David Garofalo is the former President and CEO of Goldcorp Inc., a position he held from 2016 until its 2019 sale to Newmont Corporation. Prior to Goldcorp, he was President, CEO and Director of Hudbay Minerals Inc. (2010-2016), Senior Vice President, Finance and CFO and Director with Agnico-Eagle Mines Limited (1998-2010) and Treasurer of Inmet Mining Corporation (1990-1998). Mr. Garofalo was recognized as the Mining Person of the Year by the Northern Miner (2012) and was named Canada’s CFO of the Year by Financial Executives International Canada (2009), among other industry awards. Mr. Garofalo holds a BComm (with distinction) from the University of Toronto.
He is a Chartered Professional Accountant and a Certified Director of the Institute of Corporate Directors (ICD.D). He is a Director of the Greater Vancouver Board of Trade and the Vancouver Symphony Orchestra.
David, can you tell me a bit about how you got into mining?
I have a Canadian CA and, in the late eighties, when I was a very young accountant, Inmet Mine hired me as a junior consolidations accountant. That morphed into a commercial management role for various feasibility studies that we were undertaking on a number of mine constructions, which is where I learned the business from the ground up, literally from greenfield through to development and onto production on the several projects that we built over the course of my eight years there.
I then took that experience on to AgnicoEagle (TSX: AEM) as CFO, where we built six mines over the 12 years I was there. I then went on to run Hudbay Minerals (TSX: HBM) and then Goldcorp after that.
It’s been over a year since you left Goldcorp. What have you been doing since then?
I was doing some consulting work with Zhaojin Mining (HKG: 1818) in China, as they were looking to expand their business overseas. That afforded me the opportunity to set up the Marshall Precious Metals Fund, initially with seed capital from Zhaojin and one other major investor in Hong Kong, to invest in early-stage exploration opportunities in the gold space. This gives Zhaojin some exposure to early-stage opportunities, as they look to expand their overseas business. It also gives investors exposure to an under-appreciated part of the gold sector right now.
How did you decide to set up the precious metals fund and how have you seen the mining finance landscape change over the last few years?
With the early stages of the gold cycle, it’s typically the specialists that participate in the gold equities. The generalists tend to come later in the cycle and when they do participate they force the specialists to start looking further down the curve into higher-risk, earlier-stage opportunities to get the leverage of the gold price we’re looking at. What past cycles have demonstrated is that juniors will start to participate and outperform the established producers when we get into the middle of the cycle, as that capital starts to move down a tier.
It’s an existential necessity for the juniors to do well for the industry. They need to find more to replace reserves. Reserves in the industry have been down by about 50% over the last seven years, simply through depletion. So, the seniors need the juniors to be successful. They need the juniors to have capital allocated to them. By and large, over the last seven or eight years, the juniors that have survived, have had to survive by going hat in hand to the established producers.
We ran a fairly large portfolio of juniors when I was at Goldcorp, recognizing that juniors needed our capital in order to undertake exploration. We did the same at Hudbay on the base metals side. Similarly at Agnico, we did that for a long time where we ran this bit of an incubator to support the juniors, because all the mines that we built when we were at Agnico and Hudbay came out of investments that we made in juniors. They’re very good at finding new discoveries. Seniors, generally don’t have the risk appetite to conduct that grassroots exploration. So we, effectively, as an industry, outsource grassroots exploration to the juniors who have that entrepreneurial mindset and are willing to embrace that type of risk that the seniors are really looking to mitigate in running their business.
Have you seen more of a more risk-taking attitude on behalf of majors, or is the industry letting the juniors take the lead?
I think it’s more the latter. The seniors tend to concentrate their exploration expenditures on brownfield exploration. In other words, around their existing deposits or mines, where they’re looking to perpetuate lives and leverage the infrastructure they’ve already built. They’re looking to the juniors to make those grassroots discoveries and then inserting themselves in when they feel there’s a critical mass or resource there, where they can come in as established producers.
Speaking of the juniors, how did you find yourself with Great Panther?
Great Panther Mining (TSX: GPR), have been a longstanding producer on the silver side in Mexico, and bought a gold producer, Tucano, in Brazil about a year ago. Tucano had a bumpy start in terms of its integration into Great Panther and what it needed was strong technical expertise. It’s a deposit that we think has the same type of potential that Musselwhite had in Goldcorp’s portfolio, has a similar geological setting, similar potential, and just needs to bed down its operations to become more predictable and more cost efficient.
So, we turned over the board significantly. We brought in a lot more technical expertise, including my old COO at Hudbay, Alan Hair, to supplement two very successful COOs already on the board, Jim Mullin and Kevin Ross. We also brought in a very capable operator and a CEO. We’re trying to focus on the fundamentals to deliver more predictable results. We see this as a significant value play. It’s trading at a significant discount to its peers because of the lack of operational predictability. So, this one is a textbook operational turnaround story, as opposed to one that’s focused on early-stage exploration.
And with Marshall, you’re primarily looking at gold and silver, just precious metals?
Precious metals primarily, in the exploration stage. We made our first investment recently, Radisson Mining (TSX-V: RDS), that happens to be based in northwestern Quebec on the Abitibi Greenstone Belt, right near my old hunting ground when I was at Agnico. They’ve accumulated a very good property position, an excellent management team and board that has had an exceptional track record in that area, and an aggressive exploration program that we’re looking to fund. We’re looking for those kinds of plays. Good geologies, good geographies, and management teams with a good track record of having done this before.
You got started with a precious metals fund at a very good time, particularly with gold and silver doing so well over the last two years. Where do you see the price of gold moving and what are some new opportunities for junior gold explorers and miners?
What we’re experiencing is unprecedented quantitative easing globally, on a coordinated basis. So, it literally is money being dropped into the economy in a very significant fashion, that is necessarily inflationary in terms of asset prices, but in particular gold, because it is the one currency that you can’t print. And even though it yields zero, the reality is US Treasuries and sovereign debt generally, is yielding negative, in some cases on a nominal basis and certainly on a real basis. The opportunity costs of owning gold has disappeared. So, it is the currency that’s limited in quantity, it’s finite, whereas paper currencies are infinite in terms of quantity. And clearly the central banks are inclined to be printing for a long period of time. Given the fear that COVID has instilled in the economic prospects globally, it’ll be a long time before we start to see monetary policy go from accommodative to more restrictive.
This is extremely bullish for gold. It’s a breakdown of the traditional monetary system. Gold has been a currency for millennia and is increasingly being perceived as such by a new generation of investors.
What do you think the industry needs to be doing to help juniors beyond the usual access to capital?
I do think producers by and large have been helpful on a selective basis over the last seven or eight years, which has been a horrendous bear market for juniors, and gold juniors in particular. They have not been able to access traditional capital markets until recently.
The Agnicos, the Goldcorps, the Newmonts (subsequent to their acquisition of Goldcorp) have been accommodating the juniors and putting capital to work with juniors, so that they can effectively outsource that grassroots exploration to people who’ve had a track record of doing that and embrace that kind of risk. However, the lead times from discovery to first production are still very long. We’re not going to see the fruits of that exploration effort for many years to come. The continued downward trajectory in global reserves in the industry is inevitable, for probably the next five to ten years. We’re not going to see a reversal and inflection of that reserve trajectory for a number of years, because of, again, the tremendously long lead times in discovering new deposits, making them economic and making them into reserves.
“Gold has been a currency for millennia and is increasingly being perceived as such by a new generation of investors.”
What are you seeing right now with COVID-19 and how juniors have had to respond? What do juniors need to be doing to make themselves attractive, especially during this time, to access that capital from capital markets and from alternative sources of finance?
What investors are looking for as they start to assess juniors, is they’re looking for catalyst-rich exploration programs with established teams that have had a track record of discovery in the past. They are also looking for share price performance in a rising gold price environment. They want juniors that are actually putting money into the ground and delivering economic intercepts, new resource calculations, and new resource estimates that will drive share price performance and drive capital into the story. It’s the classic cyclical play that investors are looking for.
Do you think there will a greater burden on juniors to prove their worth moving forward?
There’s going to be an increased sense of urgency amongst investors for the juniors to do well, because they’ll see the reserve profiles of the established producers that they’ve invested in over the last several years continuing to decline. The seniors need the juniors to be successful. I think there’ll be a sense of urgency among the established producers, and among their investor base, to see the juniors actually put money into the ground and deliver on exploration success to replace depleting reserves.
That’s good intel. Switching back home to Canada. How do you think the Canadian mining sector is shaping up and how competitive are Canadian miners? What is your sense on how they’re operating and competing abroad?
Well, I think they’re doing exceedingly well, but I’ve always believed that for a number of years. If there’s one industry where we export talent, it’s mining. I can’t think of any other industry in Canada where you see Canadian talent spread across the globe. Even in the oil and gas space, we tend to import talent from Houston. So, I think Canada is seen as a center of excellence for mining globally, and people look for Canadian talent.
Further to that, with COVID, were seeing an accelerated adoption of technologies, out of necessity, because of the need for physical distancing at mine sites. And it means more tele-remote mining and greater adoption of technologies that result in more driverless vehicles. So, things that may have taken years to consider in the mining industry to test drive and test out at mine sites, we’re actually accelerating their adoption just to maintain operations with a semblance of normalcy. I think Canadian miners in particular have embraced these technologies quite well. And so, I think the state of mining in Canada generally is very, very strong.
