What’s Rob McEwen’s longer term strategy?

The Big Disclaimer: I’m not an analyst, not an advisor, and everything below is strictly my thought experiment and opinions and definitely not intended as advice. Do your own due diligence.
Disclosure: I hold RMX, MAI, LEX, but no UXG (no particular reason why)

What is McEwen’s long term strategy with the companies he’s involved with?

Some background, a brief history of US Gold:

Jun 23, 2005 — Romarco Minerals, Western Goldfields, and US Gold merge forming the new US Gold ( press release#1 )

Jul 29, 2005 – Rob becomes largest shareholder of US Gold (press release #2 )

Aug 19, 2005 — Rob becomes CEO ( press release #3)

2005 US Gold raise some money.

Dec 7, 2006 — US Gold gets AMEX listing ( press release #4 )

Jun 12, 2007 — Letter to shareholders where he states “I am not a very patient person. Therefore, we are looking for ways to accelerate our exploration program. ” music to my ears ( press release #5 )

Jul 3, 2007 — Merger of White Knight, Tone Resources, and Nevada Pacific Gold rolled into US Gold ( press release #6 )

2008 – Drill, Drill, Drill…

Mar 31, 2008 — moves in his own people, CFO appointment ( press release #7 )

2009 – Drill, Drill, Drill…

El Gallo discovery…

2010 – present – Drill, Drill, Drill…

Feb 24, 2011 — raising another $100 million ( press release #8 )

So what could be next….

Well he’s clearly stated his goals in the corporate presentation Qualify for S+P Listing by 2015, so he needs the following:

  • US Company — got it
  • Public Float > 50% — got it
  • Liquidity Threshold — got it
  • Sector Representation — got it
  • US Listing — got it
  • Market Cap > $3.5 Billion — not yet
  • 4 Qtrs Positive Earnings — not yet
  • So 2 items left. They have about a $886 million market cap so far, so in 4 years it would be possible to get to $3.5 Billion, especially with Rob running the show and gold increasing. But what about that other item of 4 quarters of positive earnings? Earnings for the last 3 years are red as far as the eye can see, 2007 – ($28,867,000), 2008 – (131,957,000), 2009 – (27,698,000). Of course they are an explorer after all. El Gallo isn’t scheduled to get to production till 2014, then you’d need 4 quarters after that point, seems rather tight to have 4 quarters positive by 2015. Also remember that quote above “I am not a very patient person”. So what to do, well there are those two other companies MAI and LEX, about $650M and $195M market caps respectively at present, and I’ve made a case here that would double MAI. That would get the market cap total to $1.73 billion, now we just need to double that to get to $3.5 billion and with gold and silver increasing that’s not likely going to be hard to do. But what about the earnings problem, MAI has about +$4.6 million currently, but LEX has about a $1 million loss. So with silver increasing they would bring an easy $4-5 million/year in positive earnings to the table which will likely increase in the coming years. If US Gold can get up to break even then there would be positive earnings overall.

    So one has to wonder if he will at some point roll all three of these firms together to quickly meet all the requirements for an S+P 500 listing. As noted in US Gold’s history above Rob has done the roll up 3 firms thing TWICE before and I can see him doing it again. So anyone that thinks they can be a long term MAI or LEX shareholder, should consider that some day you may actually be a UXG holder. I’ve seen some ask if MAI and LEX will get a US listing, I’d have to question why he would do that, given he’s got the US listing exposure currently via US Gold and can likely raise any money for MAI and LEX without a US Listing. Also note that all three have head offices at 99 George St, Toronto.

    I also believe that at some point when MAI has generated maximum value with minimal investment in the copper play Rob will sell it off. He’s always been a gold and silver guy, the capital outlay for a copper mine would like force a joint venture with a major producer. This could also help to get the earnings into positive territory if they can get a good price for the copper.

    Just my two cents…

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