Paving the Path to Further Growth at the Fenix Project

Q: What were the reasons for the 3Q19 increase in the cost per ounce of gold extracted at El Gallo?

A: Due to an expected situation, we had a lower production and as a result, the cost per ounce was affected. It was a temporary and anticipated situation as gold recovery slowed down by the rainy season in Sinaloa, but the absolute cost of El Gallo Gold has not undergone significant modifications in recent quarters.

El Gallo is a mining operation that is already in a state of decline, this means resources are running out and have entered the stage of residual leaching. That is why it is so important for us to match the beginning of the Fénix project with the end of El Gallo’s productive life. El Gallo has historically processed ore with oxides and it is an operation that consistently exceeds the expectations. A clear example happened in 2019 when the original estimate was to produce 13,000 ounces of gold, and we ended up producing 16,300 ounces.

The residual leaching of El Gallo mine might end in early 2021. However, today we are implementing significant improvements to the leach pads operation, including a high-pressure solution injection, which raises the recovery from our original projections. If this project proves to be as successful as it has been for the past few months, it could give the mine another year of life with profitable production.

We hope to work simultaneously with the final stage of El Gallo's operations while starting up the Fénix project because we do not want to lose talented people. This is because the same experienced workforce that we have today operating in El Gallo would be part of Fénix.

Q:  What factors will lead to the achievement of these production goals?

A: The success story we have in El Gallo operation has been written thanks to the talent and dedication of the people that work there, a high level of teamwork, the strong leadership of the management team at the mine site, and the support of our corporate team in Toronto.

By operating consistently with good safety and operational discipline the results are going to be positive. At McEwen Mining we believe that we are in a very good position for El Gallo to continue its operations in 2020 because it not only meets but also exceeds production targets and safety goals.

Q: What is McEwen Mining's gender perspective in its operations in Mexico?

A: Compañía Minera Pangea has been a sponsor of WIM (Women in Mining) for many years and have worked together to promote gender equity.  We coordinate regular training and discussions to maintain gender equity and respectful treatment as values within our organization.

Our talent selection process would always focus to choose the best and most suitable people regardless of gender, although in our experience hiring talented women has led to improvements in productivity. Currently, about 15 percent of the workforce at McEwen Mining in Mexico is made up of women and, hopefully, such number can increase going forward as we find more skilled and accomplished women that wish to work with us.

Q: What is in store for the communities surrounding El Gallo mine once the project ends?

A: We have assessed the scenario in which El Gallo complex is no longer in operation, hopefully still in many years from now,  about three years ago we started a process with the communities so that they would be sustainable if we abandoned the project since we employ many people from the surrounding areas.  During our mining phase in El Gallo, out of our 500 people including contractors, over two-thirds were from neighboring communities. We began to provide training to help explain how to create a microenterprise including all the legal requirements. We implemented an industrial sewing and many other workshops and provided the necessary equipment. Today, we have graduates that took such workshops.

Something to highlight is our company’s contribution to education through a competence certification program.  In a joint effort with the Council for Standardization and Certification of Labor Skills (CONOCER) and the Technological University of Hermosillo (UTH) we evaluate and certify our staff in several disciplines based on the labor experience.  Which make us be proud not only because of the reflection of our best industry practices, but also because this adds to each person's work resume in and out of our company, therefore we contribute to training, employment and development of our people.

Q: How do the indigenous consultation and environmental matters affect a new project like Fénix?

A: Well, there are no indigenous populations in the area where we operate. On the other hand, the communities, with which we have maintained a good relationship and communication for years, have accepted us operating in the area.

As for the land, we have an environmental remediation program that includes a reforestation plan.  In the case of the leach pads, with the Fenix project all the ore will be reprocessed and detoxified before we will fill in a mined open pit, therefore minimizing the environmental impacts.

Q: What steps has McEwen taken to adapt to the new scenario that the Mexican mining industry is experiencing?

A: Mexico is a very important mining jurisdiction therefore the federal government should guarantee clear rules for investment; certainty is the best friend of investment.

In addition, the security issues continue leading to a decline in the appeal of Mexico to develop mining projects.
I believe Mexico is and should continue to be an extremely important mining investment destination in the future, as long as these two issues are addressed.

On the other hand, many people have no idea of what we do or the impact we have on society, we need to go out and tell our story because it is a great story.

Q: How will McEwen Mining react if the Environmental Tax is implemented in the state of Sinaloa?

A: Mining is already among the most regulated industries, and in Compañía Minera Pangea we fully comply with safety, health and environmental standards.

Also, we had voluntarily adhered to the UN Global Compact and adopted the 10 principles and 17 objectives of sustainable development in our operation.  In addition, we have been awarded as Socially Responsible Company (ESR) in 4 consecutive years.

We try to maintain open and transparent communication with the different government agencies and to always offer our opinion individually or through the mining chamber. A new tax would potentially prevent growth of the mining industry in the state, which could also affect the supply chain, jobs and communities.

However, if Sinaloa would seek to implement an environmental tax and such tax would be applicable to our company, then we would look forward to participating in the design and implementation of the law particularly with regards to the usage and beneficiaries of the resources within the state of Sinaloa. In that case, similar to all of our other obligations, we would comply, which has always been our policy.