rob mcewen and the next homestake mining company

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Hera Research, LLC7205 Martin Way East, Suite 72Olympia, WA 98516USA.+1 (360) 339-8541 phone+1 (360) 339-8542 faxhttp://www.heraresearch.com/

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Interview: Rob McEwen and the Next Homestake MiningCompanyBy Ron HeraApril 5, 20102010 Hera Research, LLC

The Hera Research Newsletter(HRN) is pleased to present ariveting interview with gold mining industry legend RobMcEwen, Chairman and CEO of US Gold Corporation(NYSE:UXG and TSX:UXG). In this exclusive interview,Mr. McEwen discusses financial markets, the McEwen

Junior Gold Index(MJGI) and the junior mining sector,which he believes offers superior growth opportunities, andwhere the gold market is headed in 2010 and beyond. Mr.McEwen also offers unique insights into his strategy tocreate the next Homestake Mining Company.

Rob McEwen formerly founded and served as Chairman andCEO ofGoldcorp, Inc. (NYSE:GG), the world's lowest-cost

million-ounce gold producer. Mr. McEwen transformed Goldcorp from a group of small companies intoa global, tier-1 gold mining giant whose market cap now exceeds $28 billion. Under Mr. McEwensleadership, Goldcorps share price climbed at a compound annual growth rate of 31%.

Mr. McEwens goal for US Gold Corporation, in which he is the largest shareholder, is for it to becomeNevada's premier exploration company. Since Mr. McEwen took the helm, US Golds share price hasincreased more than 1000%.

Hera Research Newsletter (HRN): Thank you for taking the time to speak to me today. Before we getstarted, I wanted to ask you why you created the MJGI when there are other indexes such as the XAU andHUI?

Rob McEwen: We originally developed the index internally to monitor the performance of ourinvestments relative to other junior mining companies in North America. There have been several articlesabout it and its been cited in research. To be included in the index, companies have to have a minimummarket cap of $50 million and a minimum trading volume equal to $50,000. They have to be listed on anexchange and have no commercial production.

HRN: So all the companies are pre-production?

Rob McEwen: Yes. The companies are involved in gold exploration and discovery. This is where thegrowth is going to be.

HRN: Have you considered creating an Exchange Traded Fund (ETF)?
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Rob McEwen: A number of investors said they wanted to have a product like that. We looked at creatingan ETF and determined that the companies within the index are too small. Their shares dont afford theliquidity necessary to move in and out as frequently as an ETF requires. Youd have to includeproducers, which tend to have greater market liquidity.

Chart courtesy ofMcEwen Capital

HRN: Isnt gold exploration and discovery the highest risk category, compared to junior producers or tomore established companies?

Rob McEwen: Shareholders have to approach this cautiously and they shouldnt put all their money inone stock. An exploration company can promise you one thing. They cant promise you a discovery, butthey can promise they will spend all the money they have on exploration. Once they have a discovery, ithas to be large enough to raise more capital, or to sell or joint venture with a larger company.

HRN: Exploration and discovery isnt for the feint of heart.

Rob McEwen: Anyone who goes into the market thinking it will go up forever should get out now.

People have to be thinking about how to grow their capital and individual investors have to diversify theirrisk. Major producers share prices will increase with the price of gold, but they wont deliver thedramatic growth of a junior with a discovery.

HRN: When the stock market crashed in 2008, the stocks of gold exploration and discovery companiesfell more than other types of companies. Couldnt that happen again?
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Rob McEwen: Yes. Theyre more thinly traded and they have a smaller number of shares outstanding.A large investor can sell a block of equity and adversely affect the stock price. They cant absorbaggressive institutional selling. In 2008, the whole market was down. People were sellingindiscriminately.

HRN: So pre-production, gold exploration and discovery companies are more vulnerable in a stock

market decline?

Rob McEwen: I would say thats true. In 2008, they had the largest declines. Theyve recovered wellbut have not returned to former levels. Theyre reliant on equity capital. An extended decline in thestock market can limit their access to capital or force them to accept poor terms.

HRN: I would be remiss if I didnt ask what you look for in gold exploration and discovery companies.

Rob McEwen: I start off looking at where their property is located. I tend to stay away from Africa andthe former Soviet Union. I look to see if there is growth potential. I tend to buy distress, meaningcompanies that are undervalued or underappreciated or depressed because of market timing, and I takelarge positions so I can influence the companys strategic direction.

HRN: Thats probably not something the average investor thinks about.

Rob McEwen: I agree. I look for combinations where the sum [of two companies] is greater than two,such as companies operating in established mineralized belts. In US Golds case I saw an opportunity totake over three companies. Its a game of putting different pieces together to create a much strongerentity that can grow its value faster.


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US Gold Corporation (TSX:UXG)engages in the exploration of goldprimarily in Nevada and Mexico. In2007, US Gold completed the acquisitionof White Knight Resources Ltd., NevadaPacific Gold Ltd., and Tone Resources

Limited. As a result, US Gold's landposition within Nevada's Cortez Trendgrew from 36 to 170 square miles. TheCortez Trend is part of the BattleMountain-Eureka Gold Belt that includesBarrick's Cortez (35 million ounces ofgold) to the north and the Ruby Hill mine(4 million ounces) to the south. USGold's properties on the Cortez Trend lie10 miles south of Barrick's recent Cortezdiscovery. Although the Cortez Trendremains under-developed, recent

discoveries indicate that it could rival thefamous Carlin Trend which is locatedapproximately 30 miles to the northeast,where reserves and mineralized materialare estimated to be 180 million ounces.US Golds 3 Nevada projects have

resources containing an estimated 2.46 million ounces of gold. As of May 2008, the Tonkinproject measured and indicated resource contained an estimated 1,447,000 ounces of gold. As ofMay 2009, the Gold Barproperties measured and indicated resource contained an estimated772,600 ounces of gold and the company announced a 26% increase on March 22, 2010. As ofJuly 2009, the Limoprojects measured and indicated resources contained an estimated 241,080ounces of gold.

I look for companies that have been overlooked or are underappreciated, or whose assets are depressedbecause of market timing. I am a large shareholder in Minera Andes, Inc.(TSX:MAI), which operates inArgentina, and Rubicon Minerals Corp.(TSX:RMX), which has properties at Red Lake, in the Ontariomining district, as well as in the US.

HRN: What are your plans for US Golds Nevada projects?

Rob McEwen: We just released an updated gold resource estimate, last week, for our Gold Bar project inNevada and a preliminary economic assessment will be released later this month that will highlight theinitial gold production profile for Gold Bar. Our drilling program slowed down during the winter becausethe properties are above 6000 feet and we didnt want to incur additional costs. We will be drilling

throughout the summer. The Gold Bar properties are in an area that has been previously mined, sopermitting should be easier.

HRN: I understand US Gold has another group of projects in Mexico.

Rob McEwen: US Gold has an exciting high grade, silver discovery at its El Gallo project in Mexico.We are rapidly advancing this project with a large $17 million exploration drilling program this year. Infact, it is probably one of the largest (330,000 feet) exploration programs being conducted in Mexico thisyear by a junior [mining company]. Well have an initial resource estimates out at the end of the second
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quarter followed by a second updated NI 43-101 by year end along with a preliminary economicassessment for El Gallo. The ore is close to surface and we can use inexpensive mining methods. Targetsare shallow, between surface and 500 feet. The topography is gentle and we can do drilling quickly.There is a good chance this will be our first mine.

US Gold holds 530,000 acres of mineral

rights in the Magistral District of SinaloaState, Mexico, which is an underexploredarea that has begun to show significantresources. In November 2008, US Goldannounced a high-grade silver and golddiscovery called El Gallo. US Gold is alsoexpanding the size of its two otherdiscoveries, the Magistral and Palmaritoprojects. US Golds projects in Mexicohave resources containing an estimated500,000 ounces of gold and 8.47 millionounces of silver. As of December 2008,

the Palmarito projects measured andindicated resource contained an estimated 16,484 ounces of gold and 8,472,048 ounces of silverand, as of June 2009, the Magistral projects measured and indicated resource contained anestimated 502,466 ounces of gold.

HRN: Do you see growing investment interest?

Rob McEwen: Gold tends to move up when paper currency and financial products are questioned. From1981 to 2001, gold was going down and portfolio managers and investment advisers werentrecommending owning gold or gold stocks and most are still thinking that way. Despite the fact, goldbullion and gold shares have been the best performing asset class over the past 10 years. Performancespeaks for itself. There is a growing interest developing and I think were going to see substantial funds

moving into gold.

HRN: Thats interesting because I understand Goldcorp did very well in the 1990s even though gold wasgoing down. Would you comment on that?

Rob McEwen: Goldcorp originally invested in gold bullion and gold mining shares but, because it was aholding company, it would sell at a discount to its net asset value when the gold market was movingdown. At those times, there was pressure from some shareholders to open end the company and distributethe assets. I thought there was an alternative not being considered which was to turn the company into agold producer and get it valued at a higher multiple. Operating companies were trading at 2.5 times theirnet asset values. I started merging Goldcorp with other companies to generate cash flows. It took 8 yearsand three reorganizations during which we merged five companies into one and eliminated the debt,

strengthened the balance sheet, improved operational efficiencies and started exploring aggressively.Originally, I was just going to do the financial architecture and leave the running of the company to themining executives, but in the space of a year I stepped in as CEO and re-made the senior managementteam.

HRN: So, you acquired gold producers?

Rob McEwen: Yes, we acquired two gold producers and with one came an industrial minerals divisionwhich produced lime and sodium sulfate.
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HRN: Industrial minerals sound quite different from gold exploration and discovery.

Rob McEwen: Indeed, industrial minerals are usually long life, steady producers. The cash flow fromour industrial minerals allowed us to pay down our debt and then fund the exploration at our Red Lakemine.

HRN: That sounds like a long-term plan. How did you achieve such phenomenal growth at Goldcorp?

Rob McEwen: Goldcorps success was based on a fantastic gold discovery made a mile below surface ina mine that almost everyone thought was at the end of its life and [that was expected] to close within 3years. We invested $10 million in exploration and our chief geologist came back 1 1/2 months later withthe assay results from 9 drill holes with grades (concentrations of gold) that were 30 times what we werethen mining. That was the start.

We grew shareholder value. We increased our resources. We were aggressive in our exploration andinnovative in the way we ran the company. We used The Goldcorp Challenge to find new resources.That was the inspiration for Don Tapscotts best selling bookWikinomics. We also started off paying a

dividend out of Red Lake; at first, annually, then semi-annually, then quarterly and then monthly. I sawthe dividends as a form of rent to shareholders while theyre waiting for capital gains.

HRN: Thats amazing, because the price of gold continued to go down until the low of 2001.

Rob McEwen: In 2001 when gold was $270/oz, at Goldcorp we started to withhold part of our goldproduction. The reasons were threefold, one, I believed the gold price was going much higher, two, therewere tax advantages to selling it several years later and three, we increased our financial assets by holdingback the gold. Several years after we started we had more gold in our bank vaults than half the centralbanks in the world. When we started withholding the gold I predicted that gold would hit $850 per ouncein 2008. Gold has gone up more than four fold since the low of $250/oz in 2001.

HRN: Ive heard people say that gold is in a bubble now. Do you think thats true?

Rob McEwen: Absolutely not, I believe the gold price will climb significantly higher from the currentlevel. Look back 20 years at the price of many asset classes and you will appreciate the enormous priceinflation we have experienced. In 1985, in order to get on Forbes list of the 1000 richest people inAmerica you needed to have $150 million. At that time, Warren Buffett was one of the 14 billionaires onthe list. I saw that list a year ago and there were something like 990 billionaires and, basically, youneeded to have $1 billion to be on the list. How was so much wealth created? It was financed by debt. Along period of low interest rates has encouraged very speculative investments financed by high levels ofdebt. Today were seeing the unwinding of financial asset inflation that has happened over the past 10 or20 years. Areas that are susceptible to further declines are in real estate, so called collectible assets,derivatives, the debt market, and the dollar.

HRN: So, despite inflation, gold is not yet in a bubble in your view?

Rob McEwen: No. Weve got a long way to go before that happens. If you think about the tech bubble,a few hundred companies became thousands. They all had stories and were looking to make a zilliondollars or be taken over for such an amount. Today, there are a lot of exploration companies [and] as goldgoes up there will be more exploration companies and stories and more investor confusion about where toinvest. One indicator is the attendance at the annual Prospectors and Developers Association showjustheld in March in Toronto. It was the largest ever!
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HRN: You mentioned that there are many more billionaires. Doesnt that simply mean that economicactivity has expanded and that the wealth of society has increased?

Rob McEwen: Increased economic activity fueled by low interest rates and government monetaryexpansion, and by record levels of debt, has produced the growth in apparent wealth. It is built on a

shaky foundation. In August 2007, when the sub-prime mortgage market blew up, I recall thinking this islike at no time in my career. There appeared to be no safe place to put your money. The globalfinancial/banking system was collapsing. Just prior to British mortgage bank Northern Rock failing therewere pictures of people who had deposits there lined up for hours trying to get their money out. Thatswhere gold comes in; it protects your wealth when the banks cant. Gold is the ultimate currency thatgovernments cant create by printing more of it. The collapse of the banking system has been deferred.

Northern Rock, September 14, 2007 American Union Bank, August 5, 1931

HRN: What do you mean by a shaky foundation?

Rob McEwen: OTC derivatives have multiplied wealth like a fractional reserve banking system, buttheyre hollow. When someone can no longer provide a guarantee, the system collapses or at least part ofit does. Investors and the public have been too cavalier in their approach to risk.

HRN: But the wealth created by OTC derivatives is real?

Rob McEwen: The obligations are real, at least on one side. What weve seen is that when banks fail,governments bail them out. Its in the interests of banks to create these instruments. Real wealth for theinvestment banks is generated by their creation and transaction fees generated by selling these derivatives.Huge money has been taken out of investors pockets.

HRN: This is fascinating but what do derivatives have to do with gold mining companies?

Rob McEwen: The introduction of the gold ETFs (a derivative) has broadened the market for gold andcreated an attractive, convenient alternative to buying senior gold producers. I would rather buy bullionthan [shares in] a gold ETF. There is greater certainty of ownership when you have a bar of gold.

I would like to comment on a place and time when gold performed and we appear to be on the same pathtoday. After World War I, Germanys manufacturing base was in ruins, and the victors, the Alliednations, were demanding enormous payments as compensation for the damage Germany caused. Prior to
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the war Germany had been one to the worlds richest and most powerful nations. Initially, America wasproviding Germany with the credit to make the payments to the Allies but that soon stopped andGermany, burdened by an enormous debt load and without a manufacturing base to provide employmentand tax revenue, turned to printing massive amounts of money to pay its bills. Fast forward to today,where globalization of world trade has opened up Asia for huge capital investments and created the lowcost manufacturing center of the world. Theres been an outsourcing of production from the US and the

West to Asia. The US went from being the worlds biggest creditor to the biggest debtor. Its largestcreditor is China which appears to be growing impatient with Washingtons disregard for maintaining thevalue of the dollar. Like Germany in the early 1920s, America is struggling with an enormous debt load[and has] large, expensive, new social programs, in addition to a very expensive war in the Middle East.Those are some of the parallels I see today along with the need to own gold to protect ones wealth. Whathappens if China stops buying Americas debt?

HRN: Are you saying that the US is headed for hyperinflation, like Germany?

Rob McEwen: That is a very real possibility. You need to protect your savings, your retirement, [and]your financial independence. Gold can provide part of your solution. From 1929 to 1939, HomestakeMining, which you might think of as a proxy for senior [gold] mining stocks, rose from $80 per share in

October 1929 to $495 per share in December 1935, which was 519% and it paid large annual cashdividends while gold was only increased from $20/oz to $35/oz in 1933 by government decree. TheDepression of the 1930s started with a severe deflation followed by inflation later in the decade. Seniorgold stocks are up perhaps 200% from their lows, and [from the low of] gold in 2001, and still have roomto go higher.

Chart courtesy ofHomestake Mining Company
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HRN: Can gold or gold shares protect wealth in either a deflationary or inflationary environment?

Rob McEwen: People are going to turn to gold as they have repeatedly over the millennia. Whenever amonetary system fails, confidence in the countrys fiat (paper) currency rapidly disappears and goldperforms. The monetary expansion of the past 10 or 20 years is going to cause big problems going

forward. Gold is money, the ultimate currency, store of value and a very liquid asset. If you sell yourgold through a bank its 2-day settlement, and you have cash in any other currency in two days. If youtake a gold bar into a bullion dealer, its immediate. You can go anywhere in the world and sell gold. Itsrecognized internationally.

HRN: Where do you see gold going from here?

Rob McEwen: More people are moving into the gold market but its still a tiny number compared to theamount invested in the stock, bond and derivative markets. In 1929, something like 10% of the workingpopulation owned stocks. Now, with retirement funds and mutual funds, its probably closer to 90%. Ashift of 1% to 2% of this money into gold would have a profound and positive impact on the price of goldand gold shares. Unlike governments printing massive amounts of paper money with the push of a button

the supply of gold increases slowly. Annual mine production increases the supply by approximately 1%per year. When a growing number of investors start adding gold to their portfolio, they will find a limitedsupply and the gold price will climb. I believe gold will ultimately reach $5,000/oz.

HRN: Thank you for being so generous with your time.

Rob McEwen: My pleasure.

After Words

Rob McEwens unique perspective offers profound insights as well as a rare glimpse ofhis deep strategic thinking. By taking control of large swaths of highly prospectivemineralized belts based on geological patterns, and by acquiring and merging

complementary companies, he has consistently created larger resources in companieswith lower production costs, while steadily increasing shareholder value. Mr. McEwenseems to be laying the foundation for a future mining giant that, like Homestake Mining

Company, will expand its resources and eventually produce gold for decades to come. Reflecting on Mr.McEwens comments on inflation, deflation and OTC derivatives, its clear why he anticipates a declinein government currencies and other financial instruments, as well as a persistent rise in the value of goldand gold shares. Mr. McEwens strategy can be viewed as one mans response to this historic shift.

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Hera Research, LLC, provides deeply researched analysis to help investors profit from changing

economic and market conditions. Hera Research focuses on relationships between macroeconomics,government, banking, and financial markets in order to identify and analyze investment opportunitieswith extraordinary upside potential. Hera Research is currently researching mining and metals includingprecious metals, oil and energy including green energy, agriculture, and other natural resources. TheHera Research Newslettercovers key economic data, trends and analysis including reviews of companieswith extraordinary value and upside potential.

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Articles by Ron Hera, the Hera Research web site and the Hera Research Newsletter ("Hera Research publications") are published by Hera Research, LLC. Information contained in HeraResearch publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in Hera Research publications is not intended toconstitute individual investment advice and is not designed to meet individual financial situations. The opinions expressed in Hera Research publications are those of the publisher and are subjectto change without notice. The information in such publications may become outdated and Hera Research, LLC has no o bligation to update any such information.

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rob mcewen and the next homestake mining company

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