IKN Flash UpdatePremium

McEwen Mining (MUX) (MUX.to) 4q14 Results overview
An IKN Weekly extra update report
March 9th 2015
McEwen Mining (MUX) filed its 4q14 and year-end results this Monday evening.
http://finance.yahoo.com/news/mcewen-mining-2014-operating-financial-221257909.html
Here are a few comments about the numbers. It’s probably worth your time (especially if you’re
long like me) to compare this update note to the NOBS analysis report in IKN298, in order to
see the differences between previous assumptions (aka guesses) and the cold, hard reality.
There are six subjects I’d like to cover from tonight’s MUX numbers, all briefly:
1) Big write downs/impairments, which made for a heavy net loss on the bottom line
2) Backing out the impairments MUX made an operating loss on the quarter, therefore my
prediction of its first operating profit quarter was incorrect. However it was still an OK
quarter once you dig on the numbers.
3) San José in Argentina (49% MUX) underperformed. Again. That’s the main reason it
missed.
4) El Gallo in Mexico (100% MUX) posted good numbers. This is the main positive to take
into 2015.
5) Guidance for 2015 that’s in-line with previous expectations. Costs good.
6) A reasonably healthy looking balance sheet position, with the good things outweighing
the weak points.
Overall MUX shows an acceptable financial position and along with its 2015
guidance, particularly the promise now showing through at El Gallo, I’m fine about
holding my newly-outsized position at the current share price and expect it will rally
from here. Here come a few charts.
Impairments/write downs: MUX took charges against all its main fixed assets, with another
chunk sliced off the carrying value of the Los Azules copper project, write-downs and write-offs
of its operating and exploration/development properties, plus an impairment taken on its 49%
holding in San José (aka Minera Santa Cruz). The chart left shows the total impairments for the
quarter compared to previous non-cash charges taken:
MUX: Writedowns/impairments on fixed assets, $m MUX: Carrying value of Los Azules, at end year
U$m 2013-2014 500
431.19 431.19
250
225 Los Azules 400
200 MUX PM mining assets
175 San José 300
150
202.889
125 200
100
75
100
50
25
0
0
2q13 3q13 4q13 1q14 2q14 3q14 4q14 2012 2013 2014
source: company filings source: MUX filings
The second chart (right) shows how Los Azules’ asset value has been cut to under $203m in
2014, less than half its carry from this time last year. Frankly, it could be cut further and I
wouldn’t bat an eyelid (I currently value Los Azules in my model at zero).
The impression given by these hefty impairments is of a company cleaning its books in
definitive manner. It also saw long-term tax liabilities drop due to this move, which offsets
some of the loss to book value.

Price/book ratio tonight stands at an IKN calculated 0.69X. That’s at the low end of its typical
range and that’s after taking cuts, so the more realistic aspect to its assets now should help it
move back up.
MUX: Price/Book Value ratio, per quarter end share
price and filings
1.50
1.25
1.00
0.75
0.50
0.25
0.00
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 WON
P/BV
source: NYSE, Company, IKN calcs
Operating loss: The chart left backs out the effect of the impairments above to show the
consolidated operating performance of MUX. This is the chart that I wanted to see in positive
territory for the first time, but that was not to be. The chart right is the same data on a per-
share basis (showing 2012 numbers as well):
This was disappointing to see the op-loss when I opened the NR and did a first scan of the
numbers, but as the underlying reasons made it easier to swallow. Below explains why.
San José in Argentina: This is the part the sucked the most, with the 49% owned
(Hochschild 51% owners and operators) failing to live up to my reasonable (well I thought they
were) expectations. Two main reasons for this, therefore just two charts this evening.
San José (100%): Reported sales, per quarter
120 116.30
110
100
90
77.95
80
68.50 69.70
70 64.63
60 59.76 56.38 58.69 56.90 53.20
50 43.80
38.30
40
30
20
10
0
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
MUX: op. Profit minus impairments
0
-5
-10
-15
-20
U$m
source: HOC/MUX filings, IKN ests (MUX 49% attributable)
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
$m MUX: operating earnings per share
0.02 (impairments backed out)
0.00
-0.02
-0.04
-0.06
-0.08
-0.10
-0.12
source: company filings, IKN ests
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
cents
source: company financials/IKN ests

Sales (on a 100% basis, remember MUX gets its 49% cut after these figures) came in at
$64.63m, some $4m lower than my best guess. We knew the production numbers as they were
pre-announced. The main reason for the lower sales revenues this was a poor average realized
price for silver, with San José selling its Ag at U$15.49/oz in Q4, plenty lower than my estimate.
I have no idea why it was this low. The other side of the margin coin was bad, too.
San José (100%): Total cash cost and all-in cash cost, qtr
90
80
70
60
50
40
30
20
10
0
21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
U$m
tot cash cost
All-In cash cost
source: HOC/MUX filings. IKN ests (MUX 49% attributable)
Total cash costs at $46.86m was some $9m higher than my best guess. All-In cash cost at
$67.77m was $16m higher than my best guess. For what it’s worth, estimating the All-In cost
number at San José is always a bit hit and miss, but the total cost $9m higher than what I
thought was a reasonable assumption and looks steep indeed.
The bottom line at San José: Costs were high, revenues lower than they should have been. Not
a good combo.
El Gallo: This was a better set of figures. I had revenues from this operation slated at $16.4m
and revenues turned out to be $13.683. That’s a $2.7m “miss” but as MUX sold 2,200 ounces
less gold than they produced (as well has holding back on 5,400 oz Ag) that explains $2.67m of
the difference and I can live with $30k here or there (and semi-on-topic, inventories are up
$3.2m since last quarter).
MUX: El Gallo 1, gold production and sales, per quarter
16
14
12
10
8
6
4
2
0
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4 tse51q1 tse51q2 tse51q3 tse51q4
Koz Au
Au prod
Au sold
source: company filings, IKN ests
So sales were lower, but the good thing is that costs were lower than expected too. Total cash
cost at $8.11m was $1.4m lower than my model. All-In cash cost at $10.62m was also $1.4m
lower than my model. It looks like MUX operated mines are doing a better job of cost control
than HOC.L operated mines.

MUX: Sales versus cash costs
(total and all-in cash costs included)
16
14
12
10
8
6
4
2
0
The difference between reported sales and All-In costs of $3.06m is basically your net cash flow
here, and that’s without selling those extra 2.2k oz Au that will carry to this quarter. Bottom
line: 4q14 showed that MUX can run El Gallo at a decent profit, so with 2015 promising the
same sort of cash cost scenario, this mine has seen its turnaround just fine.
Guidance for 2015: Rather than blather, I’ll copy in the relevant section from thr MD&A:
Production guidance is as expected and modelled. Clearly, cost guidance is shifted upwards by
the all-in guidance for San José, but El Gallo looks good at $800/oz top end.
What we’ll look for in a reasonable case is San José managing to break even in 2015, which will
leave El Gallo to be the profit generator for the company. Assuming gold averages $1,200/oz
this year the easymath is 50k oz X $400/oz margin = $20m operating profit, or 6.7c/share.
That’s not a king’s ransom for a $1 stock but it will show the world MUX is profitable at the
current price deck and in the end that’s why I’m long, for the turnaround story. Another
$100/oz on the price of gold adds 1.7c/share as well as making San José clearly profitable
(rather than breakeven best).
Balance sheet: Several items to point to, because this is why I’m long (and so should you be).
The overall assets chart shows how those impairments have eaten chunks out of the fixed asset
carrying value at MUX.
31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
U$m
reported sales
tot cash cost
All-In cash cost
source: company filings, IKN calcs

MUX: Assets overview
1400
1200
1000
800
600
400
200
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
$m
current
total fixed
source: company filings, IKN ests
On the other hand, the lighter long-term tax liability as a result of those write-down means debt
looks better already:
MUX: Debt Breakdown per qtr
350
300
250
200
150
100
50
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
source: company filings
srallod
fo
snoillim
A/Cs payable
LT debt
other current debt
We’ve already seen the book value per share chart (0.69X), which shows there’s plenty of
upside potential even after MUX cut deeply at the over-valued assets (of which I approve, by
the way). However in the current liabilities accounts payable have crept up to $21.7m. That’s a
little too high for my taste (it may be connected to bottlenecks at San José and the “fun” of
doing business in Argentina) and it’s eating into the working capital position.
For current assets, Cash at $12.4m is some $3.6m lighter than I’d modelled, but then again
inventories at $12.2m (which includes that unsold bullion) are higher by $4.4m. That’s a wash.
In tonight’s NR MUX reported cash+inventory at $22m as at March 6th at $22m, which is $1m
less than at December 31st. That’s OK too.
MUX: Current Assets
100
80
60
40
20
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
$m other current
inventories
IVA tax receivable
cash
source: company filings
Working cap at $15.6m is lower than I’d like and we’re not going to see the bounce back to
$30m+ I’d modelled by the end of the year (I’m tempering my expectations for San José)

80 MUX: Working Capital per qtr
70
60
50
40
30
20
10
0
11q4 21q1 21q2 21q3 21q4 31q1 31q2 31q3 31q4 41q1 41q2 41q3 41q4
source company filings/IKN ests
srallod
fo
snoillim
Bottom line to tonight’s numbers from MUX: The overall operating loss was disappointing,
the impairments were hefty (and that net loss number will stick in the eye of people who only
ever scan bottom line numbers for their investment ideas). San José continues to underperform
as an asset and unless gold improves, it’s break-even at best this year.
BUT, El Gallo was good and promises to be a strong mine operationally in 2015, plus the
balance sheet looks strong enough these days (far stronger than many juniors in the same
price bracket and in the medium to long term, taking the big hit impairments this quarter
makes a lot of sense as MUX will now look leaner and meaner to all.
At its current U$1.01 share price, downside is minimal (and I’d dare say virtually zero), upside
potential is strong and will get stronger with every $50 added to the price of gold. I bought last
week and added at just over a buck, if tomorrow brings early day sellers it may go under the
one dollar barrier. If it does it’s a a steal. If gold re-takes U$1,200/oz, seeing this at U$1.50
soon wouldn’t surprise me in the slightest.
MUX holds its ConfCall post-close tomorrow.