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McEwen Mining Inc  (NYSE:MUX)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the McEwen Mining 2018 full year and Q4 conference call. I will now hand the call over to Rob McEwen, Chief Owner.

Robert McEwen -- Executive Chairman and Chief Owner

Thank you, operator. Good morning, ladies and gentlemen. Welcome fellow shareowners. 2018 was a milestone year for McEwen Mining. And with me today to tell you about last year and provide guidance for this year are Chris Stewart, President and Chief Operating Officer; Sylvain Guerard, Senior Vice President, Exploration; and Andrew Elinesky, Chief Financial Officer.

The 2018 milestones were numerous record production growth, we produced a record 175,640 ounces of gold equivalent, which was a 15% improvement over 2017. In addition, we generated $51 million in earnings from operations. There was an emphasis on exploration, and we had our largest exploration budget ever, a total of $35 million that resulted in mine life extension in Nevada at our Gold Bar mine, and in Timmins it generated much enthusiasm with numerous new targets and increased resources on our Black Fox properties. We've built a new mine, just before the start of 2018 we received government permits to construct and operate our new Gold Bar Mine and work began immediately. By the end of 2018, we had spent $72 million or 89% of budget.

Speaking of budget, we are pleased to say we are on budget, we poured our first gold in it just last week. However, we are behind on achieving commercial production. Chris will talk to that as he follows me. We did financing. We are active in the second half of the year. In August, we decided to complete the funding of Gold Bar with debt rather than equity we raised $50 million, this is the first time we have ever had debt.

Then in the -- later in the year, we sold $15 million of equity at 27% premium to market to fund our second year of aggressive exploration on the Black Fox properties in Timmins. And then subsequent to that, we registered a facility and that the market financing facility when amount of $90 million and that was to access low cost financing should we need it. We have no immediate plans to sell this amount of the equity. We are working on a turn-around, we purchased the Black Fox Complex for $35 million in late 2017, the previous owners had invested $560 million. So we bought it for $0.06 on the dollar (ph).

With that purchase, we got a permitted 2,400 tonne per day mill and operating gold mines and an excellent land package in a very prolific area, the Destor-Porcupine Fault, near Timmins. A gold system that has historically produced over 85 million ounces of gold. Now when you buy something for $0.06 on the dollar, you have to anticipate it's going to come with some challenges, and they did. Then we're making changes at the operation, everything is being reviewed and questioned. There is a new Management Team in place and we are confident that 2019 will be a transformational year for this operation. There has also been a lack of -- there was a lack of expenditure on exploration in the past, and since purchasing Black Fox in October of 2017 we have invested more than $21 million in exploration and we have committed a further $17 million for exploration this year. We believe there is a lot more gold here in, Sylvain will discuss this later in their call. We've been extending the life of our operations, particularly in Mexico, a feasibility study is under way for our Project Fenix, it's expected to be completed by mid-year. This project is expected to add 12 years of mine life to the operations in Mexico and it has very robust economics as determined by the PEA that was developed in the middle of last year.

We have made a decision, however, to investigate the sale of these assets as we would like to focus our efforts on Nevada, Ontario and our Los Azules property in Argentina to maximize the potential of these properties in the short term. A sale of Mexico would allow us to reduce our debt and invest in the additional cash and the development of additional resources at the areas I mentioned.

Lastly, we've been looking with our exploration, for areas where we could increase our revenues by avoiding developing properties with historic metal streams and royalties. At this time, I would like to turn the podium over to Chris Stewart, who will address our operational performance, last year, and going forward.

Chris Stewart -- President and Chief Operating Officer

Thank you, Rob. Good morning, everyone. 2018 production represents a 15% increase in our 2017 results. Consolidated production from our operations for 2018 totaled a 175,600 gold equivalent ounces, which I will refer to you as GEOs going forward, consisting of 48,900 GEOs from Black Fox in Canada, 39,100 GEOs from Ohio and Mexico, and 87,600 GEOs from our 49% interest in the San Jose Mine in Argentina.

Our new Gold Bar mine in Nevada in the USA is located on the prolific Battle Mountain-Cortez Trend, construction of the open heap leach pad operation commenced in November 2017, and has culminated with our first Gold pour on February 16th. The mine and processing operations are in the final commissioning stage. And the project is coming in on budget.

Cumulative to date, we have capitalized $72 million to construction in progress, tracking on our original capital cost estimate of $81 million. Commissioning efforts have been hampered by a significant snowfall during the past couple of months. And with such a competitive labor market in Nevada, we have struggled to reach our full complement of manpower. We are taking steps to address the manpower issue by hiring temporary workers from our local labor provider as well as getting their assistance to find and hire the remaining personnel we require. As a result of these challenges, we are now anticipating commercial production to be declared during Q2. Construction activities at Gold Bar during 2018 focused on completing the heap leach pad, the crushing and conveying system, and some substantial completion of the gold processing plant and refinery circuit.

Site buildings and infrastructure are complete and occupied. Mining, crushing, loading of the heap leach pad, the processing plant are all active. Remaining construction items include the onsite laboratory installation and miscellaneous electrical and instrumentation work in both the goal process plant and refinery building.

To date, 240,000 tonnes of mineralized material at gold grade of 0.6 grams per ton have been placed on the leach pad. Leaching was initiated in mid-January, and while still early in the process, preliminary results are indicating that our gold recovery model is consistent with our expectations.

Our main asset in Canada is the Black Fox Complex, which includes a fully operational Black Fox gold mine as well as the Grey Fox, Tamarack and Froome advanced stage exploration projects. We also have the stock property, which is where our mill facility is located along with our new Stock East Deposit, which Sylvain will discuss further in his exploration overview.

At the Black Fox mine, our 2018 production of 48,900 GEOs exceeded our production guidance of 48,000. The average grade of the mineralized material mined during the year was 5.98 grams per tonne. Our $845 cash cost and $1,137 all-in sustaining cost realized in 2018 are down from the cost incurred in Q4 of 2017, and in line with our guidance from 2018.

For 2019, we plan to produce 50,000 GEOs from Black Fox at $905 cash cost and a $1,080 all-in sustaining cost. The increase in our cash cost is related to the remnant mining that we will be doing this year in the upper part of the mine which requires rework to access the stopes that were left behind. The decrease in all-in sustaining cost as a result of reduced capital development required to access the gold ounces to be produced in 2019.

The Black Fox mine is undergoing significant changes in how we manage and operate the business with the objective of improving the overall economic performance of the mine, as we move into the second half of 2019 and into 2020. So far in 2019, the mine has faced some challenges, reaching targeted productivity levels, these issues appear temporary and should not impact their planned output in 2019.

In 2019, we will also continue to closely evaluate our options for bringing on additional production from one of our satellite deposits at Grey Fox, Froome or Tamarack. The most interesting deposit for us at the Black Fox Complex is in fact Grey Fox. When you look at Grey Fox, combined with the recent exploration success in the immediate area around it, which Sylvain will discuss shortly, Grey Fox is very attractive to us, because it would allow us to maximize revenue from our gold production, because this property is not subject to any streaming agreements.

In Mexico, at El Gallo Gold, by the end of May 2018 mining and crushing activities at the mine had ceased. And the final mined ore was stocked on the heap leach and residual leaching activities have been continuing ever since.

Residual leaching tapered toward the end of 2018 getting more in line with our longer term recovery expectations. Production for the full year of 2018 was 39,100 GEOs, which exceeded our 2018 production guidance of 32,000 by 22%. The average grade of the ore stocked on the leach pad during 2018 was 1.5 grams per ton.

Due to decreased activities, following the cessation of mining and crushing operations at El Gallo, 2018 realized costs were down from 2017 to $733 cash cost and an all-in sustaining cost of $771. Residual heap leaching activities are ongoing and will continue for several years.

For 2019, we anticipate producing 13,000 GEOs from El Gallo at a cash cost of $875 and all-in sustaining cost of $915. We are seeing an increase in our cost per ounce for a couple of reasons. First, our costs for cyanide has increased by 40% in 2019, and with increased consumption at the same time to improve our goal leaching from the heap.

In addition, in order to continue residual heap leaching activities, you still need to keep a full complement of people to operate the leaching and processing facilities. So some of the increase in cost is directly related to having a lower denominator in the cost per ounce calculation.

Activities in Mexico at El Gallo complex, include ongoing work on the Fenix Project, which was announced through our Preliminary Economic Assessment Study published in July of 2018. Using a base case of $1,250 per ounce of gold and $16 per ounce of silver, Fenix demonstrated strong economics with a net present value of $60 million and an after tax internal rate of return of 28%.

So during 2018, we spent $4 million on activities required to advance the Fenix Project, which include reviewing of mineral processing, mine sequencing, material transportations, tailing storage options and flow sheet optimization. We are evaluating the potential construction of a new mine and mill at El Gallo, and expect that during the first half of 2019, we will complete a final feasibility study, and we will receive regulatory approval for permit amendment to allow for in-pit tailing storage, a key feature for the implementation of the Fenix Project.

In-pit tailings disposal is a preferred method for tailings disposal in Australia and has been used successfully there for many years now. In-pit tailings eliminates the risk of dam failure, as we no longer need to construct the dam above surface. There's also a significant capital cost savings to the operations.

The environmental reclamation work is an added benefit, as you're filling in an old open pit, which allows you to bring the area back to its natural state, one very close to what it would have been before mining activities ever took place. The Fenix project is expected to add another 12 years of mine life to our Mexican operations.

In Argentina, at the San Jose Mine, our attributable production in 2018 according to our 49% interest was 47,300 ounces of gold and 3 million ounces of silver for a total of 87,600 gold equivalent ounces. This is 4% below our guidance.

The decrease in GEOs produced was a result of a decreased average grade of the ore processed by 8% for gold and 9% for silver, partly offset by a 4% increase in the tonnes of ore processed during 2018 when compared to 2017.

Our cost of San Jose in 2018 were $851 cash cost and $1,061 all-in sustaining cost, in line with our guidance. For 2019, we plan to produce at San Jose 49,000 ounces of gold and 3.2 million ounces of silver, totaling 92,000 gold equivalent ounces at a cash cost of $830 and all-in sustaining cost of $1,060.

Also in Argentina, at our (inaudible) Los Azules property, we spent $6 million during 2018 to advance this project. The activities performed are mainly technical site investigations and environmental baseline monitoring work, to advance permitting efforts.

Currently, we are investigating the possibility of establishing the Northern Route, a new all-year access road. We're working on the permit approval and continuing the engineering, planning and budgeting for that -- hence pioneering this road access as soon as possible. This access once completed will allow us to do work around lower operating costs and to accelerate the timelines of the Los Azules (technical difficulty).

In conclusion, 2018 was a year in which we delivered significant production and focus on the future growth of our company, and we anticipate 2019 will continue this trend. We are pleased to announce that our 2019 production guidance is 210,000 gold equivalent ounces, a 20% increase over our 2018 production. Cash cost of $877 and an all-in sustaining cost of $1,034.

I will now turn it over to Sylvain Guerard, our Senior Vice President of Exploration, who will expand on the exploration programs for our properties. Thank you.

Sylvain Guerard -- Senior Vice President of Exploration

Thank you, Chris. During 2018, we focused our exploration efforts on Gold Bar, in Nevada, and on the Black Fox and Stock properties in the Timmins region. We invested a total of $26.6 million at these properties, completed over 140,000 meter of exploration drilling, and added a total of 473,000 new gold equivalent resource ounces.

We also generated multiple new targets that will aggressively follow up in 2019. We are very pleased with the progress made and results generated in 2018. We remain committed to continuing exploration on our Gold Bar, Stock and Black Fox properties, and are planning to invest over $20 million in 2019, to build on last year's exploration success.

We increase our resources, extended the mine life at Gold Bar, and generated new exploration target for our properties, which are located along prolific trends in some of the best gold districts in the word. We are also planning to continue our exploration efforts at the San Jose site in Argentina, where our partner Hochschild has a long-term track record of adding new high grade gold and silver resources, and reserves to the operation.

Starting with Gold Bar, following the reactivation of exploration in late 2017, we have invested $5.2 million in exploration in 2018. And our initial approach was to drill the extensions of mineralization near the open pit. This led to an increase of 92,000 ounces of measured and indicated, and 82,000 ounces of inferred resources, adding a total of 174,000 ounces of gold in 2018, which contributed to the extension to our mine life up to 7.4 years, just as we are starting projects here.

We are also going to add to our mine life on the Gold Bar South deposit, which currently owes an indicated resource of 100,000 ounce of gold. Additional drilling would be performed at Gold Bar South in 2019 to upgrade the resource to reserve. During 2018, we completed some drilling outside the Cabin Creek deposit and also at the ML target, with encouraging drilling result is to find (ph) follow up in 2019. We kept developing the geological and structural understanding of the Gold Bar property through drilling activities, completion of new survey, reprocessing and interpretation of all data and also from working session with McEwen geologists and external consultant specialized in calling gold deposit.

Multiple prospective new drill targets have been defined. First, as extension of existing recession near the mine and also at deeper and potentially high grade target like the large Barrick Gold deposit of similar type in geological setting, located 40 kilometer northwest of Gold Bar along the Cortez trend. We believe that we have all the right ingredient characteristic to some extent Carlin-type gold (technical difficulty) and we are planning to invest around $5 million in exploration in 2019 and look forward testing our priority target.

Moving now to Timmins, the south property turn out to be a greater presence in '18. We invested $3.4 million and completed a 28,000 meter drill program that took the project from inactive exploration stage in early 2018 definition of initial resource at southeast in Q3 and future drilling led to an updated and fair and indicated resource of 150,000 ounces in late 2018. The deposit remain open in all directions with possibility for open pit and underground potential.

The Southeast zone is located less than a kilometer from our mill, near road access and all infrastructure. In addition to southeast, we drill the depth extension of these so we call stock mine that produce close to 140,000 ounces at 5.5 gram per tonne from 1989 to 2005. Our deeper ore at top returned multiple positive intersection such as 506 gram over 3.3 meter and 7 gram per tonne over 3.8 meter, including up to 30 gram per tonne over 0.8 meter. These results suggest that the mineralized system remain open below the historical mining depth of about 400 meter, which is relatively shallow for our team gold south deposit.

In 2019, we will continue drilling and extending the southeast resource, the Stock Mine depth extension and we'll also keep drilling the highly prospective mine trend over a three kilometers strike end to define new horseshoes.

At the Black Fox property now, drilling continued on the ground at the mine at surface with $18 million invested and over 97,000 meter exploration drilling completed. That led to a new indicated resource of 127,000 ounce of gold equivalent at the Tamarack deposit, an increase of resource at the Froome deposit to 181,000 ounce of gold and positive drill intersections generated at six new exploration target.

From the 2018 drill intersection previously reported from new drill occurrences, the Gibson exploration target is considered as one of the most encouraging. In Q3, an intersection of 3.1 gram per tonne of gold over 34 meter, including 10.8 over six meter was returned from a new style of greater mineralization developed within the (inaudible).

The Gibson target is located in the southeast of the Black Fox property adjacent to the Grey Fox deposit where an indicated resource of 465,000 ounces at a grade of 6.6 gram per tonne is currently defined.

At the Froome deposit now, we increased the indicated resource by 22,000 ounces and drilled the northwest extension of the deposit and the credit to be displayed by a fault. The right style of mineralization and the sedimentary awestruck were intersected, but the gold rate is so far around 1 gram to 2 gram per tonne, which is lower than the 5 gram per tonne Froome deposit. We also intersected multiple positive drill intersection over almost a kilometers strike line at the Froome Footwall fracture, located northeast of the Froome deposit. Future drilling has been planned in 2019 on the extensions of both the Froome deposit and Footwall fracture.

A budget of $15 million is planned for 2019 to follow up on our high explorative target at the Black Fox and Stock property. Finally, at the Black Fox mine, our underground drilling program kept intersecting high grid mineralization nearly our existing resource and underground development. The geological model have drastically evolved throughout 2018 and early 2019 and the new site team is confident that our sustained drilling efforts could lead to an increase of resource and addition of new reserve in 2019.

During 2018, 18,500 meter of underground exploration drilling was completed, the majority of which was devoted to two main programs. In the beginning of 2018, drilling focused to drill in here and grow the Tamarack gold and base metal deposit. After Q1, the drilling took place on the depth extension and over the upper portion of the Black Fox Mine. About 20,000 meter of underground exploration drilling is planned for 2019 with the objective to add new ounces for short-term mining including in the upper part of the mine.

Main targets area include the 300 west target where high grade and visible gold up to 246 grams per tonne gold over 1.65 meter, which include 402 gram per tonne over meter intersected at shallow depth in late 2018, early 2019.

Multiple exploration target in the western flank of the mine and the depth potential of the mine, main ore system below existing development. Thank you very much and over to Andrew now.

Andrew Elinesky -- Chief Financial Officer

Thank you, Sylvain. Good morning, everyone. Thank you for joining us today, during a busy period of year in reporting. The fourth quarter completed a year of steady production and mine operating cost for us. In addition to meeting our consolidated guidance for production and cost per ounce, we are also on track to meet the construction budget of our newest mine in Nevada, Gold Bar.

The full year as well as the quarter for 2018 was also a period where periods of additional significant capital investments and exploration in Timmins and in Nevada as well as the development of our Phoenix Project in Mexico. For the quarter, our operating performance was in line with our expectations. The significant net loss of $45 million or $0.13 per share was also in line with our expectations due to the development in exploration investments, combined with the unfortunate loss of profitability of the San Jose mine joint venture in Argentina. All of this was reflected in our balance sheet and treasury. As we saw, our cash balance decreased by $10 million in the quarter and $7 million overall for the year.

The cash investments were offset by operating earnings as well (technical difficulty) regarding our overall results and further to Chris's comments earlier. The company had consolidated production of just over 40,000 gold equivalent ounces for the quarter, which brought our year-to-date production to approximately 176,000 gold equivalent ounces. We exceeded our consolidated guidance for both production and cost per ounce.

Our earnings for mining operations were $51 million or $0.15 per share, 4% higher than 2017. This was the net results of increased gross profit at El Gallo and Black Fox, offset by a 50% decrease in operating margin at San Jose. The increase in Mexico was due to an increase in the number of ounces sold and lower per ounce costs as a result of the switch to residual leaching in June.

For Black Fox, we saw the effect of having a full year of mining earnings, as opposed to only a single quarter in 2017. As mentioned earlier, San Jose Southern earnings from operations fall from $24 million to $13 million for the year. This was due to overall lower sales volumes and reduced silver prices throughout the year. There was also the imposition of an export tax in September.

And in addition, there was a one-time loss due to the bankruptcy of Republic Metals refinery with whom San Jose had a receivable balance of $4.5 million, which has been written off in full. The $51 million of earnings from operations were used to finance the significant investments being made at Gold Bar, the continued work in Los Azules and the significant exploration program at Black Fox and our other properties in the Timmins area.

To summarize the full year financial results, the significant investments were partly offset by slightly increased operating profits, which resulted in the company reporting a net loss of $0.13 per share.

Moving on to the outlook for 2019. Firstly with Mexico, we expect our cost to increase compared 2018 due to the decrease in ounces coming from residual leaching as well as having higher cost for consumables such as cyanide and other reagents.

On the Black Fox, production should be in line with last year. Although, we have significant efforts to reduce the cost base of sites and we are expecting a 5% reduction in our budgeted cost per ounce. We also continue with the evaluation of our project opportunities in the area and plan to continue with another large exploration program in the region due to the significant successes in 2018 as mentioned by Sylvain just now.

To fund this exploration program, the company finalized a $15 million flow through equity offering in December. At San Jose, production level should increase slightly when compared to 2018, which is allowing the guidance for our per ounce cost to remain the same as 2018 despite a significant increase in exports costs and in addition to the inflationary outlook for Argentina.

And finally at Gold Bar. The construction is on budget with approximately greater than 95% of construction activities completed and costs incurred as of the middle of February. We are in an excellent position to meet $81 million construction budget.

And at this point, I would like to thank you again for taking the time to join us today, and I will now turn the presentation back to Rob for his closing remarks.

Robert McEwen -- Executive Chairman and Chief Owner

Thank you, Andrew. As many of you know, our overarching goal is to qualify for inclusion in the S&P 500 Index. I had hoped we would have been closer to that goal by now, but we aren't for a number of reasons. However, the current market environment appears to be an excellent time to build. The prospect of significant property dispositions by nature as a result of recent mega mergers. And industry in need of consolidation and the continued scarcity of capital for the sector make this a very good time to be looking and acquiring.

To qualify for the S&P, we have to grow. How big and how -- let me tell you. To be considered for the S&P, the biggest hurdle for us to clear is a minimum market capitalization of $6.2 billion. So what would McEwen Mining have to look like to qualify. I believe, if we could grow our annual production to 600,000 ounces. If we could produce our gold and silver at a cost in the bottom half of the industry cost curve. Have an average mine life of nine years plus combined with a credible development pipeline to build annual production up to a 1 million ounces, then we would have an excellent shot of being considered for inclusion in the S&P 500.

However, this growth needs to be executed with close attention to building value per share and not just building for size, plus the downfall of the industry in the last cycle. This growth needs to be achieved without paying excessive premiums and experiencing large share dilution.

As the chief owner of McEwen Mining, I have $160 million after tax dollars invested in our company. I own 23% of the shares and I take a $1 year in the salary. I can assure you that my prime objective is to build the size of our company, only if we build the value of every share of the company.

During 2019, and this year we have continued to make management changes at head office and at the mine site. We are constantly looking for individuals who have strong skills, who are ready to challenge established practices and who are hungry and ambitious. On paper some people appear more attractive and effective than they turned out to be and change is required. Just going back to my previous job when I headed up Goldcorp, I went through multiple heads of operation before finding the right one. I feel Chris possesses not only the right skills, the right attitude coupled with the strong drive and ambition to be the right person for the role of President and Chief Operating Officer.

I just like to -- sort of go off to the side and share with you some of the things that might happen in the mining operations that is very hard to expect or anticipate. And this deals with Timmons and there are three people I think are going to be eligible for winning the Darwin Award.

At the Black Fox Mine, we bring the ore to surface and we have hired a contractor to crush the ore on the mine site and then truck it to our mill. Several weeks ago, it was quite cold in Timmins maybe minus 40 degrees, and the conveyors used in the crusher weren't holding the ore very well because they were so cold and these three individuals decided to get a very large blowtorch and focus it on the conveyor way.

Well that was all well and good, until all three of them decided to go to lunch, at the same time, and leave this blowtorch on the conveyor. Unfortunately, it caught fire and ignited a large part of the crusher and melted part of its frame and we've been without a crusher for about two and a half weeks. This stupidity, I cannot begin to describe. And that's why I say, these are things that are unanticipated. Fortunately, it wasn't our staff, it was the contractors, but I do believe they're Darwin Award candidate.

So I'll skip from that and those are some challenges you meet in operation. In Timmins, we're expecting our explorations push and reveal new areas of future production on the Black Fox property that are free of expensive revenue destroying metal streams and royalties. In Argentina, we're working to establish a new access route to our massive Los Azules copper project. This access would provide -- would be year around and would dramatically improve the development cost, operating costs and the ultimate value of this property to all of us.

In Mexico, the Fenix project feasibility study is expected to be out by midyear. At current silver and gold prices, the Fenix PEA showed last year that this project has a very robust 28% after tax IRR and a better than $60 million NPV using a 5% discount rate with a mine life of 12 years.

We recently decided to focus our attention on properties that had larger potential value -- to the larger potential value drivers, such as at our Black Fox, Gold Bar and Los Azules projects. And we are looking at selling our Mexican property to both reduce some of the $50 million debt we have and to apply those funds to building the potential of these other properties.

2018 was a year where we strengthened and expanded our foundations, foundations that will allow us to drive hard toward our goal. We look forward to delivering our production and cost guidance along with valuable exploration results to you in 2019.

I would now like the operator to bring the Q&A session (technical difficulty) start.

Questions and Answers:

Operator

Certainly. (Operator Instructions) Our first question comes from Jake Sekelsky with Roth Capital Partners. Your line is now open.

Jake Sekelsky -- Roth Capital Partners -- Analyst

Hey, guys. Thanks for hosting the call and taking my questions.

Robert McEwen -- Executive Chairman and Chief Owner

Hi, Jake.

Jake Sekelsky -- Roth Capital Partners -- Analyst

Hi, Rob. Can you maybe just provide some additional color on the potential sale of the Mexican assets? I guess, just how far along are you in the process? And would it open the door to an additional acquisition or is it really just to reduce debt and focus on your existing assets for now?

Robert McEwen -- Executive Chairman and Chief Owner

It's all of the above. The Board recently resolved to look at a sale of the asset. We were looking at -- when we looked at the (inaudible) the PEA, it had an estimated value of over $60 million at $1,250 gold and $16 silver, $75 million value at $1,300 gold and $17 silver. So we looked at it and just add, let's concentrate in the areas where we think we have the biggest potential for growth, and use some of those funds not only to retire a portion of the debt, but also to look at acquisitions.

Jake Sekelsky -- Roth Capital Partners -- Analyst

Okay. That makes sense. And switching over to Gold Bar, it looks like you're expecting some of the South resources to coming in the mine plan at some point, which will obviously help to extend the mine life. Are you looking at any other property in the area as additional sources of mill feed or are you really just going to be focused on exploration at the existing property?

Robert McEwen -- Executive Chairman and Chief Owner

Two years ago, we bought what we call Gold Bar South, and we bought a little over 100,000 ounces. It's located, there's a road that connects it to where our mill is, it's about five miles in length. And our expectation that we would bring that into our mine plan as soon as we get permits. And it would add at a minimum one year. We have made acquisitions this past year, adding to our property package around Gold Bar. And we are on the lookout for opportunities within Nevada that would allow us to spread our management team over more properties there, just being more efficient.

Jake Sekelsky -- Roth Capital Partners -- Analyst

Okay, very good. That's all for me. I'll hop back in the queue. Thanks again.

Robert McEwen -- Executive Chairman and Chief Owner

Thank you, Jake.

Operator

Thank you. Our next question comes from Heiko Ihle with H.C. Wainright. Your line is now open.

Heiko Ihle -- H.C. Wainright & Co -- Analyst

Hey, guys. Thanks for taking my question. You mentioned you reported first gold ingot. Congratulations, I just want to say that. At Gold Bar, you mentioned delays were attributable to heavy snowfall, being understaffed. I mean, have you had issues getting good labor or was this a labor force that was supposed to help with the ramp-up of the crushing plant? Or what exactly is the issue there? And on that same token, if it's hard to find good labor, are you currently forced to pay a little bit more than you previously planned to have a workforce that actually does what they're supposed to do?

Robert McEwen -- Executive Chairman and Chief Owner

I'd say yes to both questions. It's a tight labor market. And in how we're dealing with it by hiring supplemental workforce, we'll be paying more for that labor.

And for our Gold Bar, we've come in under budget, so that's good. It's just where because of weather and labor shortages we're behind on loading the pad. And that's why we're looking at commercial production in the second quarter.

Heiko Ihle -- H.C. Wainright & Co -- Analyst

Right. Speaking of good workers and workers and bad (ph) workers, I mean, I assume the three guys with the blowtorch that you were talking about earlier all this call are gone, correct?

Robert McEwen -- Executive Chairman and Chief Owner

They weren't our employees. They were contractors' employees, and most of them are gone. We don't (technical difficulty) in the site and we're looking for ways to get rid of that pressure too.

Heiko Ihle -- H.C. Wainright & Co -- Analyst

Perfect. And you have no way to get the contractor to pay for the economic damages that his employees' caused, do you?

Robert McEwen -- Executive Chairman and Chief Owner

The thought as he's going to crush a lot faster and a lot more and we'll make up. But he had a six or seven day interruption clause in his contract. We are going to extract something from him. We'll probably put that blowtorch on the sign in (ph) orders.

Andrew Elinesky -- Chief Financial Officer

But to answer your question on cost cycle, sorry, this is Andrew. There are no additional costs to us, it's just the delay. But as you know about Black Fox, having the extra capacity in the mill and running a week on and week off, we're not anticipating an impact to the annual production for the year, because we can -- once we can get the material crushed, we'll get it to the plant and we'll (technical difficulty) plant consistently for a few weeks as opposed to shutting down off and on. So that's why we're not expecting any impact or production for the year as well as our costs.

Robert McEwen -- Executive Chairman and Chief Owner

I should add that first quarter could be weaker than we hoped for. But we are seeing a higher grade coming out of the mine, which will compensate for it.

Heiko Ihle -- H.C. Wainright & Co -- Analyst

I'm sorry, did you just say the first quarter is going to be weaker than you hoped for?

Robert McEwen -- Executive Chairman and Chief Owner

Yes.

Heiko Ihle -- H.C. Wainright & Co -- Analyst

Okay. Perfect. Very good. Thank you, guys.

Robert McEwen -- Executive Chairman and Chief Owner

You're welcome. Thanks, Heiko.

Operator

Thank you. And our next question comes from Mike Kozak with Cantor Fitzgerald. Your line is now open.

Mike Kozak -- Cantor Fitzgerald -- Analyst

Hi, good afternoon, guys. Thanks for hosting the call. Just two kind of housekeeping items for me. The first one, so the 55,000 ounces of 2019 forecasted production at Gold Bar, does that include pre-commercial ounces? And if so, how much approximately would be pre-commercial?

Andrew Elinesky -- Chief Financial Officer

Hi, Mike. It's Andrew again. And, yes, it does include pre-commercial ounces. As a US GAAP issuer, we are not terribly concerned about pre-commercial credits, so at 55,000 ounces, the total ounce number for the year. And depending on which month we declare commercial production, you're looking at the range of 2,500 ounces to 4,500 ounces to be poured in advance of commercial production announcement.

Mike Kozak -- Cantor Fitzgerald -- Analyst

Got it. Thanks. And then second and last question, of the 2019 exploration budget, in total if I add up across all your mines I get about $25 million. Is all of that going to be expensed or you're able to capitalize any of that?

Andrew Elinesky -- Chief Financial Officer

We will capitalize a portion of -- particularly, underground and in-pit drilling, so underground at Black Fox and in-pit drilling at Gold Bar. However, the majority of it is going to be hitting the income statement.

Mike Kozak -- Cantor Fitzgerald -- Analyst

Got it. Okay. That's it for me. Thanks for answering all the questions.

Andrew Elinesky -- Chief Financial Officer

Thanks, Mike.

Operator

Thank you. And our next question comes from Bhakti Pavani with Alliance Global Partners. Your line is now open.

Bhakti Pavani -- Alliance Global Partners -- Analyst

Good morning, guys, thanks for taking my questions.

Robert McEwen -- Executive Chairman and Chief Owner

Good morning.

Bhakti Pavani -- Alliance Global Partners -- Analyst

Just wanted to talk about Black Fox. I wanted to confirm, earlier in the press release, you did mention that you plan to bring production from some of the satellites deposits especially Grey Fox. Is that sort of the plan for this year, or are you talking about the next couple of years?

Robert McEwen -- Executive Chairman and Chief Owner

It is in the next couple of years.

Bhakti Pavani -- Alliance Global Partners -- Analyst

Okay. One more question with regards to Gold Bar -- in the press release, you did mention that the stripping ratio has been higher. I'm just kind of curious, what's kind of the stripping ratio for 2019?

Robert McEwen -- Executive Chairman and Chief Owner

Chris, you want to answer that.

Chris Stewart -- President and Chief Operating Officer

Yeah, hello, there. The stripping ratio for 2018 -- 2019, sorry. is going to 5 to 1.

Bhakti Pavani -- Alliance Global Partners -- Analyst

And what's kind of -- what are the kind of the mining cost assumption and how they pan up or reconcile from the feasibility standpoint?

Chris Stewart -- President and Chief Operating Officer

Sorry, could you repeat the question?

Bhakti Pavani -- Alliance Global Partners -- Analyst

With regards to the mining cost and production cost, I know in 2019 you have guided slightly higher cash cost and all-in sustaining cost. So just kind of wondering, how -- what is the range for the mining and processing cost and how do they reconcile with the feasibility study assumptions?

Chris Stewart -- President and Chief Operating Officer

Yeah, we've been, part of the process we've been doing as we've sort of started off with Gold Bar is reviewing the mine plan and it evolves as we work through and start stripping, which is part of the reason we have a higher stripping ratio early on than we had originally anticipated in the feasibility study, so we are going to see higher cost this year, but we're also looking at 75,000 ounces to 80,000 ounces of production in 2020, which will substantially reduce the cost as compared to the feasibility study. So we're moving -- attempting to try and move ounces forward in our production profile to realize the value of -- cash value of money essentially.

Bhakti Pavani -- Alliance Global Partners -- Analyst

Okay. That's helpful. Moving on to project Fenix, you did mention about investigating a potential sale. As of now, do you have a kind of a tentative timeline that you are looking, considering you are in the process of completing a feasibility study?

Robert McEwen -- Executive Chairman and Chief Owner

It'll be during the year.

Bhakti Pavani -- Alliance Global Partners -- Analyst

And also with regards to permitting, just kind of curious, I mean, would you be waiting to obtain those permits or is it going to be, once you complete the feasibility study and just on the property?

Robert McEwen -- Executive Chairman and Chief Owner

We would expect that the sale would take some time to complete. The permitting we're expecting in the first half of this year, the amendment to the permit to allow us to go forward. And if we were selling it. If it's sold before that we'd make it conditional, there would be a condition that you participate and get it permitted to sell, and you'd be priced on that basis.

Bhakti Pavani -- Alliance Global Partners -- Analyst

Got it. Okay. That's it from my side. Thank you very much.

Robert McEwen -- Executive Chairman and Chief Owner

You're very welcome.

Operator

Thank you. And we have questions from the web as well. A question from the web states, what is your Company's biggest challenge and what is your plan to address it?

Robert McEwen -- Executive Chairman and Chief Owner

Biggest challenge is growing without diluting one shareholder. That's on a corporate side. I'd say the biggest challenge is turning around the operation at Black Fox, extending its life (inaudible) the two biggest ones right now.

Operator

Next question from the web is, since you own such a large percentage of the company what long term plans are in place to continue your vision?

Robert McEwen -- Executive Chairman and Chief Owner

Well, I plan to live to 120, so I've got a few years in front of me. I think the mining industry can deliver great treasures and having experienced it with Goldcorp and another companies, I'd like to see us grow and maybe get McEwen Mining to the size of Goldcorp was when I left in.

Operator

The next web question says, what is the 2019/2020 plan for monetizing the Los Azules asset?

Robert McEwen -- Executive Chairman and Chief Owner

Our plan right now is to see if we can put this northern access root in. I think it would greatly enhance the value of the property by providing year round access. Currently, we can get in comfortably for five months of the year, but with great difficulty seven months of the year. So to come in, 12 months of the year, it would reduce our development costs, it would reduce our operating cost, it would reduce our CapEx, and that would enhance the project in the eyes of potential partners or buyers of that asset. So I'd say, what are we doing about it when our plans are to see if we get this route going and work on putting the permit in to the government for development.

Operator

The next web question states the following, I've owned MUX through the ups and downs of over the last seven years. I listened the last call where you said that even with Gold Bar coming online in Q1 this year, it was unlikely that MUX return on profit in 2019. Can you elaborate on the current plan to bring the company into two profitable quarters in a row and based on that plan when can we expect to see the first quarterly profit?

Andrew Elinesky -- Chief Financial Officer

Thank you for the question, it's Andrew, CFO. So as the question mentioned, we don't anticipate having significant profits in 2019. We do expect our profit both at Gold Bar and Black Fox to be higher than it was in 2018, but we're going to see reduced probability in Mexico. When you combine those operational profit movements with our investments continued going on in exploration, particularly in Timmins and also Nevada as well as Los Azules development, you're likely unlikely to see profitability in 2019.

And then in terms of predicting when you will turnaround two consecutive quarters of profitability. I can't exactly give the timing to that, but I can tell you what would be required which would be strong profitability and a turnaround of Black Fox, steady-state production and profitability coming from Gold Bar, and then having San Jose contributes profitably like it did back in 2016, in addition to the dividends that it sends us on an annual basis.

Robert McEwen -- Executive Chairman and Chief Owner

Just thinking about profitability, we believe we're investing in the future with our exploration expenditures with the work we're doing at-development at our various sites, I can say when we we're building Goldcorp, The Red Lake Mine, I first gave it $10 million and then another $10 million and another $10 million and production went from 50,000 ounces to 500,000 ounces.

We are buying assets. Some of the assets such as Black Fox, we bought very inexpensively, but you know, when you buy something inexpensive you have to expect you have to put money back into it to make it work and that's precisely what we're doing here. We think we have an asset-rich collection of property that in the next couple of years will really begin to shine.

Operator

Our next web question states the following. How will a full or partial sale of the Los Azules deposit accelerate the company's plans to grow and to get into the S&P 500?

Robert McEwen -- Executive Chairman and Chief Owner

Well, if we were to sell Los Azules, then we've gotten attractive price. It would provide us with capital to look at some M&A and development of our other properties. As I said, I gave you a model of how big we have to be or I believe we have to be to qualify. Currently, we're doing 200,000 ounces. To get the 600,000 ounces, we have to add another 400,000 ounces, which is a triple where we are right now today.

The other side, there are exploration stories that can drive the growth of companies and their market cap. Goldcorp was one of those, but there are many others that grew on the back of very successful exploration program. We think we're located in the right district where there's a history of large gold mines and big discoveries. And I'm a big believer in exploration.

Operator

Thank you. And before we continue with the web questions, I have a phone question from Bill Powers, private investor. Your line is now open.

Bill Powers -- Private Investor -- Analyst

Yes, good morning. Couple quick questions, I guess as far as and Nevada goes where you located your, I guess, deeper target, it's north of your Gold Bar, I guess, has there been previous historic drilling in the area or kind of what has kind of -- I didn't mean this such an attractive topic or a target I should say.

Robert McEwen -- Executive Chairman and Chief Owner

Bill, I'll ask Sylvain to talk about the attractiveness. I can tell you though there hasn't been any deep drilling in the immediate area of the Gold Bar Mine.

Sylvain Guerard -- Senior Vice President of Exploration

And, Gold Bar as we probably know very well located, we are along the Cortez trend, just southeast of the large cluster of deposit that was owned by Barrick there.

With more work that has been completed this year, we feel even more confident about the potential that we see there at Gold Bar. We believe that we control a district. We have all the right geology, we have the right stratigraphy, right type of rocks. We have the right alterations that make the big deposits and we have a gold system.

Now the past exploration have been mostly focused on or around the pit, now we have been developing targets still near mine, but across the property as extension of non-mineralization. So this is our prime targets to keep expanding mineralization hopefully adding more to the oxide mineralization to be heap leached.

We have the Gold Bar South, but we also have multiple drill targets that we'll be testing this year. Talking of the deeper potential, there is very, very limited drilling, actually one hole have been reaching the lower part of the stratigraphy that is highly favorable to old potentially large and high grade sulfide deposit.

We are going to initiate some drilling this year. We have defined targets and the idea is not to go with a very extensive program, but it's to start testing this potential with probably a couple of holes and those are deep and expensive holes, but we want to develop the understanding of what could be there. As I said on extension of non-mineralization at more shallow depth, but also starting to investigate deeper on our (inaudible).

Bill Powers -- Private Investor -- Analyst

Okay, well thank you for the answer. I guess, the shifting gears to Los Azules. It seems though the valuation gap from where the market seems to perceive the value of Los Azules right now compared to where other -- I guess copper assets go off in sale transactions or even our value toward much closer to NAV than what it appears to NA of Los Azules is, I guess, the impact of putting in the road, how -- I guess firstly, would that be something that you would expect to go or no-go decision this year. And then I guess, after that would you do an update to your PEA once that is in place and is that something that would really facilitate, apply for permits. Kind of -- I guess that's be the -- what I will (inaudible) finding a little bit more about?

Robert McEwen -- Executive Chairman and Chief Owner

Sure. Bill, the road if it's possible, right now, we've flown it by helicopter, it's been flown by drone they've have done topographical studies on it. Some of our group is going in and just going to go on the ground and look at it more closely at the engineering and the cost of putting a four-wheel drive track through there. Then that's going to happen this year, that study and if it's positive then I would expect us to push ahead on the road.

We wouldn't be restricted by snows, because most of the route is below the snow line. And that would definitely lead to taking another look at our PEA and seeing what impact it has on our CapEx and OpEx.

One of the things, you talk about the discrepancy in value between say pure copper plays and this copper project sitting in our portfolio of properties. It's -- perhaps its location, Argentina has puts doubts in some people's minds. But it's something where we're looking at right now and I think the Argentina factor probably reduces the attractiveness of the property to some people. And others are pure copper plays and we're gold silver with copper rather than a pure copper play.

Bill Powers -- Private Investor -- Analyst

Yeah. Okay, well, as the reason -- the reason I'm bring that up is simply because Alumbrera (ph) was such -- seem to be a cash generator for Goldcorp. And I don't know whether this has potential or it's something that would be. It seems as though it would be more impactful given the size of McEwen versus the size of what Alumbrera was to Goldcorp. It's ...

Robert McEwen -- Executive Chairman and Chief Owner

The Goldcorp had a partial interest in Alumbrera. If we were able to bring this on stream ourselves, this would be an extraordinary contribution to...

Bill Powers -- Private Investor -- Analyst

I mean, I would assume that you would be JV-ing it. I mean, obviously, given the CapEx, right now. But anyway, well, that's-thank you for all the color on that. And I appreciate it.

Robert McEwen -- Executive Chairman and Chief Owner

You're very welcome.

Operator

Thank you. And we have a question from Terry DeRise, a shareholder. Your line is now open.

Terry DeRise -- Private Investor -- Analyst

Hi, Rob. Gentlemen, good morning.

Robert McEwen -- Executive Chairman and Chief Owner

Good morning.

Terry DeRise -- Private Investor -- Analyst

Robert, I've been a shareholder for quite some time like the previous gentleman from the web. And I hold with great confidence, not only in you and the management team you put together, but also in where the future price of precious metals are going. My question relates to the sale of El Gallo. You've mentioned debt and growth. You've also mentioned in this conference call exploration is, you're a firm believer in explorations. When you go to work each morning, Rob, what excites you the most? Is it one thing that you go to work and see -- like, obviously, we hope for another (inaudible). What is the one thing you're focused on right now the most?

Robert McEwen -- Executive Chairman and Chief Owner

I look for Sylvain to come over and tell me that he's got a very high grade intercept at either Black Fox or Gold Bar. It's just -- I think we have a good property package that has a lot of potential. And maybe my question is, how do we speed up what we're doing, how do we get the results earlier from our exploration, how do we get information from mining faster, how can we operate 24/7 rather than 12/7. And what can we bring in the way of innovation to lower our cost, improve our margins to this industry, and to our operations. So I think a multiple, but I'd say big bright visible gold intersections have probably given me the biggest smile.

Terry DeRise -- Private Investor -- Analyst

Yeah, me too. Thank you very much.

Robert McEwen -- Executive Chairman and Chief Owner

You're welcome.

Operator

Thank you. And we have two web questions. The first web question goes as follows. You have stated that MUX has beta of 3.0 and as a result the stock trends to follow the gold price both on the way up and on the way down. Can you explain why the gold price has trend upwards over the past several weeks and yet MUX has not followed the same bullish pattern?

Robert McEwen -- Executive Chairman and Chief Owner

It's a good question. I'm not sure why we're down and it's up. We do the beta is calculated by Bloomberg, not by ourselves. And if you look over a longer time period, you'll see that -- when gold is going up, we run higher than gold in a percentage basis, historically. And when it goes down, we drop more than it drops.

At the moment, I would say the market was looking and waiting to hear about Gold Bar, is it coming on stream, is it on budget or is it like everybody else in the industry going over budget and failing to deliver the promise. And they're looking to see is Black Fox really going to turn around. And that's going to take some time.

I think we'll be able to demonstrate that Black Fox is turning around that the property that it's located on has a lot of exploration potential. And there are other areas there that can be developed and brought into a mine. And we have to address the temporary problems of start-up at Gold Bar. And then we'll get back in line with that beta.

Operator

Thank you. And next web question says the following. How much threat is President Obrador to the gold and silver mining companies in Mexico?

Robert McEwen -- Executive Chairman and Chief Owner

Could you repeat that please?

Operator

The question reads as follows. How much of a threat is President Obrador to the gold and silver mining companies in Mexico?

Robert McEwen -- Executive Chairman and Chief Owner

Another good question, I don't have an answer to that. He hasn't put more taxes on the industry, but he appears to want to put taxes on anything foreign in the country, anything extractive. So we're patiently waiting and hoping he doesn't, because the mining industry has already been hit by heavier taxes with the past President.

Operator

Our last web question goes as follows. It is apparent that the Black Fox Mine was acquired at a deep discount. What were the reasons for this and is there any regret in this purchase? As a shareholder it's been very frustrating to watch the stock price going down while gold prices have been rising.

Robert McEwen -- Executive Chairman and Chief Owner

Well, I'd like to say, since the beginning of 2016, when I thought the bull market started, our shares are up 77%. We've outperformed the Dow and the S&P. I'd like to say we were up more and we were at some point during that period.

Black Fox, no regrets. I think we got a very good deal. I think in the intermediate term, it's going to prove to be a very astute purchase. That has lots of growth elements to it. The mine has, I'd say the previous owners didn't get a good geological model, created good geological model of the mine. And as a result, could not have put on an efficient mine plan. They were in a lot of working areas. They went deeper and deeper following high grade, to a point that it started becoming uneconomic. We're hoping to be mining closer to surface in some of the areas that were not extensively mined. But time will tell. But the Black Fox mine is a very interesting piece of real estate in a very prolific gold district, one of the best known gold districts in the world.

Operator

At this time, I'm showing no further web questions or phone questions. I'd like to turn the call back to speakers, if they have any closing remarks.

Robert McEwen -- Executive Chairman and Chief Owner

Thank you, operator. I hope all your investments go very well. And remember Gold is money. Thank you for joining the call.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your program and you may all disconnect. Everyone have a great day.

Duration: 68 minutes

Call participants:

Robert McEwen -- Executive Chairman and Chief Owner

Chris Stewart -- President and Chief Operating Officer

Sylvain Guerard -- Senior Vice President of Exploration

Andrew Elinesky -- Chief Financial Officer

Jake Sekelsky -- Roth Capital Partners -- Analyst

Heiko Ihle -- H.C. Wainright & Co -- Analyst

Mike Kozak -- Cantor Fitzgerald -- Analyst

Bhakti Pavani -- Alliance Global Partners -- Analyst

Bill Powers -- Private Investor -- Analyst

Terry DeRise -- Private Investor -- Analyst

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