Rob McEwen On Why Gold Stocks Remain A Good Bet

Rob McEwen on Why Gold Stocks Remain a Good Bet

When gold and silver producer McEwen Mining (TSX:MUX,NYSE:MUX) released its Q3 results, Founder and Chief Owner Rob McEwen was candid, describing performance at the company's El Gallo 1 mine as "nothing short of awful" and quipping, "[w]hat an incredibly ugly market and share price."

That openness continued following the release, with the company acknowledging after its conference call on the results that given today's tough market, shareholders were due a broader conversation.

With that in mind, McEwen scheduled a second conference call, billing it as an outlet for the discussion of "the current gold price, market conditions and the mining industry." Held on November 21, it definitely provided some food for thought, not only for McEwen shareholders, but for gold bugs in general.

Though much of the call centered on what's going at the company's operations — most notably Mexico-based El Gallo and the Los Azules exploration property in Argentina — McEwen's comments on company strategy and the gold market in general were perhaps more interesting.

For one thing, he shed some light on what will happen to his company if the gold price falls further. He said, "if [the gold price] got down to $700 an ounce, would we survive? We would, but we wouldn't be producing any metal ... at $700 gold, we and the rest of the industry would be probably closing 90 percent of the gold mines in the world. And silver mines."

That said, he was quick to reassure listeners that he "can't conceive" of such a drastic price fall, also noting that given his "large investment in the company" — McEwen owns 25 percent of his company's outstanding shares — his "interest is to protect [his] investment and [shareholders'] investment and grow it, not just sit on it."

McEwen also touched on London Metal Exchange price fixing, another concern brought to him by shareholders, though he simply noted, "I don't have a lot of comments on that. It's in the hands of the regulators."

He had more to say about potential central bank manipulation of the gold price, commenting, "they probably are manipulating it, but they all have a mandate to manage their currencies. So they're operating with tools and legislation that allow them to adjust the price of various commodities and other financial instruments in a manner that they feel is best suited to preserve their currencies." That might sound disheartening, but according to McEwen, it won't last forever. "If you look to economic history, they can keep it going for awhile, but forever? Never," he asserted.

Finally, McEwen left those on the call with his take on what's next for the gold market. "I think the last couple of days give you an illustration of why you might want to hold gold stocks," he said. "They're more heavily oversold than gold and have some very powerful upward moves when they're coming off the bottom. You have to be very nimble right now to take advantage of those moves because they seem to be very short, but I think what we're seeing here is the beginning, the starting of a recovery in this market. It'll occur over the next six to 12 months, but I think you're going to see strong moves in the gold stocks interrupted by some downward moves — but the trend is going to be going higher."

Those interested in gold will certainly be hoping that McEwen proves to be right. At close of day Friday, the company was trading at $1.63 on the TSX and $1.46 on the NYSE.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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