Smaller miners seeing larger gains
McEwen Mining CEO bets small miners to reap big gains
NATALIE OBIKO PEARSON AND ERIC LAM
Published Monday, Aug. 15, 2016 3:50PM EDT
Last updated Monday, Aug. 15, 2016 4:26PM EDT
Rob McEwen is paid $1 a year, doesn’t receive bonuses, yet his financial success is tied more closely to his company than any other mining chief executive in Canada.
Now the largest shareholder in $1.69-billion McEwen Mining Inc. is betting his gold producer and other smaller competitors will reap more gains from the next commodities upswing than debt-laden behemoths dominating the industry.
“The seniors have blown themselves out of the water,” the former CEO and founder of Goldcorp Inc. said in an interview in Vancouver. “They’re just going to be ships rising in the tide. It’s going to be the intermediate and juniors who have the big runs in this cycle, and that’s where I want to be.”
That trend has already begun. Gold companies listed on the Venture and Toronto Stock Exchange with a market value of less than $2-billion have climbed on average 247 per cent this year, while their larger peers are up 125 per cent, according to data compiled by Bloomberg.
The surge follows a rough patch for global miners. Large materials producers took on debt to expand and feed Chinese demand before the price of raw materials plunged. That forced giants from Anglo American PLC to Freeport-McMoRan Inc. to sell assets and slash capital spending. Smaller miners, which tend to be explorers that look to be financed or acquired by bigger companies, have been among the hardest hit, many struggling to survive without the deep pockets needed to wait out the slump.
“As any future upward shift in market sentiment towards metals and mining is likely to be gradual and uneven, it could be some time before the juniors derive any practical benefit from an eventual upturn,” SNL Metals & Mining, a unit of S&P Global Market Intelligence, said in its latest annual world exploration trends report in March.
Mr. McEwen, whose stake in his eponymous company is valued at about $430-million according to data compiled by Bloomberg, can probably afford to ride out his bet. He’s listed to sell one of his properties – a six-bedroom Toronto mansion complete with a wood-paneled billiard room and wine cellar for $27.5-million – in what he describes as a decision to “downsize” now that his two sons have left home.
The 66-year-old former investment banker has a penchant for defying industry naysayers.
In 2000, Mr. McEwen launched an audacious experiment when he was at Vancouver-based Goldcorp. Offering $575,000 (U.S.) in awards, he threw open to the public more than five decades of proprietary data on the company’s under-performing Red Lake mine in Ontario and challenged geologists to locate the next six million ounces of gold.
Red Lake ended up becoming one of Goldcorp’s richest gold mines, producing more than $3-billion worth of the metal, Mr. McEwen says.
Not all his predictions have materialized. In February, 2009, Mr. McEwen forecast gold would top $5,000 an ounce in about six years. Gold futures in New York did rise dramatically from that point and reached an intraday record $1,923.70 in September, 2011. But the metal subsequently swooned and, even after a 27-per-cent gain this year, traded on Monday at about $1,345. He now forecasts gold will reach $5,000 by 2021.
In a 2012 interview, Mr. McEwen said his company would target qualification for the S&P 500 index during 2015. He now pushes that back to “within a decade.”
Mr. McEwen, who was charting stocks by the time he was 10, began his career investing under his father and later joined Merrill Lynch. He entered the ponderous mining industry by acquiring control of two companies in a transition he describes as “stepping into a big tub of quick-drying cement.”
“In the investment industry, you tend to think laterally and ask a lot of questions,” he said. “The mining industry didn’t ask a lot of questions. It became an advantage to be an outsider.”
At the Toronto-based company he now heads – debt free with mines and projects in Mexico, Argentina and Nevada – Mr. McEwen aims to eclipse his success at Goldcorp, the world’s third-largest gold producer by market value. McEwen Mining’s shares have climbed almost fourfold this year, outpacing the 25-company S&P/TSX Composite Gold Sub Industry Index.
That will benefit the chairman and “chief owner,” who invested C$127-million of his own money in the company. McEwen has more skin in the game than any CEO running a Canadian miner with a market value of at least C$1-billion, according to data compiled by Bloomberg.
Aside from receiving 1 million stock options in 2005 with a 5-year term, he has renounced a wage and bonuses. The board just recently approved his $1 salary, he says.
“It aligns you much better when you’re not being compensated for doing mergers and getting large salaries,” McEwen said. “It hardens your focus.”
There’s another advantage to getting no direct pay, he says with a grin: “I certainly don’t have as many disagreements about compensation.”