McEwen Mining

Asset rich leverage to gold, silver and copper



Rob McEwen is one of Canada’s most successful mine developers after taking Goldcorp’s market capitalisation from US$50 million to over $8 billion during his time at the helm of the company, which is now a giant in the gold mining space. Not resting on his laurels, McEwen sought about replicating the success he brought to Goldcorp and established a new company that would focus on multi-asset gold and silver production across the Americas. McEwen Mining’s principal goal is to qualify for inclusion in the S&P 500 – the US stock market index with a combined market capitalisation of $23.7 trillion.  


The US market is the largest in the world for gold shares, but only one gold stock currently qualifies for the S&P 500, and that is Newmont Mining. However, Newmont represents only a tiny fraction of the index’s total value – 7/100ths of 1% to be precise. 


“When the market decides to change its sentiment and embraces gold, there will be a wholesale movement into the indices and into the stocks that are in the largest markets,” says McEwen.  


Therefore, McEwen aims to capitalise on the current under-valuation of the gold market to continue building its gold resources and production and drive to our goal of qualifying for the S&P 500. 


“Since I am the largest shareholder in McEwen, we will not follow the path that most other mining companies have taken of diluting their shareholders to gain size,” says McEwen.  


“The cost of my investment in McEwen is $161 million, my salary is $1 a year and I have asked for no bonus or options for doing deals that make us bigger. I will only make money the same way my fellow share owners will, that is with a higher share price.”  


A multi-jurisdictional gold portfolio 


McEwen has established a gold-based portfolio that stretches across four locations in the Americas, with mines producing in Canada, Mexico and Argentina and one under construction in the US, while exploration campaigns are afoot in all jurisdictions.  


“When I was building Goldcorp we were only in Canada and the US, which meant we operated in one language and two sets of laws. Today we operate in two languages and four different legal systems,” explains McEwen. 


“Each jurisdiction has its own unique culture and government policies and objectives. We have to spend more time focusing on regional issues which at times can be more challenging.” 


McEwen attributes the company’s successful overseeing of the multi-jurisdictional portfolio to the structure of the management teams, which are divided into regional units along with key areas of business such as projects, exploration and innovation. 


“In Nevada, we have benefited from hiring a number of senior personnel who are very experienced exploring and operating at some of the largest mines in the state.  


“We also bought in Timmins, Canada last October and made some changes in management, adding people who have very specific expertise in this part of the world. They’ve been successful at cutting costs there.” 


The Black Fox Complex 


McEwen marked its presence in the world-class Timmins gold district in Ontario with the acquisition of the Black Fox Complex last year. The asset is comprised of a fully operational underground gold mine, the Black Fox-Stock mill and the Froome and Grey Fox deposits. 


The Black Fox deal was preceded by McEwen’s friendly acquisition of Ontario-based gold explorer Lexam VG Gold in February 2017. Lexam’s assets included a number of former producing properties in the Timmins district, but didn’t come with a mill to process ore.  


“Right away the Black Fox opportunity became obvious. It was in economic trucking distance and it had a mill with excess capacity. Secondly, Timmins is one of the great gold districts in the world, and the Black Fox properties appeared to be underexplored. 


“Our purchase price for Black Fox was just $35 million. The price was attractive given the previous owner’s purchase price and investment in the property totalled $560 million. I should also highlight that the property came with $180 million in tax pools that will shelter future profits.”  


Although the complex came with over 1.2 million ounces (Moz) of gold in the indicated resource category, the previous owner appeared to lack a good understanding of the mine geology and its potential, according to McEwen. 


The asset also came with short mine life and annual production of 50,000 oz, but McEwen aims to extend Black Fox’s life with an aggressive exploration programme.  


“We believe there is excellent potential for the mineralization to further much deeper because the average depth of the mines in the region is 1.5 km while the deepest working level at Black Fox is 800 metres.  


“Recently, we encountered some very encouraging grades 200 metres below our deepest workings. At a depth of 1,050 metres our deepest drill assay returned 55 g/t over 1.2 metres. This result supports our optimism that the Black Fox mine may have similar roots to other mines in the area,” reveals McEwen. 


Gold Bar 


McEwen’s next mining operation will be the Gold Bar project, located along the famous Cortez trend in the prolific gold producing state of Nevada in the US.  


The company completed a feasibility study for the project in 2015, which was based on a measured and indicated resource of 611,000 oz. However, that was 3 years ago and today, the M&I resource number has increased by 31% to 822,000 oz through the purchase of Gold Bar South, further exploration success and model optimisation.  


“By year end, we will be releasing a new life of mine plan that should have the mine life extended to eight to nine years,” reveals McEwen. 


Construction of the Gold Bar project is expected to be completed by the end of the year, with first commercial gold production scheduled for the first quarter of 2019. McEwen aims to produce 55,000 oz of gold during its first year of operation and average 60,000 oz per year over the life of the mine with an all-in-sustaining cost of $850 per oz. 


The company is focusing on innovative ore processing techniques in Nevada and is trialling the use of sensors in its heap leach pad to measure moisture levels and compaction. The technology has been previously used in Mexico where it was proven to optimise the performance of the operation. 

“We’ve also partnered with a company that is creating a digital twin of our operations to further optimise what we are doing there. You can very quickly run various scenarios in order to decide how to best improve the operation,” says McEwen. 


The Fenix project 


In Mexico, McEwen’s already producing El Gallo mine is on track to deliver its 2018 production guidance of 32,000 oz of gold equivalent, with heap leaching of residual gold continuing into 2020. 


The Fenix project will source ore from four satellite deposits and rather than developing a new standalone mine site to process this ore, it will utilise the existing El Gallo site with certain capital additions that are projected to extend mining operations by 12 years.  


The unique aspect of the Fenix project design is the use of an in-pit tailings storage facility. “From an environmental and capital perspective, this is a very elegant solution – much less environmental disturbance, less water usage and less capital.” McEwen claims. 


Perhaps one of McEwen’s most exciting assets is the massive Los Azules copper project in Argentina. A 2017 preliminary economic assessment (PEA) outlined a great deal of compelling financials and a globally significant production of 186,000 tonnes of copper per year. 


“If you take the projected annual copper production rate and put it on a gold equivalent basis, you’d be looking at annual production of 1,000,000 ounces of gold at a cash cost of around $569 an ounce. In addition, the total indicated and inferred resource would be roughly equivalent to 74.15 Moz of gold.  


“Los Azules has a projected 36 years life and using $3 per lb copper the payback is 3.6 years. If it were in production today, it would be the 26th largest copper mine in the world and production costs per lb in the lowest cost quartile of the industry.” 


While working on negotiating a few access and power supply challenges, the company is also pushing to get a permit completed in order to begin developing the project in the first quarter of next year. 


Glittering prospects for gold 


Recently inducted into the Canadian Mining Hall of Fame for his achievements in the gold industry over the last four decades, Rob McEwen believes now is an excellent time to be investing in the gold market, and his company provides asset rich leverage. 


Judging by the depth of the most recent bear market in the gold industry and the bottom-to-top gains made in the most recent bull markets, he postulates that when the next bull market emerges there is a strong chance of making a return up to three times the investment. 


“I think the gold market offers an unusually attractive risk-reward situation right now, where the upside is significant, and the downside is low. On top of that, gold stocks are very under-owned, as evidenced by Newmont’s market cap being a tiny fraction of the entire S&P 500.” 


For McEwen to qualify for inclusion in the S&P 500 and gain a strategic advantage of the industry ahead of an emerging bull market for gold, the company must continue to deliver outstanding exploration results across its Americas portfolio while also seeking accretive M&A deals.