McEwen Mining Rises on Upgraded Resources

I recommend buying shares of McEwen after a significant weakness

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McEwen Mining Inc. (MUX, Financial) closed up 3.64% to $2.28 per share on the New York Stock Exchange on Thursday, May 24. Despite the meaningful upside, the stock is still down 7% so far this year. However, a further upside in the market value of the miner is highly expected to occur in the coming trading days in response to McEwen’s announcement of a potential new stream of revenue at the Black Fox Complex in Ontario.

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After successful drillings, the miner has incorporated lead and zinc into an estimate of mineral resources at the Tamarack project. That is the first time for McEwen since inception. The Tamarack project, together with the Black Fox Mine, Gibson-Grey Fox, Froome and Stock zones, makes the complex of mineral assets at the Ontarian town of Matheson.

Rob McEwen is the chairman and chief owner of McEwen Mining. He commented: “With further drilling, we are excited to see how the project develops into what could be an additional revenue stream at Black Fox."

With the incorporation of silver and base metals mineralization, the new estimate of resources increased to 127,000 ounces of indicated gold equivalent from a previous 41,000 ounces of inferred gold.

It is of interest to investors to know that the category of indicated resources is superior to the category of inferred resources. The first category refers to mineral resources that can be appraised with a reasonable level of confidence. The second category of inferred resources can be assessed with a low level of confidence.

Of course, the inclusion of base metals into the determination of resources has influenced the appraisal of the average grade. The average grade measures the concentration of the metal into the mineral. The new average grade is 5.08 grams of gold equivalent per ton of ore. The previous average grade was 6.23 grams of gold per ton of mineral.

Following the recent upside, the share price is now above the 200, 100 and 50-SMA lines and in the midst of the 52-week range of $1.82 to 2.86 per share. It means that the stock is not at its cheapest.Ă‚ I therefore would suggest waiting for any significant weakness before acquiring shares.

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The stock in McEwen has a recommendation rating of 2 out of 5. The average target price is currently at $3.58 per share. That is already a 57% growth from the current share price.

However, if you wait for gold to reach $1,250 per troy ounce before buying the stock, you may take more profit off the table.

In the hope that gold bottoms $1,250 per ounce before McEwen releases an expected 4% year over year growth in the production of equivalent gold at its San José Mine in Argentina for the second quarter of 2018. Resulting from a 14.5% growth in the gold output and a 22% increase in the production of silver. That is the forthcoming catalyst to watch for McEwen.

The stock in McEwen has a market capitalization of $768.56 million, a price-book ratio of 1.51 times versus an industry median of 2.06 times and an enterprise value to earnings before interest, taxes, depreciation and amortization (EV-to-EBITDA) ratio of 9.24 times. The industry median for EV-to-EBITDA is 9.9 times. McEwen Mining has 12-trailing months EBITDA margin of 85% versus an industry median of nearly 25%.

McEwen expects to produce 128,000 ounces of gold and approximately 3.23 million ounces of silver in 2018. McEwen hopes to produce gold and silver outputs that lead to a volume of 171,000 ounces of gold equivalent in 2018.

McEwen is a debt-free mining operator with a liquidity of $47 million.

In addition, the exploration team of McEwen Mining will undertake additional activities at the Black Fox Complex for a total of $15 million as budgeted for 2018. The goals of the explorations at Black Fox Complex will be focused on extending the mineralization area close to the known mineral deposits and on testing targets near the deposit and the milling facility.

(Disclosure: I have no positions in McEwen Mining.)