TORONTO (miningweekly.com) – While gold output is in decline owing to falling grades, mine closures and new construction projects being deferred – with the situation compounded by gutted exploration budgets and capital markets being effectively closed for the gold industry – the next big price move could only be up, said chief owner, chairperson and CEO of McEwen Mining, Rob McEwen, in an email interview with Mining Weekly Online.

“Gold is cheap and gold shares are very cheap. I think we are at the bottom for gold. More consolidation and rationalisation is to come and today’s biggest producers will be surpassed by new leaders emerging from the midtier.

"These new leaders will have stronger balance sheets, good growth stories and management – more focused on building their share owners’ wealth first, rather than their personal wealth – will emerge and take the lead,” stated McEwen, who is also the founder and former chief executive of the world’s largest gold miner by market capitalisation, Goldcorp.

SCARCE CAPITAL
Despite the public financing market being effectively closed to the gold mining industry, McEwen noted that public companies were essential for entrepreneurs such as himself to provide capital, making dreams and visions a reality. This, in turn, created employment and generated taxes, wealth and, frequently, large philanthropic contributions to bolster the health, education and welfare of society.

However, one aspect of public markets that McEwen found increasingly frustrating and disappointing was the continuing proliferation of rules and regulations, which created confusion. In his opinion, financial statements were no longer easy to read or understand, and securities regulations were rendering shareholder communications and filings unnecessarily lengthy and obtuse.

“More frequently, they are used by share owners as doorstops or paper weights [instead of] an information source. Management and boards are spending far too much time on compliance matters [rather] than on [finding] ways to build value for their share owners, employees and the communities they operate in. We have to return to concise, clear communication and rules,” McEwen said.

Another key driver that could accelerate the rate of change in the gold mining industry was the increased involvement of private capital.

“Private capital can be impatient, which is good as it will want the industry to behave differently. It will bring a new set of eyes to old problems, lean hard on existing practices, [and] import attitudes and technologies from other industries that improve productivity [and] profitability,” he said, noting that private capital often wanted its money to grow faster than the industry had become used to.

“It is a more demanding source of capital that will enhance the attractiveness of the industry to other investors.”

HIGH HOPES
McEwen has set a strategic goal for McEwen Mining to get into the S&P 500 Index to gain a competitive advantage, as there is currently only one gold company in the index.

“The S&P 500 is a very exclusive group of companies and most companies in the precious metals industry can never get in, even if they meet the high financial requirements for admission. Since a fundamental requirement is to be an American company, that precludes more than 99% of the industry. However, McEwen Mining can because it is a Colorado-incorporated company,” he boasted.

Of course, being included in the S&P 500 would provide the miner with exposure to a significant pool of capital (more than $1.7-trillion is invested by index funds in S&P stocks), a more stable shareholder base, lower cost of capital, and exposure to the world’s most active market for precious metal companies.

ALL CHANGE
McEwen noted that the historic inertia of the industry was changing. While the current downturn would cause the industry to look for new ways to operate on less capital, he believed that big advances were likely to come from the outside.

For instance, mathematics, enhanced visualisation, automation and autonomous equipment could accelerate the evolution of the industry. “I think we probably need a start-up, something like a Tesla, to come along and be a disruptive force – staffed with bright young technical minds using today’s technology to design mines for today and tomorrow, rather than replicating the mines of 20 years ago,” suggested McEwen.

He said he would also like to see faster discoveries, quicker permitting, speedier construction, and cheaper mining and processing, with a reduced environmental footprint. Prioritising share-owner wealth over building size would also be welcome in McEwen’s vision for the future.

“Let’s call it ‘guerrilla mining’. We need to figure out how to shorten all the timeframes involved – the discovery process, the permitting, the building, and the payback period – as well as dramatically reduce the capital expenditures and operating expenditures. In essence, we have to attack the accepted timelines and operating practices of today in order to deliver strong returns of our invested capital. We have to demonstrate to investors that the industry can make them money,” he asserted.

Meanwhile, in recent company news, McEwen Mining has bolstered its suite of senior managers with this week's appointment of Colin Sutherland as its president, the promotion of Andrew Elinesky to senior VP and CFO, and last month's promotion of Andrew Iaboni to VP for finance.

The miner bucked the trend of falling commodity prices in 2015, with its NYSE-listed stock having shed only 7.6% over the past twelve months. On Tuesday, the stock traded up nearly 2% at $1.12 apiece, bolstered by the new appointments and a positive-trending gold price so far this week.