McEwen Mining (MUX) held a conference call yesterday, May 22, to provide shareholders with critical updates regarding its operations. The focal point of the conference call was to address the potential for Argentina to order foreign companies operating within its jurisdiction to keep its revenue there as a strategy for bolstering the Argentine economy. As MUX has significant operations in Argentina that provide the company with cash flow, this potential policy initiative could significantly impact the firm's operations. Indeed, it has already impacted the share price, as the chart below suggests.
As MUX is one of the larger positions in my portfolio, I listened in on the conference call carefully to see what management had to say. Here are some notes I jotted down that I think are particularly relevant for shareholders:
1. Rob McEwen, founder and CEO of McEwen Mining, began by apologizing that he had not foreseen the scenario in Argentina. He called it a "nasty bump in the road" but still believes the company has world class assets and that it will succeed.
2. Rob said: "How do I feel about having $110 million invested in this company? Pretty good."
3. McEwen reminded shareholders that nothing has been formally announced out of Argentina, and that the concerns, while warranted, were not hard and fast rules just yet. Thus far, the comments out of Argentina can be classified as "moral suasion." Rather the purpose of the conference call was to have a discussion with shareholders about the situation and what precautions the company plans to take.
4. As one might expect of any CEO, McEwen stated he believes MUX's share price is now significantly undervalued, and that the property value of the mines the company holds is likely to be collectively greater than the firm's market capitalization.
5. The worst case scenario is that the company will need to raise more cash. The firm is already in talks to sell or monetize some or all of its Los Azules copper project. MUX's Chief Financial Officer, Perry Ing, stated this project could be sold to generate cash if repatriation of revenue from the firm's Argentina project becomes impossible.
Personally, my average share price on MUX comes out to just under $4 per share. I won't be buying any more until the situation in Argentina is resolved. However, I'm not selling my shares either, and I'm still bullish on the company. For those who do not have a position, I think this is a great opportunity to "buy the fear." The situation in Argentina could prove to be a nasty bump, as McEwen noted, although I don't think it will derail the firm - or that at the very least at its current price it is a worthwhile speculation. At the end of the day McEwen is a proven executive who owns 25% of the shares, has invested $110 of his own money, and takes no salary. In other words, management and shareholder interest are deeply aligned, and management is very proven.
As I mentioned in my previous write up on MUX, 2015 is the year to watch. That is the year the firm expects its production to increase significantly, and is also the year by which the firm seeks to achieve inclusion in the S&P 500. From this perspective, I consider it a worthwhile opportunity to purchase shares now with the intent of holding it through 2015.