McEwen Mining (TSX: MUX; NYSE: MUX) posted a net loss of US$99.2 million, or US25 ? per share, for the quarter ended March 31, primarily due to a US$83.8 million impairment charge for its Gold Bar mine in Nevada.
The company says the write-down was necessary because a change in the geological interpretation resulted in a substantial reduction in the expected gold production over the life of the mine. Prior to the impairment adjustment, net loss totalled US$15.4 million.
The miner said that it started experiencing poor reconciliation with the 2018 reserve estimate when the mine transitioned from the Cabin Creek to the upper benches of the Gold Pick West orebody at the end of 2019.
"Our mining returned lower ore tonnes, gold grade and contained ounces compared to the block model. This is interpreted to occur because of greater structural control and less bedding control of the mineralization than was previously modelled by our external consultant SRK Consulting in the 2018 feasibility study and 2018 reserve estimate," McEwen said in a press release.
A revaluation of the resource estimate is underway, with a drilling program initiated in late March, which is extending into the second quarter of 2020. The company says preliminary plans indicate a likely 25% to 35% reduction in contained ounces at the Gold Pick deposit relative to the 2018 reserve estimate.
Mining operations at Gold Bar were suspended on April 1, due to concerns related to COVID-19, but activities have recently ramped up with limited mining and stockpile processing. The company said it is evaluating the next stages to resume normal operating capacity.
During the first quarter, the Gold Bar mine produced 9,100 oz. gold-equivalent, surpassing the Black Fox mine in Ontario, which produced 8,300 oz. gold-equivalent. Meanwhile, the San Jos?(C) mine in Argentina, jointly owned with Hochschild Mining (LSE: HOC), had 14,900 oz. gold-equivalent of attributed production.
Mike Kozak, an analyst covering McEwen Mining at Cantor Fitzgerald, reduced his target price on the company from $3.00 to $2.40 per share. "The same issues that plagued Gold Bar throughout 2019 have impacted the first-quarter results, indicating deeper structural issues that the company needs to address," Kozak wrote in a research note to clients. "As a result of the increased uncertainty and reduced reserves, we have reduced the expected mine life and increased our discount rate on Gold Bar to 7.5%, up from 5.0% previously. This resulted in a decrease in the NPV to $177 million, down from $292 million previously."
Bhakti Pavani, an analyst at AllianceGlobalPartners, maintained her buy rating on the company and her price target of $2.10 per share. "The impairment charge of $83.8 million, which is calculated using a discounted cash flow technique assuming a long-term gold price of $1,430/oz. gold and a 9% discount rate seems high, in our view, especially given the current metal prices," Pavani wrote in a note to clients. "That said, we believe the impairment at Gold Bar is behind MUX and that the experience gained over the last three quarters of commercial production, along with an updated mineral resource estimate, should help revise the mine plan and operations in the future."
Pavani also noted that while there is "some uncertainty surrounding the company's liquidity and debt obligations in 2H20, we believe MUX should be able to refinance the debt and extend the terms of repayment over the next few months."
Shares of McEwen Mining dropped 6.7% at Tuesday's market open and at press time in Toronto was trading at $1.19 within a 52-week range of 76 ? and $2.84 per share.
The company has 400 million common shares outstanding for a $476.5-million market capitalization.
- An earlier version of this story first appeared on our sister publication, MINING.com.