McEwen bets on innovation

Rob McEwen is known for thinking outside the box so it wasn’t surprising to learn that McEwen Mining (MUX-T, MUX-N)—a company he created in January through the combination of U.S. Gold and Minera Andes and in which he owns a 25% stake—is teaming up with a junior called Nevada Exploration (NGE-V) to look for gold deposits in an entirely novel way. The two companies signed a two-year exploration agreement last month to find gold using the junior’s proprietary exploration technology, which analyzes groundwater chemistry under the sand and gravel that covers 50% of Nevada for trace amounts of the precious metal.

“The closer you are to a gold deposit the higher the concentration of gold in the groundwater, the farther away the lower concentration of gold in the water,” Nevada Exploration’s founder and chief executive Wade Hodges told The Northern Miner. The junior has a database of 50,000 groundwater samples that include samples taken from 30 known gold deposits in the state, and is advancing a portfolio of properties exhibiting groundwater chemistry similar to that found at Nevada’s major gold mines.

“I think it’s a very important and useful tool and one that has been grossly underused by the industry,” Hodges says. “Some people think all the good stuff in Nevada has been taken … but then you realize that 50% of that excellent jurisdiction is covered by sand and gravel, and if you can’t see the rocks it’s very difficult to find the gold. And the thing that no one has paid attention to is the groundwater that is scattered throughout the state.”

At the recent convention of the Prospectors and Developers Association of Canada, McEwen described the exploration concept as “quite unique” and “very clever” and emphasized the importance of innovation and new ideas in the business. “You just have to keep scratching the surface in the mining industry—looking at technologies that might give you an insight as to where a deposit might be—and this is certainly one of those technologies that we thought was well worth a try,” the metals magnate said in response to a question following his corporate presentation at the conference. “When you look at Nevada it looks very dry, but not too far below the surface there is a lot of water…this firm has come up with a way of analyzing the water and detecting trace amounts of gold so the thought is, you go around the state and where you get the greatest concentrations of gold in the water, it might be a good chance for finding a deposit there.”

In other remarks, McEwen predicted that the price of silver is eventually going to reach US$200 an oz. He could be right. In the first ten weeks of 2012 the price of silver was up 20%, driven by sturdy investment demand, and outperformed platinum, palladium and gold during the same period. Michael DiRienzo, executive director of the Washington-based Silver Institute, told The Northern Miner that silver-based exchange-traded funds (ETFs) grew to 586 million ounces of silver during the same ten-week period, up from 576 million ounces at the end of 2011. “These products only came to the market in April 2006,” he remarks. “ETFs democratize silver investment and make it easier for an institution or an individual to get into the silver market. They trade like mutual funds so that investors can get in and out of a position quickly.”

The Silver Institute forecasts that silver industrial demand will grow by 36% to 666 million ounces of gold between 2010 through 2015. DiRienzo points to the precious metal’s growing use in photovoltaic technology in the solar power industry, to its anti-bacterial properties in everything from textiles to surgical instruments, and its use in electronics. Thirteen million ounces of silver were used in cell phone manufacturing alone in 2010, he says, adding that over the last decade the silver price has marched steadily higher from an average annual price of US$4.37 per oz. in 2001 to US$20.19 per oz. in 2010 and US$35.12 per oz. in 2011. “Last year you had a little over 1 billion ounces of silver come to the market through various supply channels such as mine production, government sales, and scrap metal sales and it was met with an equal amount of demand,” he points out. “This is not a one-day phenomenon. This is something that began in the middle part of the last decade and it’s encouraging to see investors of all sorts take a serious look at silver. The interest in silver is as strong as it has been in decades.”