Win us with honest trifles

McEwen Copper starts in the predicted manner

The news today that Rob McEwen and only Rob McEwen had paid $10 a share for his position in the spin(ning) out McEwen Copper came as no surprise to this desk. Here’s the note in IKN633 dated July 11th, the weekend MUX opened the $80m financing, to explain more:

McEwen Mining (MUX) unveils its copper plans

After the recent changes at officer and director level at MUX, this desk held out the reasonable potential that Rob McEwen had learned to listen to other people on corporate direction. After all, the whole point of bringing in a fire-fighter CFO to sort out the financial mess he’d made, then running that series of equity raisings was to send a “new broom” message: Rob McEwen had held off diluting the share count, refused to do deals with streamers, but at the same time failed to deliver on operations and exploreco results. The result was a company one bad sales month away from a cash crunch that would have seen him use his credit card to make payroll, the incoming CFO would have make executive control of treasury, debt and all related matters a prerequisite for the job.

With the announcement last week on McEwen Copper, we see a company that’s immediately reverted to type. Now the perceived danger is out the way, Rob McEwen demonstrates he hasn’t learned a single thing from nearly bankrupting his own company through financial stupidity. The proposed deal may seem innocent enough, one where the current wholly–owned subsidiary “McEwen Copper” is funded to the tune of U$80m and then spun out as a newco (in around a year’s time), but it reminds us of the way the company tried to monetize Los Azules in 2011. The link to a dusty archive NR here (12), the relevant contents below:

TORONTO, ONTARIO–(Marketwire – March 17, 2011) – Minera Andes Inc. (the “Corporation” or “Minera Andes”) (TSX:MAI)(OTCBB:MNEAF) is pleased to announce that it intends to complete a spin-out its Los Azules Copper Project into a new publicly traded company.

The Los Azules Project is a 100% owned advanced-stage porphyry copper exploration project located in the cordilleran region of San Juan Province, Argentina near the border with Chile. It is one of the world’s largest undeveloped copper deposits with an indicated mineral resource of 137 million tonnes grading 0.73% copper, equivalent to 2.2 billion pounds of copper, and an inferred mineral resource of 900 million tonnes grading 0.52% copper, equivalent to 10.3 billion pounds of copper. Exploration and infill drilling continues with five drills currently operating at the Los Azules Copper Project. 

  • Management believes now is the time to unlock the value and potential of Minera Andes’ world class Los Azules Copper Project.
  • The spin-out of the Los Azules Copper Project allows Minera Andes shareholders to retain exposure to a world-class copper deposit with a copper-focused management in a pure copper vehicle.
  • Minera Andes will continue to aggressively advance priority gold and silver projects with the objective of adding ounces to the San José Mine and making discoveries at our 100% owned grass-roots projects surrounding Goldcorp’s Cerro Negro property (recently acquired by Goldcorp for $3.6 billion).

Etc. A decade ago, the mothership company was still called Minera Andes, but McEwen’s desire to retain ownership control of assets (while getting others to pay) was clear. Cut to 2021 and the news from MUX last week (13):

TORONTO, July 06, 2021 (GLOBE NEWSWIRE) — McEwen Mining Inc. (NYSE and TSX: MUX) announces a non-brokered private placement financing of up to 8,000,000 common shares of its wholly-owned subsidiary McEwen Copper Inc. at a subscription price of US$10.00 per common share, for gross proceeds of up to US$80 million (the “Offering”). McEwen Copper currently has 17,500,000 common shares outstanding.

The problem is the price. As noted in the second part of our recent look at MUX in IKN628, MUX has carried Los Azules on its books at U$191.49m for years and that’s a problem when your total mining asset book is $270m. In order to spin out Los Azules without damaging the mothership’s balance sheet, McEwen now has to justify his own lofty valuation of the asset and he’s trying to do so by spending U$40m on $10 shares, then trying to convince others to do the same. This transaction would value the entire, post-close McEwen Copper entity at 25.5m X U$10 = U$255m and cover any shortcomings, the problem is that nobody else thinks Los Azules is worth that much. In IKN628 we gave it $50m worth of weighting on MUX’s current share price and perhaps $100m on the announcement of any deal, a long way from the opinion of the MUX lead shareholder. Sadly for McEwen the market agrees with me, as seen here in this ten-day as  MUX dropped 10% in an otherwise flat market (GDX unch over the two weeks shown):

That is a market saying “Pay $10 a share if you like, Rob, we’ll wait until it floats and pay five.”

1 Comment

    I took a shot on Primero back when they were working Black Fox. I got out alive somehow. Sunk costs later, I took a punt on McEwen, figuring they got the whole works on the cheap and could enjoy any exploration upside. I attended one quarterly CC – it was like a cult meeting, with retails asking inane questions. One “very independent” analyst asked if Gold Bar was another “shit show” like Black Fox, where a contractor had just burned up the mill by accident. I sold.


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