inc. (49%) |
|
|
|
|
|
|
|
|
| ||||
Net (loss) income |
|
$ |
(191 |
) |
$ |
61 |
|
$ |
2,838 |
|
$ |
1,256 |
|
Amortization of fair value increments |
|
(3,429 |
) |
(6,710 |
) |
(6,130 |
) |
(12,003 |
) | ||||
Income tax recovery |
|
1,182 |
|
5,098 |
|
7,883 |
|
8,959 |
| ||||
(Loss) income on investment in MSC, net of amortization |
|
$ |
(2,438 |
) |
$ |
(1,551 |
) |
$ |
4,591 |
|
$ |
(1,788 |
) |
As at June 30, 2014, MSC had current assets of $100.0 million, total assets of $529.5 million, current liabilities of $48.1 million and total liabilities of $140.0 million on an unaudited basis. These balances include the increase in fair value and amortization of the fair value increments arising from the purchase price allocation and are net of the impairment charge of $95.9 million recorded in the second quarter of 2013. Excluding the fair value increments from the purchase price allocation and the impairment charge recorded in the second quarter of 2013, MSC had current assets of $102.7 million, total assets of $312.7 million, current liabilities of $48.1 million, and total liabilities of $89.2 million as at June 30, 2014.
NOTE 5 PROPERTY AND EQUIPMENT
As at June 30, 2014 and December 31, 2013, property and equipment consisted of the following:
|
|
June 30, 2014 |
|
December 31, 2013 |
| ||
|
|
(in thousands) |
| ||||
Trucks and trailers |
|
$ |
1,012 |
|
$ |
1,041 |
|
Office furniture and equipment |
|
1,756 |
|
1,163 |
| ||
Drill rigs |
|
998 |
|
998 |
| ||
Building |
|
1,469 |
|
1,469 |
| ||
Land |
|
8,699 |
|
8,672 |
| ||
Mining equipment |
|
1,409 |
|
1,206 |
| ||
Construction-in-progress |
|
5,329 |
|
3,894 |
| ||
Subtotal |
|
$ |
20,672 |
|
$ |
18,443 |
|
Less: accumulated depreciation |
|
(3,700 |
) |
(3,300 |
) | ||
Total |
|
$ |
16,972 |
|
$ |
15,143 |
|
The increase in property and equipment from December 31, 2013 to June 30, 2014 was mainly in relation to construction-in-progress assets, which include advances the Company made to a supplier for long-lead items for its El Gallo 2 project, as well as leasehold improvements as a result of the Companys relocation of its corporate office.
Depreciation expense for the three and six months ended June 30, 2014 was $0.2 million and $0.5 million, respectively (2013 - $0.2 million and $0.5 million, respectively).
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 6 SHAREHOLDERS EQUITY
During the six months ended June 30, 2014, 1.2 million exchangeable shares were converted into common stock. At June 30, 2014, total outstanding exchangeable shares not exchanged and not owned by the Company or its subsidiaries totaled 30.6 million.
During the six months ended June 30, 2014, the Company issued approximately 60,300 shares of common stock upon exercise of stock options under the Equity Incentive Plan at a weighted average exercise price of $2.14 per share for proceeds of $0.1 million.
In 2013, the Company entered into an agreement with one of its mining contractors to settle parts of its account payables with shares of common stock of the Company, up to a maximum of 2,500,000 shares. The number of shares to be issued is determined monthly, based on the amount payable by the Company for services rendered above a defined tonnage threshold, using the closing price of the common stock quoted on active markets at the end of every month. As at June 30, 2014, the Company was required to issue a cumulative total of approximately 379,400 common shares under this agreement. The fair value of this liability of $1.1 million is included in accounts payable and accrued liabilities on the Consolidated Balance Sheet as at June 30, 2014. Approximately 107,400 shares were issued in July 2014, with the remainder to be issued later in 2014.
NOTE 7 STOCK-BASED COMPENSATION
During the three and six months ended June 30, 2014, no stock options were granted to employees or directors. For the comparable periods in 2013, the Company granted stock options to certain employees and directors for an aggregate of 1.7 million shares of common stock at an exercise of $2.25 per share. The principal assumptions used in applying the Black-Scholes option pricing model for these awards were as follows:
|
|
Three months ended June 30, |
|
Six months ended June 30, |
| ||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||
Risk-free interest rate |
|
|
|
0.50 |
% |
|
|
0.50 |
% | ||
Dividend yield |
|
|
|
n/a |
|
|
|
n/a |
| ||
Volatility factor of the expected market price of common stock |
|
|
|
66 |
% |
|
|
66 |
% | ||
Weighted-average expected life of option |
|
|
|
3.5 years |
|
|
|
3.5 years |
| ||
Weighted-average grant date fair value |
|
|
|
$ |
1.01 |
|
|
|
$ |
1.01 |
|
During the three and six months ended June 30, 2014, the Company recorded stock option expense of $0.2 million and $0.6 million, respectively. This compares to $0.3 million and $0.7 million for the three and six months ended June 30, 2013.
NOTE 8 INCOME TAXES
The Companys income tax expense differs from the amount computed by applying the U.S. federal and state statutory corporate income tax rate of 35% primarily as a result of the tax benefit of losses not being recognized and due to changes in the deferred tax liability associated with mineral property interests acquired with the Minera Andes acquisition. This deferred tax liability is impacted by fluctuations in the foreign exchange rate between the Argentine peso and U.S. dollar. For the three and six months ended June 30, 2014, the Company recorded an income tax recovery of $2.5 million and $21.4 million, respectively, as a result of the Argentine peso devaluation, compared to $7.5 million and $13.7 million for the three and six months ended June 30, 2013, respectively. Further, the income tax recovery for the three and six months ended June 30, 2014 includes $22.5 million associated with the impairment of the Los Azules Project, discussed in Note 3, Mineral Property Interests and Asset Retirement Obligations. This compares to an income tax recovery of $4.8 million related to mineral property interests sold or impaired in the three and six months ended June 30, 2013.
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 9 INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed similarly except that the weighted average number of common shares is increased to reflect all dilutive instruments.
Below is a reconciliation of the basic and diluted weighted average number of common shares and the computations for basic income (loss) per share for the three and six months ended June 30, 2014 and 2013:
|
|
Three months ended June 30, |
|
Six months ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
(in thousands, except per share) |
| ||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
|
$ |
(104,022 |
) |
$ |
(128,681 |
) |
$ |
(86,135 |
) |
$ |
(139,663 |
) |
Weighted average number of common shares |
|
297,164 |
|
297,097 |
|
297,162 |
|
296,938 |
| ||||
Loss per common share |
|
$ |
(0.35 |
) |
$ |
(0.43 |
) |
$ |
(0.29 |
) |
$ |
(0.47 |
) |
For the three months ended June 30, 2014, options to purchase 2.0 million shares of common stock outstanding at June 30, 2014 (June 30, 2013 3.8 million) at an average exercise price of $5.03 per share (June 30, 2013 $3.90) were not included in the computation of diluted weighted average shares because their exercise price exceeded the average price of the Companys common stock for the three months ended June 30, 2014 and 2013, respectively. Other outstanding options to purchase 0.9 million (June 30, 2013 0.8 million) shares of common stock were not included in the computation of diluted weighted average shares in the three months ended June 30, 2014 and 2013, respectively, because their effect would have been anti-dilutive.
For the six months ended June 30, 2014, options to purchase 1.4 million shares of common stock outstanding at June 30, 2014 (June 30, 2013 1.6 million) at an average exercise price of $5.96 per share (June 30, 2013 $5.98) were not included in the computation of diluted weighted average shares because their exercise price exceeded the average price of the Companys common stock for the three months ended June 30, 2014 and 2013, respectively. Other outstanding options to purchase 1.1 million shares of common stock (June 30, 2013 1.0 million) were not included in the computation of diluted weighted average shares in the six months ended June 30, 2014 and 2013, respectively, because their effect would have been anti-dilutive.
NOTE 10 RELATED PARTY TRANSACTIONS
For the three and six months ended June 30, 2014, the Company incurred and paid $18,038 and $38,518, respectively, to an entity affiliated with the Companys Chairman and Chief Executive Officer for the use of an aircraft, compared to nil and $70,525 for the three and six months ended June 30, 2013, respectively.
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 11 SEGMENTED INFORMATION
McEwen Mining is a mining and minerals exploration, development and production company focused on precious metals in Argentina, Mexico and the United States. The Company identifies its reportable segments as those consolidated operations that are currently engaged in the exploration for and production of precious metals. Operations not actively engaged in the exploration for, or production of precious metals, are aggregated at the corporate level for segment reporting purposes.
The financial information relating to the Companys operating segments as of, and for the three and six months ended June 30, 2014 and 2013 is as follows:
|
|
|
|
|
|
|
|
Corporate |
|
|
| |||||
|
|
Argentina |
|
Mexico |
|
U.S. |
|
& Other |
|
Total |
| |||||
|
|
(in thousands) |
| |||||||||||||
For the three months ended June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
| |||||
Gold and silver sales |
|
$ |
|
|
$ |
11,637 |
|
$ |
|
|
$ |
|
|
$ |
11,637 |
|
Production costs applicable to sales |
|
|
|
(10,900 |
) |
|
|
|
|
(10,900 |
) | |||||
Mine construction costs |
|
|
|
(217 |
) |
|
|
|
|
(217 |
) | |||||
Mine development costs |
|
|
|
(155 |
) |
|
|
|
|
(155 |
) | |||||
Exploration costs |
|
(249 |
) |
(1,488 |
) |
(831 |
) |
(69 |
) |
(2,637 |
) | |||||
Impairment of mineral property interests and property and equipment |
|
(120,398 |
) |
|
|
|
|
|
|
(120,398 |
) | |||||
Loss on investment in Minera Santa Cruz S.A. (net of amortization) |
|
(2,438 |
) |
|
|
|
|
|
|
(2,438 |
) | |||||
Operating loss |
|
(123,817 |
) |
(2,150 |
) |
(1,025 |
) |
(2,382 |
) |
(129,374 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
For the six months ended June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
| |||||
Gold and silver sales |
|
$ |
|
|
$ |
22,767 |
|
$ |
|
|
$ |
|
|
$ |
22,767 |
|
Production costs applicable to sales |
|
|
|
(19,427 |
) |
|
|
|
|
(19,427 |
) | |||||
Mine construction costs |
|
|
|
(1,156 |
) |
|
|
|
|
(1,156 |
) | |||||
Mine development costs |
|
|
|
(1,723 |
) |
|
|
|
|
(1,723 |
) | |||||
Exploration costs |
|
(750 |
) |
(2,876 |
) |
(1,517 |
) |
(174 |
) |
(5,317 |
) | |||||
Impairment of mineral property interests and property and equipment |
|
(120,398 |
) |
|
|
|
|
|
|
(120,398 |
) | |||||
Income on investment in Minera Santa Cruz S.A. (net of amortization) |
|
4,591 |
|
|
|
|
|
|
|
4,591 |
| |||||
Operating loss |
|
(117,559 |
) |
(5,198 |
) |
(2,454 |
) |
(4,725 |
) |
(129,936 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
As at June 30, 2014 |
|
|
|
|
|
|
|
|
|
|
| |||||
Investment in Minera Santa Cruz S.A. |
|
210,425 |
|
|
|
|
|
|
|
210,425 |
| |||||
Mineral property interests |
|
337,805 |
|
11,341 |
|
172,738 |
|
|
|
521,884 |
| |||||
Total assets |
|
551,324 |
|
59,649 |
|
176,415 |
|
8,882 |
|
796,270 |
|
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 11 SEGMENTED INFORMATION (Continued)
|
|
|
|
|
|
|
|
Corporate |
|
|
| |||||
|
|
Argentina |
|
Mexico |
|
U.S. |
|
& Other |
|
Total |
| |||||
|
|
(in thousands) |
| |||||||||||||
For the three months ended June 30, 2013 |
|
|
|
|
|
|
|
|
|
|
| |||||
Gold and silver sales |
|
$ |
|
|
$ |
10,459 |
|
$ |
|
|
$ |
|
|
$ |
10,459 |
|
Production costs applicable to sales |
|
|
|
(8,278 |
) |
|
|
|
|
(8,278 |
) | |||||
Mine development costs |
|
|
|
(98 |
) |
|
|
|
|
(98 |
) | |||||
Exploration costs |
|
(2,017 |
) |
(1,949 |
) |
(870 |
) |
(53 |
) |
(4,889 |
) | |||||
Income on investment in Minera Santa Cruz S.A. (net of amortization) |
|
(1,551 |
) |
|
|
|
|
|
|
(1,551 |
) | |||||
Impairment of investment in MSC |
|
(95,878 |
) |
|
|
|
|
|
|
(95,878 |
) | |||||
Impairment of mineral property interests and property and equipment |
|
(27,729 |
) |
|
|
|
|
|
|
(27,729 |
) | |||||
Gain on sale of assets |
|
(326 |
) |
|
|
(6,468 |
) |
3 |
|
(6,791 |
) | |||||
Operating loss |
|
(129,703 |
) |
(970 |
) |
(6,110 |
) |
(2,871 |
) |
(139,654 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
For the six months ended June 30, 2013 |
|
|
|
|
|
|
|
|
|
|
| |||||
Gold and silver sales |
|
$ |
|
|
$ |
23,957 |
|
$ |
|
|
$ |
|
|
$ |
23,957 |
|
Production costs applicable to sales |
|
|
|
(18,871 |
) |
|
|
|
|
(18,871 |
) | |||||
Mine development costs |
|
|
|
(569 |
) |
|
|
|
|
(569 |
) | |||||
Exploration costs |
|
(13,479 |
) |
(4,434 |
) |
(1,450 |
) |
(126 |
) |
(19,489 |
) | |||||
Loss on investment in Minera Santa Cruz S.A. (net of amortization) |
|
(1,788 |
) |
|
|
|
|
|
|
(1,788 |
) | |||||
Impairment of investment in MSC |
|
(95,878 |
) |
|
|
|
|
|
|
(95,878 |
) | |||||
Impairment of mineral property interests and property and equipment |
|
(27,729 |
) |
|
|
|
|
|
|
(27,729 |
) | |||||
Gain on sale of assets |
|
(326 |
) |
|
|
(6,468 |
) |
3 |
|
(6,791 |
) | |||||
Operating loss |
|
(141,615 |
) |
(3,020 |
) |
(7,055 |
) |
(6,331 |
) |
(158,021 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
As at December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
| |||||
Investment in Minera Santa Cruz S.A. |
|
212,947 |
|
|
|
|
|
|
|
212,947 |
| |||||
Mineral property interests |
|
458,203 |
|
11,984 |
|
172,781 |
|
|
|
642,968 |
| |||||
Total assets |
|
674,269 |
|
54,131 |
|
177,248 |
|
17,418 |
|
923,066 |
|
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 12 FAIR VALUE ACCOUNTING
Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Assets and liabilities measured at fair value on a recurring basis
The following table identifies the fair value of the Companys financial assets and liabilities as reported in the Consolidated Balance Sheets at June 30, 2014 and December 31, 2013 by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
Fair Value as at June 30, 2014 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
(in thousands) |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
15,149 |
|
$ |
15,149 |
|
$ |
|
|
$ |
|
|
|
|
$ |
15,149 |
|
$ |
15,149 |
|
$ |
|
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Accounts payable and accrued liabilities |
|
$ |
1,093 |
|
$ |
1,093 |
|
$ |
|
|
$ |
|
|
|
|
$ |
1,093 |
|
$ |
1,093 |
|
$ |
|
|
$ |
|
|
|
|
Fair Value as at December 31, 2013 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
(in thousands) |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
$ |
24,321 |
|
$ |
24,321 |
|
$ |
|
|
$ |
|
|
|
|
$ |
24,321 |
|
$ |
24,321 |
|
$ |
|
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Accounts payable and accrued liabilities |
|
177 |
|
177 |
|
|
|
|
| ||||
|
|
$ |
177 |
|
$ |
177 |
|
$ |
|
|
$ |
|
|
MCEWEN MINING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2014
NOTE 12 FAIR VALUE ACCOUNTING (Continued)
The Companys cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash equivalent instruments that are valued based on quoted market prices in active markets are primarily money market securities.
As at June 30, 2014, accounts payable included an accrual of $1.1 million for the fair value of approximately 379,400 shares of common stock that are required to be issued as part of the settlement of certain amounts due by the Company to one of its vendors, as discussed in Note 6, Shareholders Equity. As the Companys stock is quoted on an active market, this liability is classified within Level 1 of the fair value hierarchy.
The fair value of other financial assets and liabilities approximate their carrying values due to their short-term nature and historically negligible credit losses.
Assets and liabilities measured at fair value on a non-recurring basis
In the second quarter of 2014, the Company recorded impairment charges related to the Los Azules Project in Argentina, as discussed in Note 3, Mineral Property Interests and Asset Retirement Obligations. The estimated fair value of the Los Azules Project was determined using the observed market value per pound of copper equivalent for recent comparable transactions.
The following table summarizes non-financial assets measured at fair value on a non-recurring basis as part of the Companys impairment assessments during the three and six months ended June 30, 2014, and for the year ended December 31, 2013.
|
|
Date of Fair Value |
|
Fair Value Measurements for the Six Months Ended June 30, 2014 |
| |||||||||||||
|
|
Measurement |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total Loss |
| |||||
|
|
|
|
(in thousands) |
| |||||||||||||
Mineral property interests |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Los Azules Copper Project |
|
June 30, 2014 |
|
310,792 |
|
|
|
|
|
310,792 |
|
120,398 |
| |||||
|
|
|
|
$ |
310,792 |
|
$ |
|
|
$ |
|
|
$ |
310,792 |
|
$ |
120,398 |
|
|
|
Date of Fair Value |
|
Fair Value Measurements for the Year Ended December 31, 2013 |
| |||||||||||||
|
|
Measurement |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total Loss |
| |||||
|
|
|
|
(in thousands) |
| |||||||||||||
Mineral property interests |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Telken Tenements |
|
June 30, 2013 |
|
$ |
26,442 |
|
$ |
|
|
$ |
|
|
$ |
26,442 |
|
$ |
13,792 |
|
Este Tenements |
|
June 30, 2013 |
|
5,337 |
|
|
|
|
|
5,337 |
|
2,784 |
| |||||
Piramides Tenements |
|
June 30, 2013 |
|
9,736 |
|
|
|
|
|
9,736 |
|
5,079 |
| |||||
Tobias Tenements |
|
June 30, 2013 |
|
11,645 |
|
|
|
|
|
11,645 |
|
6,074 |
| |||||
Limo Complex |
|
December 31, 2013 |
|
23,438 |
|
|
|
|
|
23,438 |
|
19,450 |
| |||||
Other United States Properties |
|
December 31, 2013 |
|
9,610 |
|
|
|
|
|
9,610 |
|
9,497 |
| |||||
Investment in MSC |
|
June 30, 2013 |
|
176,282 |
|
|
|
|
|
176,282 |
|
95,878 |
| |||||
|
|
|
|
$ |
262,490 |
|
$ |
|
|
$ |
|
|
$ |
262,490 |
|
$ |
152,554 |
|
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the following discussion, McEwen Mining, the Company, we, our, and us refers to McEwen Mining Inc. and as the context requires, its consolidated subsidiaries.
The following discussion updates our plan of operation as of August 6, 2014 for the foreseeable future. It also analyzes our financial condition at June 30, 2014 and compares it to our financial condition at December 31, 2013. Finally, the discussion analyzes our results of our operations for the three and six months ended June 30, 2014 and compares those results to the three and six months ended June 30, 2013. With regard to properties or projects that are not in production, we provide some details of our plan of operation. We suggest that you read this discussion in conjunction with MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS contained in our annual report on Form 10-K for the year ended December 31, 2013.
The discussion also presents certain Non-GAAP financial performance measures, such as earnings from mining operations, adjusted net loss, total cash costs, total cash cost per ounce, all-in sustaining costs, all-in sustaining cost per ounce, all-in costs, all-in cost per ounce, and average realized price per ounce, that are important to management in its evaluation of our operating results and which are used by management to compare our performance to what we perceive to be peer group mining companies and relied on as part of managements decision-making process. Management believes these measures may also be important to investors in evaluating our performance. For a detailed description of each of the Non-GAAP financial performance measures and certain limitations inherent in such measures, please see the discussion under Non-GAAP Financial Performance Measures below, beginning on page 35.
Reliability of Information: Minera Santa Cruz S.A. (MSC), the owner of the San José mine, is responsible for and has supplied to us all reported results from the San José mine. The financial and technical information contained herein is, with few exceptions as noted, based entirely on information provided to us by MSC. Our joint venture partner, a subsidiary of Hochschild Mining plc, and its affiliates other than MSC do not accept responsibility for the use of project data or the adequacy or accuracy of this information.
CAUTIONARY NOTE TO UNITED STATES INVESTORS INFORMATION CONCERNING PREPARATION OF RESOURCE AND RESERVE ESTIMATES
We are required to prepare reports under the Canadian Securities Administrators National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101), under Canadian securities laws because we are listed on the Toronto Stock Exchange (TSX) and subject to Canadian securities laws. These standards are materially different from the standards generally permitted in reports filed with the SEC.
Definitions of terms under NI 43-101 differ materially from the definitions of those and related terms in Industry Guide 7 (Guide 7) promulgated by the SEC. Under U.S. standards, mineralization may not be classified as a reserve unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Under Guide 7 standards, a Final or Bankable feasibility or other study is required to report reserves, the three-year historical average precious metals prices are used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate government authority. One consequence of these differences is that reserves calculated in accordance with Canadian standards may not be reserves under Guide 7 standards. U.S. investors should be aware that McEwen Minings properties located in Argentina (with the exception of the San José mine), Mexico and the United States do not have reserves as defined by Guide 7 and are cautioned not to assume that any part or all of the disclosed mineralized material will be confirmed or converted into Guide 7 compliant reserves.
Under NI 43-101, we report measured, indicated and inferred resources, which are measurements that are generally not permitted in filings made with the SEC. The estimation of measured and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves under Guide 7. U.S. investors are cautioned not to assume that any part of measured or indicated resources will ever be converted into economically mineable reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. It cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category. Therefore, U.S. investors are also cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically.
Canadian regulations permit the disclosure of resources in terms of contained ounces provided that the tonnes and grade for each resource are also disclosed; however, the SEC only permits issuers to report mineralized material in tonnage and average grade without reference to contained ounces. Under U.S. regulations, the tonnage and average grade described in our reports, news releases and other various publications would be characterized as mineralized material. We provide such disclosure about our properties to allow a means of comparing our projects to those of other companies in the mining industry, many of which are Canadian and report pursuant to NI 43-101, and to comply with applicable disclosure requirements.
We also note that drill results in one area are not indicative of mineralized material in other areas where we have mining interests. Furthermore, mineralized material identified on our properties does not and may never have demonstrated economic or legal viability.
Overview
McEwen Mining Inc. was organized under the laws of the State of Colorado on July 24, 1979. Since inception, the Company has been engaged in the exploration for, production of, and sale of gold and silver. Our principal assets consists of our 49% interest in the San José mine in Santa Cruz, Argentina; the El Gallo Complex in Sinaloa, Mexico; the Gold Bar Project in Nevada, United States; the Los Azules Project in San Juan, Argentina, and a large portfolio of exploration properties in Argentina, Nevada and Mexico.
In this report, Au represents gold; Ag represents silver; oz represents ounce; gpt represents grams per metric tonne; ft. represents feet; m represents meter; km represents kilometer; sq. represents square; and C$ refers to Canadian dollars. All of our financial information is reported in United States (U.S.) dollars, unless otherwise noted.
Selected Financial and Operating Results
The following table summarizes selected financial and operating results of our Company for the three and six months ended June 30, 2014 and 2013:
|
|
Three months ended June 30, |
|
Six months ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
(in thousands, unless otherwise indicated) |
| ||||||||||
Gold and silver sales |
|
$ |
11,637 |
|
$ |
10,459 |
|
$ |
22,767 |
|
$ |
23,957 |
|
(Loss) income on investment in Minera Santa Cruz S.A., net of amortization |
|
$ |
(2,438 |
) |
$ |
(1,551 |
) |
$ |
4,591 |
|
$ |
(1,788 |
) |
Earnings from mining operations (1) (3) |
|
$ |
6,639 |
|
$ |
7,833 |
|
$ |
18,017 |
|
$ |
14,843 |
|
Net loss |
|
$ |
(104,022 |
) |
$ |
(128,681 |
) |
$ |
(86,135 |
) |
$ |
(139,663 |
) |
Net loss per common share - basic and diluted |
|
$ |
(0.35 |
) |
$ |
(0.43 |
) |
$ |
(0.29 |
) |
$ |
(0.47 |
) |
Adjusted net loss (3) |
|
$ |
(8,613 |
) |
$ |
(11,735 |
) |
$ |
(14,931 |
) |
$ |
(31,197 |
) |
Adjusted net loss per common share - basic and diluted (3) |
|
$ |
(0.03 |
) |
$ |
(0.04 |
) |
$ |
(0.05 |
) |
$ |
(0.11 |
) |
Consolidated gold ounces (1): |
|
|
|
|
|
|
|
|
| ||||
Produced |
|
19 |
|
21 |
|
39 |
|
38 |
| ||||
Sold |
|
19 |
|
24 |
|
39 |
|
38 |
| ||||
Consolidated silver ounces (1): |
|
|
|
|
|
|
|
|
| ||||
Produced |
|
740 |
|
778 |
|
1,465 |
|
1,446 |
| ||||
Sold |
|
747 |
|
982 |
|
1,480 |
|
1,425 |
| ||||
Consolidated gold equivalent ounces (1) (2): |
|
|
|
|
|
|
|
|
| ||||
Produced |
|
31 |
|
36 |
|
63 |
|
66 |
| ||||
Sold |
|
32 |
|
42 |
|
63 |
|
65 |
| ||||
Consolidated average realized price ($/ounce) (1) (3): |
|
|
|
|
|
|
|
|
| ||||
Gold |
|
$ |
1,278 |
|
$ |
1,211 |
|
$ |
1,299 |
|
$ |
1,357 |
|
Silver |
|
$ |
19.30 |
|
$ |
17.76 |
|
$ |
19.72 |
|
$ |
21.25 |
|
Consolidated costs per gold equivalent ounce sold ($/ounce) (1) (2): |
|
|
|
|
|
|
|
|
| ||||
Total cash costs (3) |
|
$ |
840 |
|
$ |
744 |
|
$ |
815 |
|
$ |
817 |
|
All-in sustaining costs (3) (4) |
|
$ |
1,283 |
|
$ |
1,111 |
|
$ |
1,191 |
|
$ |
1,300 |
|
All-in costs (3) |
|
$ |
1,444 |
|
$ |
1,202 |
|
$ |
1,378 |
|
$ |
1,630 |
|
Silver : gold ratio (2) |
|
60 : 1 |
|
52 : 1 |
|
60 : 1 |
|
52 : 1 |
|
1. Includes portion attributable to us from our 49% interest in the San José mine.
2. Gold equivalent ounces and costs per gold equivalent ounce for 2014 are calculated using an average silver to gold ratio of 60:1. Prior to 2014, the silver to gold ratio was 52:1.
3. Earnings from mining operations, adjusted net loss, total cash costs, all-in sustaining costs, all-in costs, and average realized prices are non-GAAP financial performance measures with no standardized definition under U.S. GAAP. See Non-GAAP Financial Performance Measures beginning on page 35 for additional information, including definitions of these terms.
4. In the fourth quarter of 2013, the Company revised its allocation of exploration expenses to all-in sustaining costs. Prior period figures have been adjusted to conform to the current methodology.
Operating and Financial Highlights
· Gold equivalent production in the second quarter of 2014 totaled 31,200 ounces, which includes 23,033 gold equivalent ounces attributable to us from our 49% interest in the San José mine in Argentina, and 8,167 gold equivalent ounces from the El Gallo 1 mine in Mexico.
· Total cash costs, all-in sustaining costs and all-in costs for the second quarter of 2014 for all of our operations on a consolidated basis totaled $840, $1,283 and $1,444 per gold equivalent ounce, respectively. Total cash costs and all-in sustaining costs at the San José mine for the second quarter of 2014 totaled $836 and $1,165 per gold equivalent ounce, respectively. Total cash costs and all-in sustaining cash costs at our El Gallo 1 mine totaled $852 and $1,257 per gold equivalent ounce, respectively.
· Gold equivalent ounces sold in the second quarter of 2014 totaled 31,634 ounces, which includes 22,610 gold equivalent ounces attributable to us from our 49% interest in the San José mine, and 9,024 gold equivalent ounces from El Gallo 1.
· The average realized price for all of our operations on a consolidated basis in the second quarter of 2014 was $1,278 and $19.30 per ounce of gold and silver sold, respectively.
· We reported consolidated net loss of $104.0 million, or $0.35 per share for the second quarter of 2014, compared to $128.7 million, or $0.43 per share for the comparable period in 2013. The net loss for the 2014 period is due in large part to a pre-tax impairment charge of $120.4 million related to the Los Azules Project. We conduct a review of potential triggering events for all our mineral projects on a quarterly basis. When events or changes in circumstances indicate that the related carrying amounts may not be recoverable, we carry out a review and evaluation of our long-lived assets for impairment, in accordance with our accounting policy. Such a triggering event was identified in the second quarter of 2014 with respect to the Los Azules Project. The triggering event identified was a recently announced acquisition of a copper project located in Argentina, which shares similarities with the Los Azules Project due to its scale, location, and stage of development. Based on the announcement day value of the similar project, the estimated market value per pound of copper equivalent mineralized material from this transaction was below the carrying value per pound of copper equivalent mineralized material of the Los Azules Project, indicating a potential significant decrease in the market price of the Los Azules Project and therefore a requirement to test the Los Azules Project for recoverability. Based on the results of this impairment assessment, carried out by a third-party valuation firm, we concluded that the carrying value of the property exceeded its estimated fair value, resulting in an impairment charge of $120.4 million, along with a resulting deferred income tax recovery of $22.5 million.
· Removing the impact of the impairment on the Los Azules Project, net of related deferred income taxes, as well as the impact of foreign exchange fluctuations, the adjusted net loss for the quarter ended June 30, 2014 was $8.6 million, compared to $11.7 million for the comparable period in 2013.
· Earnings from mining operations for the quarter ended June 30, 2014 were $6.6 million, compared to $7.8 million for the comparable period in 2013.
· We ended the quarter with $16.6 million in cash and precious metals and no bank debt.
Development and Exploration Activities
El Gallo, Sinaloa, Mexico
El Gallo 1
We completed the construction of the expansion of El Gallo 1 in order to increase capacity from a nominal 3,000 tonnes per day to 4,500 tonnes per day in April 2014. Commissioning has commenced, with the expansion expected to be fully operational during the fourth quarter of 2014. For the three and six months ended June 30, 2014, we spent $0.2 million and $1.2 million on the expansion, respectively, for a total of $2.5 million spent to that date on the expansion.
El Gallo 2
A final decision to proceed with the construction of El Gallo 2 has not been made. Any decision to proceed would be based on silver price expectations and securing financing on terms that are more favorable than those that were available to us at the time of filing this report. In order to prepare for a possible construction decision later this year, we have been evaluating possible debt financing alternatives and advancing the construction of the ball mill, which is the longest lead time item associated with the mine. The ball mill is 75% complete and would be ready for delivery in the fourth quarter of 2014. We disbursed an additional $1.4 million for the ball mill in the second quarter of 2014, and expect to disburse an additional $1.0 million for the ball mill in the third quarter of 2014.
For the three and six months ended June 30, 2014, we spent $0.2 million and $1.7 million, respectively, on mine development costs, which includes $1.4 million for the Land Use Change permit in January 2014.
One of the two additional permits associated with El Gallo 2 was submitted in the second quarter of 2014. This permit would allow the mining of a satellite deposit, Palmarito. This deposit represents approximately 15% of the projected annual silver production at El Gallo 2. We expect a decision on this permit in the fourth quarter of 2014. The second and final permit is for a right-of-way that will connect the El Gallo 2 operation to the Mexican power grid, and is expected to be submitted in the third quarter of 2014. However, construction of the mine could begin with power provided by generators with the option of later connecting to the grid. Neither the Palmarito or the power line right-of-way permit will prevent construction from proceeding.
Based on on-going cost savings studies, we believe approximately $150 million in financing would be required in order to complete the mine. The El Gallo 2 feasibility study has not been updated to reflect these possible changes.
Exploration
El Gallo, Sinaloa, Mexico
Currently, one core drill is operating in the El Gallo 1 region. A first phase of drilling was completed on a target in the immediate El Gallo 1 mine area called Veta Nueva with the goal of expanding the existing resource. In addition, infill and extensional drilling is taking place at San Jose del Alamo, a satellite deposit located about 14 km north of El Gallo 1. Future plans include additional drilling at Twin Domes, another satellite deposit located 11 miles (17 km) west of El Gallo 1.
Gold Bar Project, Nevada, U.S.
Gold Bar is located primarily on public lands managed by the BLM. We submitted our Plan of Operations (POO) permit application during the fourth quarter of 2013. The POO was determined complete and the BLM has determined that an Environmental Impact Statement (EIS) is necessary to fulfill the requirements under the National Environmental Policy Act (NEPA). Upon completion of the EIS, the BLM will be able to proceed with the approval determination of the POO.
A Request for Proposal has been issued to select a third-party contractor to assist the BLM in the preparation of an EIS for the Gold Bar project. Final permit approval is scheduled for first quarter of 2016.
Expenditures for the remainder of 2014 are expected to be approximately $0.8 million.
South Roberts Project, Nevada, U.S.
During the first quarter of 2014, we entered into a Joint Venture Agreement (JVA) with partner, Kinetic Gold Inc. (Kinetic) for the South Roberts project in Nevada. South Roberts is located in the Cortez trend 10 miles (16 km) south-east of the Gold Bar deposit and has never been drilled. Recent and historical geochemical work had identified a number of potential near surface targets. Drilling has begun on this project. Pursuant to our obligations under the JVA, we completed a four-hole drill program in the second quarter totaling 4,560 ft. (1,390 m) of reverse-circulation drilling with no significant results. We will continue to evaluate this property and are planning additional exploration work in the third quarter at an estimated cost of approximately $0.4 million.
Los Azules Copper Project, Argentina
The 2013-2014 exploration season started in December 2013 and was completed in March 2014. We completed baseline studies regarding flora, fauna, water quality and glaciers. No significant exploration work was conducted during this 2013-2014 season. Expenditures for the remainder of 2014 for the Los Azules Project are budgeted to be approximately $0.7 million.
Santa Cruz Exploration, Argentina
We are continuing with our review of our 100% owned properties in the province of Santa Cruz, Argentina with sampling and mapping taking place. We do not expect to complete any significant drilling in 2014. Expenditures for the remainder of 2014 for the Santa Cruz properties are budgeted to be approximately $0.1 million.
Results of Operations MSC (on a 100% basis)
Overview
The following discussion relates only to MSC and is disclosed on a 100% basis, of which we indirectly own 49%. We account for our investment in MSC using the equity method. MSC, the entity which owns and operates the San José mine, is responsible for and has supplied to us all reported results and operational updates from the San José mine.
The following table sets out production totals, sales totals, total cash costs and all-in sustaining costs (on a co-product and gold equivalent basis) for the San José mine for the three and six month periods ended June 30, 2014 and 2013. Also included below are the production figures on a 49% attributable basis.
San José Mine Operating Results (100%)
|
|
Three months ended June 30, |
|
Six months ended June 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
(in thousands, unless otherwise indicated) |
| ||||||||||
San José Mine - 100% |
|
|
|
|
|
|
|
|
| ||||
Tonnes of ore mined |
|
136 |
|
144 |
|
241 |
|
252 |
| ||||
Average grade (gpt): |
|
|
|
|
|
|
|
|
| ||||
Gold |
|
5.92 |
|
6.33 |
|
6.26 |
|
6.20 |
| ||||
Silver |
|
425 |
|
459 |
|
434 |
|
451 |
| ||||
Tonnes of ore processed |
|
142 |
|
141 |
|
277 |
|
249 |
| ||||
Average grade (gpt): |
|
|
|
|
|
|
|
|
| ||||
Gold |
|
5.48 |
|
6.34 |
|
5.60 |
|
6.57 |
| ||||
Silver |
|
378 |
|
407 |
|
385 |
|
430 |
| ||||
Average recovery (%): |
|
|
|
|
|
|
|
|
| ||||
Gold |
|
87.6 |
|
89.3 |
|
88.1 |
|
88.7 |
| ||||
Silver |
|
87.1 |
|
85.5 |
|
87.0 |
|
85.0 |
| ||||
Gold ounces: |
|
|
|
|