With gold prices recently peaking, it should go without saying that gold mining companies, as well as the investors of these companies, are benefitting. This is, however, not always the case. If you have recently invested in McEwen Mining Inc. (NYSE:$MUX) as your gold investment, you are some shocking losses.
Shares of the recently-established mining company fell 14.1% in May; after hitting a peak in February, shares have dropped a devastating 40% year-to-date. This is an extremely different outcome than the numbers of other larger miners — for example, Newmont Mining’s shares saw a rise of 4.5% in May, and only went down around 10% year-to-date.
Why it matters
One of the main reasons for McEwen’s disappointing numbers can be due to its status as a junior gold mining company, with a market cap of less than $1 billion. As such, McEwen only has a handful of mines that are producing.
Like most junior mining companies, McEwen’s actual success lies in the long-term, with development projects — in particular, the company introduced quite an addition of Canadian assets this April. However, investors look like they’re more concerned with the present than what’s ahead in the future. As such, McEwen’s release of its first-quarter earnings in early May caused quite some problems.
In its first-quarter earnings, production of the company’s mine were specified. San Jose, one of McEwen’s two mines, saw an increase of production by 1,400 ounces year over year, or around a 15% increase. However, the El Gallo mine saw a fall in production by over 10,000 ounces, or around a 50% decrease. San Jose’s increase could not cover El Gallo’s decrease in production, and thus overall production fell about 30%.
El Gallos’ decrease should not come as a surprise to many, as the mine is close to the end of its expected life. It still, however, remains a problem — especially since the revenue of McEwen’s current projects is essential in the funding of future exploration as well as development projects. It can be particularly concerning as costs for development has been rising and could remain that way for a while.
It is worth noting to investors, however, that McEwen has no long-term debt that could be detrimental to future returns/production efforts.
For investors, the opportunity for good returns remains in McEwen’s development and exploration projects. This does not change even with the decline in one of McEwen’s current producing mines.
As such, if you are conservative in your gold investments, McEwen might not be your top pick. If, however, you are looking for a junior mining company with a varied number of growth projects, you might want to research further into this debt-free junior mining company. Be aware, though, that you will most likely see more losses before its success. Keep in mind that investments in companies such as McEwen are long-term.
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