Eira Thomas, Mark O’Dea and Doug Forster also discussed the new projects they’re working on.
Junior mining company leaders shared their thoughts on what it takes to develop and sell a strong project in front of an audience of investors at last weekend’s International Metal Writers Conference in Vancouver.
The Vision to Exit panel was moderated by Andrew Pollard, president of The Mining Recruitment Group, and began with comments from Eira Thomas, former CEO of Kaminak Gold and founder/director of Lucara Diamond (TSX:LUC).
She said that the last three to five years have been difficult for gold, but in 2016 senior-cap companies began looking for assets in the gold space. Goldcorp (TSX:G,NYSE:GG) closed the deal to buy Kaminak and its Coffee gold project in July 2016 for about $520 million.
Thomas noted that shareholders have also shifted their focus in recent years. “A decade ago, growth was what everybody wanted to see, and shareholders were willing to pay up for those companies that had the most impressive growth strategy,” she commented.
“We’ve seen a real migration away from that now to shareholders looking for companies that are responsible with their cash, have strong balance sheets and are positioned to weather down cycles and are thinking about how to maximize value for the shareholders,” she said. Thomas added that Lucara Diamond pays a dividend to create value for shareholders.
Also on the panel was Doug Forster, president and CEO of Featherstone Capital. He was president and CEO of junior mining firm Newmarket Gold when it was bought by Kirkland Lake Gold (TSX:KL) for about $1 billion in 2016.
Forster said the company never paid a dividend and focused on growth through reinvesting capital in company operations. “We put money back in the ground with most of our companies,” he said, though he noted that Kirkland Lake recently announced that it will begin paying a dividend to its shareholders.
Panelist Mark O’Dea served as executive chairman of True Gold Mining, a junior mining company that Endeavour Mining (TSX:EDV) acquired last year. At the time of the takeover, True Gold’s Karma mine in Burkina Faso was weeks away from starting commercial production.
Pollard asked O’Dea, who is also the chairman and founder of Oxygen Capital, if he would rather have run Karma as a producer or if the goal was always to sell the project.
O’Dea said it would have been easier to sell the project rather than put it into production, but it was a “very dark time” in the market. He said it became clear halfway though True Gold’s financing process that the only way to extract value from the opportunity would be to build and produce an operating mine.
He likened the process to building a house. “If you build a house that you want to live in, then probably somebody might want to buy it one day. But if you build a house to flip, chances are you’re going to be stuck with it.”
O’Dea said Endeavour’s offer price of $240 million wasn’t what sealed the deal for True Gold. Rather it was the company’s organic growth strategy and healthy balance sheet, plus the right backing and team to oversee mine production.
Management is key to success
In response to Pollard’s question about what to look for in a CEO or management team, Forster said he considers their track record. He said that means evaluating their experience in making discoveries or taking projects to prefeasibility and creating value for shareholders. Forster added that trust, respect and the ability to have fun are also very important.
“Having skin in the game is critical [too]. Senior managers, CEOs, senior VPs hopefully will write a cheque to the best of their abilities. We’re not going to write the same cheque, but they have to have some exposure, some risk that drives them and all of us to succeed and create value for shareholders,” he said.
O’Dea said eight first-time CEOs have come out of the Oxygen Group of Companies.
“I’m just looking for smart people who are hungry and can be mentored. You can build support around them to help them grow and get up the learning curve. Not everybody comes with a track record and oftentimes, frankly, people who have had a couple of big hits get pretty complacent,” O’Dea said.
Thomas agreed that mentorship is important and that people need to enjoy working together. “It’s so critical when you’re putting together a team to recognize that it’s never about one person. You need a complement of skills if you’re going to be successful,” she said.
Advice for junior mining investors
Forster said his number-one investment strategy is to invest in people because good people will find the right asset.
“Play a stock because you know that the asset is sound. It can be enriched. Management is good — will stick to it. Ultimately if you do that, I think investors will do very well with whatever commodity they’re investing in,” he explained. Featherstone Capital is currently focused on Calibre Mining’s (TSXV:CXB) development-stage projects in Nicaragua.
O’Dea said the Oxygen Group of Companies is involved in two junior mining deals: Pure Gold Mining (TSXV:PGM) and Liberty Gold (TSX:LGD). “Pure Gold is focused in Red Lake on the Madsen mine in Ontario, much like Integra Gold (TSXV:ICG) … it’s a great analogue. We’re finding new zones of 10- to 20-gram material and have hit five new zones,” he commented.
“By the end of the year we should have a resource [estimate] out. It’s a permanent mine site with a mill, tailings facility with power. You can kind of do your own evaluation and analysis on it, but it’s a good buy,” O’Dea said.
He said Liberty Gold just finished rebranding and is focused on its three Great Basin projects in the Southwestern US. Goldstrike is its flagship project.
Thomas said in terms of gold, investors should keep their eye on the Yukon because there’s lots of exciting work going on there. She also said she is advising North Arrow Minerals (TSXV:NAR) on diamond exploration projects in Nunavut. The other company she is interested in is Strongbow Exploration (TSXV:SBW), which is working to revive a tin mine in Cornwall, England.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Strongbow Exploration is a client of the Investing News Network. This article is not paid-for content.