Los Azules Progress And Production Targets Will Support A Fairly Valued Outlook

Catalysts

About McEwen

McEwen is a precious and base metals producer focused on gold, silver and copper assets across the Americas.

What are the underlying business or industry changes driving this perspective?

• Although the company is targeting annual gold equivalent production of 250,000 to 300,000 ounces by 2030, execution risk around projects like Grey Fox, Tartan and Nevada satellite deposits could lead to slower volume growth than planned. This could cap potential revenue expansion and delay operating leverage on fixed costs.
• While the Los Azules copper project benefits from regulatory initiatives such as Argentina's RIGI regime and recent export duty reductions, any future changes in government policy or permitting timelines could alter expected project economics and push out cash flow. This would affect longer term earnings visibility.
• Despite the scale of Los Azules and the broader demand for copper in the energy transition, higher than anticipated capital intensity and global cost inflation for mine development and infrastructure could pressure project returns and limit future free cash flow margin if not offset by cost optimizations.
• Although recent exploration spending of US$51 million and encouraging drill results at assets like Froome West and the Tartan Shear Zone support resource growth, the dependence on continued exploration success to extend mine lives introduces uncertainty around sustaining production and maintaining net margins beyond current plans.
• While existing infrastructure and permits at assets such as Tartan, Fox and Nevada projects offer potential for phased, smaller scale restarts and expansions, any delays in dewatering, rehabilitation or permitting could shift capital spending into later periods. This could flatten near term revenue growth and limit earnings acceleration.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on McEwen compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming McEwen's revenue will grow by 49.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 31.4% today to 72.5% in 3 years time.
• The bearish analysts expect earnings to reach $566.9 million (and earnings per share of $3.61) by about July 2029, up from $74.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 4.9x on those 2029 earnings, down from 14.1x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 21.5x.
• The bearish 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 8.56%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Large scale exploration programs at Froome West, the Fox Complex, Nevada and Tartan could lead to materially higher reserves and extended mine lives, which would support higher long term production volumes and potentially lift revenue, earnings and net margins if those ounces are brought into production at competitive costs.
• The Los Azules copper project is progressing toward a definitive feasibility study with regulatory support such as the RIGI regime and a move to 0% export duty for copper in Argentina, and if that translates into an attractive construction decision and eventual production, the added copper exposure could meaningfully change the company’s earnings mix and overall revenue base.
• Management is targeting a doubling of annual gold and silver production to 250,000 to 300,000 gold equivalent ounces by 2030, and if projects like Grey Fox, Tartan, Nevada satellites and a longer life at Froome achieve or exceed these production goals, the higher throughput could improve operating leverage, which would support higher earnings and stronger net margins.
• The company currently reports adjusted EBITDA of US$17.3 million and holds around US$70 million of cash and marketable securities, and if planned inventory drawdowns, capital discipline and incremental production from existing assets translate into growing operating cash flow, this could strengthen the balance sheet and support higher valuations through improved earnings and more resilient net margins.
• Management is actively pursuing projects in mining friendly jurisdictions like Manitoba and Nevada, engaging with local communities and regulators, and if permitting and approvals for assets such as Tartan, Grey Fox and Nevada projects proceed more smoothly and quickly than expected, faster project ramp ups could bring forward revenue contributions and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for McEwen is $29.5, which represents up to two standard deviations below the consensus price target of $32.1. This valuation is based on what can be assumed as the expectations of McEwen's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $29.5.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $781.4 million, earnings will come to $566.9 million, and it would be trading on a PE ratio of 4.9x, assuming you use a discount rate of 8.6%.
• Given the current share price of $17.51, the analyst price target of $29.5 is 40.6% 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.