Copper Decree And Project Pipeline Will Transform Long Term Precious Metals Production Narrative

Catalysts

About McEwen

McEwen is a precious metals and copper producer with operating mines and development projects in the Americas.

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

• Ongoing exploration spend of US$51 million over the past 2.5 years, with high grade results at Froome West and multiple new copper targets at Los Azules, supports the goal of doubling gold equivalent production to 250,000 to 300,000 ounces by 2030. This primarily influences long term revenue potential and mine life visibility.
• Development work at the Fox Complex, Grey Fox and the Tartan mine restart concept, all within established mining regions with existing ramps, power and road access, points to a pipeline of relatively modest scale projects that are intended to be brought on without very large single year CapEx. This can support future earnings and cash flow consistency.
• Los Azules benefits from Argentina’s new Decree 563 that cuts copper export duty to 0% and from the RIGI framework that targets stable fiscal terms. This combination is aimed at improving project economics and could have a material impact on future project level margins and returns.
• The company highlights copper as a critical metal for modern electrification and the energy transition, and positions Los Azules with a definitive feasibility study targeted for late Q3 2025 and an eventual IPO. This strategy is aimed at converting a large development asset into a clearer value and earnings contributor over time.
• Permitting and resource work in Nevada at Timberline, Windfall and Lookout Mountain, combined with options to use existing processing capacity at Gold Bar or potentially third party plants, are intended to shorten the path from resource to production. This could support higher group production, stronger revenue and improved unit costs.
• A stronger balance sheet with US$54 million in cash, US$16 million in marketable securities and approximately US$70 million in total liquid resources, alongside heap leach and circuit inventory expected to convert to over US$20 million of realized gold, gives the company more flexibility to fund its project queue. This affects future net margins and reduces financing risk around growth plans.

Assumptions

This narrative explores a more optimistic perspective on McEwen compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming McEwen's revenue will grow by 40.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -7.2% today to 24.5% in 3 years time.
• The bullish analysts expect earnings to reach $114.3 million (and earnings per share of $2.1) by about January 2029, up from $-11.9 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 bullish analyst cohort, the company would need to trade at a PE ratio of 20.3x on those 2029 earnings, up from -126.8x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 26.0x.
• The bullish analysts expect the number of shares outstanding to grow by 1.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The growth story depends heavily on new and restarted mines such as Grey Fox, Tartan, Windfall and Lookout Mountain coming online over several years. Any delays in permitting, dewatering, rehabilitation or construction could push out production timelines, which would weigh on revenue and delay the path to higher earnings.
• Los Azules is central to the long term copper story, yet management is already seeing U.S. dollar cost increases versus the June 2023 PEA and is spending additional time on mine plan and CapEx optimization. If inflation in Argentina or higher supplier pricing outpaces these efforts, project level returns could be pressured and group net margins could be lower than the optimistic view assumes.
• Several assets rely on prior era infrastructure and historic resources, including the flooded Tartan ramp and obsolete mill and crusher. If refurbishment or new plant requirements prove more complex or expensive than expected, initial capital needs could be higher and future cash flow and earnings could be weaker than hoped.
• The company is counting on higher production in the second half and on issues like lower grades and recoveries at San José being temporary. If ore quality, recovery challenges or manpower constraints persist across multiple operations, unit costs could remain elevated and pressure both revenue and net margins.
• The long term thesis leans on copper and precious metals retaining strong roles in electrification and wealth preservation. Any prolonged period of weaker commodity prices or reduced investor appetite for large greenfield projects in jurisdictions like Argentina could limit funding options for Los Azules and other growth projects, constraining future production growth and earnings.

Valuation

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

• The assumed bullish price target for McEwen is $33.0, which represents up to two standard deviations above the consensus price target of $25.9. 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 bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $33.0, and the most bearish reporting a price target of just $21.5.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $465.8 million, earnings will come to $114.3 million, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $27.65, the analyst price target of $33.0 is 16.2% 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.