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Rob McEwen Looks For Gold To Keep Rising As Nations Run Up Debt Levels

By Allen Sykora of Kitco News
Wednesday, February 27, 2013 11:45 AM

(Kitco News) - Longtime mining executive Rob McEwen looks for the price of gold to keep rising with the debt of Western nations.

Meanwhile, his own company, McEwen Mining (MUX), is aiming to begin construction on the El Gallo 2 mine in Mexico later this year, McEwen said. The company is in the permit process. It is also working to secure the necessary financing, considering alternatives such as a joint venture or sale of its copper projects, McEwen said.

He outlined his views on the gold market and provided a status report on his still-young company during the 2013 BMO Global Metals and Mining conference taking place this week in Florida.

McEwen Mining was formed in January 2012 through a merger between Minera Andes Inc. and US Gold Corp. Minera Andes had a cash flow from a 49% passive ownership in the San Jose Mine in Argentina, while US Gold had a development pipeline of projects. McEwen owns 25% of the shares and works for no salary in trying to build the company. He was the founder and former chief executive of Goldcorp.

He spent the first several minutes of his presentation outlining his views on the gold market itself.

“I want to make one thing perfectly clear – it (gold) is a currency,” said McEwen. “If you don’t think of it that way, you should, because it’s going to play a bigger and bigger role in the monetary world. And it’s going to keep going up, too.”

The biggest driver is likely to be the continued creation of debt by governments, the CEO said. While he said debt is occurring throughout the Western world and are not isolated to any one country, he cited the U.S. in particular. “It’s now in excess of $16 trillion,” he said.

He displayed a chart showing the price of gold has climbed since 2002 as the U.S. deficit did likewise. The metal consolidated for a while back around 2008-09, as it is now, before resuming its upward path.

“The White House last February said the debt was going to $26 trillion by 2022, and I think we can say most politicians underestimate how much debt they’re going to create,” McEwen said. “Gold is going to continue tracking that.”

And, McEwen continued, stimulus measures are likely to continue in North America and Europe. The CEO said he still believes gold will eventually hit $5,000 an ounce.

He sees equities as “historically cheap” relative to the price of gold, losing their premium to gold since around 2008-09. Some of this may be investors instead moving into exchange-traded products for gold exposure, but he also cited factors such as capital-expenditure over-runs in the industry.

The CEO said he sees gold stocks as “oversold” at the moment. “It’s cheaper to buy gold in the ground than it is to buy it in a vault today,” he added.

As for his current company, McEwen Mining commissioned the El Gallo 1 mine in Mexico last month and hopes to begin construction in the third quarter of this year on El Gallo 2. Construction will take around a year and the cost is estimated at $180 million, McEwen said. The company would have to raise some $100 million to $110 million. McEwen Mining is also in the permit process for its Gold Bar project in Nevada, hoping to begin construction in 2014.

“So we’re going from 100,000 ounces of gold and gold-equivalent to 300,000 ounces by the end of 2015,” McEwen said. The company announced last month that full-year 2012 output was 105,050 gold-equivalent ounces, with production in 2013 forecast to grow by 24% to 130,000 gold-equivalent ounces.

McEwen said the company has a large resource base of 7 million ounces of gold, 230 million ounces of silver and 18.5 billion pounds of copper, the latter through the Los Azules copper project in Argentina. He said the company has no debt and $65 million in the bank.

The CEO reiterated the still-young company has a goal of qualifying for inclusion in the S&P 500 index in 2015, pointing out that more than $1 trillion is invested by index funds in the S&P 500 but there is only one gold stock currently. McEwen Mining has met five of the seven criteria and is working toward the remaining two -- $1 billion of market capitalization and four consecutive quarters of earnings, the CEO reported.

By Allen Sykora of Kitco News; asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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