El Gallo's Mid-2026 Start: A Tactical Bet on a $22 Stock's Next Move

The immediate catalyst is clear. In late December, McEwen secured the critical environmental permit extension from the Mexican government, removing the final regulatory hurdle for its El Gallo reprocessing project. This isn't just a procedural win; it locks in a precise construction timeline. The company now targets a mid-2026 start for Phase 1 Mill Construction, with the first gold pour from the reprocessed heap leach pad expected by mid-2027. For a stock priced for perfection, this creates a near-term event horizon.

The setup is now binary. The stock has already priced in this success, trading at $21.78 and hovering near its 52-week high of $24.88. Its 120-day gain of 87% shows the market has fully discounted the permit news and the projected 2027 cash flow. This leaves almost no room for operational missteps or delays. Any stumble in the construction schedule or a delay in the first pour would likely trigger a sharp repricing, given the stock's elevated valuation and the compressed timeline.

The bottom line is that the permit secures the path, but the stock's massive run-up has already captured the good news. The next move hinges entirely on execution against that locked-in mid-2026 start date.

The Mechanics: Project Economics and Remaining Capex

The project's financial specifics reveal a solid, if not spectacular, reprocessing play. Phase 1 is fundamentally a reprocessing of existing waste from the historical leach pad, not a new discovery. It is expected to produce approximately 20,000 GEOs annually once operational. This nature of the project is a double-edged sword: it avoids major development costs but also caps the upside to the material already on site.

The updated economics from the new Preliminary Economic Assessment (PEA) show a modest improvement. The base case now projects a 12-year mine life and an after-tax IRR of 28%, up from 25% in prior estimates. This is a positive step, enhancing the project's financial profile. However, the gains are incremental, not transformative. The core cash flow driver remains the conversion of low-grade historical waste into gold and silver, which will generate enhanced free cash flow due to the lack of new exploration or development costs.

The remaining capital risk is now highly concentrated. The company has already purchased the ball mill, which is onsite, and the remaining capex for the project is estimated at $25 million. This is a significant reduction from the earlier Phase 1 capex of $41 million in the PEA, suggesting some cost discipline or earlier procurement. The tight remaining budget means there is virtually no room for overruns. Any unexpected cost escalation in the final construction phase would directly pressure the project's already-modest IRR and cash flow profile.

The bottom line is that the project's mechanics are straightforward and financially sound on paper. But the real risk is execution against that tight $25 million budget and the locked-in mid-2026 start date. The stock's high valuation leaves no margin for error in this final, capital-intensive phase.

Valuation & Near-Term Risks: The Run-Up vs. Reality

The event-driven opportunity is now priced in, and the stock's recent surge underscores the high expectations. Over the last 20 days, the share price has climbed 14.4%, and its 120-day gain stands at 87%. This massive run-up has pushed the stock to $21.78, just shy of its 52-week high. The market has fully discounted the secured permit and the projected 2027 cash flow, leaving almost no margin for error in the final construction phase.

This optimism clashes with near-term operational reality. The company's third-quarter results revealed ongoing headwinds, with a net loss of about $500,000 and a revised full-year production guidance lowered to 112,000-123,000 Gold Equivalent Ounces. This highlights that the El Gallo project is not the sole driver of the company's story, and execution challenges elsewhere in the portfolio are creating pressure. The stock's elevated valuation, with a forward P/E of -184, reflects a bet on future El Gallo success, not current operational strength.

The primary risks are now binary and tied directly to the locked timeline. Any slip in the mid-2026 start for Phase 1 Mill Construction would be a direct threat to the 2027 first pour target, likely triggering a sharp repricing. Equally critical is the reprocessing economics. The project's modest IRR and cash flow are predicated on converting the historical waste efficiently. If costs creep up or recovery rates underperform, the project's ability to justify the current valuation will be in serious doubt. With the remaining capex budget tight at $25 million, there is no room for overruns.

The bottom line is that the catalyst has been executed, but the stock has already moved. The next move depends entirely on flawless execution against a compressed schedule and the successful conversion of historical waste into cash flow. For a tactical bet, the risk/reward is now finely balanced, with the stock's high valuation leaving little room for the operational missteps that are always a possibility.

Catalysts & What to Watch: The Tactical Playbook

The investment thesis now hinges on a few clear, near-term events. The stock has priced in the permit success; the next moves will confirm or break the story.

The primary watchpoint is the actual start of construction. The company has targeted mid-2026 for construction start. Any slip from that date would be a direct negative signal, threatening the mid-2027 first gold pour target and likely triggering a repricing. For a tactical bet, this is the binary event to monitor.

Beyond the El Gallo timeline, watch for signs of improved operational control. The company's third-quarter results showed a net loss of about $500,000 and a lowered production guide. The next quarterly reports, covering Q4 2025 and Q1 2026, will show whether cost pressures are being managed and if progress on other projects, like the Stock Mine expected to begin production by mid-2026, is on track. Positive updates here could provide a broader earnings catalyst, supporting the stock even as investors focus on El Gallo's execution.

Finally, monitor for new drill results from the Twin Domes discovery at El Gallo. While the project's core economics are based on reprocessing, a successful resource expansion could add upside to the long-term value case. The company has indicated it will release new results from several areas within the complex in the coming weeks, which could serve as a positive sentiment driver.

The bottom line is that the tactical playbook is simple: watch the construction start date, monitor quarterly results for operational discipline, and keep an eye on exploration news for potential upside. Any deviation from the plan will be quickly priced in.