McEwen Mining (NYSE:MUX) just reported its second quarter results. On the surface they look weak. The company lost $104 million, although $98 million of this was due to an impairment charge on its Argentinean assets. Otherwise the company would have lost roughly $8.6 million. This is due primarily to costs incurred in expanding the El Gallo Project, which also saw an increase in all in sustaining costs as well as lower production. Specifically the El Gallo Project saw gold-equivalent production of 8,200 oz. (vs. 9,400 oz. in the first quarter) and AISC of $1,257/oz. for the quarter vs. AISC of $1,046/oz. in the first quarter.
The company also received $3.2 million in dividends from its 49% stake in its San Jose Project in Argentina. That mine produced about 23,000 gold equivalent ounces (McEwen Mining's share). AISC for San Jose rose to $1,239/oz. vs. $1,060/oz. in the first quarter. The increase was due to a decline in the ore grade processed in the second quarter.
Ultimately these figures are weak, although they mask underlying strengths. The first is the company's management, led by Rob McEwen. McEwen grew Goldcorp (NYSE:GG) into the giant company it is today. He also owns 25% of the company which shows that he has skin in the game. This is a point I highlighted when I recommended the company last April right before the gold price crashed (although McEwen Mining shares are essentially flat despite a dilutive secondary offering).
The second is the company's growth potential, and its pipeline. As previously mentioned the El Gallo Project is undergoing an expansion, and this resulted in the weak production and production cost figures that I mention above. But this mine is going to produce 75,000 ounces of gold in 2015 (twice 2014 estimates). The company also has a tremendous project pipeline including the El Gallo 2 Project, which is near the El Gallo Project in Sonora, Mexico, the Gold Bar Project in Nevada, as well as the massive Los Azules copper project in Argentina.
This is a long-term investment, and it isn't cheap, but the assets and management team are excellent, making this a "buy" on weakness.
Disclosure: The author is long MUX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.