U.S. Gold Corp. Chief Executive Officer Rob McEwen said gold companies will seek acquisitions this year as higher metal prices boost their cash reserves.
“There’s a lot of opportunity out there,” McEwen said in an interview yesterday at Bloomberg’s Toronto bureau.
Gold miners are seeking to replace resources and increase production of the commodity, which posted its 11th straight annual increase in 2011.
“The seniors and the intermediates have watched these higher metals prices cause their treasuries to fill up very quickly,” the founder and former CEO of Goldcorp Inc. said. “And that’s going to burn a hole in their pocket.”
Rising metals prices have resulted in a “proliferation” of small companies, McEwen said. These companies are vulnerable to takeovers because their access to capital is limited, he said. There may be more mergers of so-called juniors as a result.
McEwen said he sees gold rising to more than $2,000 an ounce in 2012, reaching $5,000 an ounce in three to five years.
Gold futures reached a record $1,923.70 an ounce on Sept. 6 on the Comex in New York. Gold for February delivery rose 1.7 percent to $1,635.70 at 10:30 a.m. today.
Large gold producers should seek to increase their share prices by substantially raising dividend payments, McEwen said.
“You’re starting to see increases announced, but not of the magnitude that I think they could afford to do,” he said.
McEwen proposed in June that Lakewood, Colorado-based U.S. Gold buy Minera Andes Inc. to form a new company to be named McEwen Mining Inc. He is CEO and the biggest shareholder of both companies, whose boards agreed to back the deal in September. Investors of both companies are scheduled to vote on the transaction on Jan. 19.
“We view the merger as matching excess cash flows from Minera Andes with the capital needs of U.S. Gold,” Adam P. Graf, a New York-based analyst at Dahlman Rose & Co., said in a note to clients today.
U.S. Gold will need approximately $75 million to construct its El Gallo project in Mexico and begin construction of the Gold Bar project in Nevada, said Graf, who rates U.S. Gold a “buy.”
Minera Andes shares rose 4.1 percent to C$1.76 at 11:33 a.m. in Toronto. U.S. Gold gained 4.2 percent to $3.97 in New York.
McEwen Mining, which will have assets in Argentina, Mexico and Nevada, will target qualification for the S&P 500 index during 2015 and will probably seek an acquisition before then, McEwen said.