TORONTO (miningweekly.com) – TSX- and NYSE-listed McEwen Mining is the latest gold producer to slash growth forecasts as a result of lower gold prices and an overall bear market, saying that it would cut its expected gold-equivalent output by 2016 by 22%.

McEwen Mining, under the leadership of chief owner Rob McEwen, late on Monday said the forecast production growth had been reduced to 225 000 gold-equivalent ounces (GOEs), which would consequentially result in reduced capital requirements from its development projects to the point that its cash reserves and cash flow from operations would be enough to fund the majority of the revised production growth.

Faced with lower precious metals prices and challenging capital markets, miners were being forced to look closer at low-cost alternatives to grow profitability.

The company said it would proceed with the expansion of the El Gallo Phase 1 mine, in Mexico, for about $5-million in capital expenditures (capex), to produce about 75 000 oz of gold in 2016.

The miner also expected its fully owned Gold Bar project, in Nevada to be permitted in late 2014 or early 2015, and to be constructed during 2015 and up and running by 2016 at a rate of 50 000 oz/y of gold, while its 49%-owned San Jose mine would contribute about 100 000 GOEs in 2016.

McEwen added that it had started to re-evaluate the El Gallo Phase 2 project as a heap leach operation, rather than a conventional milling operation. Preliminary column testing results on ore recovery were “encouraging” and McEwen said if further testwork and bulk sampling were conclusive, then El Gallo 2 would be developed as a heap leach operation.

The company noted the resulting capex reduction for El Gallo 2 would be “considerable”, from about $180-million for a milling process, to between $20-million and $30-million for a heap leach operation. The impact on the project’s internal rate of return (IRR) would be significant, owing to the 20% reduction in the original capex to generate 60% of the previously forecast production.

“If the El Gallo 2 heap leach process works, then its projected production could add an additional 60 000 GOEs, and thus increase total company production to 285 000 in 2016. This revised total production number would be very close to our original forecast of 290 000 oz in 2015,” McEwen said.

The metallurgical testing of El Gallo 2 ore was expected to be complete by the fourth quarter and should coincide with the permits to mine from the Mexican government, the company said.

McEwen added that, as a result of its lower capital requirements, the grounds for selling Los Azules were effectively eliminated, prompting the company to withdraw the property from the sales process, citing its hopes that the asset, which held a significant ore deposit, would command a better price in the future.

"Lower gold and silver prices have reduced our cash flow and the projected IRRs on our development projects and increased the cost of capital. As a consequence, we had to reassess our development plans and look at alternatives to avoid excessive dilution at current market prices.

“Fortunately, we have developed alternatives that our cash reserves and cash flow from operations would allow us to develop and fund largely from internal sources, with limited use of very expensive outside capital. Another very positive aspect of this alternative course is the potential for a significant increase in the IRR of El Gallo 2.

“Clearly, adversity is the mother of invention," chief owner McEwen said.