Rob McEwen: Gold, Hard Assets Will Rise as Inflation Hits Fiat Currencies

As COVID-19 continues to spread around the world, mining companies are determining what the deadly virus could mean for their operations and the market as a whole. 

Speaking to the Investing News Network (INN), Rob McEwen, chairman and chief owner of McEwen Mining (TSX:MUX,NYSE:MUX), said that ultimately the gold price could benefit from the current uncertainty — but the outbreak will also bring turmoil for mining companies.

Read on for McEwen’s thoughts on his company’s performance in 2019, and how the coronavirus could impact both the gold price and the overall mining industry moving forward.

From a tough 2019 to an uncertain 2020

McEwen Mining had a difficult 2019, plagued by issues such as operational challenges at its Black Fox gold mine in Ontario and a delay in declaring commercial production at its Gold Bar mine in Nevada.

Production for the year came in at 174,420 gold equivalent ounces (GEOs), lower than 2018’s 175,640 GEOs and down from the company’s original 2019 guidance of 210,000 GEOs.

“Last year was a terrible year for us. Terrible,” said McEwen in a March 20 phone interview. “We gave guidance to the market and it changed every quarter, and every quarter we failed to deliver. I can’t remember a year like that in my career. Operations just did not perform.”

Chris Stewart, the company’s president and chief operating officer, left McEwen Mining on March 18, two days after the company’s 2019 results came out, and McEwen said that the focus now will be on getting operations back on track so that shareholders are not hurt again.

Of course, the coronavirus outbreak has quickly become a new variable that McEwen Mining will have to contend with. While the company had an early reaction to COVID-19, opting not to attend this year’s Prospectors & Developers Association of Canada convention, it has quickly come up against coronavirus-induced obstacles at its operations.

“There will be uncertainty looking ahead for the moment,” said McEwen.

Shortly after McEwen’s call with INN, the company withdrew its 2020 guidance for costs and output. It also halted operations at its 49 percent owned San José gold-silver mine and Los Azules copper project, both located in Argentina, due to a state of emergency in the country. The lockdown in the nation was initially set to last until March 31, but has since been extended until April 12.

Six days later, McEwen Mining announced plans to scale down work at its Black Fox and Gold Bar mines. Some activities will continue, but both sites will be minimally staffed for 14 days. Its Mexican operations, including the El Gallo gold mine, remained active at that time.

Miners facing obstacles, gold in liquidity crunch

The problems McEwen Mining is facing due to COVID-19 are by no means unique — dozens of gold companies have sent out releases explaining how they are being impacted by the situation.

Speaking about the wider effects of the disease on the mining industry, McEwen said that beyond causing the shutdown of mines and other operations, the coronavirus could affect supply chains, production guidance, access to capital and more.

“In the mining business, it might be cyanide, it might be lime for neutralizing, it might be drill seal, it might be balls for the mill, it might be other consumables. I don’t know what happens to the supply lines, but if you suddenly have everybody shutting down, who’s going drive the trucks? Who’s going to unload them or load them?” he asked.

“I think that the guidance given by companies for production and costs — you’re going to have to throw this out the window right now. Because you’re not going to have the production that was anticipated.”

McEwen also said it’s unlikely that anyone will be looking to put money into the sector right now, although in the long run it could be a buying opportunity. “It’s a time to be looking at some opportunities, because there’s just an irrational behavior to sell everything. The value will emerge,” he commented.

Gold itself has also faced turmoil in the wake of COVID-19 — since the start of 2020 it’s traded below US$1,500 per ounce and as high as US$1,700. For McEwen, its extreme swings are the result of investors cashing in to cover other commitments.

“We’re in a liquidity crunch right now — you saw the major stock markets of the world just falling out of the sky. And we’ve been told for some time that margin debt is at record highs,” he said.

“When you have that type of decline in the market, I would expect there to be massive margin calls; people are looking for liquidity and selling whatever they’re able to sell to satisfy those margin calls. Gold is almost instantly liquid. So that would be one area where you could get that liquidity.”

In terms of whether the yellow metal’s prospects could improve moving forward, McEwen said, “Metals are going to be required to as we go forward, it’s just for the moment it’s on pause.”

Decline of fiat currencies to power gold

A bright spot for McEwen Mining last year was its Black Fox Complex, a 5,100 hectare land package whose main components are the Black Fox mine and the Stock property, which includes a mill and the past-producing Stock mine; the complex also holds the Froome, Tamarack and Grey Fox deposits.

Although the Black Fox mine experienced operational challenges last year, McEwen said that it also yielded “wonderful” exploration results, and the company is looking at several satellite deposits nearby as well. In total, McEwen Mining spent $47.3 million on advanced projects and exploration last year, $25.5 million of which was used on the Black Fox Complex.

The company has also been working at Grey Fox, situated several kilometers from Black Fox, where it has located a number resources that come to the surface; in addition, it is looking at the Stock mine, which ceased production in 2004. Because it is still considered temporarily suspended, the mine would have a short permitting process, McEwen said.

“I think of it like a relay race — we’re running along and passing the baton,” he said, explaining how the company will produce from different parts of the Black Fox Complex at different times. The potential is to go from last year’s 35,721 GEOs to 120,000 GEOs produced at the complex three or five years out.

Of course, COVID-19 has introduced much uncertainty, meaning that plans and expectations may change — for now the focus for McEwen Mining will be riding out the storm.

For investors, McEwen suggested that there’s no time like the present to look at gold. “The massive amount of money that is being proposed and is being distributed by governments around the world to deal with this is going to have, I believe, a very inflationary impact and will accelerate the decline in purchasing power of fiat currencies,” he explained.

“And once that starts to be recognized, you’ll see that the price of gold is starting to move up, and other hard assets that are valued in times when currency values are dropping. For a gold investor, I think it’s an interesting time. If people don’t own gold right now, it’s not a bad time to add some to your portfolio.”

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.