ADDITIONAL INFORMATION
Descriptions of agreements or other documents in this report are intended as summaries and are not necessarily complete. Please refer to the agreements or other documents filed or incorporated herein by reference as exhibits. Please see the Exhibit Index at the end of this report for a complete list of those exhibits.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Please see the note under "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," for a description of special factors potentially affecting forward-looking statements included in this report.
CAUTIONARY NOTE TO UNITED STATES INVESTORS—INFORMATION CONCERNING
PREPARATION OF RESOURCE AND RESERVE ESTIMATES
McEwen Mining Inc. ("McEwen Mining," "we," "us," or the "Company") is required to prepare reports under the Canadian Securities Administrators' National Instrument 43-101 "Standards of Disclosure for Mineral Projects" ("NI 43-101"), under the Canadian securities laws because we are listed on the Toronto Stock Exchange ("TSX") and subject to Canadian securities laws. These standards are materially different from the standards generally permitted in reports filed with the United States ("U.S.") Securities Exchange Commission ("SEC").
The terms "mineral reserve", "proven mineral reserve" and "probable mineral reserve" used in this report are Canadian mining terms defined in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") in the CIM Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as the same may be amended from time to time by the CIM. These definitions differ from the definitions of those terms in Industry Guide 7 ("Guide 7") promulgated by the SEC. Under U.S. standards, mineralization may not be classified as a "reserve" unless a determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Under Guide 7 standards, a "Final" or "Bankable" feasibility study is required to report reserves, the three-year historical average precious metals prices are used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate government authority. One consequence of these differences is that "reserves" calculated in accordance with Canadian standards may not be "reserves" under Guide 7 standards. U.S. investors should be aware that McEwen Mining's properties located in the United States and Mexico do not have "reserves" as defined by Guide 7 and are cautioned not to assume that any part or all of the disclosed mineralized material will be confirmed or converted into Guide 7 compliant "reserves".
Under NI 43-101, we report measured, indicated and inferred resources, which are measurements that are generally not permitted in filings made with the SEC. The estimation of measured resources and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves. U.S. investors are cautioned not to assume that any part of measured or indicated resources will ever be converted into economically mineable reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. It cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category. Therefore, U.S. investors are also cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically.
Canadian regulations permit the disclosure of resources in terms of "contained ounces" provided that the tonnes and grade for each resource are also disclosed; however, the SEC only permits issuers to report "mineralized material" in tonnage and average grade without reference to contained ounces. Under U.S. regulations, the tonnage and average grade described herein would be characterized as mineralized material. We provide such disclosure about our exploration properties to allow a means of comparing our projects to those of other companies in the mining industry, many of which are Canadian and report pursuant to NI 43-101, and to comply with applicable disclosure requirements.
We also note that drilling results are not indicative of mineralized material in other areas where we have mining interests. Furthermore, mineralized material identified on our properties does not and may never have demonstrated economic or legal viability.
Reliability of Information: Minera Santa Cruz S.A., the owner of the San José Mine, is responsible for and has supplied to the Company all reported results from the San José Mine. The technical information contained herein is, with few exceptions as noted, based entirely on information provided to the Company by Minera Santa Cruz S.A. ("MSC"). The Company's joint venture partner, a subsidiary of Hochschild Mining plc, and its affiliates other than MSC do not accept responsibility for the use of project data or the adequacy or accuracy of this information. As the Company is not the operator of the San José Mine, there can be no assurance that production information reported to the Company by MSC is accurate, the Company has not independently verified such information and readers are therefore cautioned regarding the extent to which they should rely upon such information.
PART I
ITEM 1. BUSINESS
History and Organization
We are engaged in the exploration for and production of precious metals in the U.S., Mexico and Argentina. We were organized under the laws of the State of Colorado on July 24, 1979 under the name Silver State Mining Corporation. On June 21, 1988, we changed our name to U.S. Gold Corporation and on March 16, 2007, we changed our name to US Gold Corporation. On January 24, 2012, we changed our name to McEwen Mining Inc.
In June 2007, we completed three simultaneous acquisitions, significantly increasing our land position. The assets of these three companies, Nevada Pacific, Tone and White Knight, (the "Acquired Companies"), included a portfolio of properties in Nevada and Mexico. As a result of these acquisitions, we now hold interests in approximately 254 square miles in Nevada, United States, and approximately 1,631 square miles of mineral concessions in west central Mexico. In 2011, we began efforts to place one of our Mexican properties into production, and are taking steps to place one of our Nevada properties into production.
On January 24, 2012, we completed the acquisition, by way of a statutory plan of arrangement in the Province of Alberta, Canada, of Minera Andes Inc. ("Minera Andes").
We presently hold an interest in numerous exploration and development stage properties and projects in Nevada, Mexico and Argentina, as well as a 49% equity interest in the gold-silver San José Mine in Santa Cruz Province, Argentina. Prior to the acquisition of Minera Andes, we have not generated revenue from operations since 1990. As a result of the acquisition of Minera Andes, we expect to be generating revenue in 2012 from our 49% interest in the San José Mine
Segment Information
Our operating segments include USA and Mexico. See Note 14 to the Consolidated Financial Statements for information relating to our operating segments.
As a result of the acquisition of Minera Andes, Argentina will be a new operating segment beginning in 2012.
Overview of Business and Properties
Mexico: We hold interests in approximately 1,631 square miles of mineral concessions in west central Mexico. Our primary property in Mexico is the El Gallo Complex, located in Sinaloa state on the Sierra Madre Trend, a geological area of significant gold and silver mineralization. In 2010, we completed two estimates of mineralized material on the El Gallo Complex and in February 2011, we completed a NI 43-101 Compliant Preliminary Economic Assessment of that Complex. On August 31, 2011, we announced the commencement of work towards the first phase of production on the El Gallo Complex and we intend to complete a Technical Report that will evaluate production coming from the Phase 2 area at the El Gallo Complex by mid 2012. Over the next three years, we estimate we will spend approximately $185 million on development and exploration at the El Gallo Complex, which will mainly consist of infrastructure related to production and further exploration drilling.
Nevada: We hold interests in approximately 254 square miles in Nevada, United States. The majority of our Nevada properties, including our interests in the Gold Bar Project and Tonkin Complex, are located along the Cortez Trend, in north central Nevada. We also own property, including the Limo Project, on the southern end of the Carlin Trend. Both the Cortez Trend and Carlin Trend are geological areas of significant gold discoveries. In 2006, we commenced comprehensive exploration of our Tonkin property in an effort to identify additional mineralized material. From 2008 through 2009, we drilled various targets on our Gold Bar and Limo Projects, as well as expanded the quantity of estimated mineralized material at the Gold Bar Project in updated technical reports. In 2010, we completed a Preliminary Economic Assessment for the Gold Bar Project and in 2011 completed a pre-feasibility study under NI 43-101 on the project. The Company has decided to place the property into production, subject to receipt of necessary permits. Over the next two years, we estimate we will spend approximately $10 million on exploration on the Gold Bar Project, Limo Project and at other targets in Nevada.
Argentina: Effective January 24, 2012, we acquired Minera Andes and in turn acquired: a 49% interest in Minera Santa Cruz SA, owner of the San José Silver-Gold Mine in Santa Cruz, Argentina; a 100% interest in the Los Azules Copper Deposit in San Juan, Argentina, and a large portfolio of exploration properties in Santa Cruz, Argentina. The San José Mine is operated by the majority owner of the joint venture, Hochschild Mining plc ("Hochschild"). We currently hold mineral rights and applications for mineral rights covering approximately 944 square miles in Argentina.
Other than the San José Mine, we generally conduct our exploration activities as sole operator; however, we may enter into arrangements with other companies through joint venture or similar agreements in an effort to achieve our strategic objectives. We own or lease our mineral interests and properties, and operate our business through various subsidiary companies, each of which is owned entirely, directly or indirectly, by us.
Our principal executive office is located at 181 Bay Street, Bay Wellington Tower, Suite 4750, Toronto, Ontario, Canada M5J 2T3 and our telephone number is (866) 441-0690. We also maintain offices in San Juan (Argentina), Guamuchil (Mexico), and Elko and Reno (Nevada). Our website is www.mcewenmining.com. We make available our periodic reports and press releases on our website. Our common stock is listed on the New York Stock Exchange ("NYSE") and on the Toronto Stock Exchange ("TSX"), in each case under the symbol "MUX". Shares of US Gold Canadian Acquisition Corp. which are exchangeable on a one-for-one basis into McEwen Mining common stock and which were issued in connection with our acquisition of the Acquired Companies are listed on the TSX under the symbol "UXE"; and shares of McEwen Mining—Minera Andes Acquisition Corp. ("Canadian Exchange Co.") which are exchangeable on a one-for-one basis into McEwen Mining common stock