Rob McEwen speaks out on Mexican gold robbery

On April 7 armed robbers stole 900 kilograms of gold-rich concentrate containing 7,000 oz. gold from McEwen Mining’s (TSX: MUX; NYSE: MUX) El Gallo 1 mine in Sinaloa, Mexico. At US$1,200 per oz. gold, the thieves made off with over US$8-million worth of the company’s gold.

The robbery follows several other disturbing and unrelated incidents elsewhere in Mexico this year that have rattled some companies operating in the country. In Guerrero state in March, four people who worked at Goldcorp’s (TSX: G; NYSE: GG) Los Filos mine, disappeared, and three of them were later found dead. The fourth was uninjured and eventually released. The employees were not working at the mine or on company business when they disappeared. Goldcorp stated at the time that it remains “vigilant to the current security concerns in this area of Mexico, and have strict travel protocols in place, particularly for high-risk areas.” In February, Torex Gold Resources (TSX: TXG; US-OTC: TORXF) reported 12 community members near their Morelos gold property, also in Guerrero state, went missing from the public highway to Cocula. One of the 12 worked for the company as a labourer and was off duty when he went missing. Three others worked for project contractors. The abducted were all returned to their families before the end of the month.

McEwen Mining executive chairman Rob McEwen spoke to The Northern Miner about the armed robbery at El Gallo and what more needs to be done by the Mexican government to ensure that foreign mining companies continue investing in the country.

The Northern Miner: Had McEwen Mining encountered any problems before this at the El Gallo 1 mine?

Rob McEwen: We hadn’t experienced any problems. We’re not in a busy area.

TNM: What do you mean by a ‘busy area?’

RM: It’s not a busy area for the cartels or the criminal elements. And it’s not like here [in Toronto], where police drive around the neighbourhoods. We don’t know the identities of the thieves, and it’d be much too early to tell if there’s some linkage [with the cartels and criminal groups]. They’re in totally different states.

TNM: It’s the first armed robbery that we have heard of this year, but there have been recent incidents in nearby Guerrero state.

RM: I’d say where Goldcorp and Torex are, it’s known for being a little bit more violent.

TNM: When did the robbery take place?

RM: Early morning. A number of our employees were stopped along the road to work, not too far from the mine site, and they were tied up, blindfolded, moved onto the property, and their various security clearances were used to break into the refinery.

TNM: What sort of size are we talking about — would 900 kilograms of concentrate fit into a big box? 

RM: You could put it in the back of a heavy-duty pickup truck.

TNM: How many robbers were there?

RM: They estimate eight people … and they were heavily armed and were wearing masks.

TNM: At the time of the robbery there was 30 days’ worth of concentrate sitting in the plant. How much of that concentrate was stolen?

RM: A portion of it — a good portion of it. We were changing out our furnace, and the combination of changing out our furnace, and the higher grade we were encountering and better recoveries, found us in a position where we had more gold than we normally had. This year was going supremely well, our grades more than doubled, production is up more than 60% in the first quarter, and the second quarter is looking the same way — so it was a nasty little knock to have someone come along and take it.

TNM: Was it a coincidence that this took place at the time the company was working on the furnace and that you had 30 days’ worth of concentrate sitting there? In other words, could it have been someone on the staff leaking that kind of information?

RM: I don’t know at this point.

TNM: How do you think the thieves are going to process the concentrates?

RM: I’m not sure how. If you look at Mexico it has a long history of mining, and I would think there’s quite a bit of excess mining equipment lying around they could use. They might look and say: ‘I’ll sell concentrate to a mine and just dump it in over time, and they’ll produce more gold, and we’ll take a part of it.’ I think there have been other thefts of concentrate before.

TNM: How is this going to affect the way McEwen Mining operates there and your outlook for future investment in Mexico?

RM: We’ll definitely need to beef up security and turn our mine into Fort Knox. There’s been a test, and so now we’ll do that. It might affect some people’s desire to work there, because there is an element of risk, and you don’t know what’s next. We’ve gone through this, so we’ll take additional steps to make sure it doesn’t happen again.

TNM: What can the government do?

RM: I think the government needs to rethink the additional taxes they put on the industry. These taxes they put on are onerous, metal prices are low, and you have this element of criminality, and there should be some compensation to the industry for incurring that.

TNM: What is McEwen Mining planning to do at the mine site to improve security?

RM: There are a number of steps we’re going to implement to make it even more of a deterrent for something like this happening again.

TNM: What’s your view on what the Mexican government can do to improve the environment for foreign investment?

RM: I think they could work on their law and enforcement. Because what’s happening right now, I think, is a disincentive to further investment in the country. We were fortunate that no one was injured, none of our property was damaged, but it does have a psychological impact on the workforce. Their personal safety is at risk. And so it’s not only foreign investors, but Mexicans themselves working at these sites, feeling a little vulnerable. We had immediate and full cooperation from the governor and his staff and from the local police. They got on it without a moment’s delay. So I’m quite complimentary about how Governor Lopez got on to it.

TNM: The company has stated that it has insurance that will likely cover most of the loss, but not all of it. How much do you pay for insurance coverage?

RM: It’s not a huge amount. It’s in the hundreds of thousands of dollars. The premium is going to go up.

TNM: How much?

RM: I have no idea. The insurance company is sending an investigative group down and they’ll make a decision and then they’ll reassess premiums.

TNM: Insurance companies aren&rs
quo;t known for being that generous.

RM: They’re not in the business to pay out. It’s good they’re around, though.

TNM: Not every chairman or CEO in the industry would be willing to talk as candidly as you have about an incident like this.

RM: I wanted our shareholders to know.