When it comes to shopping around for big-cap U.S. precious metals producers, investors don’t have much to choose from, says Canadian gold bug Robert McEwen.
The former Chairman and chief executive of Vancouver-based Goldcorp. Inc. (TSX: T.G, Stock Forum) says this is because the S&P 500 index includes only two companies that produce precious metals.
But since Freeport McMoRan Copper & Gold Inc. (NYSE: FCX, Stock Forum) is essentially a copper miner, producing gold as a by-product, Newmont Mining Corp. (NYSE: NEM, Stock Forum) – is really the only available big cap precious metals play on the S&P.
At a time when gold is trading near a record high, it’s a situation that has to change, said McEwen, during a telephone interview from Toronto, where he runs a stable of exploration companies.
“As the metal prices move up there is going to be a big need for more [precious metals] companies in [the S&P 500],” he said.
McEwen said the void exists because most of the publicly-listed gold exploration and mining companies are either Canadian or Australian.
But he hopes to offer investors an alternative by qualifying US Gold Corp. (TSX: T.UXG, Stock Forum) and (NYSE: UXG, Stock Forum) for inclusion in the S&P 500.
McEwen is chief executive officer of US Gold, a NYSE-listed company with exploration projects in Nevada and Mexico and an office in Reno.
The fact that he has set out achieve this goal should come as no surprise.
The son of Toronto stockbroker Don McEwen, he has been a fixture on the Bay Street investment scene for many years. Using a former closed end investment fund as the vehicle, he began in the early 1990s to assemble the group of companies that became Goldcorp, a company that now ranks among the world’s fastest growing gold producers.
During an interview with Stockhouse, he predicted that pressure on the U.S. dollar and other western world currencies will send the price of gold considerably higher in the coming years.
“Your readers should go long on gold,” he said, adding that the yellow metal could be trading at US$5,000 by 2014.
Western Mexico
With a market cap of $845 million, US Gold is still a long way from making it onto the S&P.
To qualify, it would need to post four consecutive quarters of earnings (something it has yet to do), be based in the U.S., and have a market cap of $3.5 billion.
Still, the company has a silver discovery in western Mexico which it hopes to put into production.
According to a 43-101 complaint technical report, the El Gallo project in Sinaloa State hosts a measured and indicated resource of 25.1 million ounces of silver and 21,000 ounces of gold as well as an inferred resource of 12.2 million ounces of silver and 9,300 ounces of gold.
“It looks like it will be a low cost silver producer because the grades are high and they start at surface and go down to 300 feet,” McEwen said.
“The topography is not challenging. There is power and roads in close proximity.”
US Gold is also moving towards a pre-feasibility study at its Gold Bar project in Nevada, which is adjacent to Barrick Gold Corp.’s (TSX: T.ABX, Stock Forum) and (NYSE: ABX, Stock Forum) Cortez gold mine and has a measured an indicated resource of 974,975 ounces of gold. The company hopes to announce the results of the study by the third quarter of 2011.
Back in Canada
Meanwhile, back in Canada, McEwen has set the stage for deep gold exploration in the Timmins, Ontario gold camp by merging Lexam Explorations Inc. (TSX: V.LEX, Stock Forum) and VG Gold Corp. (TSX: T.VG, Stock Forum).
Shareholders of both companies gave a green light to the merger at special meetings on December 13.
Lexam already owns 43% of VG, which needed financing but was only able to obtain it on terms that seemed onerous to the shareholders, McEwen said.
“So we thought that if we put [the two] together, we would make a stronger company, balance sheet wise. There would be more money on better terms and it would be able to focus on the exploration in Timmins, where VG has some very promising properties,” he said.
Its Paymaster West property, for example, is located near Goldcorp’s Dome gold mine, which has been in production for nearly a century.
Lexam also has oil and gas exploration assets in Colorado as well as rights to a uranium project in Quebec. Asked if the non gold assets might be sold, McEwen said: “It’s very possible.” However, he said there are no current plans to sell the energy assets.
Minera Andes Inc. (TSX: T.MAI, Stock Forum), the other company in McEwen’s stable, is focused on Argentina, where it has a 49% interest in the San Jose silver-gold project. The other 51% is held by Hochschild Mining.
Minera also has a portfolio of gold and silver exploration properties bordering the Cerro Negro project of Andean Resources Ltd. (TSX: T.AND, Stock Forum), the target of a successful $3.6 billion takeover bid by Goldcorp. McEwen said the takeover has highlighted the value of the area and the value of doing more exploration nearby.
“In all of these companies, I don’t take a salary and I am the largest shareholder,” he said.
He owns 33% of Minera, 22% of US Gold and on a proforma basis will have 28% of the merged Lexam and VG Gold following the completion of a private placement.
When he left Goldcorp in 2005, McEwen said he was content to leave his money in Goldcorp.
But that was before he launched a court battle in 2006 to try to force a vote on Goldcorp’s proposed takeover of Glamis Gold Ltd., which diluted Goldcorp’s outstanding shares by 67 per cent without giving shareholders a vote.
McEwen says he is no longer an investor in Goldcorp. The money he withdrew has been re-invested in U.S. Gold and the other companies in his stable.
He is casting around for opportunities after selling his 21% stake in Rubicon Minerals Corp. (AMEX: RBY, Stock Forum) in September, 2010.
The block of shares were sold via a $190 million secondary offering priced at $4.16 a share.
“I don’t think this is a good time to be sitting on cash,” he said.