“Gold is money. If you don’t have gold, you better get some,” says Rob McEwen, chairman and CEO of McEwen Mining (MAQ-T, MUX-N), in a corporate presentation at the Prospectors and Developers Association of Canada’s annual convention in Toronto.
Speaking briefly about the junior gold and silver markets, McEwen 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 $200 per oz.”
He points to a graph charting the price of the yellow metal versus the U.S. national debt over the last 12 years as one of the main reasons for his bullishness.
“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, pensions or salary retirement income, you can’t survive in this environment with a low interest rate.”
McEwen says the way he deals with the low-interest environment is by doing what most investors consider risky, which is buying gold and gold shares.
When comparing gold miners to gold bullion, bullion has by far outperformed most gold stocks in the sector, McEwen notes. “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 10 years it was up, plus 300%. And in U.S. dollar terms, you would be up over 50%, and you wouldn’t have had to do anything.”
But it’s not the same for gold stocks, which have lagged the prices of gold and gold bullion. “A funny thing’s happened,” McEwen says. “In the past, when a company went out and expanded its production, the share price usually would go up. Now, it’s not happening.”
He notes that since May 2006, major Goldcorp (G-T, GG-N) has grown output by 55%, but saw its share price increase by only 21%, with gold prices gaining 150% since 2006. In the same time frame, 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 factors could have led to the disparity between the price of gold stocks and the metal, but one McEwen highlights is the lack of CEO ownership. He explains executives heading major gold companies own very little or close to nothing of their companies.
He opines gold majors could attract a much broader audience and higher share price by paying a larger dividend to shareholders.
McEwen owns 25% of McEwen Mining, which formed in January after his two companies — US Gold and Minera Andes — combined.
He also founded Goldcorp, and took the company from a US$50-million market capitalization to over $10 billion. He aims to replicate that success with McEwen Mining.
The new company owns the San Jose silver-gold mine in Argentina, which is anticipated to produce 5.9 million oz. silver and 81,000 oz. gold this year.
It’s pushing its El Gallo complex in Mexico and the Gold Bar project in Nevada towards production. El Gallo’s first phase of production is expected by mid-year, with full production in 2014. It also holds the sizeable Los Azules exploration-stage copper project in Argentina.
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