Detailed Narrative
Q2 Operational Shortcomings and Gold Bar Challenges
McEwen Inc. reported a disappointing Q2 FY26, with production falling short of expectations and costs remaining elevated. The primary operational issue was at the Gold Bar mine, where unexpected carbonaceous material in the ore body led to reduced gold recoveries. Management acknowledged the problem and is implementing solutions, including expanded metallurgical testing, improved geological modeling, modified mine sequencing, and evaluating additional processing improvements to mitigate preg-robbing.
Los Azules Copper Project Advancement
The Los Azules copper project continues to be a key focus, with significant progress made in reducing technical risk, strengthening engineering, advancing permitting, and expanding financing discussions. The FID work program was 27% complete by June, targeting Q4 completion. Geotechnical campaigns have allowed for pit design optimization, shrinking flatter angle zones by 22% and increasing mineable ore while decreasing stripping requirements. Exploration drilling of 8,800 meters is planned for the 2026-2027 season to define new targets.
Los Azules Financing Strategy
The company is pursuing a $4 billion financing package for Los Azules, aiming for a 60% debt and 40% equity split. Export Credit Agencies (ECAs) are expected to provide the majority of the debt, potentially covering 80-85% or more, with the IFC and other DFIs filling the remainder. On the equity side, $1.6 billion is sought, with contributions from existing partners and a planned IPO for McEwen Copper in the latter part of 2026. Societe Generale has been engaged as the exclusive debt adviser to bundle these activities.
San José Joint Venture Cash and Dividends
The San José Joint Venture held approximately $130 million in cash and cash equivalents at the end of Q2 FY26. No further dividends are expected from the JV for the remainder of 2026 due to Central Bank regulations requiring dividends to be paid from audited surplus earnings. However, management anticipates dividends to resume in 2027, following regular discussions with their partner, Hochschild.
Royalty Portfolio Development
McEwen is considering building a royalty portfolio around the Los Azules NSR (Net Smelter Royalty) and other existing royalties. The current strategy is to keep the Los Azules NSR within McEwen to avoid additional G&A costs and tax implications associated with a separate U.S. corporation. A potential spin-out of the royalty portfolio to shareholders via an IPO is being considered in the medium term, once Los Azules is in production and the portfolio has grown, to unlock higher valuation.
Capital Allocation and Long-Term Vision
Chairman Rob McEwen reiterated a commitment to disciplined capital allocation, treating every dollar as if it were his own. The company's four key priorities include improving operational execution and recoveries, expanding the resource base through exploration, advancing Los Azules, and maintaining capital discipline. Despite short-term challenges, the focus remains on creating long-term shareholder value and building a stronger company.