US Gold (McEwen Mining Inc) AGM and Minera Andes Merger



It was a big day for US Gold Aka McEwen Mining Inc.. They started the day with the press release on the proposed takeover of Minera Andes and of course the AGM which I attended. I found the press release interesting given the post I had written back in March 2011 on the possibility of Rob merging US Gold with Minera Andes as the easy way to gain access to 4 quarters of earnings in order to check off one more requirement towards his S+P 500 inclusion, see here.

Minera Andes Takeover Justification

Today at the AGM Rob had the same hand out that he left for attendee’s to the LEX AGM yesterday. See yesterday’s LEX post for details. Part of this article From 2006 talks about why both companies in a merger can’t increase in value. Rob seemed determined to have both MAI and UXG gain today. Rob explained during the AGM the rationale they went thru to come up with a value for the merger. See slide #5 of the updated corporate presentation, see here. Rob noted that for the last 18 months the ratio of US Gold to Minera Andes was typically .32 and more recently .36, so they set the takeover at a 7% premium to the long term ratio at .4.

Rob also noted that it was no longer realistic for Minera Andes to get an AMEX listing anytime soon given the requirement had been increased to $5.00/share.

It should always be noted that he wanted the earning of Minera Andes but at the same time wanted both companies to increase on the day of the offer, therefore he had to keep close to the long term ratio. I think you also need to remember he will control 25% of the combined company, currently worth $345 million. So he would never over pay on one side just to take a personal hit to his holdings on the other side. McEwen had the most to loose by biasing the deal one way or the other. Being an Minera Andes shareholder it would have been nice to have a better premium but I also understand the balancing act he’s doing here.

Why The Push For An S+P 500 Inclusion

Rob also gave a bit more insight as to why the strong push for an S+P 500 inclusion. Yes they would be the second gold company to be included after Newmont, but he noted that there is a premium price that goes with inclusion in the S+P 500. He noted Newmont was a perfect example of this premium. He noted there is over a trillion dollars invested in the S+P 500 index. He also noted that the qualifications for an S+P 500 inclusion had been increased from $3.5 billion to $5 billion and he considered this their new stretch goal.

The TNR Dispute

During the Q+A at the AGM I asked about the dispute with TNR and how this would affect things and if in particular how it would affect their continued development of the Los Azules copper property. Rob recounted the legal mess and at the end noted that Los Azules development would decrease. I also asked if Rob would still consider spinning out the copper property at some point. Rob noted that after the legal dispute is over, yes.

Other Interesting Questions

I also asked if the merger would allow for accelerated funding for Minera Andes’ exploration properties. He said definitely. I find this key due to the fact that the faster we can reduce the impact of the Hothschild and copper play with some 100% Minera Andes plays the better.

There was also a question on Rob’s perspective on dividends and his thoughts on gold as a dividend to stabilize a stock’s price. I assume this was in reference to Jim Sinclair’s comments last week on using a direct gold dividend to kill shorts and help the stock price, see here. Rob noted there were several South African gold producers that paid out 6-8% dividends and,when they had decent production, he considered dividends a good check and balance for management in regards to their obligations to shareholders.

After the AGM

After the AGM ended there was a small reception with an open bar. (I always consider this my dividend until US Gold starts to pay one). I talked with Rob and mentioned I had written about the possibility of a takeover to access the earning of Minera Andes to get one step closer to an S+P 500 inclusion. His response, “interesting, so what am I going to do next?”. I commented that I’d expect him to wait for a good find within Lexam VG Gold and then would expect him to role LEX into US Gold also. As expected I got a great poker face as a response. I also got a picture with Rob which I’ll post when I receive it.

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