McEwen charms investors at PDAC
2012-03-06
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“Gold is money, if you don’t have gold you better get some,” says Rob McEwen, chairman and CEO of McEwen Mining (MUX-T, MUX-N), in a corporate presentation today at the Prospectors and Developers Association of Canada’s annual convention in Toronto.
McEwen, speaking briefly about the junior gold and silver markets, predicts a rosy outlook for the two precious metals.
“I think it’s going much higher, I think it’s going to US$5,000 per oz. [gold] before it’s over, and at the same time silver should get up to US$200 an oz.”
He points to a graph charting the price of the yellow metal versus the U.S. national debt over the last twelve years as one of the main reasons for his rosy outlook.
“You can see how gold is tracking the U.S. debt,” he explains, “and the concern about the confidence in the currency is driving this run in gold.
“It doesn’t matter what currency you hold in your pocket, it’s buying less each day, and that is compounded by the amount of debt the government puts out and the amount of inflation that is going on.
“If you are on a fixed income, salary, or fixed pensions or retirement income, you can’t survive in this environment with low-interest rate.”
McEwen says the way he copes with the low-interest rate environment is by doing what most investors consider risky, which is buying gold and gold shares.
When comparing gold miners to gold bullion, the bullion has far outperformed most gold stocks in the sector, notes McEwen. “If you looked at bullion, and in 2001 put your money in gold and sat back and put your feet up on the table and your hands behind your head and just said, ‘I’m not doing anything else.’ In Canadian dollar terms, you would have made 30% a year, for the last ten years, it was up plus 300 percent. And in US dollar terms, you would be up over 50%, and you wouldn’t have to do any thing.”
However, it’s not the same for gold stocks, which have lagged the prices of gold and gold bullion. “A funny thing’s happened,” says McEwen, “in the past when a company went out and expanded its production, the share price usually would go up, now it’s not happening.”
Illustrating his point, he noted since May 2006, major Goldcorp (G-T, GG-N) has grown output by 55%, but saw its share price increase by only 21%, when the price of gold gained 150% since 2006. In the same timeframe, Kinross Gold (K-T, KGC-N) upped production by 81% but saw its share price slide 13%, and Newmont Mining (NMC-T, NEM-N) which hasn’t changed its output, is up by 1%.
Many reasons could have lead to the disparity between the share price and gold price from rising mining costs to risky acquisition of projects to an unrealized value in the gold sector. Adding to that list, McEwen highlights the lack of CEO ownership, saying many executives heading major gold companies have very little of their own money invested into the company.
He says seniors could attract a much broader audience and higher share price, by starting to pay a larger dividend to shareholders.
McEwen currently owns 25% of McEwen Mining, which formed in January through the combination of his two companies: US Gold and Minera Andes.
He was also the founder of Goldcorp, and under his tenure took the company from a market cap of US$50 million to over $10 billion, and is aiming to replicate that success at McEwen Mining.
The company’s sole producing asset, the San Jose silver-gold mine in Argentina, is expected to produce 5.9 million oz. silver and 81,000 oz. gold this year.
The company is also pushing its El Gallo complex in Mexico and the Gold Bar project in Nevada towards production. First phase production from El Gallo is expected by mid-year, with full production in 2014. It also holds the Los Azules exploration-stage copper project in Argentina.
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