Rob McEwen: $5,000 Gold and $200 Silver Predicted
Source: Zig Lambo and Sally Lowder of
The Gold Report
Rob McEwen has become a legend in the gold mining industry by
skillfully assembling and building mining companies over the past
20 years. In this exclusive
interview, he explains his rationale for $5,000/oz. gold and
$200/oz. silver and how the factors leading to those price levels
will affect the industry and the companies exploring for and
producing the metals.
The Gold Report:
Rob, you've been quite vocal about your belief that gold will
reach $5,000/oz. (ounce) and silver $200/oz. for silver. Why and
when will that happen?
Your readers need to appreciate: Gold is money. It is currency. I
think the number of people familiar with gold will grow as people
see gold as a currency. China, India, Russia are buying gold to
diversify their foreign reserves. To restore the confidence in
currencies, I think some central banks, such as the Chinese and
possibly the Russian, will increase their gold holdings to the
level that the percentage of their total currency will be greater
than that of any other currency in the world. At that point, they
will assert that their currency should become the reserve
currency of the world.
If you look at the last gold run, gold went from $200/oz. in
mid-1979 to $800/oz. in early 1980. During the 10-year period of
1970-1980, we saw a 20-fold increase in the price, from $40/oz.
to over $800/oz. We also had a 20-year low in 2001 of $250/oz. If
you apply that 20-times multiple, you're up to $5,000/oz.
For silver, if you use the historic ratio of an exchange ratio
with gold of 16:1, you get to $312, so $200 is conservative. I
think we'll see these numbers within four years' time.
You are talking about a 15-year bull market for gold and silver,
starting in 2001 and ending in 2015 or 2016?
Yes. I don't think prices will necessarily fall dramatically, but
gold and silver will reach the zenith of purchasing power
relative to other asset classes. When gold peaked in 1980,
Volcker was channeling up interest rates. If you had rolled out
of bullion into fixed income then, you would have made a tidy
Are you predicting prices of $5,000/oz. and $200/oz. as spikes,
or plateaus that they will reach, stay at and trade around?
I think you'll have a spike at or above $5,000. Credit will
become more expensive, and at some point credit will be denied.
There'll be a need for liquidity, and the metals address that
When prices reach those levels, any project that smells of gold
or silver will become a prospect that people will try to put into
production. Will we end up with a glut of gold and silver on the
No, but the higher prices will spur more exploration. At the same
time, it is getting harder to bring a mine into production. It
takes longer and costs more. The regulators have put more rules
in place. It is not so much that the rules are wrong, but it's
the extended time frames. The risk of putting a property into
production has gone up dramatically.
You're starting to see real limits on the amount of growth
that can occur. In the 1990s and 2000s, very few people were
going through mining schools because there weren't many career
opportunities. The people who built the physical plants have
scaled back. We are seeing the impact of that lack of investment
in education, in the productive capacity of the suppliers and
huge jumps in the capital expenditures for various projects.
Labor wants a larger piece and you see a lot more labor strikes.
Finally, governments are looking at the mining industry as a very
easy target to extract more money from because the industry
doesn't have a lot of friends.
There is also a problem finding mining engineers who have track
records of putting projects with proven ounces into production.
There is a lack of intellectual capital.
You can see that manifesting itself all over the place. Coal
mines in Australia are hiring miners from Tennessee. They commute
between Tennessee and Australia on a three-week cycle. One
headhunter told me he had an assignment to hire 400 people-mining
engineers, geologists and related workers-for an iron ore mine.
His instructions were to make offers 50% higher than their
On top of that, the mines have been mining lower and lower
grade, supported by the higher prices. Few high-grade deposits
are being found. You have to put more capital in the ground and
mine a lower quality or concentration of mineral to stand
Wouldn't that increase the value of mid caps that have
experienced personnel on the production, mine building and
engineering side? They know how to put projects with tricky
deposits and lower grades into production.
You're right. There really is a premium on production and on
reserves. As the price of gold moves up, those mid caps will
become more desirable to the seniors and attractive to investors.
Companies doing exploration have proliferated. That creates
confusion in the marketplace. Companies will have to go to
greater lengths to differentiate themselves to attract capital.
Perhaps that is one of the reasons why the exchange-traded fund (
) is so popular.
Could that explain why the juniors have lagged? Companies have
projects that sound like they have great potential, yet the
prices of most juniors are going nowhere.
A couple of years ago, gold stocks had greater leverage than
bullion; it was said that when bullion moves 1%, gold stocks will
move 3%. People bought into that and they haven't seen the
performance. Perhaps they were looking initially at the seniors
for leadership, but the seniors have been standing still while
the price of gold has been running. You can look at someone like
Kinross Gold Corp. (TSX:K; NYSE:KGC), which has been trading at a
five-year low, or Barrick Gold Corp. (TSX:ABX; NYSE:ABX), and a
number of others. They just haven't delivered the performance. I
think investors are asking, "If they are not delivering the
performance, why will the intermediates or juniors deliver?"
With gold, whether you buy physical or an ETF, you don't have
any political risk. You don't have taxation issues or labor
strikes. You don't have senior management making an investment
that you don't agree with. All of those variables conspire to
take the enthusiasm out of the buying of the juniors. ETFs are an
easy way to get into gold quickly at a lower perceived risk. I
prefer to be in the juniors because they have the potential to
explode to the upside if they are lucky with a discovery or they
are in a right position next to a mine that is growing and the
ore body continues onto their property.
As the chairman, CEO and largest shareholder of
Minera Andes Inc. (TSX:MAI; OTCBB:MNEAF)
Gold (TSX:UXG; NYSE:UXG)
, tell us what's going on with the possible merger?
In mid-June, I put a proposal to the board of Minera Andes and US
Gold to combine the two companies with an exchange ratio of 0.4
shares of the new company for every share of Minera and one share
of the new company for each share of US Gold. The combined
company would be a low-cost, mid-tier silver producer with a
strong balance sheet, an income stream, a producing silver gold
mine, a development pipeline of two silver and gold mines in
Mexico and Nevada, and production out of Argentina. In June, if
you combined the treasuries, there would be more than $120
) in cash, no debt, and trade liquidity on the NYSE. It would be
a low-cost producer based on the production projections from our
El Gallo and Gold Bar properties, anticipated to go into
production in 2014. We would be producing silver using gold as a
byproduct for a negative cost. With the gold credit, our cost of
production would be less than $1/oz.
The board has formed independent committees and hired
financial and legal advisers to determine the appropriate ratio.
The merger has to clear the SEC, which takes 30-45 days.
Thirty-five days after the SEC approval, the shareholders will
vote. In the case of US Gold, I won't have a vote, so what the
SEC calls the minority shareholders, who are actually the
majority, will vote on the merger. Minera shareholders will take
two votes on an "evaluation and fairness opinion," one with me
voting and one without me voting.
So far, the market has suggested this is a good combination.
Both share prices went up on the day the proposal was announced
and have been performing better than the silver price, the gold
price or the junior index.
When I announced this deal, on a combined basis, my cost base
in US Gold was $50M and $60M in Minera. Combined, based on the
market, my investment is worth about $350M. If you were to
compare that to the CEO holdings of almost every other gold or
silver mining company, it's right up at the top, about 27 times
higher than the average CEO.
Congratulations. You'll have cash flow from the Argentinian
project, the blue sky of the Mexican silver, and the gold in
Nevada with the silver credits. I can see why the shareholders
were enthusiastic. Do you have a name for the company?
The name McEwen Mining has been proposed. Given that we will be
in copper, silver and gold, that name isn't aligned with any one
metal; it's more reflective of what we're doing.
You are also chairman of Lexam VG Gold Inc. (TSX:LEX;
OTCQX:LEXVF; Fkft:VN3A). It sounds like on this deal you're
following in the footsteps of your Lexam merger up in the Timmins
Mining Camp. Did you use that as a template?
I started off with five companies and did three corporate
restructurings over a period of eight years to create
Goldcorp Inc. (TSX:G; NYSE:GG)
, and then bought Wheaton River Minerals to kick it up to another
One of my goals in US Gold was to qualify for inclusion in the
S&P 500 in 2015. I think gold is under-represented on the
S&P. Newmont Mining Corp. (
) is the only gold stock listed there.
There is more than $1 trillion invested by index funds in the
S&P 500. It's a market that can add stability to your base
and lower your cost to capital. That is an engine for growth, a
low-cost capital. We've met five criteria for inclusion and have
two remaining. We need a market cap in excess of $5 billion and
four consecutive quarters of earnings. This combination moves us
much closer to that objective.
Can you expand on Timmins Mining Camp?
Lexam is exploring in the Timmins area in northern Ontario,
historically the largest gold-producing area in Canada. Lexam has
acquired a number of properties in the shadow of the headframe,
the shaft, of some of the largest mines in the area. We have four
drills going and released news about some interesting grades we
found, extensions of vein structures that had been mined 40 or 50
There are about 1.5 million ounces largely in an inferred
resource. We are looking to get the remnants and to go deeper
than previous mines. There are a couple of sweet spots that we
want to explore. The company has no debt and it has about $12M in
its treasury, which will allow it to explore for the next two
Is there a small company or two with which you have a particular
Rubicon Minerals Corp.'s (NYSE.A:RBY; TSX:RMX)
Agnico-Eagle Mines Ltd. (TSX:AEM; NYSE:AEM)
is positive. Rubicon just took a position in Agnico partly
because the Rubicon head of operations worked up in the Red Lake
Are there any other topics you've been thinking about that might
interests our readers?
Right now we are looking at debt: the U.S. debt ceiling debate
and the debt of sovereign states in Europe. I think any
correction should be used as a time to accumulate.
The quiet summer is a good time to stake out the juniors and
intermediates and take positions. We've seen periods like this
where physical gold and the gold shares separate in terms of
performance. In September 1979, which was just before the top in
the gold price, gold went from $200 to $400/oz. in the space of a
little over four months, but the gold stocks didn't follow. It
was as if the market didn't believe the price of gold would hold
up there. It wasn't until September 1980 that gold stocks reached
their highs. I believe that the market had to see the impact of
the higher gold price on the cash flow and earnings before they
would buy the stocks.
I think we're in that period right now. I would argue that we
are starting to see the seniors move-Barrick has been moving
today with the gold price. These are incredible cash-flow
generators right now. They are going to have to do something with
their earnings, dividend them out or up their yields.
They also are going to look for growth. Barrick surprised
everyone by buying a copper project, with cash. That was a
curveball. I think they went into copper believing it was a
better cash flow and cheaper than buying a gold property. Barrick
is diversifying because they see opportunities. The seniors are
doing deals to build the size of their companies, and that's
positive for the intermediates and the juniors. The seniors have
been reaching right over the intermediates into the
junior-producer/junior-explorer side. The longer this gap exists,
the more attractive the juniors and intermediates will
The Gold Report
we've seen our readership increase along with the exponential
increase in investor interest in gold and silver. Most U.S.
investors don't own mining stocks in their portfolios; do you
think they will dip their toe into, if not bullion, then an
Yes. The ETF has given more people exposure to gold. I liken the
ETF to a mutual fund. It was often said that buying a mutual fund
was the place to start investing in the stock market. Once
investors become comfortable with the concept of being in the
market, they start thinking about buying individual stocks
because they think they understand how the market works.
I think the same principle applies to the ETF. Once investors
are in there, they are going to start looking around and saying,
"Well, this gold price is going to do very positive things to
these mining stocks at some point. Maybe I'll rotate some of my
money out of the ETF or I'll put in some additional money and it
will go into individual stocks where I think I can see much
larger gains down the road."
Rob, thank you for your time and insights.
, whose association with the resource industry spans nearly
three decades, serves as CEO of
and chairman of its board of directors. Five years ago he also
became the company's largest shareholder. Rob joined the Minera
Andes board of directors in August 2008 and took over as
president and CEO a year ago. Rob is also chairman of Lexam VG.
He started building his reputation as the founder of Goldcorp,
which has what is still considered the richest gold mine in the
world in its Red Lake Mine in Ontario. He took Goldcorp from an
investment company with $50 million market capitalization to
one of the largest gold-mining companies in the world with an
$8 billion market capitalization by the time he retired from
the company. Rob has been recognized with awards such as
Canadian Business' Most Innovative CEO, Northern Miner's Mining
Man of the Year, Ernst & Young's Ontario Entrepreneur of
the Year (2002) and Prospectors and Developers Association of
Canada (PDAC) Developer of the Year. A 1969 graduate of St.
Andrews College-where the McEwen Leadership Program was modeled
on Rob's vision-Rob went on to obtain a bachelor's degree from
the University of Western Ontario. He earned his MBA from York
University's Schulich School of Business, where he serves on
the Dean's Advisory Board, holds the Alumni Recognition Award
for Outstanding Executive Leadership (2007) and provides
generous financial support. He also holds an honorary Doctor of
Laws Degree from York University. With community-oriented
efforts focused on encouraging excellence and innovation in
healthcare and education, Rob's generosity helped establish the
McEwen Centre for Regenerative Medicine at the Toronto General
Hospital and support the Red Lake (Ontario) Margaret Cochenour
Want to read more exclusive
interviews like this?
for our free e-newsletter, and you'll learn when new articles
have been published. To see a list of recent interviews with
industry analysts and commentators, visit our
1) Zig Lambo and Sally Lowder of
The Gold Report
conducted this interview. They personally and/or their families
own shares of the following companies mentioned in this
2) The following companies mentioned in the interview are
The Gold Report:
Rubicon Minerals Corp., Goldcorp Inc.
3) Rob McEwen: I personally and/or my family own shares of the
following companies mentioned in this interview: US Gold Corp.,
Lexan VG Gold Inc., Minera Andes, Inc. I personally and/or my
family am paid by the following companies mentioned in this
is Copyright © 2011 by Streetwise Reports LLC. All rights are
reserved. Streetwise Reports LLC hereby grants an unrestricted
license to use or disseminate this copyrighted material (i) only
in whole (and always including this disclaimer), but (ii) never
The Gold Report does not render general or specific investment
advice and does not endorse or recommend the business, products,
services or securities of any industry or company mentioned in
From time to time, Streetwise Reports LLC and its
directors, officers, employees or members of their families, as
well as persons interviewed for articles on the site, may have a
long or short position in securities mentioned and may make
purchases and/or sales of those securities in the open market or
Streetwise Reports LLC does not guarantee the accuracy or
thoroughness of the information reported.
Streetwise Reports LLC receives a fee from companies that are
listed on the home page in the In This Issue section. Their
sponsor pages may be considered advertising for the purposes of
18 U.S.C. 1734.
Participating companies provide the logos used in The Gold
Report. These logos are trademarks and are the property of the
101 Second St., Suite 110
Petaluma, CA 94952
Tel.: (707) 981-8204
Fax: (707) 981-8998