Rob McEwen at it again – this time in Timmins

Purchase of Black Fox a strategic fit

Rob McEwen rose to mining preeminence as founder and former chairman of Goldcorp by reviving the fortunes of a moribund mine in northwestern Ontario. Now he has a chance to work his magic in another prolific mining belt – this time in northeastern Ontario.

In October, McEwen Mining acquired the Black Fox asset, 65 kilometres east of Timmins, from Primero Mining to add to the four Lexam VG properties in Timmins – all former producing mines – that were acquired in April 2017.

“When Primero’s assets came up for sale, we thought, this is a strategic fit because the Lexam properties are only 35 kilometres from the Black Fox mill and the Black Fox mill has extra capacity, so rather than build a new mill and wait for permitting, here’s a facility ready-made and it’s just down the highway.”

On top of that, Black Fox is an operating mine with planned 2018 production of 50,000 ounces of gold and 1.2 million measured and indicated ounces, another 200,000 ounces inferred and two satellite deposits – Grey Fox and Froome.
The best part of the deal was the price – $35 million.

“We couldn’t have built the mill for $35 million,” said McEwen in an interview with Sudbury Mining Solutions Journal.

“When Primero bought (the property) from Brigus (in February 2014), they paid US$300 million and assumed $140 million worth of liabilities. Then, between 2014 and October 2017, they put in another $120 million, so they were into this project for $560 million. We basically paid six cents on a dollar, and it came with $150 million in tax pools – losses sustained that can be applied against future income.”

Primero, said McEwen, had issues with metal streams in Mexico, the tax department, falling metal prices and a labour strike that cut off its revenue stream.

“They just got into a really difficult situation. They talked to their financial advisors and said, ‘look, we have to find a way out.’”

The sale to McEwen was followed in January of this year with First Majestic signing a definitive agreement to acquire the rest of Primero and its flagship San Dimas silver-gold mine in Mexico for US$320 million.

Following the acquisition of the Black Fox Complex, McEwen raised $10 million in flow through funds for an exploration program.

“We have quite a few targets there, and one that I’m quite intrigued about sits on the east side about 300 metres away from our underground workings, and it’s gold with base metals,” said McEwen. “I thought, Kidd Creek isn’t very far away. Maybe this is a baby Kidd Creek. It’s got high values of zinc, lead and silver in addition to gold.”

The Lexam properties – Buffalo Ankerite, Davidson Tisdale, Fuller and Paymaster – are all former producing mines with infrastructure a stone’s throw from downtown Timmins, and offer opportunities for both underground and open pit mining.

They have a resource of almost two million measured, indicated and inferred ounces and are right next to Goldcorp’s Dome Mine which closed December 31st after more than 100 years of mining.

“There’s a lot of gold there,” said McEwen. “It’s a very prolific area, and we thought, ‘it’s time to be a buyer.’”

One of McEwen’s claims to fame was the Goldcorp Challenge, an open invitation in 2000 to geologists around the world to review the Red Lake Mine’s geological data and pinpoint potential targets.

“Some variation of the Goldcorp Challenge is possible (for the properties in the Timmins area), said McEwen. “If you put together a good database, there are curious people out there (who will take a look at it), but it has to do with the level of employment in the industry. If everybody’s spending money and needing talent, you’re not going to have the same response.”

For the Goldcorp Challenge, 1,400 people from 52 countries competed for prize money of $575,000.

McEwen Mining also has a 49 per cent interest in the San José gold and silver mine in Argentina and owns the El Gallo gold and silver mines in Mexico along with an advanced stage porphyry copper exploration project in Argentina and the Gold Bar project in Nevada.

Additional acquisitions will depend on the price, said McEwen.

“We’re very opportunistic and we have plans to grow and qualify for the S&P 500, so yes, we’re looking to do more acquisitions. It’s just a question of price because getting bigger just for the sake of getting bigger doesn’t work. We’ve seen that repeatedly.”

McEwen, ironically enough, spent a summer working as a miner for Inco in Sudbury during his undergraduate studies at the University of Western Ontario, and turned down a scholarship offer from the company, telling them “mining is not in my future.”

He completed a degree in Economics at Western and an MBA at York University in Toronto, and spent the first 18 or 19 years of his career in the investment industry.

“I was introduced to the stock market at the age of 10 or 11 by my father, who was also in the investment industry,” said McEwen. “In the mid-60s, he steered his clients into gold, and there were always discussions around the dinner table about gold, its role in the monetary system and the debasement of currencies by irresponsible governments, so I picked that up by osmosis and I’m still upbeat about gold.

Why? “We’ve seen a massive expansion of the monetary base globally by central banks. We’ve also seen governments taking on enormous levels of debt, which is manageable when you have low interest rates, but we’re not going to have low interest rates forever.”

At some point, predicts McEwen, governments will be forced to restrict spending and rationalize all sorts of services.

Since Nixon ended the U.S. dollar’s convertibility to gold at the fixed exchange rate of $35, “we’ve been in this environment where there’s no currency in the world that’s backed by gold and money is just being printed, so we’re awash in money and that has caused a huge explosion in stock market values, land values and inflation...”

Commodities are cheap by comparison, “so any investor who is slightly a contrarian would say if there’s one area that’s really expensive and another area that’s really cheap, and it happens to be cyclical, maybe I should I should get some exposure in that area.

“From 2011 to 2015, we saw all miners building large capital projects,” said McEwen. “They went way over budget and kicked out their CEOs. Equity markets turned hostile, so companies worked hard to reduce their debt…and battened down the hatches to survive for the next cycle. Once people get the sense that they can make money in this sector, it will be back, so I don’t think you can go wrong buying shares in gold mining companies.”

McEwen predicted a gold price of US$2,000 per ounce in 2011 and fell $80 short of the mark.

Seven years later, he stands by his prediction and goes further out on the limb, claiming a price of $5,000 an ounce isn’t impossible a few years into the future.