McEwen Mining Stock: Going Back To Life (NYSE:MUX)

Introduction

The Toronto-based McEwen Mining (NYSE:MUX) released its third-quarter 2022 results on November 7, 2022. Also, on November 28, 2022, McEwen reported that the ongoing exploration program had identified four new gold veins in the Grey Fox area within the Fox Complex.

Finally, 2022 guidance was revised in 3Q22:

Revised guidance for 2022 production is 134,600-141,800 GEOs, reflecting a decrease of approximately 6,500 GEOs at Fox and 14,000 GEOs at Gold Bar due to carbonaceous material encountered throughout 2022, which should be alleviated with Gold Bar South beginning production, and an adjustment due to the gold:silver price ratio.

This article aims to look at the company’s recent history, including the third quarter earnings, and find a way to invest profitably in this company through fundamental and technical analysis. All charts in this article give several years of history.

Note: This article is an update of my article published on July 25, 2022. I have followed MUX on Seeking Alpha since July 2021.

Also, I will be using the most recent presentation published in November 2022.

1 – 3Q22 Results Snapshot

McEwen Mining counts three gold and silver producing mines and one development Project in Mexico.

McEwen Mining came out with a third-quarter loss of $10.53 million or $0.21 per diluted share compared to a loss of $17.40 million or $0.38 per share in 3Q21. The net loss included $7.8 million invested in exploration and advancing the Los Azules project.

Revenues were $25.99 million, down from $37.13 million in 3Q21 and down 15.2% sequentially. Finally, the 3Q22 generic free cash flow from operations was a loss of $15.09 million.

CEO Rob McEwen said in the conference call:

During Q3, we addressed a number of the overhanging concerns about McEwen Mining. First, the financing of McEwen Copper. We completed an $82 million financing in a really tough market. Not only did we complete it, but we have the second largest mining company in the world becoming a shareholder through its subsidiaries.

2 – Investment Thesis

McEwen Mining had been struggling in 2022, and it is realistic to look at the stock as mainly a trading tool.

However, despite a weak balance sheet, I see some great potential in 2023. Unfortunately, the free cash flow recurring loss and dismal AISC darken the picture a lot.

CEO Rob McEwen admitted that the company was financially struggling even though progress had been made during the third quarter. The company owns a subsidiary called McEwen Copper. On August 31, 2022, McEwen indicated that it owns 68.13%. In the 10-Q:

On August 31, 2022, the Company announced that McEwen Copper had closed its third and final tranche of the Series B private placement offering under which McEwen Copper issued 2,685,000 additional common shares at a price of $10.00 per share for gross proceeds of $26.9 million. As a result of the common shares issued, the Company’s 76.09% ownership in McEwen Copper was reduced by 7.96% to 68.13%.

The company said that closing the $81.85 million financing was a critical step to fund activities necessary to complete an updated PEA (Preliminary Economic Assessment) for the Los Azules project.

Reminder: The company has been forced to declare a 1 for 10 reverse split to stay listed on the NYSE. The reverse split 1:10 was effective starting Tuesday, July 26, 2022.

Thus, it is prudent to trade short-term the stock here and keep only a tiny core position long-term.

3 – Stock Performance

MUX is down 26% after a long slide that started around November 2021 and bottomed out in November 2022. MUX has significantly underperformed the VanEck Gold Miners (GDX).

MUX – Financial Snapshot History ending 3Q22: The Raw Numbers

Note: Numbers are indicated in US$.

MUX	3Q21	4Q21	1Q22	2Q22	3Q22
Total Revenues $ million	37.13	34.97	25.54	30.65	25.99
Quarterly Earnings in $ million	-17.40	-20.86	-19.33	-12.45	-10.53
EBITDA $ million	-10.77	-12.56	-16.63	-6.88	-4.58
EPS (diluted) $ Per Share	-0.38	-0.41	-0.40	-0.26	-0.21
Operating Cash Flow $ million	-11.00	-1.15	-15.62	-28.74	-6.20
CapEx in $	8.11	6.41	4.05	4.21	8.89
Free Cash Flow	-19.11	-7.55	-19.67	-32.94	-15.09
Total Cash in $ million	64.94	56.09	66.21	46.42	56.31
Total LT Debt in $ million	46.68	48.87	63.55	63.69	63.83
Shares Outstanding (diluted)	45.92	45.93	46.40	47.43	50.78
Gold and Silver Production	3Q21	4Q21	1Q22	2Q22	3Q22
Quarterly Gold Equivalent Oz GEOs	42,860	40,150	25,170	36,100	35,653
Quarterly Au Production Oz	32,100	31,300	20,850	27,600	26,200
Quarterly Silver production Oz	792,000	682,700	336.500	704.600	853.000

Click to enlarge

Source: Company release 10-Q filing

McEwen Mining – Gold Production and Balance Sheet Details

1 – Revenues and Trends. Revenues were $25.99 million in 3Q22

2 – Free cash flow was a loss of 15.09 million in 3Q22

Trailing 12-month free cash flow ttm was a loss of $75.25 million, and the free cash flow for the third quarter was a loss of $15.09 million.

CapEx for McEwen copper and other mines has been relatively high and affects the free cash flow.

3 – Debt situation and the Los Azules copper project

4.1 – Production in GEOs

4.2 – Production details per mine:

4.3 – All-in Sustaining costs – AISC and gold price received for 3Q22

5 – 2022 Guidance (revised down this quarter)

The company expects production of 134.6K to 141.8K GEOs (forecast of 135.7K GEOs in December), down from the preceding 153K to 172K GEOs in 2022.

However, on December 21, 2022, the company indicated that operations are performing better in 4Q22 and added 2023 guidance of 150K-170K GEOs.

Technical Analysis (short term) and Commentary

MUX forms an ascending wedge pattern with resistance at $7.25 and ascending support at $5.75. The stock has jumped significantly since the company announced a reverse split to stay compliant with its NYSE listing.

Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices.

I suggest selling LIFO about 75% of your position between $7.15 and $7.3 with higher resistance at $7.75 and accumulating on any weakness between $5.8 and $5.15 with possible lower support at $4.90. The RSI is now 68 and signals an overbought situation which confirms the potential selling level.

The strategy buy-sell-rinse-repeat is the best path for this stock.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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