McEwen Mining (NYSE, TSX: MUX) posted a net loss of $99.2 million or $0.25 per share for the quarter ended March 31, 2020, primarily due to a $83.8 million impairment charge for its Gold Bar mine in Nevada.
The company says the write-down was necessary because a change in the geological interpretation resulted in a substantial reduction in the expected gold production over the life of mine. Before the impairment adjustment, net loss totalled $15.4 million.
The miner explains that it started experiencing poor reconciliation with the 2018 reserve estimate when the mine transitioned from the Cabin Creek to the upper benches of the Gold Pick West orebody at the end of 2019.
Preliminary plans indicate a likely 25% to 35% reduction in contained ounces at the Gold Pick deposit
“Our mining returned lower ore tons, gold grade and contained ounces compared to the block model. This is interpreted to occur because of greater structural control and less bedding control of the mineralisation than was previously modelled by our external consultant SRK Consulting in the 2018 feasibility study and 2018 reserve estimate,” McEwen says.
Re-evaluation of the resource estimate is currently underway, with a drilling program initiated in late March and extending into the second quarter of 2020. The company says preliminary plans indicate a likely 25% to 35% reduction in contained ounces at the Gold Pick deposit relative to the 2018 reserve estimate.
Mining operations at Gold Bar were suspended on April 1 due to concerns related to covid-19, but activities have recently ramped up with limited mining and stockpile processing. The company is evaluating next stages to resume normal operating capacity.
During Q1, the Gold Bar mine produced 9,100 gold-equivalent ounces (GEO), surpassing the Black Fox mine in Ontario, which produced 8,300 GEOs. Meanwhile, the San José mine in Argentina, jointly owned with Hochschild Mining, had 14,900 GEOs of attributed production.
Shares of McEwen Mining dropped 6.7% at Tuesday’s market open. The Toronto-based mining firm has a $356.3 million market capitalization.