You’ve spent over 25 years in the mining and investment industries. How has the environment changed over the years and what areas of the mining industry are most exciting to you now?
Over the last 25 years there have been eight major stock market crashes and if you look to the mining industry, then the first principle is to understand the underlying commodities and cycles. When I joined the industry, one ounce of gold traded hands at US$390, silver was US$5 per ounce, copper was close to US$1 per pound, and nickel was close to US$3 per pound. These four cornerstone mined metals have risen 500% in this brief amount of time, and I am not even mentioning the rate of change between the wide price swings from their lows and highs over this two and a half decades. During this brief period of time, fortunes have been lost and few have been made. What is exciting to me now is we are in the early stages of a major secular bull market for commodities, primarily driven by long-term population growth and a lack of spending to secure supply in agricultural commodities, industrial commodities, and financial preservation commodities.
Let’s take a brief look at the drivers of the spectacular price change here. On one hand, we have a durational supply lag where commodities are in short supply, an increase in infrastructure and EV spending as we haven’t spent enough money reinvesting and replacing declining reserves. And on the other hand is declining price of the dollar relative to hard assets thanks to a wanton monetary policy which plays more into how gold will behave.
With regards to the mining industry what is most exciting to me is:
Reinvestment in training future talent
One of the biggest challenges remains a steady drop in a skilled labour force. I am talking about almost a two-generation gap in the transfer of knowledge, training, and practical experience
The good news is young people are finding a future in the resources sector more attractive thanks to better outreach the sector on explaining the importance raw materials play especially with regards to being the backbone of all sectors of the index. Credit here is due to the corporations and patrons of the industry who are investing in the future of the industry, its people, creating scholarships and programmes to attract and train young people who are the ultimate inheritors of our global resources.
Offtake agreements
I am seeing more direct interest from end-users in partnering with mining companies at an earlier stage with regards to securing future supply of commodities. One small example is what Tesla has done with Talon Metals.
ESG initiatives
The mining industry is no exception to need of higher quality ESG initiatives. While we are pleased to see companies and their boards implementing initiatives, I think we have to be more patient as ESG implementation and efficacy standards are different from industry to industry. For example, ESG initiatives are far easier to implement for a software company than for an exploration company. One thing we need to watch for is companies that end up playing ESG dress up to appease proxy voting advisory firms, this can be rather ill timed and clumsy.
What is it about Canadian listed companies that grabs your attention?
T.A.G.: Transparency, Accountability, and Governance are paramount regardless of where a company is listed and I think the Canadian exchanges and regulators are aligned well here. One factor that may set apart the Canadian exchange, say from the other North American and European exchanges, is their audience is familiar with resource investing and from time to time can be concentrated in the space relative to EMEA and U.S. Investors. Another positive is that Canadian listed companies do enjoy lower listing costs and lower auditing and legal fees, which permits more of their capital going into exploration, development, and production efforts.
And criteria for an investment, what are the key things that you look for?
First, is people, and more than anything, their values have to align with the values of our family office. Integrity is paramount in business. Are they good stewards to capital and have they created value add for shareholders over their tenure? We also need to understand if their team has technical excellence in execution of their programmes and have they applied the best standards and practices in the industry?
The second is the project: Where is the project? What is the infrastructure like, what has been their track record with communities where they operate? Are they welcome? Do they have the support of the communities? What are the project metrics? Is it a pipe-dream or is it attainable in our lifetime? Is the project scalable? What stage is it at? Are they green fields or advanced stage exploration? Is there historical drill core or data and have reinterpreted it? Have the completed any metallurgical work and what can we learn from the results?
The third permitting. Permitting can be the Achilles heel for many a good many company and projects. It’s how well the company understands the timeline of permitting and have they taken the necessary steps to de-risk in their applications?
Community relations is a big factor in attaining success in our sector. No matter how great your project is, if you’re not welcome by the community, you’re not going to go far.
Structure. I am talking about capital structure, how many shares are outstanding, can they market and sell their story? Are they capable of attracted durational capital? How aligned is management with shareholders – do they have enough skin in the game?
Are there any specific commodities that you’re focused on?
I remain long-term bullish on gold and silver. In the last four years what has garnered more attention from our portfolio is copper and nickel (sulphide). These are driven by acceleration in global electrification, infrastructure programmes and the EV (electric vehicle) revolution. I am also keen on uranium and lithium.
With regards to corporate advisory and M&A, what are you looking for in a company?
I would be careful with what you wish for as one has to be patient and success in this sector takes years to cultivate. I seldom join an advisory board and it is only when I have a high level of conviction in a team and its projects that I agree to put my name besides them. In these instances, it is humbling and gratifying to be surrounded by successful entrepreneurs and technical titans. Joining an advisory board is means you’re not only investing your capital but also publicly putting your name beside a management team, and that’s a reputational point. I value reputation more than anything else.
Governance should be looked at the same regardless of your company’s size. There is no reason not to hold juniors to the standard of larger companies
With regards to a company’s growth, what are some of the main factors that you see helping or hindering that?
Let’s answer the later first in three parts. Nothing irks me more than management entrenchment, followed by what I call TBS (Teddy Bear Syndrome) where teams get married to their projects just cannot let go. Lastly the failure to understand that a technical success does not translate easily into a commercial success. I have to give kudos to management and boards that understands the importance of building a pipeline of projects and can also pivot when necessary.
Coming to your first point. Being a student of the market for 25 years, I can say market intelligence and the ability to read the tea leaves is key. Do your due diligence, do not be afraid to be a skeptic, stay in and read the circulars and new releases. Another key factor is being in the right sector is more important that being in the right stock. Also, it’s important to know is when to ramp up your efforts and when to stay on the side lines. Timing of getting in or out (which still remains the wild card) specially for companies that have a smaller market caps can become the sword of Damocles.
I like to see companies whose investors will invest at an early stage, then the next round of financing and the following etc. So, they’re creating an average cost basis for themselves. Just like not all projects are the same, not all investors are of the same quality. I like to speak with investors who have done their homework, know the strengths and weaknesses of management and projects and can remain long term partners offering capital over the duration of a company’s lifespan. “Smart and Durational Investors” is what I like to call them.
How does ESG factor into your investment decisions?
Not all ESG initiatives are going to be uniform, and will differ for a mid-tier versus a junior explorer. That said, I would like to start by saying that governance should be looked at the same regardless of your company’s size. There is no reason not to hold juniors to the standard of larger companies and same can be said about the importance of the social programmes. When it comes to environmental policies and programmes, I would have to say there is difference between a development and mining company that what applies to junior exploration companies because the size of their footprints are vary in size and impact.
On the environmental side, most of the junior companies aren’t employing much energy consumption. Their pollution control is more so regarding what they’re
doing with the environment they’re operating in. And it’s more important as you get into the product development and production side. On the social side, it’s very important to know what the impact is on the local community.
On the governance side, is the quality of management, the board independence, how they mitigate conflicts of interest and what is the diversity on the board. Now, it’s really something big to ask off a junior company that has a market cap of US$25M to have board diversity. I think you have to understand where a company is and its life cycle.
Any thoughts on supply and demand for transition metals, such as copper and nickel? As we move forward, how do you see the market adjusting?
I think we’ll remain in an imbalance between demand and supply. I watched the inventory levels of the Shanghai Copper Inventories and the London Metals Exchange. Trying to transition away from hydrocarbons and putting a greater mix of electric vehicles in a fleet is going to keep us imbalanced for a while.
I am a bit concerned about leftist governments taking control in mineral-rich countries. And that’s not to say that that’s not right, but often I have found that they are less likely to understand that most of the GDP comes from production of hydrocarbons, metals and mining, without which they couldn’t sustain their annual budgets.
At time of this interview, Colombia, a wealthy nation derived from hydrocarbon endowment, is now moving towards hard rock mining. And more importantly, towards EV metals or battery metals, which is copper and silver. They are making progress towards less dependence on hydrocarbons and looking to new minerals and resources that they haven’t tapped into before. This for me is a very exciting time.
Ecuador’s been a pleasant surprise in that they really have welcomed mining. And Colombia is a much larger country. I believe they have been looking at the neighbours and wondering if they can also benefit from hard rock mining.
