We caught up with Rob McEwen, Chief Owner and Chairman of McEwen Mining, to discuss his junior mining investment criteria, building mining companies, the COVID-19 pandemic, and his views on the Canadian mining sector.
Rob McEwen is currently Chairman and Chief Owner of McEwen Mining Inc. which has four producing mines, located in Nevada, Ontario, Mexico and Argentina, and also owns a very large underdeveloped copper deposit in Argentina. Rob owns 21% of McEwen Mining, his cost base is $165 million, his salary is $1/yr and he takes no bonus or options.
Rob is a passionate innovator, marketer and an avid competitor. Rob was awarded the Order of Canada in 2007 and the Queen Elizabeth’s Diamond Jubilee Award in 2013. He holds an Honorary Doctor of Laws and an MBA from York University and a BA from the University of Western Ontario. Also, he received the 2001 PDAC Developer of the Year Award, was named Canada’s Most Innovative CEO in 2006 by Canadian Business Magazine and was inducted into The Canadian Mining Hall of Fame in 2017.
Can you share a bit about how you got into mining?
When I was 10 and 11, my father was in the investment business and had me charting stocks. I spent the first 18 years working in the investment industry doing research, sales, and portfolio management largely in the precious metal space. At one point I said, “Well, I met a couple of guys and they keep finding deposits. There’re more deposits to be found. Let’s jump into the mining business.” So, I came in, did a competing bid on a hostile bidder and ended up buying control of two mining companies. I thought I would do the financial architecture and let the guys who know something about mining run it. After about four months, I decided the guys running it weren’t doing a good job and within a year I stepped in as the CEO of two mining companies, I remade the management team several times and that was how Goldcorp began.
And then McEwen Mining (NYSE: MUX) came later?
I built and ran Goldcorp over 19 years. We went from CAD $50 million to about $8 billion market cap over last 13 years, our share price compounded at more than 31% annually, so we had a great run for all our shareholders. I was the largest individual non-institutional shareholder, so I was happy as well. Later I decided to see if I could do it again. I started buying 10 – 30% of some junior mining companies. Then I decided to put a couple of them together. We had cashflow coming out of Argentina and thought, since we have projects that need money and cashflow from others, we could join the two together.
Unfortunately, the timing was terrible. This was at the beginning of 2012. Metal prices fell all the way through to the summer of 2015. Today, we have four sources of production with various issues, but the goal was to build a company that could qualify for the S&P 500.
There’s only one gold stock in the S&P 500, the logic being that 80% of the value of the US public markets are contained in the 500 companies in the S&P index. So, when the gold market starts running quickly, there’ll be a flood of money coming into those stocks because it’s a very highly regarded index. You want to be in that S&P index as a gold stock because there’s only one. Post 9/11, they removed all foreign companies from the S&P 500, so it is largely, almost exclusively a US index. The US at the moment is the largest market for gold shares in the world, so that’s where you want to be. We trade on the New York Stock Exchange and Toronto Stock Exchange, but about 90% of our trade is New York.
COVID-19 pandemic notwithstanding, do you think it’s easier or more difficult to get started in mining today the way you did?
Circumstances are different. There is more regulation today. It’s slower to build a mining company, but I’d say we’re still seeing pretty impressive discoveries in known mining districts where people thought there was no opportunity. I can think where we had our success at Goldcorp in the Red Lake District of Ontario, Canada, we discovered gold a mile below surface in a mine that was supposed to be closing. It had a three-year life, it was high cost, and it had difficult labor history.
We found gold in a setting that was contrary to everyone’s belief of where you’d find the gold, and it became one of the richest gold mines in the world. Now there’s a company I made an investment in about two years ago in the Red Lake District and they’ve had a phenomenal run .
We put money in at $1.50, and it’s over $14 now. And they’re finding the majors have gone through this region. Placer Dome had been there for a long time, even Goldcorp had been there, and they were finding it on a deposit that they’re getting great intercepts. There’s another company in the area that was a past producer. It bounced around for more than 20 to 30 years and it’s showing great life right now.
I’d say there’re still going to be surprises. There’re still deposits to be found. People are coming and just re-interpreting the data. So, I’d say to someone coming into the mining industry, we’re at a point where the system has been flooded with money, the economies of the world, the case for owning gold is stronger than ever and there’s still more gold to be found, more nickel to be found, more of all sorts of minerals, so no, I don’t think it’s harder.
How has COVID-19 impacted your business operations and what have you done to maintain business continuity?
All of our sites shut down for a period of time, some in Argentina and Mexico by government mandate, and in Canada, as well. We shut down in the United States for a period too, out of concern for our employees. So, the first impact was a drop in revenue. Second impact was uncertainty about what we’re going to produce this year in terms of how much gold and what our costs will be, so that introduced an element of uncertainty in our guidance. In terms of protection, we shut down early to prevent the spread out of concern for the employees.
What are the criteria you use when making an investment in a project?
I’ll look at how the stocks perform. I’m quite inclined to look at distressed situations because that’s where I see if there’s an opportunity for a turnaround, at least it’s where you’re going to get your biggest gains. Some of my biggest returns over time have come that way.
I look at how much management owns of the company. Is it beneficial ownership because they have options or DSUs, RSUs, restricted shares? I want to see how committed financially they are and emotionally attached to it. Are they saying, “Oh, we’ve got a really great prospect,” and they turn around and sell their shares?
Then I look at geography. Are they near a known mining district or do they have a different interpretation of the district? I’ve tried investing in Africa a couple of times and it hasn’t worked very well for me. My focus is largely North America, bits of South America and Northern Europe. There have been some wonderful discoveries in Australia, but I haven’t spent a lot of time there, but it’s a rich gold district as well.
Can you share a bit about your advocacy and support for the Save Canadian Mining effort? Why are you involved?
The mining industry is an important industry to Canada. It generates a lot of wealth and improves the lives of many people in their communities. Canadian mining personnel have gone around the world. They carry a lot of technology. It’s a fundamental industry for the world. They have been successful suppressing stocks here. They’ll do it elsewhere as well. So, it’s sort of an advanced guard to try to prevent further deterioration of this sector.
What are your views on what Canadian companies need to do to be competitive abroad?
Every company should be encouraging its shareholders to register their shares, or at least say to the custodian that’s holding their shares, that these shares are not available for loan. ETFs and index funds are probably the biggest suppliers of shares to the short sellers, because they’re looking to earn additional income to offset their operating expenses. At some point, someone’s going to come along with a big discovery or turn a company around, and the predatory short selling is going to hurt some of them quite badly because it’ll go the other way. So how do we become more competitive abroad? We have to make more money. People invest in stocks because they believe they’re going to go up and the best way to go up is if you’re making money or have a big discovery. Exploration sometimes forces investors to be patient and they don’t want to be patient in this sector sometimes.
Are there ways in which the industry can help juniors access alternative forms of capital?
Well, you’ve seen royalties and streaming companies come out and be a source of capital, but I don’t think that’s helping the industry. It’s good to own a royalty or a stream, but if you’re a company selling one, I think you’re giving away your future and the whole reason why investors would invest in you. You can see the divergence in performance – the royalties and streaming companies can do very well because they’ve bought the profit margins of the mining companies.
Other industry organizations have lobbied the government to keep flow-through shares or tax-driven instruments in place to help juniors, which has been quite useful. I think you have to lobby the government and make them understand the contribution mining makes to an economy. Generally, for every dollar invested, there’s a $2 benefit in the economy, whereas in the service sector, it’s about a dollar in and 70 cent benefit, so you get a much better return on your investment there.
“We’re at a point where the system has been flooded with money, the economies of the world, the case for owning gold is stronger than ever and there’s still more gold to be found, more nickel to be found, more of all sorts of minerals.”
What’s hot for you right now and what’s not in terms of commodities?
I’ve been mostly focused on gold, some silver, but gold to me is a monetary metal. It’s the ultimate form of money. It doesn’t have the scale that nickel, copper, iron ore, or the other base metals have, but I’ve never really looked too far beyond the precious metals. McEwen Mining have a very large copper deposit that’s waiting to be developed one day. It’s about 30 billion pounds of copper so I’ve learned to like copper and I think it’s going to be an important element as we electrify the world for transportation and other purposes, as well as the urbanization that’s going to take place in Southeast Asia.
We’ve seen China grow and Vietnam’s growing, but there’s a huge population base across Southeast Asia. I’ve seen some estimates that at the rate that they are going, if they were to grow at half the rate of China, in 10 years, their collective economies will be as large as China. That means a huge amount of urbanization, and copper will feature very prominently in there. So, I’d say I’m hot on copper.
What are some consequences of COVID-19 you’ve seen on the metals markets?
We’ve seen countries around the world get their printing presses going at warp speed. No one’s really asked, “How is the government going to pay for all of this money that is spent to protect their populations?” It’s debasing currencies. And we’re seeing the broader market respond to all this money coming in, but it’s going to need another fix and another injection of capital at some point in the not too distant future to keep it going.
COVID has weakened the economy and introduced a level of uncertainty we’ve never seen before. Will they be doing away with paper currencies and insist that you must use digital currencies so that you’re not possibly passing the virus onto others? With digital currencies, do they monitor your bank account? Do they get a better fix on taxation? There are things that are happening out there that it’s sort of like a frog in a pot of water that’s being brought to a boil. The frog doesn’t notice it’s happening until the water’s boiling and it’s too late. COVID has accelerated the reach and the control of governments around the world, all in the guise that it’s for our own safety. So owning some precious metals might be a way to safeguard yourself from some of the government actions that are taking place.
