McEwen says that 2018 saw a “total lack of interest” from investors towards the precious metals, but expects some rays of sunshine in 2019.
The Investing News Network (INN) spoke with Rob McEwen, chairman and chief owner of McEwen Mining (TSX:MUX, NYSE:MUX), about what happened to gold and silver this year and where he sees the precious metals heading in 2019.
McEwen noted that 2018 saw a “total lack of interest” from investors towards the yellow and white metals. However, he explained that lately there have been some “rays of sunshine,” and that these metals are not to be counted out — they will rebound in the new year, and McEwen expects prices to increase.
“I expect a better price in 2019. You’re seeing in many currencies, the price of gold has been increasing, and some quite large increases have occurred in countries where the currencies are in doubt, such as Turkey, Argentina or Mexico. In local terms, the gold price has climbed quite significantly,” McEwen said.
Read on as McEwen shares what he believes are the reasons behind the movement of the precious metals in 2018, why he sees them faring better in 2019 and the various projects in the pipeline for McEwen Mining.
INN: In 2018, what was the most challenging aspect for the gold and silver markets?
RM: Probably the total lack of interest by investors. Volumes have been light, there have appeared to be some big swings and those investors in the market are nervous. So going around, you talk to accounts that traditionally buy gold they’re still reeling from redemptions. There are some rays of sunshine there are some other people looking at the debt that haven’t been in the gold market and they’re starting to come back to it or enter it for the first time. But I just say there’s been a couple of false starts in ’16 and ’17, now ’18.
INN: In 2019, do you expect a better market for gold or worse? And for silver will it be more of the same or will it vary from gold?
RM: I expect a better price in 2019. You’re seeing in many currencies, the price of gold has been increasing and some quite large increases have occurred in countries where the currencies are in doubt such as Turkey, Argentina, or Mexico. In local terms, the gold price has climbed quite significantly. So if you look around and when this confidence in the dollar stops or weakens and that seems to be the biggest driver today, is that the dollar has remained very strong and all commodities, as a result, have put on weaker performance.
I think we’re getting to the top. If you look at the broad market, some of the tech stocks have sustained some large falls. The rest of the market wasn’t following those stocks. I’d say there’s a greater risk of the broad market coming down, then the gold market going any further down. It’s more likely you could see a doubler spilling gold and precious metals stocks than you’ll see in the broad market.
INN: Do you have any advice for investors who are new to the gold and silver markets?
RM: Sure. One, history is something one should always look at in the market. You’re not always assured that it’s going to repeat itself, but if you look over a long period of time, say, in the last 48 years, if you look at the relative value of commodities which would include gold, relative to equities, we’re at a 48-year low. We are in a cyclical business, and there are bottoms and there are tops, and we’re currently near the bottom of it.
If you look at gold equities, in the last 77 years, so go back even further, there have been eight bear markets in gold equities and the last bear market that we had ended at the beginning of 2016, it was one of the longest and it was certainly the deepest of all the bear markets that have occurred in that last 77 years. So from my standpoint, saying, while the downside risk is there but it’s small, given the historical account and the depth it fell to.
If you look at the same period, there have been six bull markets and the average return of the six, from the bottom to the top of the cycle, has been 540 percent. So we are currently in a bull market, although a lot of people might argue that, but that started in 2016 and there are a number of gold stocks that — they’re probably going to surprise your audience — that have outperformed the Dow and the S&P in the last 22 months. So we’re about a third of the way through the average cycle time and we’re up about 150 percent. So you could get a double or a triple from here as a potential for gold equities.
We have seen some gold stocks exploration companies coming out in the last 3 months with very good exploration results, assay results, and they’ve run in some cases 500 percent in the last 3 months, given a little bit of that off but given the fact that they’re into a market that is starting to pay attention to drill results, whereas, and you’ll see, I think, the frequency of M&As [mergers and acquisitions] is starting to pick up. Companies buying other companies, consolidation in the industry.
So six months ago, no one was paying attention to anything, but you’re starting to see this movement, and I think when investors start seeing money being made in the sector again, they start coming back. When investors are looking at the sector and seeing even the biggest companies putting on very poor performance, having lots of debts, selling off assets, their share price dragging them on the floor, listen well, what’s the chance that you’d make any money on that sector? But now you’re starting to see some improvements and that is being translated into some excitement in drill results. And that, as I’ve said, once investors see that they can make money in this sector again, they start moving back in.
Most of the selling has occurred in the short positions and they’re out there on a lot of the stocks, the volumes are very light, given that most of the selling has finished. Any new interest in there in light volume tends to move the stocks higher. So I think it’s an opportune time to be taking a look at the sector then maybe starting to make an investment here because I think the upside is quite compelling.
INN: You mentioned the frequency of M&A. Do you have an understanding as to why that’s become more popular lately?
RM: Part of it is driven by the price of the equities being low. So if the company wants to grow, this is a good time to be acquiring.
INN: Can you tell me about any important milestones that your company has had in 2018? How did they affect your share price?
RM: Absolutely. Well, we received permits to start construction on our Gold Bar mine in Nevada in November 2017 and we started construction immediately thereafter. And that mine will be completed by the end of this year and producing in the first quarter of next year. When we got our permit to build and we also got a permit to allow us to keep exploring so we’ve been expanding our resource base at the mine and early in the New Year, we’ll be coming out with the new resource estimate there which will extend the life of the mine by about 40 percent.
In October of 2017, we bought a mine in Timmins, Ontario, the Black Fox Mine from Primero (TSX:P). I think we got it in a good price. We basically paid six cents on the dollar. So what Primero would put into it, it was a mine with a short life and we’re trying to see if we can extend that life. We’ve had an exploration budget there this year for US$15 million and it’s shown us that there are a number of areas on the property that weren’t explored that have good potential. Hopefully, that would lead to a much longer life that of both the Black Fox Mine and production coming from the two properties we purchased then.
And then just leaving Ontario and going down to Argentina, we have a large copper project. So there right now and they’re just entering the summer, and so we’re able to get back on the property. It’s a very large copper deposit but it has an access issue and that it’s quite easy to get into the property 4 or 5 months a year but the rest of the year, it’s very difficult because you have to cross a couple of passes, high passes, to get in and there’s a lot of snow up there. So we believe we found another route in that would be the 12-month access and we have to do a little bit of construction, road building, but it would allow us to get in there without having to deal with the snow, which would transform that asset dramatically and make it more much attractive.
We’re looking to see if we can secure a joint venture partner who would give us some cash up front and we’d continue to have an interest in the property and the mine. Its model produced about 450 million pounds of copper a year, at US$1.14 a pound. If you were to convert that to gold equivalent, that’d be a mine producing about a million ounces a year and it’d cost US$500 an ounce. So just to give you a sense of the magnitude of this property, and the mine would run for 36 years.
So it wouldn’t be running quite with that same rate but the first 13 years will be at that rate. And then it would be about 80 percent of that thereafter.
INN: Do you have any catalysts on the horizon that investors should be excited about?
RM: Yes, we do. One, as I’ve said, we’ve started up at Gold Bar. Two, will be the resource update coming out for the Gold Bar and Black Fox mining at Timmins. We will have a feasibility study out on a Mexican property where we stopped mining in the pits in Mexico. We have a silver deposit that is about five miles away and we’ve come up with what I think is a very elegant way of dealing with some of the environmental issues such as how do you deal with tailings.
Our gold mine was an open pit and we’re looking at filling the pit with tailings and we’ll be mining the deposit and that would run for 12 years and be generating attractive returns even at today’s prices. That will be a silver mine. So we’ll have news on that within the first half of next year because we have applied for an amendment on a permit to construct. And we should have news on our access road into our copper project.
INN: I just want to touch on silver a bit. Is there anything that you can tell me about silver this year, or how it is looking for 2019?
RM: When gold starts climbing, silver will start climbing. The exchange ratio of silver to gold is quite high and it’s likely to shrink. So having exposure to silver could be quite beneficial and we produce silver both out of Argentina in our mine down there and will be in Mexico.
INN: Any general comments on the precious metals sector from this year or 2019? Any trends that investors should look out for?
RM: If you don’t own it, start looking at it. There’s a lot of debt out there. There’s a lot of monetary expansion that’s occurred. You can see expressions of speculation everywhere. Real estate, you can see it in your bitcoins and marijuana stocks. And, it hasn’t come to gold but gold is a late cycle mover as the commodities and the markets do move in cycles so it’s a good time to be thinking about taking some of your gains and rotating into a sector that the market has not given any attention to for quite some time other than to sell.
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Securities Disclosure: I, Nicole Rashotte, 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 contributed article. 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.