If you’re not a mining insider, pay attention…
Rob McEwen, chief owner and chairman of McEwen Mining, breaks down some remarkable industry innovations that are leading to new gold discoveries [21:16]. Rob also details how he’s positioning his company to profit from the next gold bull market… and discusses a diamond-in-the-rough asset that isn’t on most investors’ radar.
Rob has an incredible history in the mining business. This is a can’t-miss interview.
In my educational segment, I explain why I’m bullish on small caps and why the time to buy them is NOW [45:35].
(And don’t miss my opening rant about Twitter.)
Wall Street Unplugged | 680
Rob McEwen’s advice for the next gold bull market
Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on Main Street.
Frank Curzio: What’s going on out there? It’s July 31st. I’m Frank Curzio, host of the Wall Street Unplugged podcast where I break down the headlines and tell you what’s really moving these markets. I’m kind of active on Twitter, but I don’t just post to post, which I think a lot of people do. “I’ve got to post four or five times on Twitter and make sure my followers are getting something all the time.” When I post, I like to post something that’s really interesting, something I’m seeing; a data point’s not being mentioned in the market.
So MSNBC says something that I don’t agree with, I just, not call them out, but just say why I think they’re wrong or I get so much access to south side research. And a lot of it’s good, it’s just a macro picture. It’s another whole model of just kind of cash flows and stuff like that gets a little crazy, and sometimes just to formulate a target price on a stock to make sure on an institutional level, you’re able to buy it and you just put in all these numbers and stuff, sometimes it gets a little crazy. But a lot of these guys are smart; they have a great research. They get into the field, they have 30, 40, 50 research analysts and interviewing people and sometimes they come up with some really good research that I’ll post. And I’ll say, “Hey guys. Did you see this? This is pretty amazing”.
Anyway, I like to post when there’s something to really post about, that’s interesting, and the past couple of days I haven’t posted. If you’re on Twitter, it’s @FrankCurzio for you guys to follow, because it is edgy. I speak my mind just like I do in the podcast, so it’s pretty cool. But I have my team in town, which is awesome. That’s six, seven people in here, and we’ll go over lots of things; just strategies, goals, marketing, editorial, getting everything fine-tuned now that we’ve finished the token offering. So now it’s Hey, how are we growing the company over the next six months, 18 months, 24 months, we’ll set up calendar goals and everything; and make sure we’re all in sync and we’re all on the right page.
When I have my team in here I don’t really post too much, but I really like Twitter as a platform. I don’t post on Facebook anymore. I like Twitter a lot better, and I do post on Facebook, but only sometimes, just the podcast; that’s really it. But, it’s Twitter, I really like it because you can follow almost anyone right? You get to get in thoughts on topics like the market, politics, sports, whatever; usually it’s entertaining because I’d say, 70% of the posts on Twitter are people angry people pissed off about stuff, which is cool. It makes it entertaining, but when it comes to finance it’s hilarious.
For example, ***** posted a chart of a model, and this model is from John Hussman, Hussman Fund, so it’s another Fund Manager. He forwarded it and the chart says a 12 year total, total return, and this is the chart based on his model for a balanced portfolio and he says a balanced portfolio is 60% of your assets, 60% of your money, SP500, 30% Treasury Bonds, 10% Treasury Bills. The return over the next 12 year period total returns, and I believe this is annually, is .05%, that’s what his model says, .05%. So for me, I didn’t even look at the model, because I know Hussman. Hussman has been predicting a crash since 2011, you can go back and look on Google. I’m not picking on the guy or nothing I’m just stating facts.
But he’s someone that continues to do that; 2018 he just made a call, 2019 he said we’re going to lose trillions in market cap and all this stuff. So for me, that guy is pretty much useless; he’s been wrong, he hasn’t changed his mind, he hasn’t come out and said, “Hey this is how I messed up”, but I’m going to get nothing. So, it’s okay being wrong but it’s just someone that I totally avoid so I didn’t even look at the chart. But I did comment on it, because I said, “I’m curious to see what his model was saying in 2010, 2011, 2012 and it’s a 12 year chart.
So, he has a loyal following, and there’s a lot of hedge fund managers on there as well and they just start coming at me. “Frank, look at the chart”, and I didn’t even look at the chart because I don’t want to waste my time looking at the chart. My point of it, to respond to that was why even forward this guy’s work to anybody? Why would you expose your list to someone who has been so wrong where people follow you, they trust you. When you think about that for a minute, in finance I’m talking about; in finance and Twitter, that’s a topic here, it blows my mind of just the behavior behind it; of how when I look at people and they follow these people that have been wrong for such a long time, it’s like a cult, right. No matter what happens, they’re going to follow that person as long as they stay true to their message.
So if you’re like; buy gold, buy gold, buy gold stocks, buy gold stocks since 2012, you got annihilated, you’re dead. But these people just follow them and follow them and what makes it worse… Look I can cite 50 names right now about this, we all get it wrong from time to time; I’m not picking on people who have it wrong from time to time. What pisses me off is the people who had it wrong for the last seven, eight years; your wealth continues to go higher while everyone who’s listening to you continues to go lower. And you know what? That’s really fucked up. That’s my problem, but you know what, it doesn’t even pay for me to even worry about it, or care about it because the people following him don’t care, and that just blows my mind.
It’s a religious like culture where people don’t care about returns at all, they don’t care about losing money or getting horrible advice. The only thing they care about is hey is this person like entertaining me. Do they have the same message I have? They get convinced, or basically brainwashed into believing that everything that these people they’re following say is fact. I mean, somebody posted on Twitter saying; 20 trillion dollars is our deficit and the stats of how much it actually is, and how we’re not going to be able to pay it back. Each person would have to pay a certain amount by x amount, five, 10 times, even pay off his debt which would never happen, and I want to respond and say, “you know what? If I had a dollar for everyone who cited our National Debt as a risk since 1970, I’d probably have enough money to pay off the National Debt myself”.
People love to cite it. They don’t cite the other side of the balance sheet, the assets, the equity in homes, it’s all about hey this is my message. No, no, no, we don’t want to talk about consumer spending, we don’t want to talk about interest rates are super low, so yes debt is going higher but we’re paying it off perfectly fine. Credit ratings are very solid, U.S. is doing fine, no one want to talk about that, right? So the debt problem has been talked about by these bears, because even if we none, did they find something else to hate, and that’s what my message is today. You have to be careful because when you’re looking at the markets and you’re following certain people, you have to be willing to adapt to the markets.
I had this conversation with [inaudible 00:07:29] Fabre, I had this conversation with Ken Fischer; high profile people, you need to adapt with the markets. You can’t just stick with the ‘holy cow’, and what makes it worse is I have 5% of my assets in Gold, but listening to these Gold bugs makes me sick, makes me sick. Not to mention how long the negative real interest rates are gonna drop, well is hasn’t. It’s a safe-haven; it hasn’t been a safe-haven, no, treasuries are the safe-haven. You gotta buy Gold to structure the dollar, well the dollar keeps going higher and higher, yes it’s pulling back a little bit; that’s why Gold’s probably going higher now.
But, it’s the same message, the same thesis no matter what changes, and it’s funny because when I read some of these guys, just because I want to get entertained and maybe that’s the point. They want tons of followers, they want people to argue… If you look on Trump’s, how many millions of followers he has on Twitter; you just read one of his posts, at least 80% are just people ripping him apart, you’re not deleting them. These guys aren’t deleting me when I call them out, they like it because it’s going to build their following and they love that attention and entertainment, that’s it. It’s kind of smart.
I can credit them, I’m not criticizing them, but when I see guys screaming from the top of their lungs how Gold is not in a bear market, and you would’ve did better, and they pick a certain time period that you would have been better with; the market is at an all-time high, you basically would be shitting on the market for the last nine years even though you’re citing the facts that make equities the most attractive thing to own, ever, at any other time in history. You’re saying the FED is destroying it, they’re just printing more money. What does that mean? They are printing money. Am I pissed about it? Yes. Do I think a lot of banks should’ve went out of business? I would’ve loved to see that. But that’s not the case, so move on. But they’re like ‘the FEDS gonna continue to lower and Trump’s controlling the FED and this and that’, right. What does that mean? It means that equities are probably gonna go higher because they’re gonna keep interest rates low. They do everything they can.
Let me tell you something; the people who are predicting a 20-30% market crash out there, which they have been predicting for the last seven years, and even if the market crashes 50% from here, they would still be wrong from their original projections. Go back and see some of these guys; they’ll say you got 11, 12, 13, 14, 15, write books, revise them, markets going to end, scare the shit out of everybody. They’re making money selling their books, you’re listening to them; you’re losing money.
But when I look at these bears and just what they have been saying for such a long time and looking at, hey, this is what the FED’s going to do and they’re going to lower rates … like even if you look at, again, the credit crisis, they bailed out everyone. I mean, look at what happened the last time, we had an event, the credit crisis, I won’t beat it to death, everyone knows about it; end of the world, global credit crisis, had to bail you out, I mean they took over Fannie, Freddie, invested in AIG, Bank of America, all the major banks, funded all the banks; pretty crazy.
But you know what’s even crazier? The Government made a shit load of money on everything they invested in. They don’t even know what to do with Fannie and Freddie anymore, they have a conservatorship, they thought they would probably dissolve them or find them … they just said back stop it, back stop the housing market, just put all loans in Fannie and Freddie. Put them all in there; and you put them all in there all of a sudden the housing market rebounded very quickly in 2008. In 2010 prices started going up again and these companies are making billions every quarter, billions in profits not revenue, profits every quarter. So the Government made a fortune, right, they took the tax payer dollars, which is really messed up. I get it, it angers me as well.
But, let’s put your feelings aside, try not to make this a religion for you, because that anger and that emotion, all that pissed off; you’re going to be following people telling you the Government is terrible, the United States sucks, don’t invest and you’re getting crushed wondering why with all these risks you’re not paying attention to the bigger facts here, the Government had this massive bail-out and made money on everything that they did. So if the market crashes 30%, say it’s a political event, say it’s a terrorist attack, say it’s a trade event with China, whatever, you name your risk that’s on the table right now, Brexit not going through, whatever it is. If the market crashes 30% what do you think our Government is going to do? They’re going to bail you out again. There was no risk for what they did. I could see if they bailed out companies and then lost a fortune but they made a fortune.
Now as an investor, you had to put that scenario on the table. I hate it, I hate the fact that the market goes down 30%, the FED’s going to do some lower rates and they say; well they’re almost out of ammo. Bullshit they were out of ammo, they were giving checks, they were giving checks to people to buy cars and homes and incentives. They could print money forever. It’s horrible, it’s terrible, the shit’s going to hit the fan one day, but right now it’s not. It’s a very favorable environment just like it was when they back-stopped all the bad debt and said hey we need, we’ve got to try to inflate this market, lets print a ton of money, get these banks to lend it out, more people spend and look at almost every asset, outside of commodities, has surged since the credit crisis, and the Government made a fortune.
So if the market crashes now, what do you think the Government is going to do? So for me, that removes the doomsday scenario off the table that all these guys talk about. Again, even though they predicted 30-40% decline to markets since 2011, if we fail that much today, or this year, they’d still be wrong from their original productions. They’re going to tell everybody they were right, they’re going to be everywhere just saying, I told you so. And, that’s the thing that pisses me off too; I was saying before and got sidetracked a little bit, where about 5-10% of my assets are in Gold; 10% including equities and everything together with Gold coins. So, I’m a fan of Gold, I’m a fan of investing in these sort of stocks at the right price, because, as you know; when the cycle turns these things don’t go up 1-2-3x, they go up 7-10-20x and it’s been one of the most horrible cycles in Gold, Silver and commodities. So I like investing in it, advising people in my newsletters to invest in a lot of this stuff.
But when I see this, its … and these guys, these Gold bugs are just out there saying big coin’s terrible, it sucks, and why it’s gonna go to zero and why the market’s gonna go to zero, it almost makes you hate gold. I feel like I’m going at these people saying, the market’s pretty good, and it’s almost to them I’m saying Gold is shit, which it’s not. But to them it’s Gold or nothing. To me, it’s where are the markets gonna move; wherever you’re gonna make money; adapt. If you’re in Gold the last seven or eight years you just watched the biggest technology bull run since 1999 and one of the biggest bull markets in a generation since the credit crisis. You just watched it go by because some guy was telling you gold, gold, buy gold, buy gold, the FEDs gonna continue to print.
Yeah, they’re gonna continue to print, they’re gonna continue to have interest rates at super low levels which is why companies like Apple with two-hundred billion on their balance sheet continues to take out debt. Same with Microsoft because it makes sense, you can make a higher return on that low interest rate.
But just be careful who you listen to because I kind of just poked a little bit in there and all the sudden on Twitter, I had a guy, his name is Mark who used to go, who I’m a fan of, I think he’s pretty cool and all the sudden he came out with a bet. He’s like “Frank, put your money where your mouth is. I’ll take cash you take the S&P 500. I’ll bet you a hundred-thousand dollars charity”, and I said, “Mark, because I like you and I find you mildly entertaining, I’m gonna give you a chance to take that bet back”. He said, “double down”, he goes “nope, let’s do it”. I said “okay”. I said, “why don’t you come on my podcast and I’ll tell you exactly why you’re gonna be wrong”, and I will. I’ll tell him why he’s gonna be wrong. You can take almost any 10-month, 10-year period and the S&P 500 has outperformed cash. You look at dividends, you look at …
I’ll break the whole scenario and tell you why that the probability is extremely, extremely in anyone’s favor who’s gonna the S&P, they’re putting it in cash. More importantly, I think he’s a money manager and if he really thinks that cash can outperform the markets, I think it’s a long-short fund, but still if I was investing in someone and they said,” well we don’t think that cash is gonna outperform the markets”, what does that mean? It means you’re gonna have to take on extra risk, whether it’s shorting to whatever, to outperform or you’re gonna put my money in fixed-income treasuries and charge me a huge fee for that. So for me, from a client perspective, I was just surprised to hear that he believes cash is going to outperform. But again, I like him, I said lets come on the podcast, he hasn’t come back to me. I accepted his bet because he came back and said yep, let’s bet. I said okay, I’m not gonna say no to free money twice. Right now I haven’t heard back from him, but hopefully he’ll come on the podcast and have a healthy debate.
It’ll be pretty cool, and again a hundred grand would be charity again. Mark’s a pretty smart guy, I like him, hopefully he comes on. But he just opened his mouth and said hey I’m going $100,000. Put your money where your mouth is all over Twitter and I accepted, and it’s funny how hey, I haven’t heard back from you, so Let’s debate this on the podcast. Let’s get it, let’s do it; get a healthy debate, nothing crazy, no screaming, just hey I wanna hear his position, you hear my position, 10 years, a hundred grand up to whatever charity he wants if I lose and whatever charity I want if I win, but Let’s get that going. I mean, you’re the one who brought it up on Twitter. Let’s do it, podcast open invitation, if you think this is too much of a home-field advantage I’ll go anywhere. I’ll go in your basement to debate you, whatever you want. But I’ll tell you why you’re 100% wrong; the S&P 500 will outperform cash over the next 10 years.
Anyway, I didn’t want that segment to go that long but a little emotional, a little bit of a rant there. Just be careful who you listen to guys. You just get caught up in this religion, you just think a certain way and you’re missing so much that’s out there, which is amazing. I mean, just so many trends, so much going on. I’m gonna talk about that in my educational segment in a minute but I do have an amazing interview coming up. So last week it was Ken Fisher, billionaire legendary Fund Manager and this week I’m interviewing another rock star legend in the resource industry and is also billionaire, if not I think he’s pretty close, but I think he’s a billionaire, someone I really admire; his name is Rob McEwan.
Rob is the founder and former chairman, CEO of Gold Corp., which is one of the largest Gold producers in the world. He found the company, it was with a bar cap of fifty-million and went to over eight-billion dollars. So he runs McEwan Mining now, another Gold Producer which he’s gonna talk about today and break it down, awesome stock, awesome company. And how the company’s in a great position to benefit from the recent move higher in Gold prices. That’s what a lot of these companies did; smart managers, it’s been rough. If you look at the technology in 1999-2000 when it crashed, the survivors; what did they have to do? They had to get lean, they had to cut costs; it’s all like restructuring and once you get through that process and go out the other end, the next cycle comes and you’re leaner than ever, you’re smarter than ever. There’s a reason why technology companies; their balance sheets are the strongest in the world is because they weren’t that strong in 1999. A lot of good companies went out of business because it was so leveraged and went crazy during the internet boom.
Now these companies are like well, we’re well prepared if there’s a long bear market in technology and they have some of the best balance sheets but that’s what Mickey [inaudible 00:19:07] has put them self in the position, weathered the storm, which is horrible on the worst bear markets, and now they’re in good position which, what I was gonna talk about, all the cows behind his company. Also, Rob is one of those innovative guys, not even industry that you’ll know, but he’s a big focus, big fan of technology. He has some very powerful friends in the tech issue which we’re gonna get into in the interview that he hangs out with all the time. But, Rob’s gonna explain how new technologies are leading to more gold discoveries, and how his company’s gonna be taking advantage of a lot of that, those new innovations.
He’s also gonna talk about the bigger picture; where he thinks Gold is headed over the next 1-3 years. We’ll also dig into a lot of other great topics; the use of leverage in the Gold industry, how it could lead to a lot of pain. McEwan is a guy who doesn’t really take out a lot of leverage. He’s gonna talk about when the M&A Market’s gonna heat up again, in gold. Also, he’s gonna talk about his potential upcoming trip to someplace very, very special. I’ll give you a hint, it’s not on Earth. So, really good interview coming up guys, you definitely, definitely don’t want to miss it. Then in my educational segment I’m gonna break down the Small Cap Market, since, very surprising, it’s been significantly under-performing Large Caps this year. Significantly, by a margin that’s gonna blow you away, that’s almost unprecedented, it’s almost never happened in 25 years.
So I’m gonna break down this sector and tell you why it’s one of the best buying opportunities I’ve seen in Small Caps in at least 2-3 years. Which is surprising because Large Caps are really taking off now and small caps have really underperformed this year over the past 7 months and highlight how to play that and why this is gonna be a great opportunity. Venture, opportunity to subscribers, that’s a newsletter for us on Small-Caps, but to really get into a lot of your favorite small caps, especially through earning season which is taking place right now. So it’s a segment you definitely don’t want to miss.
But first, let’s get to my interview with legendary resource investor and pioneer; Rob McEwan.
Rob McEwan, thank you so much for joining us again on Wall Street Unplugged.
Rob McEwan: Thank you Frank, great to be here.
Frank Curzio: Well, past couple years I think you’ve done this a few times, and unfortunately Gold has been in a brutal bear market, but recently we’ve seen it break out, $1400 an ounce. Has the cycle finally changed? I know it’s very scary to ask that question because everybody wants to say yes, but you wanna be careful. I mean this is the first time outside pf a little brief period in 2016 that things are positive, and if we have breaking out and the cycle has changed, what do you think the catalysts are that continue to drive prices high? I mean, is it the FED Policy, safe-haven, native real interest rates? We doubt all the above, but I want to hear your thoughts more on the macro part to see if you really think this is official.
Rob McEwan: I think the tide has turned Frank. I mean, we went through what was the longest and the deepest of the bear market for Gold shares that we’ve experienced in the last 78 years. But I believe starting back in early 2016, in January of ’16, that we entered into a new bull market for Gold shares. We’re about halfway through that, or halfway through the normal length of bull market and Gold Shares with the most exciting half in front of us. That’s when we used to get the biggest increases in share prices. So, what’s gonna move us is all of what you mentioned and more. It’s going to come down to confidence in the dollar. We’re seeing Gold move in many of the other currencies around the world, moving higher. Where in a number of currencies, such as the Canadian dollar, the Australian dollar we’re in new high ground compared to the highs that were achieved in 2011. It’s just a matter of time before we’re starting to see it move in dollar terms.
I liken it to a period that happened back in May 2005, from 2001 to May in 2005 Gold was moving in dollar terms, but it wasn’t moving as fast in the other major currencies. After that point it started moving in the other major currencies and you had Gold lifting from the low 400’s and ultimately just running to just over 1900 or putting on a very good return of about 4 1/2x, in Euro terms it went up 4x.
So I liken what’s happening in the currencies is just the inverse today where it’s moving in the other currencies but not in dollars or not as fast in dollars. I think that’s going to pick up speed. Whether it’s escalating global tensions in the Middle East and Asia, the prospect of more quantitative easing, or just a bull market, a broad bull market that is slowing down. I think there’s a much better potential today for getting a double or a triple in your Gold stocks than getting a double or triple in the S&P or the DOW from here.
Frank Curzio: Let me insert this back to a historical point of Gold and Gold prices, and I just want to ask you; for someone who’s been in this for over four decades, where do you see the pattern in terms of what’s going to happen in the next bull market where … What happens if 1500, 1600, 1700-dollar Gold prices, or even if they go back to the old high of 1900, what do you expect to see? What we saw last time is majors went crazy, they leveraged themselves to the roof, they have been unwinding those balance sheets, some of them are still doing that today, but how does it change the landscape as it goes from 15 to 16 to 1700 if it continues to go up that path? Now you’re looking at is it more M&A from the majors where they might take a little bit more risk on some of these higher cost projects. Does the M&A market heat up? Is it more juniors coming out? What do you expect to see if prices continue to move up based on what you’ve seen in past [inaudible 00:25:45] cycles when you’ve seen this turn?
Rob McEwan: Well what we’ve seen already, and it may surprise a lot of your listeners, that the Gold price in dollar terms, and everybody seems to be focusing on the Gold price in U.S. dollar terms, and not looking at other currencies. But Let’s say in dollar terms its only up 34% since the beginning of 2016.
During that same period, the S&P’s up 46%, the DOW’s up 56% and I think most people would look at it and say, well if gold is only up 34% what are the gold shares doing? The two ETF’s I’m gonna cite; the GDX which is the seniors and intermediate producers is up 105%, better than twice the S&P or the DOW in that same period. The GDXJ, which used to be the juniors is comprised now, more of seniors and intermediates but it’s up 107%. So that hasn’t registered in the broad market yet, and I think when they start looking at these types of gains that are occurring, and how far these stocks were pushed down, there’s still a lot of room on the upside. You’re going to, what we’re seeing is the money moving into the seniors, as people believe maybe there’s a rotation occurring in the market and they should have exposure.
But you’re also seeing some really exciting moves in the junior space. I can think of a company; Great Bear, last August was trading for about $.50 a share and is now trading for over $5.00 a share and there is a number of other juniors who have put on doubles, triples, quadruples and more from where they were in the last year. That type of performance, when it starts leaking into the media and they start taking note of say, Gold’s alive right now, and it’s moving, you’re going to see more people moving into that space. The seniors; they’ve been doing some work getting rid of their high cost mines, trying to reduce their debt, will they go crazy at the end of this cycle? Likely, because capital is very available and they’ll think the market’s gonna run forever, but that’s four or five years from now. So I think you still have a good run in-between.
The juniors, at some point when the Gold market really starts running when you’re talking, 15, 16, 1,700 and people feel it’s going to 2,000 and beyond perhaps to 5,000, then the whole sector is just going to rise. As we saw in the past anything the Gold in its name, or silver, seems to run. I think it’s going to be … these cycles are exciting when you get into the last half, and it’s actually in the very, near the end of each cycle you have these big exponential moves that are classic of any sector. Just in the throes of going to the moon.
Frank Curzio: No, it’s great stuff. I love picking your mind about that, and I wanna turn to McEwan Mining. You build up these properties and maybe you want to into a little bit of them. But, when I go through your presentation, what I love about you is, you’re more straight up than any other CEO that I’ve known. I’ve been doing this for 25 years, interview a lot of CEO’s and talk to them and just simply when I look at your presentation, you list the Pro’s, which everybody’s gonna listen to the presentation; diversified, exploration potential, high insider ownership, really strong balance sheet, good trading liquidity, high Beta. But you actually list the cons, and you say it’s above average cost right now if you put all your mines together I guess, short mine lives, high Beta; I love that because you’re seeing what needs to change and highlighting how you’re going to change that. That’s why you have the cons there, but nobody really does that. They don’t list the negatives, but now that I know negatives I see it because I researched your company, I know what you’re doing to address this.
Talk a little bit about your properties, and then maybe we’ll get a little bit into some of the things which are how your costs, above average costs is gonna change and everything. But for people who are learning about your company for the first time, what could you tell them? What separates you from everybody else in the industry?
Rob McEwan: Well, what separates us may not deal with the properties per se, but I’ll start off by saying I’m the largest shareholder in the company; I own 22% of the company. My investment in the company is $164 million, and that’s not my market value, that’s my cost. I get $1.00 a year, I don’t take a bonus and I don’t take any options. So, after building Gold Corp I wanted to take the model to get even closer to my fellow share owners and just say, “look, I’m gonna make money exactly the same way as you do, and I’m not going to want to grow for the sake of growth and issue and enormous number of shares and see a bigger market cap, but fairly stagnant share price”. That said, we have a high Beta, which you already mentioned.
We’re above a 3 according to Bloomberg which means high leverage to Gold. We have four operations; we produce Gold and Silver: the mix by value would be 80% Gold and 20% silver, it all started down in Argentina at the bottom of South America, we have a joint venture, it’s our oldest mine, it’s been going since 2007, we have a 49% interest. It’s a high grade underground mine producing Gold and Silver, the Silver grade of the reserves is just under 580 grams per ton, and the Gold grade is 8 grams per ton. We produce an equal amount in terms of dollar value there so the credit to us is 46,000 ounce of Gold and 3.3 million ounces of Silver per anem.
Then coming up South America and going into Mexico, we have a mine there called El Gallo. The mining at the moment has stopped, but it was a heap leach operation and the heaps are still producing Gold. We have a silver project that was approved for production back in 2015. We elected not to put it into production because the silver price was low, and the economics weren’t good, but we’re confident silver prices were going to one day go higher and we just worked on the economics. So this project, we hope to have a stuff out later this year and we’d be putting that silver project into production; it would be about 10 years production of Silver.
Then coming up to Nevada it’s our fourth property, mining property, and we just started. It’s called Gold Bar, it’s an open pit heap leach mine. It’ll be mining about one gram per ton, it’s a brown field site, so the capital costs were relatively low, it currently has a 7 1/2 year life; we think we’ll be able to expand that to eight or nine with a property we purchased a couple years ago, and we’ll be putting that into our reserves numbers later this year, it just came into production, we declared commercial production at the end of May of this year. Next year it should be doing, it’ll have a high production year, it’ll be doing about 80,000 ounces of Gold.
And then, in Canada we have in the Timmins area, we bought a mine called The Black Fox Mine. It’s an underground Gold mine, the previous owners had put in $560 million in the form of $300 million, they bought this asset for $300 million in stock. They assumed $120 million in liabilities and then they put $120 million in, so they’re into it for $560 million and we bought it for $35 million, knowing full well it was a turnaround. But we liked it because it had 50,000 ounces of production short life, it has 1 1/4 million ounces of resources, it had $180 million of tax loss pools that we could offset future income, and it had a large land package in a very prolific area, and this area hadn’t been explored extensively. So, over the last year we spent 17, $19 million on exploration there. This year we’re spending another $17 million. We think with time, we’ll be able to extend the life of that mine and bringing down the cost.
I can say that in the first quarter of this year we had some operating issues, both at Gold Bar in Nevada and at Black Fox that put us in the dog house for at least a quarter or two. But those are behind us and it’s improving nicely. So, high beta, relatively clean balance sheets, good trading liquidity listed on the New York and Toronto Stock Exchange, 90% of our trade on the NYSE.
Frank Curzio: Now when people see McEwan Mining, they’re saying okay Rob McEwan founder of Gold Corp., they probably think more about Gold, you’re talking about Gold and Silver. But there’s also another project which is located in Argentina I believe. You’re sitting on, and I love this because I try to look for hidden value in companies all the time because I’m a research analyst, but the amount of Copper that sits on, I’m probably gonna pronounce this wrong, the Los Angeles property; it seems like this is a fantastic options that’s really not being priced into your stock. Can you talk about that a little bit because no one’s talking about Copper at McEwan Mining, but yet this creates I believe, a ton of hidden value that’s not factored into your stock.
Rob McEwan: I would agree with you Frank. I look at Los Angeles, this copper project as a wildcard in our portfolio, particularly with the electrification of the auto industry and all forms of transport, copper’s going to be in large demand. This is in Northern Argentina, in San Juan Province it’s right up against the border with Chile. It has Copper, Gold, Silver but the majority is Copper. In the indicated category 10.2 billion pounds of copper and in the inferred another 19.3 billion pounds, so just under 30 billion pounds of Copper. It has lower grade silver and Gold, you’d only recover about half of that if you put it through the smelter, but 5.5 million ounces of Gold and 190 million ounces of Silver. Some of the highlights that we’ve got; drilling 221 meters of 1.6% Copper, 429 meters of .75 Copper. We did a preliminary economic assessment, which we published in 2017 that projected a very robust copper mine that would be developed in two phase. But for the first 13 years it will be producing, it’s projected to produce 415 million pounds of Copper, at a cost of $1.14 a pound.
That would place the mine in the bottom Quartile of the cost curve of the Copper industry. The mine would have a life of 36 years. Capital costs are relatively high; $2.4 billion but it would pay back, or is modeled to pay back in under four years, so very robust economics of large deposit. We’re currently working on opening up a road into it that would alter the access, improve the access to the property and we’re getting our final numbers on that. But it would give us 12 month access to the property. We’ve put in permits, application for an air strip, also we’ve got a tentative agreement between Chile and Argentina for passage to the Pacific which is all going to improve the economics on this project. It will also, we’re looking for, to see if we can secure a joint venture partner on this property whereby, we get cash up front, they would carry the project forward and then we’d have a continuing interest in the property thereafter. It’s a great project.
Frank Curzio: Yeah.
Rob McEwan: I love it.
Frank Curzio: Yeah, it’s a great asset. You know, I read a lot of the research reports, the [inaudible 00:40:13] that are covering you. It’s funny because they talk about Gold Corp commercial production in May and reading these reports, nobody’s really, I don’t feel like they’re focused on this where it’s not factored at all, they just think it’s a credible asset which is great. Moving on here real quick because I want to spend, I want to definitely hit a couple more topics before I let you go.
People who are not familiar with you might say; Hey you know what? We have this guy that started Gold Corp., and he may be old fashioned and he’s been in the industry for a long time. But when you get to know you and understand; you are one of the most innovative people in this industry and it started in 2000 with the Gold Corp. Challenge where you opened up your data from red light to geologists, scientists, engineers around the world, everybody probably thought you were crazy at the time. But, it was just innovative since the best data came from people who were offsite and not working for you and that worked out tremendously with that asset.
So I’m gonna ask you a really tough question now. What is the next big innovation for Gold mining? DO you see anything changing, like how we saw fracking change oil and natural gas? It seems like we have an unlimited supply, not unlimited but we can produce tons of gas at a cheap price. Do you see anything innovative within the Gold industry? A lot of people are talking about A.I. to improve discoveries. What are you seeing on the innovative front that could be game changing?
Rob McEwan: A couple of areas, Frank. Just on an operational standpoint and looking at capital required, the Gold mining industry and in fact the entire mining industry, I guess is like a lot of other industries; it’s trying to grow bigger and bigger to get economies to scale. In other words, you get bigger pieces of equipment so you lower your unit cost per ton of moving or extracting. There’s something that’s starting to be used as ore-sorting where you can cut down on a lot of the material that you have to move or you don’t move it as far. So you can reduce your capital costs there by sorting the ore from the non-mineralized rock, so you don’t crush it all, you don’t move it as far. So that’s bringing, you’re seeing some significant savings there. You are seeing artificial intelligence being applied in trying to make exploration faster, and then the logic in mine planning, also looking for energy as a large cost as well, so finding ways to reduce your energy.
I’d have to say, I won’t call it an innovation but it might appear to be an innovation to many investors; the next big thing is profits, and we’re starting to see the industry starting to make money again. Unfortunately, usually when mining companies start making money they don’t feel there’s a need to innovate, but that’ll be an innovation in the market. But, this is a sector that’s generating profits and possibly dividends can become attractive to investors.
Frank Curzio: Absolutely. What a difference, you know, times; a couple years ago compared to now. Even Newmont’s paying a dividend, a lot of these guys were able to get the leverage. It took them a long time but that will be interesting. I also wanna mention too, on the innovative front, because you’re really big on technology where you and your wife, in 2003, established the McEwan Center for Regenerative Medicine. You’re using treatments based on patients own tissues, cells, DNA.
You also have a great picture of you with Elon Musk, James Cameron, Jim Gianopulos; who’s the CEO of Paramount Pictures, Peter Diamandis who’s the Chairman and CEO of XPRIZE which creates and funds and operates a new generation of private passenger spaceships, so that’s gonna lead to my final question, which is probably the most important. Knowing lumbar spine these people and how much they’re into space, and what we’re hearing out there, are you going to the Moon anytime soon? Did you pay for that yet? What’s the schedule?
Rob McEwan: I’m not going to the Moon yet, but my wife and I are booked on Richard Branson’s Virgin Galactic flight, so as soon as that starts flying we’ll be going up after them. So that’s quite exciting, and I have done zero G flight, which is simulated zero gravity. I recommend anybody who wants to put a smile on their face, they should do that. I’m looking forward to that. Maybe the Moon’s after we go up with Richard and his flight to go to the edge of space.
Frank Curzio: That sounds great. Well Rob, listen, thank you so much for taking the time to come on. I know how busy you are. You’re pioneering this industry and my investors love when you do come on. And the fact that just your company yourself where no bonus structure for yourself, no options, you pay yourself $1, I think you can give yourself a little bit of a raise there. But your interests are totally in line with shareholders, it’s just nice to see in an industry where sometimes you don’t see it that often. I appreciate you coming on. I appreciate everything, and hopefully you join us again soon.
Rob McEwan: Thank you very much Frank.
Frank Curzio: Okay guys, great stuff from Rob. I don’t know if you’ve ever seen Rob. Rob is kind of, a smaller guy, soft spoken as you hear, but man, just a tiger; ferocious to the point where not in a bad way but in a very good way where he, competitive, understanding the markets, getting things done.
I know his history through Gold Corp., and we talked about the Gold Corp challenge, but there’s just so many people that wanted him out of that company for such a long time. They thought he was crazy and just led the storms through unions, all this stuff, just incredible, incredible knowledge of the industry. We’re talking about three or four decades and how he gets things done. He’s just very, very smart, very sharp. It’s just funny because when you meet him you expect to see this 6’9 guy that’s just “this is what we’re gonna do and this is how you get it done”, and he’s a soft spoken guy, but don’t let that fool you because Rob’s the real deal. He’s brilliant and I love that he comes on the podcast, I thought we had fun too.
You’ll see him with pictures if you look him up everywhere; James Cameron, you know just hanging out with these guys and it’s funny because I think eventually he will go to the moon doing his space travel. Yeah, he’ll probably be on there very shorty if he’s in that group of people; you know billionaires that are really making that happen. So it’s good to have an inside to that, right? The whole space thing…
But hopefully you guys liked that interview and I always say this; the podcast is about you not about me so email me and let me know what you thought; email@example.com, that’s firstname.lastname@example.org.
Now, let’s get to my educational segment. So the past seven months, the Russell 2000, has underperformed the S&P 500 by nearly 17%. So, really good company, I respect their research, they’re called Evercore. They published a really good report, lots of cool stats in this, and said that if you look back the last 25 years you’ve only seen this wide of a gap around 4% of the time, so it’s basically unprecedented right? So we take all the data points of the last 25 years, tracking the performance of both indices in the Russell 2000 and S&P 500, a level of that much, a 17% discrepancy, that much of a gap only occurred around 4% of the time. You’re looking at the market saying why? Why would small caps underperform?
I mean, with trade and people worry about China, small caps have less exposure overseas, they have exposure to the U.S., the U.S. is doing well right now. People will debate and say, oh maybe a recession’s coming or whatever, so we have low interest rates, people are spending, companies’ profits; we’re seeing record profits from a lot of companies still, doing okay here. I don’t see a recession this year, but to me when I see that number and I knew it was a discrepancy because I have [inaudible 00:48:25]Research Advisory which is large caps and some mid-caps, and that portfolio is on fire. We’re doing very, very well in that portfolio, everything they recommend is doing very well, I’m happy.
And then we had a really great performance in Curzio Venture, we had lots of winners, but the last couple stock picks have fallen. We’re off to a rough start because the last few months we’ve seen a lot of small caps just out if favor. It’s amazing because you’re seeing short positions on the Russell 2000 build, we just had the Russel 2000 balance which takes place June/July, so it’s basically with the Russel 2000 they’ll move the higher market cap companies into bigger indices and take out the ones no longer qualify under the Russell 2000 Standards. You get a certain market cap liquidity price so you rebalance it once a year.
It’s not like the S&P 500, they can announce changes to it whenever, this company is out, they got acquired, this company is in. Russell they only do it once a year so you could basically figure out what stocks are going to make it in there because it’s just you have to meet certain qualifications, and of you meet them, then you’re gonna be in there, so you can come off the pink sheets. A lot of these companies are bought, and we used to use this as a trading opportunity with, look pretty much at April/May, and get a good indication of which Russell stocks, which companies are gonna go to the Russell, so once they do, money automatically flows into these companies and pushes those stocks higher.
It used to be a great trading opportunity when I was with Cramer; today its used as a fantastic shorting opportunity. Kind of weird. It’s like when everybody goes on one side, you’re gonna find a way to bring it back to the middle. How do you do that? Well, a lot of these companies are almost artificially moving higher, they’re in the Russell and they have to allocate money from the Russell into these stocks. They’re gonna go higher, but remember, these companies are coming off the pink sheets. Getting to the Russell 2000 is a huge deal, it’s a big milestone. You’re looking at Microsoft’s and Apple’s and you’re like big deal. If you’re on a pink sheet and you go to the Russell 2000 and get onto the NASDAQ, you’re legit, like you’re a real company. This is serious. It’s a great achievement and they put it everywhere; we’re in the Russell 2000, this is great.
I’ve covered this sector all my life and it brings a lot of attention. But in reality over the next six-months to a year, these companies are gonna report earnings but they really, they’re focusing on things not every three months where you need to see results like the large caps. But they have a model in place saying this is how we’re gonna execute and you’re not gonna see a lot of news flow out of these companies. So they’re kind of easy to shirt if you wait to, until the re-balance and a lot of these companies have been short.
You’re seeing a lot of (Russell), a lot of companies that made it to the Russell 2000, just punch it up, you’ll be able to see all, just say ‘new entries into the Russell 2000’ on Google, you’ll see. Punch up their charts, you’re gonna see not a lot of them are higher; a lot of them are lower. Short positions; if you go in individual names you’re gonna see their short positions go higher and higher. So there’s algorithms, and hedge funds taking advantage here.
Why am I saying all this stuff? Because small caps have sold off for a not, have significantly underperformed the S&P 500 by a margin that’s unprecedented, you never really see it. But what I’m seeing is an opportunity to buy small caps, probably the best opportunity in the last 2-3 years. They have very cheap valuations, huge growth potential, these companies are growing earnings. Not only that; when large caps do great, their market caps go higher and higher and what are they doing? You’re seeing this a lot, you’re seeing M&A pick up, especially over the last couple of years. But now that your market cap’s going higher and higher they use their stock as currency to buy a lot of these companies.
So, the M&A market’s pretty hot if you’re buying a small caps stock that has sold off 20-30%, you’re gonna find a lot of them right now believe it or not. And pretty decent names with good management teams have sold off, maybe they [inaudible] the Russell, maybe they sold off a little bit more, but their catalysts are still intact. The thesis is still intact. You’re just gonna get a stock for a lot cheaper and if you can find those stocks, which we found, I screen for them, especially for Curzio Venture Opportunities, you find the ones in very big scalable markets and growth markets and growth trends.
I mean, when these things come down, the large caps guys are looking. They’re all over this. You know why? Because there is one certainly when it comes to large cap companies, once certainty you can take to the bank; they are always looking for ways to grow, always, always, always, always. It’s always growth, it’s always growth. How do we get into new markets, how do we grow? That could be organically, doing it within the company or through M&A, a company like Oracle has done a great job. Some companies use roll-up strategies and they use leverage and they get caught with too much leverage, and get crushed. But Oracle’s done a great job of this; acquiring a lot of smaller companies, mid-cap companies, even some large caps over the last 20 years; they’re on their way to becoming one of the biggest software players in the world.
But they’re always looking for new markets, always looking for ways to grow, because that’s what Wall Street wants to see. Want evidence? Microsoft; 12 years of doing absolutely shit. What happened? Medela got into cloud, got rid of Balmer, said let’s get into the cloud. All right, great, got into the cloud, look where Microsoft is; the 30s to over 130 since what, 2013? Look at Amazon, Amazon is, we know their presence in retail, yes they’re going great with Alexa, but they’re present in the cloud as well. Look at IBM; getting into data analytics. Watson; A.I. [inaudible 00:54:00].
When you’re getting into these growth markets that’s what Wall Street wants to see. What’s the best way to get into them? Well you can start from scratch or you could acquire these companies that are just A.I. related, data analytics related, spend $100 million, which is nothing because your market cap is tens/hundreds of billions of dollars and you can use your stock and it’s nothing. But that’s what’s going on, so small caps, when you look at the market and you’re looking at these small caps and where they are, you’re gonna see a ton of M&A and you’re looking at a market that has probably the best risk reward set-up that you’ll see again. Unless, over the past 3-4 years that I’ve seen, meaning that you’re not gonna have to risk a lot, and you could put 25% 35% stops on some of these positions, wait until after earning season. Maybe you’ll fall a little bit, if they had like a bad quarter, find out why.
Look at the news, maybe it’s just hey its more back end loaded, those orders are gonna come in late. Whatever it is, but it’s; gonna give you an opportunity to buy a lot of these stocks, take on a little risk, and they have 3x, 4x, 5x potential if they can execute on the next 2-3-4-5 years. That’s what I’m seeing with a lot of these small caps; levels that they’re trading at, it’s a very good opportunity. I have to tell you, I don’t see anybody talking about small caps right now.
On CNBC, Bloomberg, Fox, blogs; no one’s saying hey, you should be going aggressively into small caps right now. But based on what we’re seeing, where large caps are and how much that gap is and that out performance, and what I’m seeing in the small cap market where a lot of good names are selling off just to sell off, not really on any news. That’s the trend right now. The algorithms are jumping aboard, seeing something working they continue to jump until it’s not working anymore. But man, small caps has significantly underperformed provides a great, great opportunity for investors.
If you’re a Curzio Venture Opportunities subscriber, it’s good news for you. You’ll see a lot of great ideas making their way into that portfolio, and if you guys want any more information on Curzio Venture Opportunities, email me directly so I can give you the best price for that. It’s an extensive newsletter, use my contacts to find ideas that you’re not gonna hear about probably for nine-months, one-year, two-years, three-years later in the media and stuff like that. We get into a lot of these names early because of the contacts, because of boots on the ground. I travel, go to conferences, and we just get a lot of great ideas in that portfolio. I’ve done very, very well, and plus there’s a lot of buys in my portfolio now because small caps have underperformed and a lot of our names have sold off of them. So it’s a good opportunity if you’re gonna buy now, and also if you’re gonna buy now with a two-year time horizon, because over the next two-years I think small caps are really, really gonna kill it in this market.
Okay guys, love ya. Let me know what you thought at email@example.com, that’s firstname.lastname@example.org. Again, positive, negative, let me know if there’s someone out there that you like, that you listen to, if it’s a podcast, if you’d like for me to interview him. I get a lot of those, which are great. Again, I’m gonna say this, the podcast is about you not about me. The platform is getting bigger and bigger, as you can see, where we have Billing is reaching out to us to come on the podcast. You look at the past few weeks, I mean, amazing guests. The next two weeks; two more amazing guests coming up that are already booked. Both of them are new. Both of them are new, very high profile people and we’re getting a lot of people reaching out to us right now and this podcast which is cool. That’s because of you, spread the word of mouth and I just want to say I appreciate it. But again if you see someone out there you want me to interview let me know; email@example.com, and that’s it for me.
So thank you so much for listening I’ll see you guys in seven days. Take care.
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