Los Azules Feasibility And Fox Complex Expansion Aim To Unlock Future Value

Key Takeaways

• Exploration and project developments at Los Azules and Fox Complex are poised to significantly boost future revenue and earnings.
  
• Strategic acquisitions and market conditions could enhance cash flow and margins through sustained and increased resource production.
  
• Financial strain due to project expenditures, debt increase, legal risks, and project delays could impact earnings and future revenue for McEwen Mining.

Catalysts

Engages in the exploration, development, production, and sale of gold and silver deposits in the United States, Canada, Mexico, and Argentina.

• The completion of the feasibility study for the Los Azules copper project by June 2025, and the potential IPO, are expected to unlock significant value, potentially increasing future revenue by capitalizing on positive copper market sentiment.
  
• Exploration at the Fox Complex has increased indicated and inferred resources to over 2 million ounces, allowing for potential production growth from 60,000 ounces in 2027 to 130,000-150,000 ounces, likely boosting future revenue and earnings.
  
• The purchase of Timberline Resources and promising exploration results could extend mine life at Gold Bar, potentially stabilizing or increasing future revenue through prolonged production.
  
• The anticipated dividends from the San Jose mine, due to higher metal prices, could improve cash flow and net margins by providing an additional income stream.
  
• The planned increase in production to take advantage of gold prices above $3,000 per ounce is expected to enhance cash flow and boost net earnings through increased operational leverage.

McEwen Mining Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming McEwen Mining's revenue will grow by 2.2% annually over the next 3 years.
• Analysts are not forecasting that McEwen Mining will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate McEwen Mining's profit margin will increase from -25.0% to the average CA Metals and Mining industry of 7.7% in 3 years.
• If McEwen Mining's profit margin were to converge on the industry average, you could expect earnings to reach $14.3 million (and earnings per share of $0.22) by about April 2028, up from $-43.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 83.1x on those 2028 earnings, up from -10.3x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 21.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

McEwen Mining Future Earnings Per Share Growth

Risks

• The net loss of $43.7 million for the year, primarily due to expenditures on the Los Azules project, indicates financial strain, which could negatively impact earnings.
  
• Increased debt from $40 million to $130 million through a convertible debenture could pressure net margins if not managed properly.
  
• The legal claim from an indigenous group concerning property in Timmins presents a risk that could lead to unexpected expenses or delays, impacting revenue.
  
• The permitting challenges and lengthy timelines associated with certain projects, like the Timberline and Mexico operations, could delay production increases and therefore, affect future revenues.
  
• Capital requirements for the Los Azules project are substantial, and any issues with market sentiment or financing conditions could adversely affect the project's value contribution to McEwen's earnings.

Valuation

• The analysts have a consensus price target of $14.562 for McEwen Mining based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $18.0, and the most bearish reporting a price target of just $12.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $186.1 million, earnings will come to $14.3 million, and it would be trading on a PE ratio of 83.1x, assuming you use a discount rate of 7.4%.
• Given the current share price of $8.33, the analyst price target of $14.56 is 42.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.