TORONTO (Reuters) - Rob McEwen, the Canadian investor who founded the world’s second-largest gold producer, is putting his name on the line with his latest precious-metal venture, aiming to build his McEwen Mining into an S&P 500 company within a few years.
McEwen’s new investment vehicle is a midtier gold and silver miner formed through the combination of two other companies he leads, U.S. Gold Corp UXG.TO and Minera Andes MAI.TO.
U.S. Gold acquired Minera Andes in an all-stock deal announced in June. The enlarged company, now called McEwen Mining, is due to list in Toronto and New York on Friday with a market capitalization of some $1.3 billion.
McEwen, who helped turn Goldcorp into an industry powerhouse in the 1990s before cutting ties, has set a goal of nearly quadrupling the value of his new company to $5 billion by 2015.
“Going out with this (company) is to see if lightning can strike twice, and I guess I’ve upped the ante because I do have a large personal stake in the company, and, my name is on it,” the Toronto-based investor said in a interview. “So I can’t just go to sleep and forget about it.”
In an industry where swagger and substance come in equal portions, such lofty ambitions might not carry as much weight coming from someone with a lesser reputation than McEwen‘s.
McEwen, a 62-year-old Canadian who came to mining from the investment industry, has a knack for making maverick bets pay off.
In 2002, when he was running GoldCorp, instead of selling all of the company’s gold into the market at prices near 20-year lows, he decided to hold on to a portion.
“After two years we had more gold in our vaults than 50 of the 114 central banks around the world that owned gold,” he said. “It was an early form of gold stock with an ETF in it.”
Since then, gold prices have risen sevenfold to about $1,700 an ounce from close to $250.
McEwen feels strongly that a chief executive ought to take the same risks as his company’s investors. That’s why he declines to collect a salary, preferring to maximize his exposure to the stock price.
The son of a gold investor, McEwen was schooled in the virtues of gold at the dinner table - and he apparently learned well.
The father of two grown sons, neither of whom are in the gold business, McEwen won fame and fortune in the 1990s when he strung Goldcorp together with a collection of small mining companies, creating what is now the world’s second-largest gold company by market capitalization.
Goldcorp went from a $50 million market cap to over $10 billion under his stewardship, and is now worth some $40 billion, second only to Barrick Gold (ABX.TO). He stepped down as Goldcorp CEO in early 2005.
In combining Minera Andes with U.S. Gold - itself a combination of smaller mining interests - McEwen is applying a formula similar to the one used to build Goldcorp.
“It’s not as if he hasn’t done this before. He’s been adept at putting together different interests,” said John Ing, a veteran gold mining analyst and the president of Maison Placements in Toronto. “There’s no question about it ... He has a very good eye for value.”
To achieve his goals, McEwen aims to more than triple gold and silver output from his company’s mines in the United States, Mexico and Argentina.
If metals prices stay on the upward trajectory they’ve been on over the past four or five years, McEwen Mining ought to have solid support for reaching its valuation goals.
“There are a couple of people I know in the industry who have made a discovery and then made another one and then another,” McEwen told Reuters when asked whether he thinks he can repeat his earlier success. “So it’s possible.”
McEwen sees gold rising to $5,000 an ounce in a few years from about $1,700 at present. Silver, now at some $32 an ounce, could jump more than sixfold, to about $200, he says.
McEwen Mining, trading under the ticker symbol MUX.TO, will have initial production of some 40,000 ounces of gold and 2.6 million ounces of silver.
By 2015, the company sees output of 7.5 million ounces of silver and 130,000 ounces of gold. While those forecasts are ambitious, they still pale next to Goldcorp’s 2011 production of 2.5 million ounces of gold.
McEwen Mining projects include the Gold Bar project in the U.S. state of Nevada, El Gallo in Mexico, both from the U.S. Gold stable. Its San Jose silver/gold mine and Los Azules copper property in Argentina are part of the Minera Andes portfolio.
McEwen said the company will either seek a partner for or sell Los Azules, one of the largest undeveloped copper properties in the world outside the control of a major miner. The project would cost about $3 billion to develop.
“We think there’s room to expand the resource and then from there to talk to players that have more money and more skills than we have in-house, to develop a project of this size,” said McEwen.
“Another option would be if someone comes along with an interesting bid that would more than address all of our financial requirements for development capital on our gold properties.”
McEwen, who took his sons to Asia over the holidays for a first-hand look at urban development that is driving global metals consumption, has no current plans to acquire other companies, but he won’t rule it out either.
Asked to identify the biggest challenge to running a multinational miner, McEwen points at governments and anticipating what they will do next amid tectonic shifts in the global economy.
“I think we are going into a period where we don’t know what governments anywhere in the world are going to do because economics are changing,” he said.
Reporting By Pav Jordan; Editing by Frank McGurty