Monday, February 26, 2007

McEwen Returns to Red Lake

26 February 2007

While this event may not be big news for all readers of this blog, Rob McEwen’s return to Red Lake, Ontario (announced today) is very big news for the Northwest Ontario region where I live.

Who is Rob McEwen? He is the developer of the Goldcorp Red Lake mine, one of the world’s richest and most profitable gold mines, if not the richest of them all. He had the combined wisdom and good fortune to guide the company to persevere by engaging in deeper exploration when the existing strike at the Red Lake mine seemed to be playing out.

This serendipitous decision led to the discovery of one of the richest veins of gold in mining history. Following his success in this venture, Mr. McEwen withdrew a substantial portion of his holdings in the company several years ago, and reinvested in the Cortez Trend gold mining region of Nevada.

What has Mr. McEwen done today? Well, you can read all the details

Essentially, this is what has occurred, quoting the press release, “McEwen would acquire a major stake in Rubicon through a minimum investment of $10 million. Through wholly-owned Evanachan Limited, McEwen has also agreed to vend-in to Rubicon a 513,000 acre land package in the area of the world-class Pogo gold mine in Alaska in exchange for shares. Rubicon will also acquire a 225,000 acre land position in prospective northeast Nevada, currently held by Lexam Explorations Inc a company in which McEwen is the major shareholder in exchange for shares. McEwen will serve as a strategic advisor to the management of Rubicon for a minimum period of two years.”

I have had my eye on Rubicon Minerals Corp. for the past four years, and had recently tripled our position in mid-February, based on my belief in the company’s strong fundamentals. In response to the news today, I have tripled our position again.

What are Rubicon’s fundamental strengths?

Let me borrow again from the press release:

“Rubicon Minerals currently controls 180,000 acres of prime exploration ground in the heart of the prolific Red Lake gold camp of Ontario, home of Goldcorp's Red Lake Mine which is one of the richest gold mines in the world. During (Mr. McEwen's) tenure at the helm of Goldcorp, that company realized spectacular growth from a market capitalization of $50 million to over $7.0 billion following discovery of the High Grade Zone. Goldcorp has reported that this zone currently has a Proven and Probable reserve of 1.63 million tonnes grading 83.4 g/t gold or 4.37 million ounces of gold as of December 31, 2005 from a total reserve base of 8.34 million tonnes grading 23.75 g/t gold or 6.37 million ounces of gold.

“McEwen said: ‘I am excited to be back in Red Lake and to be involved in the creation of a new Rubicon which will have a great combination of properties in the low-risk North American gold districts of Red Lake, Alaska and Nevada. It will also have a strong cash position that will be used to carry out aggressive exploration programs. The new Rubicon represents a personal investment in one of North America's premier exploration companies.’

“The land package being acquired by the new Rubicon includes significant land holdings in Alaska consisting of approximately 513,000 acres around the Pogo Mine of Teck-Cominco/Sumitomo, which is entering commercial production and is expected to produce between 350,000 and 500,000 ounces of gold annually over a 10 year mine life. With this acquisition, the new Rubicon will become the largest land holder in the Pogo district and one of the largest land holders in Alaska. Rubicon has also agreed to acquire from Lexam Explorations Inc. approximately 225,000 acres of its highly prospective gold exploration properties in Elko County, northeastern Nevada.

“David Adamson, President and CEO of Rubicon said: ‘We are excited to welcome Rob back to Red Lake and look forward to working with him to create what we think will be the "go-to" North American exploration company. With the Alaska and Nevada assets added to our Red Lake portfolio and through our financial strength, the new Rubicon is aimed at attracting investors looking for exposure to high quality exploration in district-scale, politically stable environments.’”

I recognize that you could read the press release for yourself, and also that the above is intended to be promotional literature.

But let’s read between the lines here.

Northwest Ontario has been an economically depressed region since the long-faded 1960’s boom in forestry and mining. We have entirely missed out on the dramatic period of North American growth from 1980 through the present. Northwest Ontario is a sleepy little corner of the world.

For the duration of this decade, our primary news in Northwest Ontario has been of the declining forestry industry, as massive new mills have been established in Asia to pursue expanding markets there, and North American mills have been dismantled. Paper mill and saw mill closures and production cuts and reports of the resultant economic damage have been the primary theme of news coverage in this region throughout the new millennium.

The return of Mr. McEwen to Red Lake is a signal that the fortunes of Northwest Ontario are now turning.

Of course, one swallow doesn't make a summer, but Mr. McEwen's return is a signal event with respect to the focus of national and international interest in mining development in the Red Lake region. (In Kenora, we are about 3 hours southwest of Red Lake.)

What are the implications?

Expect increased investment in other mining projects in Red Lake and Northwest Ontario. Along with that, expect a gradual migration of capital investment, and with it, new job opportunities, to our region.

If I am correct that we are at the mere dawning of a new multi-decade bull market in precious metal mining, then expect that the seemingly moribund and long-forgotten Northwest Ontario region might again become a national and international hotspot for capital investment and economic activity generally.

Like it or dislike it (it will bring new problems for sure), think of Northwest Ontario as a soon-to-be booming international destination for the precious metal mining sector.

By the way, here’s another consideration.

Due to global instability, which I personally attribute in large part to the accumulating adverse influence of excess monetary liquidity, many regions of our globe are becoming unsafe for investment. In all likelihood, that will not be the case in Northwest Ontario, and that is another advantage for our region.

And a note for the young people: You had better start studying geology, engineering, administration and mechanics, because you will be in demand to fill the new jobs which will be emerging in the Northwest Ontario precious metal mining sector.

A closing thought: In the long run, the value of Rubicon Minerals will hinge on how much gold can be discovered and mined. We don't yet know how much gold that will be. In the field of mining exploration, the odds are almost always against the explorer.

But in mining, as in life, you only discover what you search for. Mr. McEwen’s interest will no doubt lead to an acceleration in the pace of exploration in Red Lake. And for the Northwest Ontario economy, that is a good thing.

For now, let’s just speculate that accelerated exploration does lead to accelerated gold mining along the Red Lake-Musselwhite trend. In that case, I'll plan to meet you in black tie and tails at the McEwen Centre for the Performing Arts in Red Lake on February 26, 2030 (I'll be a sprightly 81 as of that date!). See you there!

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