Published on: August 4, 2016 | Last Updated:
Legendary mining executive Rob McEwen knows a thing or two about gold-mining companies, having built Goldcorp Inc. into a powerhouse producer before stepping down as chairman and CEO in 2005.
Now, he’s working on building up his next venture, McEwen Mining Inc., with mines in Mexico and Argentina just as gold has hit a rebound. The Vancouver Sun caught up with him at the recent Sprott Natural Resources Symposium to talk about his views on where the rally is going:
Q: With your firm, you take the title chief owner. Why is it important for you to spell that out?
A: I think it’s very important that people running companies have skin in the game, they have something at risk. They don’t just get a big salary with lots of options and have no investment in the company. It makes you focus on what’s the most important thing a company should be doing, that is building the value for every other share owner of that company.
Q: The price of gold is up 25 per cent from its trough, the S&P/TSX Gold Index has bounced back more than 100 per cent, many people have read a lot about the uncertainties out there that are driving this. What’s your view on what got us here?
A: There are a number of factors. One, the expansion of money supply by countries around the world, they’re debasing the currency. The incurrence of debt. In the U.S., we’ll use as a proxy for the developed world, the national debt is now more than $19 trillion. People are saying ‘we’re not believing government,’ all these politicians are being kicked out right now is a lack of confidence in politicians. There is a lack of confidence in our monetary system and people are saying ‘what over time, and over the millennium, has held its value?’ and gold is there.
Q: Where do you think gold is going to go?
A: I think this year we’ll see the high teens (over today’s price of $1,350) if not $2,000. Three, four years from now I could see $5,000 gold.
Q: Why so high?
A: If you look at the last cycle for gold, when it was freed up in 1971, gold was $40. It ran up to just over $800 in 1980, so a factor of 20. Apply it to the last low for gold, which was $250, 20 times $250 is $5,000. This is just a repeating cycle. On top of that, you have negative interest rates that are frightening the heck out of a lot of people because they can’t retire.
Q: What do companies have to be careful about now that more money is coming back into the sector?
A: The over-exuberance. In the last cycle, money was in abundance of supply and everything else was in short supply: talent, capital, consumables, services. We’ve seen that being washed out in the last four-and-a-half years (but) we’ll see in the next couple of years that markets will tighten up.
Q: Vancouver is a lot about the mining exploration sector, what is the rally that is happening right now going to mean for them?
A: It’s been good, the juniors have outperformed the mid-tiers and the majors by a good margin right now. To me, exploration is the R&D of the mining industry and there are going to be some exciting exploration stories that are going to pop into the market and have explosive growth, just as we’ve seen in every other cycle.
Q: I’ve had another executive explain to me that he’d rather be leveraged to growth in gold production than price, because you can’t count on price. What’s your view on that?
A: I’m a big believer in, if you’ve got a good growth story and you’re still finding more gold through exploration, go at it, because you are building value for your shareholders.
Q: At McEwen Mining, you have found some strategic acquisitions to build your company. What are you on the lookout for now?
A: If we can develop assets we own, that’s far cheaper than going out and buying them. (But) we are looking for M&A. The ideal candidate would be a company with a large shareholder, similar to McEwen Mining, which has a similar view of the future for gold, and believe they have to become a larger company.
The contents of this interview have been condensed for brevity.