McEwen Mining Completes Upsized $110 Million Offering of Convertible Senior Unsecured Notes

Rhea-AI Summary

McEwen Mining (NYSE: MUX) has successfully closed a $110 million offering of 5.25% convertible senior notes due 2030, including the full exercise of a $15 million option. The notes feature an initial conversion rate of 88.9284 shares per $1,000 principal amount, equivalent to $11.25 per share, representing a 30% premium to the February 6th, 2025 closing price.

The offering generated approximately $90.8 million in net proceeds after deducting $15.1 million for capped call costs and $4.1 million in expenses. The company will use $20 million to partially repay its senior secured credit facility, with remaining proceeds for general corporate purposes. The capped call structure potentially increases the effective conversion price to $17.30 per share, limiting dilution.

The company plans to increase gold production at the Fox Complex from 30,000 ounces in 2024 to 60,000 ounces in 2027 and 150,000 ounces by 2030.

Positive

• Secured $110 million in financing at 5.25% interest rate, 4.50% lower than existing 9.75% senior secured debt
• Implemented capped call structure to minimize potential shareholder dilution
• Plans to reduce senior secured debt from $40M to $20M
• Projected increase in Fox Complex gold production from 30,000 oz (2024) to 150,000 oz (2030)

Negative

• Takes on $110M in new debt obligations
• Potential dilution risk if stock price exceeds $17.30 at maturity
• $19.2M in combined capped call costs and offering expenses

Insights

Financial Analyst

This innovative financing deal represents a sophisticated capital structure optimization that delivers multiple strategic benefits. The $110M convertible note offering with a 5.25% coupon achieves three critical objectives: lower cost of capital, minimal dilution risk, and enhanced financial flexibility.

The interest rate savings are substantial - the 5.25% coupon represents a 4.50% reduction from their existing 9.75% secured debt. On the $20M debt repayment alone, this translates to annual interest savings of approximately $900,000. The unsecured nature of these notes also improves the company's debt structure flexibility.

The sophisticated capped call structure effectively creates a dilution-free zone up to $17.30 per share, representing a 100% premium to the recent share price. This mechanism allows shareholders to retain more upside potential while still providing attractive terms for convertible investors. The $15.1M cost of the capped call appears reasonable given the long-term dilution protection it provides.

The growth strategy at Fox Complex, targeting a 5x increase in gold production by 2030, now has clearer funding visibility. With $55.7M available for general corporate purposes after debt repayment and capped call costs, the company has significant resources to pursue its expansion plans. However, investors should note that achieving the targeted 150,000 ounces of annual production will likely require additional capital beyond this raising.

The transaction's structure indicates strong institutional investor confidence, as evidenced by the upsized offering and full exercise of the additional option. The conversion premium of 30% and effective conversion cap at 100% above current prices suggest the market sees substantial upside potential in McEwen's growth strategy.

TORONTO, Feb. 11, 2025 (GLOBE NEWSWIRE) -- McEwen Mining Inc. (NYSE: MUX) (TSX: MUX) (the “Company”) is pleased to announce it has closed its previously announced offering of 5.25% convertible senior notes due 2030 (the “Notes”) in an aggregate principal amount of $110 million (the “Offering”), which includes the upsized offering of $95 million and the exercise in full of the $15 million option granted to the initial purchasers of the Notes. All amounts are in United States Dollars.

The initial conversion rate for the Notes is 88.9284 shares of the Company’s common stock per $1,000 principal amount of Notes, equivalent to an initial conversion price of approximately $11.25 per share, which represents a premium of approximately 30% to the closing sale price of the Company’s common stock on February 6^th, 2025; the capped call⁽¹⁾ has the potential to synthetically increase the effective conversion price for conversions at maturity to $17.30 per share, which represents a premium of 100% to the closing sale price on NYSE of the Company’s common stock on February 6^th, 2025.

“McEwen Mining chose this innovative financing to fund accretive growth initiatives at what we view as an attractive cost of capital designed to minimize potential dilution to our existing stockholders. I am excited about the prospects for our Company while protecting our stockholders from substantial dilution. Dilution from this financing has the potential to be zero if the stock price at maturity is at or below $17.30, a 100% premium to our NYSE closing sale price of $8.65 on February 6^th, 2025. In addition, the Notes are unsecured, while carrying a coupon of 5.25%, which is 4.50% lower than the 9.75% coupon paid on the outstanding senior secured debt of $40 million. This debt will be reduced to $20 million through partial repayment using a portion of the net proceeds from the Offering. The remaining net proceeds will be used for general corporate purposes. As a result of our exploration success expanding our gold resources, we are developing plans that target an increase in the Fox Complex’s gold production from 30,000 ounces in 2024 to 60,000 ounces in 2027 and to 150,000 ounces by 2030,” commented Rob McEwen, Chairman and Chief Owner.

Final Details of the Offering

• Approximately $90.8 million of net proceeds after adjusting for $15.1 million of capped call costs, and $4.1 million of underwriting costs and other offering expenses
• Interest rate of 5.25% per year, payable semi-annually in arrears on February 15^th and August 15^th of each year, beginning August 15^th, 2025
• Initial conversion rate of 88.9284 shares of common stock per $1,000 principal amount of Notes, which represents a conversion price of approximately $11.25 per share
• Effective conversion price for conversions at maturity of up to $17.30 per share after giving effect to the capped call
• The Notes are callable at the Company’s option on or after August 21, 2028, if the Company’s common stock is at least approximately $14.62 (130% of the approximately $11.25 conversion price) for a specified period
• The Notes will mature on August 15^th, 2030, unless earlier converted, redeemed or repurchased

Use of Net Proceeds for the Offering

1. Approximately $15.1 million to pay the cost of the capped call;
2. $20 million to partially repay a portion of the Company’s borrowings under its senior secured credit facility; and
3. The remaining net proceeds are for general corporate purposes.
   

The Offering was conducted in a private placement to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The offer and sale of the Notes and any shares of common stock issuable upon conversion of the Notes have not been, and will not be, registered under the Securities Act or any other securities laws, and the Notes and any such shares cannot be offered or sold absent registration or except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any other applicable securities laws. This press release does not constitute an offer to sell, or the solicitation of an offer to buy, the Notes or any shares of common stock issuable upon conversion of the Notes, nor will there be any sale of the Notes or any such shares, in any state or other jurisdiction in which such offer, sale or solicitation would be unlawful.

(1) A capped call is an options strategy used by companies issuing convertible debt to reduce potential equity dilution upon conversion. It involves purchasing call options at the convertible bonds strike price while simultaneously selling higher-strike call options, limiting the potential stock appreciation benefit for bondholders and effectively raising the conversion price.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This news release contains certain forward-looking statements and information, including “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements and information expressed, as of the date of this news release, are the Company’s estimates, forecasts, projections, expectations, or beliefs as to future events and results. These forward-looking statements include statements regarding the intended use of net proceeds from the Offering, and the effects of entering into the capped call transactions described above and the actions of the option counterparties and their respective affiliates. Forward-looking statements and information are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic, and competitive uncertainties, risks, and contingencies, and there can be no assurance that such statements and information will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements and information. Among the important factors that the Company thinks could cause its actual results to differ materially from those expressed in or contemplated by the forward-looking statements include risks related to or associated with the intended benefits of the Offering, including the capped call transactions, market conditions, and risks relating to the Company’s business, including those described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31^st, 2023 and in the Company’s subsequent filings under the Securities Exchange Act of 1934, as amended. All forward-looking statements and information made in this news release are qualified by this cautionary statement.

The NYSE and TSX have not reviewed and do not accept responsibility for the adequacy or accuracy of the contents of this news release, which has been prepared by the management of McEwen Mining Inc.

CONTACT INFORMATION
150 King Street West
Suite 2800, PO Box 24
Toronto, ON, Canada
M5H 1J9

RELATIONSHIP WITH INVESTORS:
(866)-441-0690 - Toll free line
(647)-258-0395
Mihaela Iancu ext. 320
info@mcewenmining.com

FAQ

What is the interest rate and maturity date for MUX's new convertible notes?

The convertible notes have a 5.25% interest rate, payable semi-annually, and will mature on August 15th, 2030.

What is the conversion price for MUX's 2030 convertible notes?

The initial conversion price is $11.25 per share, with a potential effective conversion price of up to $17.30 per share after the capped call structure.

How will MUX use the proceeds from the $110M convertible note offering?

MUX will use $15.1M for capped call costs, $20M to partially repay senior secured credit facility, and the remainder for general corporate purposes.

What are MUX's gold production targets for the Fox Complex through 2030?

MUX plans to increase Fox Complex gold production from 30,000 ounces in 2024 to 60,000 ounces in 2027 and 150,000 ounces by 2030.

When can MUX call back the 2030 convertible notes?

MUX can call the notes after August 21, 2028, if the company's stock price is at least $14.62 for a specified period.