«I'm Very Positive on the Price of Gold»
Rob McEwen, founder of McEwen Mining and former CEO of Goldcorp, explains why he expects a significantly higher gold price despite the current weakness of the precious metal. He also talks about the outlook for the mining sector and explains why he makes a big bet on copper.
Gold is having a hard time. While the stock market is booming and an increasing number of investors are embracing cryptocurrencies, the precious metal has come under renewed pressure in recent weeks. Shares of gold mining companies are struggling with a stubborn correction.
Rob McEwen, however, thinks gold is about to stage a big comeback. The 71-year-old Canadian is one of the best-known proponents of the mining industry. He founded the Goldcorp in the mid-1980s, which was taken over by industry leader Newmont in early 2019. Today, he heads the junior company McEwen Mining with assets in Canada, the U.S., Mexico and Argentina.
«I think the gold price could be quite a bit higher», Mr. McEwen says. «That’s just because of all the money printing that is taking place», he adds.
In this in-depth interview with The Market NZZ, which has been edited and condensed for clarity, the industry veteran says why he doesn't see cryptocurrencies like Bitcoin as serious competition for the precious metal, how he feels about the prospects for the mining sector, and why he is currently investing a lot of money in a large copper project in the Andes Mountains.
Mr. McEwen, everything goes up: from meat to coffee beans to cars and homes. Just gold seems to have lost its glamour. What’s the matter?
I think we are at a seasonal low for gold. There is a seasonality every year. It’s a cycle. This summer, a lot of portfolio managers decided: «I am going to take some time off and be with my family.» But the fundamentals are expected to improve now, since people come back in the fall. So I am very positive on the price of gold, as I’m on the price of copper.
Why?
There has been an incredible amount of monetary stimulus brought on by governments in response to Covid. We have never seen the money supply expand as fast globally. And, coupled with low interest rates, masses of people went into the broad stock market. They also speculated in real estate. As a result, there is almost no place to put your money right now where you can expect a decent return. Investors seem to be thinking that the central banks are controlling the direction of the economy.
This speculative fever can be well observed in the wild price swings of stocks like AMC and GameStop or cryptocurrencies like Bitcoin. Why is gold left out?
Gold is passé, at least that’s what the markets are saying: It’s no longer relevant. Centuries of history are just being erased. Gold is no longer something you need. You need something new, something innovative. That’s what the general thinking seems to be. In regard to cryptocurrencies like Bitcoin I ask myself: How many currencies have run up like that? Historically, currencies are not viewed as an investment. They might be a diversification, but this type of escalation in value is remarkable. I think of the cryptos as sort of an American Express check. I don’t know if you remember those, but it was a very expensive way to transfer money. For quite a long time, cryptos have been kind of a closed, almost over-the-counter market. Once you get more public trading, some of that price escalation - I call it manipulation - will disappear.
So for now, cryptos are no real competition to gold?
The other thing that is somehow disturbing about cryptos is the leverage that can be used on these small, over-the-counter markets. Whenever you are asked to use 50:1 or 100:1 leverage, there comes a day when someone fails. And then, the system sends shockwaves throughout. Hence, you have the robberies that are starting to happen in the crypto space. Just recently $600 million seems to have been taken out of certain people’s pockets. And Mt. Gox lost $400 million. That is a lot of money.
Where do you see gold heading to in the next couple of years?
Higher. I know that’s rather vague, but I think the gold price could be quite a bit higher. That’s just because of all the money printing that is taking place. Cash is valueless at the moment. You want to spend it because it is depreciating in value.
Then again, skeptics say that gold has no practical use except in jewelry and electronics. You just keep it in the safe so you can sleep well. How much gold is needed worldwide anyway?
Well, central banks are buying gold again. So they obviously think they need something behind their currency, some reserves. And that is a big change in the last five years: They started buying. Sure, people still like gold for jewelry. It’s also used in electronics. The industrial demand is coming from communications and satellites, but gold is essentially a reserve currency.
Shares of large mining companies such as Newmont, Barrick Gold, Agnico Eagle Mines or Kinross Gold are currently trading at historically low valuations. What do you think about the outlook for the mining sector?
They mainly benefited from the improved gold and silver prices. They really improved their balance sheets. Their treasuries are filling up, and they are paying dividends. I think they are looking at their reserves and resources. As they got bigger, going through those assets faster, they focused primarily on buying junior miners as a replacement in the last few years as opposed to large investments.
In early 2019, Newmont acquired its Canadian competitor Goldcorp - which you founded and led for many years as the CEO - for $10 billion. How has the integration of the two companies worked out?
I guess the market is looking at it this way: It was not a smooth transition as it was meant to be. There were some operating issues in the Goldcorp portfolio. Sometimes your enthusiasm carries you away and aligns you from issues inside. But they are the biggest in the industry at the moment.
Are shares in large mining companies a good investment right now?
It depends on your investment profile. Personally, I tend to favor the juniors and explorers. I think there is more explosive growth that can occur in this segment of the industry. You sacrifice liquidity, but the potential for gains is larger. Then again, if you are a more conservative investor looking for exposure to gold, those are good names you can take into consideration.
If you had to pick one:, which large-cap miner would you prefer?
I would probably go with Barrick because of CEO Mark Bristow and the management of the company. He made Barrick very lean and mean. Agnico has done a good job, too.
In the global mining industry, there is always the risk of resource nationalism. McEwen Mining owns assets in Argentina and Mexico. How does the company deal with this issue?
Mining can be a very important part of the revenue of certain countries. These assets are usually owned by foreign interests that don’t have as many friends in the country. And there is not a lot of argument from the nationals when the government either imposes higher taxes or makes a move to take a bigger piece of the pie. They are very happy to see you make investments and pay their citizens. But when they feel they are not getting enough, they just arbitrarily step in and say: «Well, this is how the world works, fellows!» Right now, in South America the shift to the left is quite dramatic in Chile and Peru, at least in their rhetoric. That has caused Argentina to look more attractive to a number of major players. The country is embracing mining, and they want to see these investments because of their longer-term nature.
In the San Juan region of northwestern Argentina, McEwen Mining is developing a large copper deposit. How is the project progressing?
It takes a while because right now, we are doing a preliminary feasibility study. We are advancing the project, building its value. But for a mine there generating cash flow, in an optimistic view, we are nine years away. Right now, what we are doing is building access: a new route that gives us twelve as opposed to five months access during the year. The site is situated at 3,500 m elevation in the Andes Mountains, on the border with Chile. Today, there are two mountain passes that deny us access around the year. The new route would be lower altitude and would give us constant access to the site. It is quite exciting to be going ahead.
The Los Azules site in San Juan, Argentina, where McEwen Mining explores a large copper project.
What are the prospects for copper?
There is lots of upside in copper. When you look at the electrification of transportation, the demand for renewable energies and the economic growth in Southeast Asia, I think copper has a bright future. So sitting on one of the larger undeveloped copper deposits not owned by a major mining company is a good position to be in.
How large is the project?
Maybe it is not the right way to look at it because you are not supposed to add your indicated and inferred resources together, but I do it just to get a picture of the size: So we have 29.5 billion pounds of copper. And if you take the current gold and copper price and transfer the copper price into the gold price, you have about 480 pounds of copper which is equal to one ounce of gold in terms of value. So if you take those same numbers and use them to calculate our resources, you get about a 70 million ounce gold deposit.
The copper price has already picked up significantly. What about the fundamentals for the industrial metal looking ahead?
Goldman Sachs is projecting a fairly large deficit in the global copper market. The automakers, whether it is Mercedes or General Motors, are all saying: «50 or 70 percent of our cars by 2030 are going to be electric.» Those cars all use over 100 pounds of copper. That is a big shift in the marketplace. Here’s the thing: There are current projections of demand creating a shortfall that would suggest prices are going higher. And then, looking at the time it takes to develop a mine of the size that has an impact on the copper market, those time lines are getting longer, not shorter. As a result, you probably get a squeeze in the price.
You plan to take the copper project public. What is the timetable for an IPO?
We look to take it public before the end of Q3 next year. Currently, it’s a wholly owned subsidiary. We are in the midst of financing right now. We are looking to raise 60 to 80 million dollars. I committed $40 million personally. If we can raise $80 million, McEwen Mining would own approximately 70% of the new copper company.
Rob McEwen
