I had the opportunity yesterday to speak with legendary founder and former CEO of GoldCorp, Rob McEwen. He is now the CEO, Chairman, and largest shareholder of McEwen Mining (Stock Profile – TSX:MUX & NYSE:MUX).
It was a powerful conversation, as Mr. McEwen spoke to why so many miners are failing to deliver returns to shareholders, the “illusory” strength of the post-presidential election economy, and his thoughts on gold and silver going forward.
When asked about the languishing share prices of miners over the last few years, Mr. McEwen said, “What you’re seeing in the market today, particularly amongst the large gold producers…is they were doing big deals to make big news, to pay themselves large salaries, and the shareholders have suffered as a result…Six years ago a large number of people in the industry said, ‘You have to be bigger to be relevant in the market. We want to have more reserve life, more production’, but they did it without regard for shareholdings.”
He further added that, “[There’s] a point I try to drive home to investors…when someone is pitching you on a story and they say the outlook is great, their company is fantastic, you [need to] say, ‘Okay, I buy all that. [But] how much do you have invested in the company?…Are you taking a low salary?’…In the last six years you saw large salaries, large options, and small [CEO] investment…It contributes to [under performance], because you’re not thinking every day about your exposure in your own stock. That’s why in McEwen Mining I own 25% of the stock, and I don’t take a salary. I wanted to be in the position where I make money the same way that my shareholders do.”
When asked if and when the tides will reverse for mining shares, Mr. McEwen said, “I think you’re going to see a swing back into the [mining] equities this year. It’ll probably be kicked off first by a discovery or two, and then some people are going to look at the seniors and go, ‘Now wait a minute, they’re yielding 3% on a dividend, a lot of them have changed their CEO’s, the new CEO is going to be more cautious…and they’ll work on trying to improve their operating margins’…So you should have some strengthening in the seniors, and when they strengthen, the intermediates and the juniors will follow.”
With respect to owning and buying gold here at these levels, Mr. McEwen said, “Everybody got distracted by the US presidential election when they were telling everybody that the economy is getting better—and why wouldn’t it when you push in a couple trillion dollars?…The case for owning gold hasn’t changed. Governments around the world are still printing lots of money, still borrowing a lot, and the reasons gold ran up before [in price] are still there and greater today…Interest rates are so low the only place you can go is in the market right now. It’s [all] very illusionary, and we’ll find people returning to gold…[So] now is a great time to be buying it.”
In regards to whether or not his company will begin to withhold silver bullion from the market in the future, Mr. McEwen said, “It depends on how much you’re making and you’re ability to hold back…When I was running Goldcorp in 2001, we started withholding some of our production. We started off withholding 10% of our production…We [then] increased our holdings to be holding back 30% of our production. At one time we had more gold in our vaults, than 50 of the 114 Central Banks that held gold. If you believe that the price is going higher—then why wouldn’t you hold some of your gold and silver for a future date?“
With a concluding remark on price expectations for the metals, Mr. McEwen said, “When gold reaches $5,000 an oz., I would expect to see silver at $200 an ounce.”