10-K/A: McEwen Mining Amends Annual Report to Include Strong Minera Santa Cruz Financials

McEwen Mining Inc. has filed an amendment to its annual report, incorporating the financial statements of its significant equity investee, Minera Santa Cruz S.A., which reported a substantial turnaround to profitability in 2024.

Summary

• McEwen Mining Inc. filed an Amendment No. 2 on Form 10-K/A to its Annual Report for the fiscal year ended December 31, 2024, to include the financial statements of Minera Santa Cruz S.A. (MSC).
• MSC is a significant equity investee in which McEwen Mining holds a 49% equity ownership interest, and its financial statements were included as required by Rule 3-09 of Regulation S-X.
• MSC reported a net profit of $35,754k for the year ended December 31, 2024, a significant turnaround from a net loss of $12,249k in 2023.
• Revenue for MSC increased to $293,335k in 2024 from $242,461k in 2023, representing a 20.9% increase.
• Gross profit for MSC rose to $69,946k in 2024 from $43,886k in 2023.
• MSC generated strong net cash flows from operating activities of $84,986k in 2024, up from $78,942k in 2023.
• Cash and cash equivalents for MSC significantly increased to $45,454k at December 31, 2024, from $22,181k at December 31, 2023.
• MSC's current borrowings decreased substantially to $1,557k in 2024 from $5,977k in 2023.
• The impairment test for MSC in 2024 resulted in no impairment being recognized, attributed to increased gold and silver prices and additional reserves/resources estimates.

Sentiment

Score: 8

Explanation: The document reveals a strong financial turnaround for Minera Santa Cruz S.A., a significant equity investee, marked by substantial profit, revenue growth, and improved cash flow. The reduction in borrowings and the positive economic policy shifts in Argentina further contribute to a highly positive outlook, despite some lingering economic uncertainties and the repeal of an export incentive.

Positives

• Minera Santa Cruz S.A. (MSC) achieved a significant financial turnaround, reporting a net profit of $35,754k in 2024, compared to a net loss of $12,249k in 2023.
• MSC's revenue increased by 20.9% to $293,335k in 2024 from $242,461k in 2023.
• Gross profit for MSC saw a substantial increase to $69,946k in 2024 from $43,886k in 2023.
• Operating cash flows for MSC remained strong and increased to $84,986k in 2024 from $78,942k in 2023.
• MSC's cash and cash equivalents more than doubled, reaching $45,454k at year-end 2024, up from $22,181k in 2023.
• Current borrowings for MSC were significantly reduced to $1,557k in 2024 from $5,977k in 2023, indicating improved liquidity management.
• The impairment test for MSC in 2024 resulted in no impairment being recognized, driven by increased gold and silver prices and additional reserves/resources estimates.
• The post-tax discount rate used in MSC's impairment assessment decreased to 18.3% in 2024 from 21.7% in 2023, reflecting a potentially improved risk perception.
• The Argentine federal government achieved a primary and financial surplus and initiated an inflation deceleration process, with retail inflation at 2.7% in December 2024.
• The gap between alternative and official foreign exchange rates in Argentina significantly reduced to below 10% in December 2024.
• Argentina's government implemented an incentive system for large investments (RIGI), including mining, with committed financing of USD 8.8 billion from World Bank and IADB, promoting investment in strategic sectors.

Negatives

• Minera Santa Cruz S.A. (MSC) incurred a net loss of $12,249k in 2023, primarily due to a $16,949k impairment of non-financial assets.
• MSC recorded net foreign exchange losses of $8,368k in 2024, $16,161k in 2023, and $1,007k in 2022, indicating ongoing currency volatility impact.
• Despite inflation deceleration, Argentina's accumulated inflation for the 12 months of 2024 reached 117.8%.
• The export incentive program, which provided a benefit of $15,997k to MSC in 2024, was repealed as of April 2025, potentially impacting future 'other income'.

Risks

• Uncertainties inherent in estimating ore reserves and mineral resources, as assumptions may change due to new information, commodity prices, exchange rates, production costs, or recovery rates.
• Recoverable values of mining assets are subject to estimates and assumptions such as future commodity prices, capital requirements, reserves and resources volumes, production costs, operating performance, and discount rates, changes in which could affect asset values.
• Significant estimates and assumptions are made in determining the provision for mine closure costs, including the extent and costs of rehabilitation, technological/regulatory changes, cost increases, mine life, and discount rates, which may differ from actual future expenditures.
• Judgment is required in determining deferred tax assets, as estimates of future taxable income are based on forecasted cash flows and existing tax laws, and significant differences could impact the realization of net deferred tax assets.
• The application of accounting policy for Exploration and Evaluation (E&E) expenditure requires judgment to determine future economic benefits and the existence of reserves and resources, directly impacting capitalization of expenditures.
• Risk of additional tax liabilities, penalties, and interest due to differing interpretations of complex tax legislation by authorities.
• Silver and gold prices have a material impact on results, significantly affected by global economic conditions and industry cycles, which producers cannot directly influence.
• Financial results are affected by exchange rate fluctuations between the US dollar and Argentinian pesos, as a proportion of costs are incurred in local currency.
• Credit risk arises from debtors' inability to make payments and counterparty non-compliance in cash transactions and accounts receivable.
• Liquidity risk stems from the Company's inability to obtain required funds, including the inability to sell financial assets quickly enough and at a fair value.
• Changes in the perception of Argentina arising from political, social, and financial disruption may lead to significant movement in the discount rate used in the assessment of the San Jose Cash Generating Unit (CGU).

Future Outlook

The document primarily focuses on historical financial data for Minera Santa Cruz S.A. and the economic context in Argentina. It highlights the Argentine government's ongoing efforts to achieve fiscal balance, control inflation, and stabilize the foreign exchange market, which could positively impact future mining operations. The implementation of the Incentive System for Large Investments (RIGI) and committed financing from international institutions specifically for strategic sectors like sustainable mining suggest a supportive environment for future investment. However, the repeal of the export incentive program as of April 2025 may impact future 'other income' for MSC.

Management Comments

• "Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report." Robert R. McEwen, Chairman of the Board of Directors and Chief Executive Officer.
• "Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report." Robert R. McEwen, Chairman of the Board of Directors and Chief Executive Officer.
• "Management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of any of its cash generating units to exceed its recoverable amount." (Regarding impairment test sensitivity analysis for MSC)

Industry Context

The document provides significant context on the Argentine economic environment, which directly impacts mining operations like Minera Santa Cruz S.A. It highlights the federal government's efforts towards fiscal balance, zero monetary emission, and inflation deceleration, with retail inflation at 2.7% in December 2024. The foreign exchange market has seen a significant reduction in the gap between alternative and official rates, falling below 10% in December 2024, and regulations have been relaxed. The implementation of the Incentive System for Large Investments (RIGI) and commitments from international financial institutions like the World Bank and Inter-American Development Bank (IADB) for USD 8.8 billion in financing, with USD 3 billion specifically for strategic sectors such as renewable energy and sustainable mining, indicate a supportive environment for investment in the industry within Argentina. However, the repeal of the export incentive program as of April 2025 and the end of the PAIS tax are also relevant industry-specific regulatory changes that will affect future operations.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• Labor lawsuits resulted in expenses of $1,235k in 2024, $747k in 2023, and $3,138k in 2022.
• Fiscal periods remain open to review by tax authorities for five years in Argentina, with a risk of additional tax assessments, penalties, and interest.
• The Company faces potential contingencies or additional liabilities due to differing interpretations of laws and regulations by relevant authorities in certain specific transactions.

Related Party Transactions

• Minera Santa Cruz S.A. (MSC) is 51% owned by Hochschild Mining Argentina Corporation S.A. (HMAC S.A.) and 49% by Minera Andes S.A. (MASA), an indirect wholly owned subsidiary of McEwen Mining Inc.
• Related party accounts receivable from Compaa Minera Ares were $31k in both 2024 and 2023.
• Related party accounts payable to Compaa Minera Ares were $1,221k in 2024 and $2,522k in 2023.
• Related party accounts payable to Hochschild Mining Plc. were $663k in 2024 and $1,040k in 2023.
• Intercompany services from Compaa Minera Ares amounted to $1,140k in 2024, $1,343k in 2023, and $1,165k in 2022.
• Other intercompany transactions with Hochschild Mining Plc. resulted in $(377)k in 2024, $109k in 2023, and $(87)k in 2022.
• Dividends declared to Hochschild Mining Argentina Corp. were $403k in 2024, $339k in 2023, and $297k in 2022.
• Dividends declared to Minera Andes S.A. were $387k in 2024, $325k in 2023, and $286k in 2022.

Stakeholder Impact

• **Shareholders**: Positive impact due to the significant financial turnaround and improved performance of a key equity investee (MSC), potentially leading to increased valuation for McEwen Mining Inc.
• **Employees**: Personnel expenses for MSC were $95,467k in 2024, indicating continued employment and compensation. The company also has a Long Term Incentive Plan for designated personnel.
• **Customers**: Continued supply of gold and silver from MSC's San Jose mine.
• **Suppliers/Creditors**: Reduced current borrowings for MSC ($1,557k in 2024 from $5,977k in 2023) indicate improved financial health and ability to meet obligations.
• **Regulatory Authorities**: Compliance with SEC filing requirements (10-K/A, Sarbanes-Oxley certifications) and adherence to Argentine mining and tax laws.
• **Local Communities**: Mine closure costs provision ($35,653k in 2024) indicates commitment to environmental rehabilitation. Corporate Social Responsibility expenses were $4,396k in 2024.

Next Steps

• The Mine Closure Plan presented to the provincial authority in December 2022 has not yet been approved.
• Management is currently assessing the potential impact of new accounting standards, amendments, and interpretations effective January 1, 2025, or later.
• The Argentine government's incentive system for large investments (RIGI) is under way, with formal projects submitted and financing committed, indicating future investment opportunities.

Key Dates

Recommendation

Keywords

McEwen Mining Inc., MUX, SEC filing, 10-K/A, Minera Santa Cruz S.A., MSC, financial statements, mining, gold, silver, Argentina, financial performance, revenue, net profit, cash flow, assets, liabilities, equity, impairment, commodity prices, foreign exchange, economic context, RIGI, export duties, Sarbanes-Oxley