Buying mining stocks is a high-risk-return proposition. If you dig down into some of the smaller, more volatile operations, you can scale the risk up even further. Canadian gold, copper and silver miner McEwen Mining is one such firm.
The founder, Chairman and chief owner, Rob McEwen, still owns a large part of the firm and calls many of the shots. There is substantial key-man risk involved, but also the comfort that comes with knowing the management also has skin in the game with interests closely aligned to shareholders. It’s a tough call, which means any McEwen mining stock forecast needs to factor in many unusual variables.
Is McEwen Mining a good stock to buy? Rob McEwen is probably best positioned to answer that, and he currently holds 18% of the New York and Toronto listed firm. This MUX stock forecast will sift through the technical and fundamental analysis price drivers in an attempt to establish if other investors should be joining him.
Where Will McEwen Mining’s Stock Price Be in 12 Months?
Actions of the US Federal Reserve look set to be major short-term drivers of the price of gold, silver and copper. While it takes years to locate and start extracting the metals, the demand side of the price equation can be influenced by a passing comment from US Fed Chair Jerome Powell. His guidance on tapering and possible interest rate cuts in the US are keenly monitored at the moment. Markets are pricing in that his roadmap for potential rate cuts in 2024.
Gold and silver prices tend to be negatively correlated to interest rate levels. Extra returns on cash held in savings accounts often result in those containing precious metals trimming their positions and moving into cash. If the US Fed points to interest rate cuts, then gold and silver prices can be expected to rally, and that would be good for the McEwen share price. Monetary stimulus would also be good news for the broader economy, driving demand for the copper McEwen mines and manufacturers buy.
Currently, MUX revenues are mainly reliant on gold and silver mining operations, and the prices of precious metals have not surged in the same way as the price of copper.
In terms of demand for McEwen’s products, the same principles apply in the medium term. Continued economic growth and lower-than-expected interest rates would be good for the share price. At the same time, inflationary pressures could encourage a move into commodities that can offer a form of hedging against inflation.
Supply-side factors which are specific to MUX stock are likely to come into play over the medium term. A lot is riding on the projected reserves in the Los Azules mine coming good.
Analysts covering the stock are bullish, with all five having a Buy rating. The average price target is $13.38, representing a significant upside from current levels. The highest target among those analysts is $15 per share, while the lowest is $12, still representing upside.
McEwen Mining News
In June, McEwen Mining announced a private placement for up to $70 million, with proceeds set to be used to advance its Los Azules copper project in the San Juan province of Argentina. The common shares are being offered at $30 per share.
In February, McEwen Mining reported on three outcomes of its large exploration investment at the Stock Mine property, part of the Fox Complex, in the Timmins gold district of Northern Ontario, Canada. The first was a 31% year-over-year increase of gold resources at Stock West and Stock Main. Two was the confirmation of good-grading structures plunging to depth. The third was Stock East appearing as a potential new near-term source of future revenue.
In February, McEwen provided an update on assay results at Los Azules, stating that the results from the period not only validate previous drilling results but also confirm the continuity of mineralization and extend the mineralization.
Who is McEwen Mining (NYSE: MUX, TSX: MUX)?
McEwen Mining’s mission statement is to “create a strong and profitable gold and silver producer focused in the Americas” (source: McEwen Mining). It has operations in Canada and the USA, which offers a degree of insurance against geopolitical instability in other parts of the world.
To counterbalance those reserves, the firm has largely untapped and, to some extent, unknown reserves in South America. The Los Azules mine in Argentina is a prime example. It has Indicated resources of copper totalling 10.2bn/lb/cu and Inferred reserves of 19.3bn/lb/cu. The site has a projected mine life of 36 years, but the fact that McEwen is still in the process of building a 50+ mile road to it demonstrates the risks as well as the opportunities of buying into a pioneering miner.
There are some basics in place which help form the foundations of any McEwen stock predictions. The firm is listed on the Toronto and New York stock exchanges and has a market capitalisation of approximately $500m. That’s small for a miner but large enough for it to be on the radar of institutional brokers. The four analysts covering the stock all tip it as a Buy.
The appetite for long positions might come down to the relatively poor performance of the McEwen Mining stock price. The share price has fallen from $4.31 in 2017 to $1.08 in November 2021. This matches the price move in the gold and silver markets more than the price of copper, which has recently skyrocketed. If MUX can demonstrate an ability to exploit its copper reserves and make it a more substantial part of its operation, then the current share price could be a dip to buy.
McEwen Mining Long-Term Forecast
A long-term McEwen Mining stock forecast will be heavily influenced by the progress made in the Los Azules mine, but there is a range of other factors to consider.
The stock remains a proxy for those looking to take a position on gold and silver. It’s often more convenient to hold a mining stock than the metals in physical form. One long-term threat to the price of gold is the Federal Reserve keeping rates higher for longer than expected.
A move into copper mining should help insulate MUX from some of that risk. Home improvements and higher numbers of electrical devices are good for the price of the metal. A shift towards electric vehicles is also underway, and copper is an essential part of that manufacturing process.
It takes years for miners to research new sources of copper. Then the financing and development of sites add further delays to the metal being extracted. The 2013 PEA of the Los Azules mine demonstrates the time it can take for increased supply to come onto the market. If a commodities super-cycle is about to come into play, McEwen looks well-positioned to make substantial returns from its mines that could be coming online at just the right time.
The mine is expected to, on average, produce 415m/lb of copper during the ten years of operations. The cash copper production costs for the first ten years are expected to be on average $1.11/lb. If those projections hold up, it will pay back costs within 3.6 years, and Los Azules has a LOM (Life of Mine) forecast of 36 years.
Is McEwen Mining a Good Buy?
McEwen Mining buy or sell? There are arguments for both approaches and given the high risk-return involved in small-cap mining stocks, whichever approach is taken, it would be prudent to follow basic risk management protocols.
All speculative investments should be made using amounts of money small enough that they can afford to be lost entirely. That rule certainly applies to exploratory miners with assets vulnerable to sometimes dramatic price swings in the global commodity markets.
There are other reasons for investors in McEwen mining going ‘all in’ too early. The firm’s ambitious projects require further financing, and private placements and IPOs have already taken place, and more are on the cards. These can result in existing investors seeing the value of their holding effectively decrease if they don’t take up the option to buy more stock at a discount.
A lot also comes down to the performance of the founder, Chairman and chief owner of the stock, Rob McEwen. His impressive reputation in the Canadian mining sector will be a big draw for a lot of investors. His turnaround of McEwen Mining is a work in progress, but given enough time and an uptick in commodity prices, particularly copper investors could bank considerable profits.
A key risk that needs to be considered as McEwen is 74 years old, and the call to make is whether he sees his eponymous firm as his lasting legacy or whether he might lose appetite for a multi-year project. His annual salary for his work is reported as being $1, which demonstrates his commitment is based on his 18% shareholding. Which means his interests are as closely aligned to ordinary shareholders as they can be.
One red flag would be if McEwan were to scale back his 18% ownership of the firm. While he is in charge and motivated, there is plenty of room for copper prices to rally and reserves in Los Azules to match or beat predictions.
