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Canada's
Gold Mines (and iSophia's Gold Report Card).
 While
cheap money (low interest rates), increased money supply, the
largest U.S. national debt on record and other hiccups in the
economy continue, gold has become all the rage, with Toronto-based
gold mines, in particular, being the talk of the town. Is the
real worry inflation, and will that send the price of gold into
outer space?
The price
of gold tumbled on 10.03.2003 -4.0%, the largest drop in six years,
prompting a sell-off on 10.7.2003, only to find institutional
investors gobbling up relative bargains in gold stocks again on
10.10.2003. Clearly there is a lot of fever around gold these
days. Ed Bugos, editor of the Goldbar Report, believes the real
worry on the economic horizon is not DEFLATION, but inflation.
Whether you are skeptical of the current bull run or just looking
to diversify your portfolio, gold stocks traditionally fare well
in periods of low consumer confidence and inflation. Believing
that gold can run another hundred bucks an ounce without much
trouble--to $475--Ed Bugos has selected three companies he believes
are the best current VALUEÑGold Fields Limited (GFI), Kinross
Gold Corp. (KGC) and Anglogold (AU). Mr. Bugos considers Newmont
Mining and Agnico Eagle Mines to be expensive based upon value
relative to cash and gold reserves and the expected life of the
mines, though these popular, well-known gold companies could benefit
from public outcry for hard currency, simply because their names
are well known. (The gold price on 10.10.2003 was $373.20.)
Mr. Bugos
is not the only gold bug prognosticating a run on the bullion.
Bill Fleckenstein, an MSN featured commentator, notes that there
is an "accumulation of gold occurring around the world,"
and that "owning precious metals is an insurance policy against
the U.S. Feds, inflation, tough economic times and the current
currency debacle [the low dollar]." Current government attempts
to "champion a lower dollar," make precious metals,
gold in particular, very attractive to Fleckenstein. Richard Russell
is recommending that 1/3 of one's net worth be in metals currently.
Finally, Rob McEwen, CEO and chairman of Goldcorp, has created
a chart (below) that compares the price of gold to the Dow Jones
Industrial Average over the last 106 years. According to the historical
trends of the chart, Mr. McEwen believes that the American markets
are currently one-third through a twelve-year gold bull run, the
likes of which could take gold prices as high as it did in 1980,
when gold prices topped $800 an ounce. If those prices sound like
a pipe dream to you, there is still a case to be made for gold
as a portfolio stabilizer. In July 1999, when the Dow tanked 50%,
unhedged gold stocks (like Goldcorp) increased twofold--in some
cases, much more.
So, what was
going on in the 1980s, when gold ran from its $35 low to over
$800? An energy crisis, terrorism (Iranian hostage crisis), interest
rates topping 20%, inflation and a bear market that had stalled
the Dow Jones Industrial Average at around 1000 for seventeen
years! (Who says Buy and Hold has EVER worked?) While interest
rates today are at a 40-year-low, many of the other signs of low
investor confidence are present. Energy supply problems and spiked
energy prices. The threat of terrorism. Pressure to increase interest
rates (aka a HUGE American national debt). A trillion of investment
dollars stashed in the low-interest bearing safe-haven savings
accounts. Abandoned or abated talk of deflation with the word
"inflation" creeping into economic trend predictions.
It's yet to be determined if people will begin removing the gold
from their teeth to sell at triple gains, like they did in the
1980s, but historical trends would indicate that some of these
contrarian gold bugs, like McEwen, Fleckenstein and Bugos, have
a few statistics in their corner.
So which companies
are most likely to benefit from a gold bull run? Newmont (71%),
Agnico-Eagle (55.6%), Barrick (47.2%) and Goldcorp (45.5%) fare
most popular with the major market movers and shakersÑthe institutional
investors, but Goldcorp orbits a world all its own in share price
returns over the last few years. Goldcorp's share price has jumped
475% in the last three years, more than twice the rate of any
other gold mining stock. Of course, past returns don't always
equal future gains, and some web sites, like Money Central, point
to both Newmont and Goldcorp as being overvalued. One thing is
for sure, Goldcorp's CEO and chairman, Rob McEwen, has shaken
up the gold mining industry in the last few years, by creating
a new way of finding and identifying reserves that has become
so respected it is now called the Goldcorp Principle.
Therefore,
to gain more insight on the current and future trends in gold
gains, on the challenges facing gold mines (including environmental
and labor challenges) and to compare the production costs of the
top gold-mining companies in the world, iSophia turned to Mr.
Robert McEwen, the Chairman and CEO of Goldcorp, a man who received
no less than five awards last year from organizations as diverse
as Northern Miner to Ernst and Young. Is there gold in 'them thar
mines,' or could the recent run-up of Goldcorp simply be that
Mr. McEwen, formerly of the finance world, is media and market
savvy?
Click here
to go to the Gold
Stock Report CARD.
Fast facts
about Goldcorp:
The mega-cap
gold corporations have more reserves and more market capitalization
than Goldcorp, but they don't beat Goldcorp's bottom line--cash
operating costs of just $65/ounce to produce the gold. Mr. Rob
McEwen was Northern Miner's 2003 "Mining Man of the Year" for
being the "biggest positive newsmaker" in 2002. He was also Ernst
& Young's Entrepreneur of the Year, Viola R. MacMillan's Developer
of the Year, Fast Company's "The Fast 50" Champions
of Innovation, Investor Relations Magazine Best Senior
Management in Canada and Business Week's "Web Smart 50"--one
of the 50 most innovative companies on the web worldwide. Read
on to see how Goldcorp has reduced their production costs to the
lowest in the industry and substantially increased their reserves
under the visionary guidance of their CEO.
From a
telephone interview between Natalie Pace and Robert McEwen in
February, 2003.
N. Wynne--Five
awards in one year. Not even Jack Nicholson can beat that.
McEwen--It's
been quite a year.
N. Wynne--
What makes you so well liked by these organizations?
McEwen--Everybody
in the company works pretty hard. They just need someone to give
an award to. We've approached the business a little differently,
and fortunately, have gotten results that surprised people. In
the mid-90s, our mine had been going for 50 years and was assumed
closed. Today, as a result of the discovery we made at the bottom
of it, it's considered to be the richest mine in the world. Goldcorp
is also one of the five lowest cost producers in the world.
N. Wynne--What
is so different about your approach, and how do you keep the costs
down?
McEwen--We
tore down an old mine. We found gold where no one thought it was
going to be found. It totally altered the geological model. We
built a new mine with fiber optics. We're beta testing with wireless
communication devices underground. Wireless communications are
pretty natural on surface, but underground radio waves don't travel
well. Think of being in an office tower, where you board up all
the windows and turn off all the lights. You're responsible for
twenty people, on different floors. Tell me what they're doing?
The key need is shortening communication times. That reduces working
capital. If you reduce working capital and fixed capital, you
reduce costs overall.
N. Wynne--I'm
sure that makes you very attractive to shareholders.
McEwen--We've
had just remarkable performance. Our compound rate of return on
share price is 38%. We've outperformed more than 90% of the list
of companies in North America since the start of 1993, when I
began restructuring the company, until now. Our return on capital
is 26%. In 2001, we were the most profitable gold mining company
in North America. We split 2:1 last year. We held back 10% of
gold production. We believe the price of gold is going higher.
We thought we'd hold a little bit and sell it once that occurs.
N. Wynne--
Goldcorp's rate of return, at 37% over the last nine years, outperforms
Microsoft, IBM, Coca-Cola and Warren Buffett, doesn't it?
McEwen--Yes,
and it puts all the senior gold producers in the dust. The senior
gold producers have a flawed strategy. They think growing the
top line is important. To me, it's growing the bottom line--the
share price. I've got a chart that compares us to the three largest
mining companies in North America. They're compounded at today's
T-bill rates at best, as opposed to our 37%. They've ignored the
shareholder. They're out to make a bigger company, but they haven't
paid attention to what happens to the per share number. That,
to me, is critical. Why be bigger if your share price is going
to stand still or go lower?
(iSophia
note: Goldcorp has indeed slaughtered the rate of shareholder
return in the sector. For a detailed analysis of five and ten
year shareholder return rates, check out the Gold Stock Report
Card. The link is listed above, at the beginning of this interview.)
N. Wynne--With
those returns, why isn't your face as well known as Bill Gates?
Why isn't Goldcorp mentioned in the same breath as Berkshire Hathaway?
It can't be that insurance is sexier than gold. There will never
be a Bond film named, Microsoft.
McEwen--Why
would someone buy a gold stock? We are more than just a gold stock.
What are your returns on capital and equity? What type of operating
margins do you have? Stack us up to leading companies. We're delivering
competitive results. Net margins of 35%. Business Week
does a survey of the top 900 companies in the country and ranks
them by return on equity and capital. If we were included, we
would be in the top 20.
N. Wynne--You
weren't included because Goldcorp is Canadian-based?
McEwen--Yes.
It might also have been size. The other companies have multi-billion
dollar market capitalization above ours. [iSophia note: GG's market
cap is $2.66 billion.] What we're trying to create is a company
that allows our shareholders to have a good night's sleep.
N. Wynne--If
gold is predicted to rise in value, why isn't everybody holding
some back for the higher sell price?
McEwen--Because
we have a very low break-even point, we don't have to sell to
survive. We started this policy when gold was $270 an ounce, and
today it's $350. [iSophia note: On 10.10.2003, gold traded for
$373.20 ounce.] Our outlook for gold is that it's going to go
higher from here for the next 6-8 years. If we sold the gold we
currently hold in bank vaults, our return on capital would have
been 32%.
N. Wynne--Has
Goldcorp always had such a high return on capital?
McEwen--We
went through a difficult period between 1996 to 2000 at the mine
that is driving the company today. It was a high cost mine, and
had been that way for quite awhile. The company was cash starved.
There were problems with labor. I went in and said, "This mine
is going out of business. Let's find new ways that people haven't
thought of." We said that there was a way to turn the company
around. Our work force said they didn't want to do it. We went
through a 46-month labor strike.
N. Wynne--Ouch.
That's a long, rocky period.
McEwen--Fortunately,
no one was hurt. The only property damage was to Goldcorp. It
was the first and only time that I received a death threat in
the mail. We had SWAT teams at our house a couple of times. All
the windows on the ground floor were replaced with bullet -proof
glass.
N. Wynne--The
end result of that strike is quite noteworthy. The labor union
folded, didn't it?
McEwen--It
was the first time the United Steelworkers of America walked away
from a mine.
N. Wynne--How
did your team accomplish that, and is that necessarily a good
thing for your employees?
McEwen--When
we built the new mine, we wanted shared responsibility and to
embrace new technology. The skill set required for this new mine
was different. Many of the workers didn't possess those skills.
We set up a training facility to train them. Initially, labor
viewed us like a computer virus. The industry contract we proposed,
if they had accepted it, would have corrupted their other contracts.
The head of the union came to me directly and said that we weren't
going to have a good relationship, even if we settled. We went
from being the bad guy, to the executive of the union being the
bad guy. The union went to the workers and said that it was a
good fight, but they had lost. They said, "If you don't accept
this deal, there won't be any more strike pay." We probably have
40% more labor force now than then, but at the time, we were in
need of a smaller work force.
N. Wynne--How
did you handle the layoffs?
McEwen--We
gave them [the workers who were laid off] a generous severance
package by industry standards. I also wanted to give them an opportunity
to participate in the company's future. We gave stock options
to all of the employees. One reason was selfish. I wanted them
[former employees] to have an interest in the company. Maybe that
peer pressure would stop one radical individual from doing something
untoward to the operations. The options could fund a university
education or a new pickup truck, or moving somewhere else if they
don't want to be in the community. That worked out quite well.
N. Wynne--How
does a cash poor company put in new technology, an employee-training
program, and offer stock options as an incentive to make the company
succeed?
McEwen--We
financed this process with equity at the bottom of the market--with
an asset sale.
N. Wynne--How
quickly did the changes take effect? Was there a long period of
adjustment and/or negative cash flow before the new technology
and labor force became productive?
McEwen--When
I came into the company, we were producing 53,000 ounces at $360
cash per ounce cost of production. In our first full-year of commercial
production, we produced ten times the amount, or 503,000 ounces.
The direct cost of mining was $59 ounce, or 1/6th of
what it had been in 1996. There was a 60-fold change in the economics
of the bottom line.
N. Wynne--That's
an incredible pay-off, but it's hard to imagine that it made up
for the death threats and forty-six months of labor strikes. You
came over from the investment world, didn't you? Was it tempting
to return to that relatively safe haven?
McEwen--I
grew up in the investment industry, and stepped into mining in
the beginning of the 1990s. The investment industry was in my
blood. My father had me charting stocks at the age of ten. I made
nine times return on my money in 18 months. From that time forward,
I thought that was the way the market worked. In the investment
world, if you wanted to get out of a problem, all you had to do
was sell it. It's an abstract world, where you're dealing with
abstract concepts. In mining, it worked on a totally different
time frame. If you had a problem, it didn't take three days or
three months. You might be lucky to get out of it in three years.
I've been applying the urgency and discipline of the financial
markets to this company. I also wanted to get into an industry
where there was an opportunity to hit a homerun, clear out of
the park. I'd known people who'd made discoveries. A discovery
is transformational. And it worked.
N. Wynne--That's
incredible. How did you find gold where no one thought it was
going to be found?
McEwen--The
discovery occurred at the bottom of the mine that is 50 years
old. I had a brainstorming session with our geologists because
I wanted them to accelerate the process. I said, "I want you to
bring in all of the ideas that your superiors said were no good."
We spent two days in a forum. There was cross-fertilization going
on. I walked away thinking I'd like to get the larger community
involved in this process.
N. Wynne--The
larger community, outside of your company?
McEwen--I
ended up in a course at MIT, with a business organization that
I belong to, called the Young Presidents. So I went down there
for weeklong immersion in technology and applications at the Sloan
Business School. They started talking about Linux and the development
of open-source code. A light went on.
N. Wynne--Was
this the dawning of the Goldcorp Challenge?
McEwen--We
launched the Goldcorp Challenge. We took all of our geological
data (50 years) and our data of reserves. We put them up on the
Internet. We were appealing to a group of people, giving them
access to proprietary data that no mine company had ever done
before. It was a 400-mg file. Software allowed viewers to see
the data in two and 3-D.
The challenge was to find 6 million ounces of gold. For those
insights, we offered prizes totaling half a million dollars. During
the four-month registration period, we had 475,000 hits to the
web site. 1400 people in 51 countries downloaded this file. We
had a panel of five international judges -- from the U.S., Australia,
Canada (2 judges), and South Africa.
The judges
looked at all of the submissions and picked the most innovative.
We were not going to drill right away. We were looking for innovative
thinking. We paid $10,000 to each of 25 semi-finalists, and said,
"Come back with your submissions. Revise, upgrade, use any media."
N. Wynne--1400
people downloaded the file. 475,000 hits. Wasn't judging this
a nightmare? Was the time investment worth it? Weren't you worried
about "trade secrets" leaking into the hands of the competition?
McEwen--When
I saw the first submissions coming in, it was a cornucopia. The
diversity was remarkable. We saw people using intelligence systems,
applied math, and computer graphics. It was wonderful. It is very
interesting, when you share something that isn't supposed to be
shared. Most of the industry thinks you're crazy. When you give
it away, there are people who say, "This is just a game, isn't
it?" Others say, "I don't understand." A year later, when we gave
the prizes to the finalists and semi-finalists, everyone was saying,
"That's a rather interesting idea." Recently, the largest mining
company in the world copied us and called it the Goldcorp Principle.
They're using this as a way of engaging the intellectuals in the
industry.
N. Wynne--How
did the competition lead you to find gold reserves that you would
not have otherwise found?
McEwen--It
was a great way of getting third party validation of our estimates
of what was there. It was a tremendous talent hunt for innovative
thinking. We hired up to ten people from the top twenty-five finalists
(either full or part-time). It gave us terrific confidence because
75% of the semi-finalists had targets that matched the projections
we had. We didn't provide them with our targets. This process
generated 110 exploration targets in a mine that was supposed
to have no future. 50% were brand new. 50% matched ours. It opened
doors into the imaginations of the geologists. Our success ratio
in drilling those targets is running 80%. The Challenge pushed
us into the 21st Century in terms of exploration. The Goldcorp
Challenge broke the mold for the industry.
N. Wynne--Let's
talk about how you've applied your financial acumen to the impressive
operating efficiency of Goldcorp and built Goldcorp into a $2.66
billion dollar company.
McEwen--Goldcorp
had a $50M market capitalization in 1993, when I started restructuring.
I took five companies and compressed them into one. I concentrated
the value in fewer and fewer companies, trying to make it easier
for the investors to understand. In Canada, we have structures
that are a little different, in terms of shares, called multiple-loading
shares, where one share can carry up to ten votes. I controlled
40% of the vote of the company. In the last restructuring, we
went to one vote per share. I went from 44% voting interest to
6 1/2% equity interest in the company. We were able to inject
something into the market that everyone else had, but it was new
to our company, in terms of corporate governance. That had a big
bearing in our volume on the New York Stock Exchange. From 1995
to the end of 2000, our trading volume was 95% in Canada and 5%
in NYC. At the end of last year we were trading 58% of our volume
in New York City. On a net cash basis, we have more cash than
the aggregate of the five largest gold producers in the world.
We don't have any debt. We were the most profitable mining company
in 2001. I think we'll be again in 2002. We don't hedge.
(iSophia
note: Goldcorp was the most profitable gold mining company
in 2002, with 35% margins, compared to negative earnings and 7-17%
margins for the other companies featured in this week's stock
report card.)
N. Wynne--Describe
what hedging is for our readers, and why your company has an advantage
for not doing it.
McEwen--It's
a term that means I will sell my gold five years from now at today's
price. It worked in the 90s, but it's backfiring today. Being
hedged leaves you out of the upside price of gold. Hedging caps
the price that you are going to get. Hedged companies are underwater.
On top of that, we withheld gold (and bought gold). Right now
we have 200,000 ounces of gold. We're the only company in the
world withholding production.
N. Wynne--I
found out about Goldcorp because you were one of the only equities
in a short-selling fund. Are you most popular with the bears?
Do institutional investors only bet on gold when the market tanks,
or inflation hits or during wartime?
McEwen--
I believe we're at the start of the third major market in gold
to occur in the last 106 years. There are very long economic cycles
that have occurred in gold. There's a chart that compares the
Dow Jones Industrial Average by dividing it by the price of gold.
It takes month-end value and plots it from 1896 to present. When
the Dow is much higher than the price of gold, there is confidence
in financial assets. When the number is higher for gold, people
go to hard money--assets that are tested over time to preserve
capital. There were peaks in 1929 (when it took 18 ounces to buy
the Dow Jones Industrial Average). The next peak was in 1966.
The last period was July of 1999, when it took 44 ounces of gold
to buy the Dow.
N. Wynne--Those
are all peak periods before major market adjustments. How low
does the Dow Jones trade compared to gold in the troubled times
following the peaks?
McEwen--The
other side of the numbers can be very abrupt. By 1932, it took
only two ounces to buy the Dow [down from 18 ounces in 1929].
From 1929-39, which was a deflationary period, it was a very good
time to own gold. Homestake Mining was up six-fold. From 1966
to 1980, an inflationary period, the Dow fell from 28 ounces of
gold to buy the Dow Jones Industrial Average, to just one ounce,
in 1980, to buy the DOW. Homestake Mining [during that period]
went up six fold, while the DOW stood still. In July 1999, the
Dow retrenched 50%. Unhedged gold stocks increased twofold, in
some cases, much more. If you average those first two periods,
you get a twelve-year period. We're a third through it right now.
That's just a psychological factor in the market, where you move
from confidence to no confidence. It's also a supply situation.
Supply is being reduced considerably, and the interest is increasing.
When you compare the global equity market capitalization to the
gold industry, there is only 1% of the global market capitalization.
If you have a small shift, half a percent, the market capitalization
of that sector increases by 50%. The market is all about psychology.
Expectations about good times, and the expectation about bad times.
N. Wynne--Benjamin
Graham says, "In the short run, the market is a voting machine,
but in the long run, it is a weighing machine." Investor confidence
was at an all-time low last year, but with new SEC regulations,
corrupt executives going to prison and the new bull market rally,
will gold hit a threshold or perhaps even decline in value?.
McEwen--In
the early 1930s, the SEC was created to deal with corporate malfeasance.
Consumer, corporate and government debt are all at record levels.
In the late 1920s, 10% of the population had money in the market.
Close to 60% of the population is in the market today, through
retirement, pension, insurance, etc. When people start getting
concerned, there's a bigger wave that goes through. I could be
very wrong on this, but I think it's prudent for most investors
to think about having fire insurance for their portfolio. In the
last three years, if you looked at the top ten performing mutual
funds, you'd find a predominance of gold funds.
N. Wynne--Did
investors already miss the time to buy? Goldcorp's share price
($14.56 on 10.10.03) is trading near the 52-week high ($15.10),
and Money Central says your P/E to growth ratio indicates the
share price may be overvalued.
McEwen--
Everyone is saying, "Don't invest in gold. It's too volatile."
It would be prudent to have 5-10% of your money in fireproofing
your portfolio. If you'd bought into the DJIA index, beginning
2001 through the beginning of 2002, you'd be down 23%. If you'd
put only 90% in instead, and put the other in Goldcorp, at the
end of last year, your whole portfolio would have been up 10%
rather than down 23%. In terms of trading high, the industry has
had a strong move through December, in anticipation of higher
gold prices. Gold prices ran, but the shares didn't run as fast.
If gold were to drop to $100 ounce, which has a low probability
of occurring, 90% or more of the industry would go out of business,
and we'd still be making money because of our low cost of production.
In terms of P/E, at the height of the tech bubble, NASDAQ was
trading at 300 P/E. We're trading at 40 P/E.
[iSophia
note: The S&P average P/E is now 23.]
The problem
with gold is that there is a lost generation in the market. People
think it's a nice ornament to wear. When you look at the performance
and reflect on the statements, how come it has performed so well
and everybody tells me you that you shouldn't be there? For gold
investors, I'd say, you're not part of the herd, right now. You're
a contrarian if you buy gold today.
N. Wynne--Contrarian
investing is the buzzword of some of the most successful investors
and analysts, including Sally Krawcheck.
McEwen--I
hate standing in line. If you want to go from Point A to Point
B, and you're standing behind someone, you can only go as fast
as the person in front of you. If you step out of line, you might
lose sight of the goal a few times, but odds are, you'll get there
much earlier than the person you stood behind.
N. Wynne--So
is gold jewelry, status or money?
McEwen--Gold
is money. It's accepted anywhere in the world. You can trade it
anywhere at anytime of the day. It's extremely liquid. It's been
around for a millennium or two. It doesn't have any debt attached
to it either. There are 114 nations that own gold in their central
banks. Our goal is to have more gold than the bank of Canada.
41 Countries have less gold than we do.
N. Wynne--
Is there growth potential at your company, outside of the argument
that gold is good portfolio "fire-insurance?" If the bulls
continue to run this year and investor confidence returns to the
market, is Goldcorp positioned to perform well, or will
the demand for gold (and the price of gold) wane?
[iSophia
note: We hate to toot our own horn, but the italicized prediction
was written in February! At the earliest stage of this latest
rally!]
McEwen--We'll
be sinking a shaft (elevator), which will be going down to 700
feet below surface. It's an $85 million capital expenditure. Based
upon $325/ounce gold price, we expect to get our money back in
1.2 years. The rate of return will be 47%. It will allow us to
increase our production of gold from 500,000 ounces to 740,000
ounces, for a 40% increase. Our operating costs will be below
$60 ounce.
N. Wynne--What
is your projected growth rate for the next 3-5 years?
McEwen--The
building of our expansion will take three years. We're fairly
flat currently in terms of production. The revenue will only change
with a change in the price of gold. We are an aggressive exploration
company (consider this our Research & Development). We're
looking at a number of situations where we can add reserves or
to the life or size of our property. Right now, we're executing
this plan of organic growth. We also invest in smaller companies
that are exploring--our farm team. We're putting money into their
treasuries to encourage them. If they find something, we can offer
additional capital, expertise and encouragement.
N. Wynne--Won't
expansion increase production costs per ounce?
McEwen--No,
I wouldn't think so. We keep looking for ways to grab a technology
from another industry and apply it to our business. The people
who make the arm in the space shuttle want to diversify into medicine
and mining. We're doing work with them and a number of others,
looking to improve what we do. Mining is global, but all of our
assets are in North America. We're comfortable with our risk profile.
The rest of the world is unsettled right now. Mining is a business
where you end up being committed for a long period of time, once
you build a mine.
N. Wynne--
Is a $400 gold price coming? If the US is off the gold standard,
how does that affect the potential high end of gold?
McEwen--The
high for gold was reached in Jan of 1980--up to $850 ounce. Over
the next 6-8 years, it's going to try and run to that and through
it.
N. Wynne--Would
an investor be better off just owning the gold itself or owning
stock?
McEwen--You
might try owning some gold. In 1929-39, gold went up 70%. [Compared
to the 6X price performance of Homestake during that period.]
1966-1980, gold went up 20-fold. Which is better to own? You might
want to split it between the two to cover your bases. You might
think of buying a couple of gold stocks, just as a form of diversification.
Prudent diversification is important to any portfolio.
N. Wynne--Does
technology, namely the fiber optic network, remain key to Goldcorp's
low cost of production?
McEwen--Yes.
We use it as a communication means. Voice, data and video. Throughout
our mines, there are video cameras that allow us to go onto the
web and see what's happening at various points. The more information
you have, the better decisions you can make, on a more timely
basis, with less capital employed. You might start working on
different equipment to move materials around faster. From a safety
standpoint, you can determine where everybody is in the case of
emergency. You can look at the impact that the mine has on the
immediate area. Most are built as closed systems, so as not to
leak into the surrounding area. You want to pay attention to that.
You want to catch it before it creates any damage.
N. Wynne--Which
brings us to another consideration, what is Goldcorp's environmental
and safety record like? Goldcorp's web site boasts that Red Lake's
Mine's secondary pond is "of such good quality" that suckers (fish)
spawn in it? How do you keep the run-off so clean?
McEwen--
At Red Lake, our record is excellent. We tore down the old mine,
and built a new one. In the process, we cleaned up everything
that would have been an issue. The mine at South Dakota sits at
the top of the hill. There have been fish kills in the stream.
We use technology to stop that. There have been birds that land
in our ponds. We cover the ponds with netting, but the birds get
poisoned. That hasn't happened for quite awhile, but it does happen.
We've offered to have a hatchery, but they say no. If you look
at mining, on the impact on the land, you see a gaping hole in
the ground. People in the mining industry would say that malls
and parking lots consume more of our landscape than mines, and
maybe do more damage, but it's hard to quantify it. If you want
to be in the mining business today, if you disregard the laws
for environmental protection, you should get out of the business.
We try to exceed the requirements. There are times and events
that push us the other way, but we've received awards from South
Dakota and elsewhere for what we've done.
It's an industry
at times playing catch-up. Originally, the mines were encouraged
to be built by the government to create employment. The politicians
said, "This a remote site. We want employment and tax dollars."
We're now learning that there was much more to the story. A lot
of companies predicated their financial models based on historical
costs. The industry as a whole has done a good job of hiring environmental
people today. If you want to be in the business, it's prudent
to go beyond what is required.
N. Wynne--North
America has some of the toughest environmental standards in the
world, especially compared to some of the other countries where
your competitors have mines. What policies and safeguards keep
you ahead of the game?
McEwen--Our
environmental committee is composed of independent directors who
report quarterly. I think a lot of people have the image of [miners
as] irresponsible people with no regard for the environment. Our
environment is precious. It needs to be preserved. It has to serve
the next generation. What protects us? It's a philosophy.
N. Wynne--So
what's next? 2002, with all of the success and awards, will be
hard to top personally, won't it?
McEwen--You
say to yourself, "Wow! This is something. Well, what do you do
with it?" Last year, we had all these awards and that. But it
was also a personal year. I lost my mother and one of my sisters
to cancer. That created an enormous respect for mortality. I've
been giving some away to hospitals and schools. There's a greater
need out there, and life has been very generous to me recently.
There is an area that intrigues me. Regenerative medicine. I gave
a gift to create a center for regenerative medicine. I don't think
our health care system has the capacity to handle the demographics
that are going to hit it. The regenerative end could shorten time
in hospitals, improve cure rates and reduce financial burdens.
N. Wynne--Sounds
like your home run was accompanied by a number of personal risks
and hardships.
McEwen--Yes.
If you want to do something large, you have to put yourself at
risk. If you follow the path that everybody else is on, you can't
expect anything more. It's probably true in most aspects of life.
N. Wynne--What
personal traits most qualify you to lead Gold Corp? What is the
overriding principle you convey to your managers and employees?
McEwen--I
want them to be ever curious. In terms of working-- an open, honest
forum. We're out to improve the industry we're in. In so doing,
we can make a contribution to the community we work in. In terms
of looking at problems, I want them to pick it up, turn it around,
upside down. My favorite question is, "Why?" What we
lose as adults is curiosity. Keep asking, "Why are we doing this?
What's the purpose? Can we do it faster, cheaper, better, with
a superior result?" I want everyone to ask why all the time, not
because you want to be different, but just to see if you can do
it a different way-- shorter, faster, cheaper. On an economical
front, when you have an investment in the company, you think about
it more often. It's not what drives you, but you tend to think
about it. When companies allow employees to grow with the company
and become financially independent, they feel that what they're
doing is increasing their personal worth.
N. Wynne--Do
you have a personal success strategy, favorite quote or stress
release?
McEwen--I
have something hanging on my door. One I saw long ago. It basically
went, "A slave is someone waiting for someone else to free them."
That's one. There's another. He's a Scandinavian, Piet Hein. "Living
is a thing you do now or never. Which do you?"
N. Wynne--We
choose life. Health. Joy. Prosperity. And perhaps, now, a little
goldÑas insurance against the hard times.
Full disclosure:
Natalie Pace doesn't own shares of GoldcorpÑyet.
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