Red Cloud Securities – Investment Tips From An Industry Insider

A conversation with Chad Williams, Chairman and Founder of Red Cloud Securities Inc. 

Sure he is not as good looking as Kate Hudson, but he is in as much demand. Red Cloud Securities offers capital markets services to mining companies. All the company does is “help mining companies.” While there are around 100 services that Red Cloud Securities provide, they can be grouped into categories. These include: capital raising, M&A, marketing, strategic advisory work and equities research. There is no other group in Canada that does everything Red Cloud Securities does and has enabled them to grow to be one of the go-to companies for junior looking for capital. But woe betide a company that doesn’t match up to Williams stringent assessment criteria. We think Retail Investors will find these useful too.

Marketing is particularly difficult, given current COVID-19 restrictions, but Red Cloud Securities is pushing online webinars amongst other things as potential solutions. Its team of analysts provides expert research and advice, and Red Cloud Securities has raised hundreds of millions in capital for 500 different mining companies over the last 10 years.

Williams is a mining engineer with an MBA. He has been in mining “since he was a kid,” and was a top-ranked gold mining analyst at some of the world’s major banks and brokerage firms. He managed mining equities and even ran a mining company: Victoria Gold Corp. He has seen the mining space from all angles.

Marketing is crucial for mining companies. How else would they manage to raise capital and fund their projects? Williams explains just how crucial telling a compelling story to investors is for mining companies the world over. When times are tough, mining companies really struggle to raise capital, and this is where Red Cloud Securities steps in.

Williams then gives some extremely useful information to investors: what criteria does Red Cloud Securities look for before funding a mining company? Williams states that he can sometimes tell within 15 seconds (YES, ONE-FIVE) whether a company will receive his investment or not. He states that he can tell by how the person is dressed, if they show up late, who is marketing with them, their age and their demographic. Essentially, “give me as few reasons to dislike you as possible.” Over 30 years of extensive experience can clearly make your gut instinct a powerful thing indeed! Investors will find the human/visual side of judging potential investments very interesting.

We Discuss:

  • 2:36 – Company Overview and Chad’s Background
  • 5:27 – The Importance of Marketing for Mining Companies
  • 11:50, 21:23 – “I Need Your Money”: A List of What You Need to Look Into Before Investing in Companies
  • 20:13 – From Us to You: Don’t Be Lazy, Do Your Homework
  • 24:58 – Promoters and Their Games: Getting Caught Out as an Investor
  • 27:28, 42:07 – Business Plans and Preparation for Success: How Will the Company Make You Money?
  • 37:30 – Timings, Urgency and Political Events: Uncontrollable Circumstances Affecting Investments
  • 45:54 – What Should You Question as an Investor?
  • 50:26 – Chad Williams On Joining RNC’s Board: A View on the Company

CLICK HERE to watch the full interview.

Company Website:

Matthew Gordon: Hey Chad, how are you sir?

Chad Williams: I’m very good thank you. Thanks for asking. How are you doing?

Matthew Gordon: Well, we are surviving. We are surviving. We’re all self-isolating in our little cabins. Now, you’re up in Quebec, you mentioned earlier?

Chad Williams: No, I’m actually North of Toronto, we call them cottages in Canada, but cabins or a lake house. And yes, so sorry for the beard and the casual look – but that’s me these days. And I think we’ll look back, maybe even next week or in a few months on this as truly extraordinary circumstances. But we’ll get through this, humanity has gotten through this and this too shall pass, as they say.

Matthew Gordon: We will endure and we will survive. There we go. Yes, it’s interesting times for sure. Hey look, Chad, we caught up a few weeks ago, before you went to PDAC, so I guess a few things have happened since then. But I know today we’re going to talk about serious business matters. So let’s kick off with a one minute summary for people who perhaps haven’t heard of Red Cloud Securities, and give us a little background on yourself if you don’t mind.

Chad Williams: Sure. Yes, so little bit on me: I’m a mining engineer with an MBA and I’ve been in mining really since I was a kid, as far as I can remember. But of note, I was a top-ranked mining analyst, a gold mining analysts at some of the bigger banks and brokerage firms. I managed mining equities. I even ran a mining company called Victoria Gold, which is still around. Of course they’re building a mine in the Yukon. So I’ve worn a lot of hats, so many hats that it’s cost me my hair, but you know, mining is my calling.

And what happened is about 10-years ago, maybe a little less than that, I had the idea to create a new type of company. It’s called Red Cloud and Red Cloud offers capital markets services to mining companies. That’s all we do is help mining companies. And literally, there are about, or there is about 100 different things that we do, but generally they can be grouped into different categories such as capital raising. We raised you know, lots of money, hundreds of millions of dollars for dozens and dozens of companies. We do M&A, we do marketing, which is interesting in this context because we can’t have human interaction anymore so we’re really pushing video and webinars and let’s call it virtual marketing. So we do marketing. We do also strategic advisory work. I remember when I was with the CEO of Victoria Gold; you know the old cliche, it’s lonely at the top – well I had no one to talk to really, so we provide strategic advisory services to mining companies and we provide equities research. We have a team of analysts as well.

So you know, that gives you a sense of what we do. There is no other group that does everything that we do. And there are groups that do various parts of it, but we’ve been a big success. If I could say that; I don’t think it’s an exaggeration. We have over 30 employees. We’ve helped hundreds of mining companies, I think it’s at last count 500 different mining companies over the last 10-years. So we’ve been very, very busy and things are actually going quite well right now because our clients, the mining companies are looking for alternatives for ideas and we’re able to offer some different ways to market and raise money.

Matthew Gordon: Brilliant, brilliant. Sorry I cut in; there are so many different components that, I mean we’re going to talk today about raising capital or the way that companies approach you and engage you to help them raise capital. But you touched upon something there: as an ex-banker it fascinated me – you talked about marketing. The importance of marketing must be significant if you have created internally a marketing function because normally you think, hey, give us the money. That’s all we need, you know, and then we’ll go off. We know how to mine, we are geologists, we know how to mine, we will go off and do that and that’s all there was to it. But it strikes me, having sort of come down from sort of, you know, the material big cap type of stuff down to the junior space, they don’t all have the necessary skills in-house to, you know, as a reasonable quality or reasonable experience to deliver everything that it’s union needs to deliver. So, you know, Red Cloud, being able to offer all of those things: not just the finance, the advisory, the fundraising, but the marketing as well, I can see why that may have been quite attractive. Were there certain times where that was more in need than others? You know, when times are good to people, they ignore marketing?

Chad Williams: It’s a funny thing because I mean, to be honest, we haven’t had really good markets since I started the company. I mean, we’ve had a few bright spots, but generally it’s been very, very tough. And what we’ve found is when times are really tough, mining companies really struggle to raise capital. So they need help and that’s when they reach out to us. And then when markets are very strong you know, they still reach out to us because they know we’ve got a big network and they want to tap that network, and so we boost their efforts. So some people call it ‘the Red Cloud miracle’ because we’ve been able to not only survive but thrive in mining finance in very, very difficult times. And the reason is because we’ve got this nice niche, we’re part of this, we’ve created a new niche in this, in the mining ecosystem, if you will, that nobody else can satisfy in aggregate. Okay, brokers can raise money at certain times and marketing firms do marketing at certain times, but because we offer so many different services, there seems to be a need for what we do all the time.

Matthew Gordon: Yes. It’s interesting actually because when I kind of stepped down to the junior space, like I said, it’s probably about three years ago, and like I said in a previous conversation with you, I promptly had my ass handed to me by a bunch of promoters and brokers. There’s a game, there’s a definite game, right? And I didn’t know what the game was and we learned a lesson along the way, and that’s what happens. But because of your ability to do diligence; when companies come to you, you go, ‘hey, one is this a company we believe in? And two, could we tell this story to wherever we go to raise our money from, whether it be institutions or you know, wherever you go to?’

So there’s a kind of, would you say those are kind of a stamp of an endorsement from you if you’re going to the market and asking, rather than this promoter route? Because I’ve just seen it too many times; there’s quite a few well-known groups who if they’re involved, we walk away, we definitely avoid.

Chad Williams: Well you know, we do pride ourselves on quality, and when I started Red Cloud I said at the very beginning that we’ll do business with about only 1% of all the mining companies, and that’s sufficient. There are so many mining companies, we don’t need to do business with more than that. We’re certainly not perfect. We’re misled too: people are at times very convincing, and I’m being polite, at other times they’re deliberately misleading. But you know, we’re not perfect but I would say our track record is very, very good. I would say out of the 400 or 500 companies, I’ve lost track, there’s only like four or five that haven’t worked out at all. Which isn’t bad at all in a very, very volatile industry with, you know, start-ups; because a lot of these companies are start-ups. And we have a team of technical people: we have metallurgists, mining engineers, geologists, fund managers, and we protect our franchise very carefully to the point where certain institutions will take meetings with our mining clients site unseen. As long as they’re a Red Cloud client, they will take a meeting.

That’s not easy to keep that reputation up. And you know, as you can imagine as we grow and times are good or times are bad and you know, there are always different agendas and problems really to keeping a good franchise. But we certainly think that’s very important.

Matthew Gordon: Okay. Let’s take that as a yes – a stamp of endorsement from Red Cloud works. If you can get through doors, then it’s got to help these companies, right? Because that’s the trouble.

Chad Williams: We do have an investment committee, it’s called the New Names Committee where there’s 10 people that vote and it’s got to be unanimous. And anyway, long story short; we do have processes and you know, the truth is as well is we’re a regulated broker, in Canada, it’s called an IRAK dealer. The equivalent in the US is FINRA. So we have the very highest level of designation possible as a broker dealer. So, you know, we are regulated and so we have to be careful. Plus, I was a top-ranked analyst for many years and so, you know, I’ve got a reputation and the people in my company have a reputation to maintain as well.

Matthew Gordon: Yes, but you know what I mean? I’ve been a banker myself and it’s difficult to, you know…there’s good and bad out there. And if you find some good ones, stick with them because the reputation clearly matters to them, and longevity is earned, you know? You can’t kid your way through that. So it’s been a learning experience for us and I, you know, I’m just conscious for our audience, which is retail investors, high net worth, family officers who don’t spend all day thinking about mining investment. It’s just when it comes across the table and and we’re keen to help them understand who’s who at the zoo, who’s good, who’s not so good, you know, what companies are good or not so good. So we talk about red flags and green lights, but that’s a conversation for another day.

Today we’re going to be talking about raising capital; so companies come to you, you’ve just explained the whole infrastructure behind Red Cloud, but companies come to you and they pitch. They pitch their companies and their assets and the management team. And they say, right now you’ve heard this story, give me some money. And some are better than others. Right? So what are the things that you need to hear? Because we need to be cognizant that this is a retail audience; slightly less sophisticated than you, so we need to put it in a language and position it in a way that they would understand how they could translate that into what they should be looking for in companies too. So if you don’t mind?

Chad Williams: Sure. And you know, I believe I’ve got a lot of credibility on that front because I’ve been doing it for over 30-years and I’ve financed, literally there must be 20 companies that get more than that, that come to see us every week at Red Cloud, raising money. They are looking to raise capital. So trust me, I’ve seen, you know, I can tell within probably 15 seconds whether this person is going to get money, right?

Matthew Gordon: Really?

Chad Williams: Oh, I can see it. I can see, I can tell by, you know, it’s kind of an odd thing, and this is the kind of advice we give to our clients as well. Right? Because not all of them come in prepped, but you know, I can tell by how they’re dressed, if they show up late, who is marketing with them. I mean, even before they say anything, I have a good sense you know, by their age, their demographic and all kinds of things.

Matthew Gordon: It’s a funny thing that, because my old man, we run a family business and my old man is like; if their shoes aren’t clean, they’re not getting my money. If they’re not presentable – you know, it’s all that kind of human personal traits where you are going, he said, ‘Give me as few reasons to dislike you as possible. It’s a funny thing that’s a very visual part of the decision-making. So I’m fascinated that you said that. Interesting.

Chad Williams:  Yes. I’ve been doing it for so long, but what I did Matt is I was asked by the PDAC, which is the largest mining conference in the world. They asked me to give a presentation on some advice for mining companies: how to raise money. And I came up with 10 different things, 10 different lessons, if you will. And these lessons come out of necessity and agony in the sense that I’ve seen so many bad pitches and so many people do things wrong that I figured it’s my duty to fix things. So the 10 lessons, the presentation I think is probably on the Red Cloud website and if it’s not, we’ll get it up there. But the first one is very basic, and how I came up with this in fact, I didn’t come up with any of this really; it’s only through trial and error, but I met a very wealthy air conditioning salesman, sold air conditioner; the guy had like a Ferrari collection and a 30,000ft home in Toronto. And I said, ‘Shit, you must be a really good sales guy.’ And he said, ‘Actually, I’m terrible at sales, but I’m really good at listening.’ And I try to figure out what people need and want and then I give them what they need and want. So it’s a very basic thing. You can never get someone to, you know, especially adults, maybe kids you can convince, but adults, you can’t convince them to do something they wouldn’t normally do. But if you figure out, you probe and you figure out what their needs are, then you might be able to give them what they need.

So the first one, the first lesson is: it’s never about you. As a mining promoter, it’s never about you, it’s always about the investor. Figure out what the investor needs, what their risk tolerance is. What commodities may be of interest, what stage, that kind of a thing. One thing that is constant for every investor is they want to make money. So they have to figure out how they make money and they all have risk tolerances and you know, what could be appealing, what could be too risky for them, that kind of a thing. So try to figure out what the investor wants. It’s always about them, never about you as a promoter.

And the next one is, this is a big pet peeve: most mining folks, most promoters or mining executives are all tech: they’re technical, they’re geologists, mining engineers, that kind of thing. So they have been trained and they think that to get someone to part with their money, they’re going to bamboozle them with technical terms and alteration, and 40-page or 80-page presentations. That can only go the wrong way. It has to be presented in a very clear manner. And the analogy I use is; pretend that you’re presenting to a 14-year old male, okay? So 14-year old males have a very short attention span. They’re thinking about partying and thinking about a million other things. For a very brief period, they may actually be thinking about you, but don’t take it for granted. So a very short window and make it super simple and present. And it takes a long time. And that’s where I’m pretty good and other people at Red Cloud are good at is, is after listening to a pitch, a presentation, we come up with the magic ingredient, what will be the pitch that will work? And then we reinforce that.

Matthew Gordon: It’s interesting you say that because we’ve interviewed like 250 CEOs in the last year, and we’ve had a few quite capable, articulate CEOs and they’ve been able to tell the story well and they make sure you understand it. And then we’ve had others at the other end of the spectrum, I think you’re indicating perhaps more geologically technical competent individuals and their view is, if you’re not bright enough to understand this, that’s not my fault. And I would go, I would counter that and say; it’s not my job to understand it as an investor, it’s your job to make it clear to me because it’s my money that you want, right? But how many times do you come across the CEO who’s just, they just want to show you how clever they are, rather than get what they need, which is your money.

Chad Williams: And it comes from insecurity. But you know, arguably the brightest guy in the history of mankind is Albert Einstein, and he could explain his very complex theories very simply so that anybody can understand. And if you’re trying to confuse me or use big words, then I’m going to be sceptical and I’m going to be immediately nervous. And it takes really, really smart, sophisticated people to dumb things down, but some people are so insecure that that they’re uncomfortable with that. But anyway, it is what it is.

The other, and I made a list here; the other one is, you have to define a clear use of proceeds. If you want my money, I need to know where my money is going because I am going to believe right off the bat that you’re going to be buying Ferrari’s with my money. Right? And I don’t trust you. I don’t trust your providing guy. I don’t trust anybody, quite frankly. But if you have a clear use of proceeds, and you spend the money wisely and then you’re probably going to get my money now and you might even get my money later.

Matthew Gordon: No, I think that’s right, but that seems a very normal, everyday question. If you’re lending someone $10, you’d be saying, well, what’s it for? Right? You’d be asking that simple question, but some people hand over USD$50,000, USD$100,000, and they don’t ask the question. Or even more bizarre to me is, they don’t read the prospectus which they’re signing up to. They’ll read the summary and go, ‘Oh, that seems reasonable.’ But in the detail, and it’s particularly prevalent when things go wrong, right? Further down the line, like say the market turns, there has to be some sort of, you know, merger or takeover, or quite frankly, you know, write down, and the management team get handed X million bucks even though the company’s lost money and the shareholder are in uproar. It’s like – well, that was in the prospectus. If that was ever going to be a problem for you, you should never put your money in. And again, that’s not a savoury example, but it is a good example of; read the detail.

Chad Williams: And you’re absolutely right. That being said, you know, we’re all very busy and if you’re going to hide stuff in a prospectus, that to me, that’s, not the kind of people that I want to invest in in the first place.

Matthew Gordon: That’s true as well.

Chad Williams: You’re right: you can go back and say, okay, well, okay, I was a dummy, I should have read page 800 of the prospectus, so shame on me. But nevertheless, that’s a little bit…it could be more obvious. But other things, and we don’t have to go through all of them, but the key one is, is you have to develop trust. At the end of the day businesses, it’s like a roller coaster; things go up, things go down, things go well, things go badly. But if you trust management, if you really have conviction that these people are going to spend your money wisely, especially with exploration; exploration by definition is risky, and you may find something or you may not find something, but if you’re spending the money wisely, and people are managing your money properly, that’s a good use of funds, in my opinion. And that’s the first advice I give to executives is; build trust. And trust doesn’t occur overnight. It takes years in some instances.

Matthew Gordon: Well, there you go. I mean, we would no sooner invest in a company we’ve just met than fly to the moon. We look at the company over time, we read the quarterly, have they consistently delivered everything that they said that they were going to deliver? Or if not, have there been mitigating circumstance?  And then there’s always deals, right? Your money is your money. You have got one go at this. If you get it wrong, you don’t got any money anymore. But there’s always deals, there’s more deals looking for money than there is money – that’s is my view.

Chad Williams: Yes, yes.

Matthew Gordon: So just take it easy. It’ll be fine.

Chad Williams: You’re right. As an investor as well, and I, you know, I’m guilty of that myself; I tend to fall in love with the geology and the prospects, and it serves me well. I’ve made a lot of money on mining stocks, but the reality is most of the time, exploration does not work. And you know, I’m actually very conservative; I don’t gamble. I go to Las Vegas, I don’t even touch the casinos. But nevertheless, I do see the merit in a lot of these stories, but nevertheless, it’s a very, very, very, very risky business. And the promoter won’t accurately portray the risk to you because he or she has the incentive of grabbing your money. And you’ve seen it, you know, you’ve been misled so many times.

Oh, the other thing too is, really one of my tops irritants is that the mining companies come in and they say, well, you know, I need let’s say USD$1M or 10M or $100M, and I need it by next week. And I’m thinking, why do you think that’s reasonable? Like, do you actually run your company with such a lack of foresight and planning that you think I’m going to come up with any amount of money within a week? I don’t have, you know, a bunch of cash laying around ready to deploy at any moment here. Right? And so it really takes about six months from the moment you think you need money to closing on a financing budget – six months.

Matthew Gordon: Oh, when someone says, ‘Have I got a deal for you, Matt? The returns are astronomical but we need to close it within two weeks.’ That’s the only, like I literally shut up shop at that moment. It’s like the doors are closed. There you go. Because that smells of, as you say, at best mis-planning, bad planning. At worst, it sounds just almost a little bit corrupt. It’s like one of those sort of pressure sales, scarcity sales, which again, there’s too many deals out there for us to worry about something like that. But yes, I know what you mean. I have some sympathy.

Chad Williams: And we get caught up as investors. Because I’m an investor too; I buy, you know, almost all, if not all of the deals that we work on, but, you know, you get caught up in the moment. Cobalt is up – I need a Cobalt name, or Silver is up, I need a Silver name.

Matthew Gordon: Well that’s the promotional world isn’t it? Again, we did see that with brokers: they’re going, oh, the next thing we’re going to push is Cobalt, and then actually, Cobalt’s no good anymore. Every quarter there was a new thing to push and they needed them, but it was just a case of, find me anything. It didn’t need to be good. Just buy me anything which has the word Cobalt in it, or you know, obviously you guys have had a big kind of cannabis run and up until recently.

Chad Williams: Yes. Not us at Red Club, but yes, generally in Canada. We didn’t touch the cannabis thing at all.

Matthew Gordon: Well, that was the kind of thing which made me just stop and have a look about. Again, 3-years ago, a buddy of mine who runs a brokerage in Canada, he was trying to get me in cannabis and I thought, great, and it’s all going well. And he came to me in the September before things went wrong and he said, ‘Time to get out.’ I said, ‘What are you talking about this? This thing’s still flying?’’ He said, ‘Yes, but we’re taking our clients, our good clients, out of this now. We’ll continue to sell it but we’re going to take our clients out of it now because we’re going to start dumping it after Christmas.’ I’m like, ‘Okay. I said, what happened?’ He said, ‘Well, the retail guys are going to be left holding the baby.’ And you’re like, ‘What do you mean?  Your retail guys?’ ‘Yes, that’s just the way it always works.’ I’m like, ‘Oh, that’s the game. That’s the game. Right?’ And I just felt that just left a bad taste in my mouth. And I was thinking it’s stacked against retail most of the time. And I just, you know, it was a real eyeopener, but I won’t talk too much more about that one for a fear of getting into trouble. But that was the genesis of doing what we do now, which is to say, Hey, the little guy matters here, especially in the junior space where, especially in mining where institutions kind of stepped out on mass, you know, and for all the reasons you know.

The next slide I’m looking at here, which always interests me is, ‘how will I get rich?’

Chad Williams: That’s all I need to know. I don’t really need to know what you’re doing or what the name of your property is. I just need to know how I’m going to make money because as the cliché goes, there’s only one reason to buy a stock, and that’s to make money. You can sell a stock for a multitude of reasons: your daughter’s wedding, you need the mortgage payments, you’re up, you want to lock in profit, but you need to explain to me in the next little while how I’m going to get rich. And that’s a very difficult and quite frankly, non-intuitive thing for technical people to do. You know they’re good at describing alteration or some sort of rock type or how your mind’s working, but I don’t really care. I need to know how you’re going to make me rich.

Matthew Gordon: Yes. I agree with this. Again, the amount of companies that come in to us now, or CEO’s that we talked to and I say, well, so what’s the business? Have you got a business plan in writing? I can count on two hands the number of companies who have given me a written business plan, right? Well, can you at least articulate your plan and the strategy for delivering it? Who’s going to deliver it? When are they going to do that? How much is it going to cost you? And when do I get my money? Your question? When do I get rich? Right. Again, I would say less than 5% of the management teams we’ve talked to are able to do that coherently. And it may be a factor of –

Chad Williams: You are being generous. You’re generous.

Matthew Gordon: I’m a generous guy.

Chad Williams: Yes. Like honestly, 5% is a big number.

Matthew Gordon: Yes, but don’t you as an investor, as a personal investor and all sorts of with Red Cloud, you need that. That tells me where, how I’m going to make my money, and if you’re unable to tell me that, I don’t know why retail guys should buy into this either. You know, ‘we’re going to drill’, is not a business plan. That’s not a monetization event.

Chad Williams: And you know, I’m able to see, I listen to these presentations and I’m able to see through them to come up with the magic that if this works, you know, if we get a, then the outcome is be in terms of share price, because I’ve been doing it for very long. But I can’t imagine retail, let’s call it, folks that aren’t as familiar with mining, I can’t imagine how they would ever be able to do that. You know, they’re thinking, why did you buy these claims? Why are you drilling? Why are you building a mine? What’s the value proposition? Again, I’ve done it for so long that I know, but I have to explain it sometimes to the mining teams. You know, this is why you’re doing it, you know? They don’t even know why they’re doing it.  And I know that seems odd, but they just know that, okay, I’m supposed to, you know, drill it – that’s the next step. I’m supposed to drill it. Okay, well, what happens if you find something, have you ever thought of that? What happens if you get lucky? Then what? Wow, okay, that’s going to be a good thing. But you know, at the end of the day, where are you going to process it? Who’s going to buy this from you? Are you going to build the mine? You need to prepare for these eventualities now.

Matthew Gordon: It’s interesting, I had a chat with a CEO this morning. I was on the motorway in the car and we were sort of talking about an exploration play in South America, and talking about moving from exploration, and next year we’re moving straight into development. And I was asking him, well that’s great, but where’s the evaluation phase? You know, at what point do you evaluate what it is that you’ve got? You know, rather than this rather broad categories of exploration, development, production. It’s not as easy as that. You know, you need to be able to assess what it is that you’ve got and how the hell you monetize this at a point down the line. And whether or not you stay for the entire journey or you bog out at a certain point.

So please tell us again, I’m talking about our viewers here, if the company can explain what they are – so we are a project development, product finder – great. Project developer – fine. We will need the help of a strategic at points A, B, and C. We will need a financial partner. If you can sort of articulate where you sit in this, you know, large, mass of mining companies, people can then get a sense of the risk profile that they’re looking at here, right? And that I think that’s really interesting; that these senior managers who’ve made money all their lives being employed in mining companies, start up these companies without necessarily knowing what all these missing pieces are, and being able to actually manage that process.

Chad Williams: And to me, the worst crime, if I could use the word crime, is when folks with a certain skillset, whether it’s geologists, I’ll give you an example; a good geologic team, they make a discovery and then they make the mistake of trying to build the mine. I can build a business, in fact, I can almost say Red Cloud was built on the back of bailing out, trying to fix mines that did not deliver what they were supposed to deliver because of overestimated assumptions or poor execution. You cannot count on a geologist to build a mine and you can’t count on a mine builder to find a mine. These are very different skillsets. And you’ve got some high net worth and family officers as clients, and honestly, there’s so many wealthy people, billionaires that have this dream of having a gold mine. It seems to be this bucket list thing, you know. I’ve got to check off this box. I need to own a Silver miner or a Gold mine, and then some promoter lies to them, and I literally, I could have a full-time job trying to fix these messes. And the bad news I can tell you is, they’re almost all non-fixable, or if they are fixable, the dilution, the equity dilution is incredibly devastating. Or you know, the continued capital injection, or I need to bring a team of superstars to fix it. And that isn’t cheap either. It’s almost like somebody saying, ‘Shit, I’ve got a dream of building my own house. It looks easy, right? I’ll go to the hardware store and I’ll buy some wood. I’ll build my own house.’ Until you realise that that’s a very different thing than you’re trained. And building a mine is outrageous-it looks simple. You know that it’s outrageously difficult. Leave it to the pros.

Matthew Gordon: Yes, I know. We had a lovely story: we belonged to a sort of family office network here in Europe and one of the guys, one of the big German family guys stood up in front of the room and said, guys – I won’t do the accent – he stood up and said, ‘Guys, I have discovered this new category of investment, which I think, I don’t know if anyone here has heard of it, I think it’s revolutionary. It’s very green and we’re going to, I think we can change the face of this industry. And it’s called tailings’.

Chad Williams: Yes, tailings and recovery: I run, man. If somebody says tailings – I run.

Matthew Gordon: I know, but this guy thought he’d discovered sliced bread, okay? He literally was. And I think the point here is that you know what you know, but ‘you don’t know what you don’t know’. And putting your money into things that you don’t know is always risky. It comes back to my thing; you know, you’ve got to do your homework, you’ve got to trust the team. You’ve got to believe that the team can deliver this because otherwise you’re out of control. You’re totally out of control here. And I think it’s the same for retail guys -you know, you have got to know what you’re getting into is what I’m saying.

Chad Williams: Yes. And you know, the good part though, because we’ve been negative really, a good part is, you know, in Toronto – arguably the mining capital of the world, certainly for smaller mining companies or certain size companies, long story short, there’s a major road called University, and on University there are lots of hospitals and these hospitals, they all carry the names of very successful mining promoters and investors: guys like Rob McEwen, Cheryl Assan, Seymour Schulich, Peter Monk, and so on. So the value creation in mining can be staggering. And you know, I’ve seen stocks go from a penny to USD$5 or 10 cents to USD$20. And so when you do get it right, you can create amazing amounts of wealth. And we’ve touched on certain things to look for, but you know, don’t give it up, there will be more discoveries. And I can’t tell you today which one it’s going to be. And even if I did know it, I probably wouldn’t recommend it because I don’t know the criteria of the investors on your show here, but long story short; they will be young, they’re old. That’s the good news – there are some good young entrepreneurs coming up in mining. There are some properties that appear to have merit. You know, there’s every reason to be optimistic that there will be some tremendous wealth creation.

Matthew Gordon: But what’s your view? I mean, on one of your slides here, it talks about the sense of urgency here. And I think that if you look at the past few weeks, obviously with the market reset and then Covid-19, and you know, there’s always something, right? There’s always something. And I think with mining, money costs, we spend a lot of money and invest in digging holes and drilling holes to find out what we’ve got in the ground. And you know, time is money. So you know,  what did you mean when you talk about no sense of urgency in your presentation?

Chad Williams: For mining companies, time is never on their side because for operating companies, companies that have mines, they’re depleting their asset all of the time. And it’s a finite resource, right? So they need to continue exploring. And for exploration companies that don’t generate cash, every day that they don’t make a discovery, they go through their cash reserves and they need to either replenish those. So it’s not sufficient to be doing studies. It’s not sufficient to be you know, there’s got to be a tremendous sense of urgency for these mining companies to create value. That’s what I meant.

Matthew Gordon: Okay. So you would encourage investors to look to management who have got a path to monetization and an accelerated timeline in which to do that. I mean, that’s always a winner. Okay. And I guess that kind of comes onto one of your other points, which was around planning, which is not about just walking into the room and asking you for money and how they do that, but in terms of their ability to demonstrate how they are planning to build out this business of theirs, right?  So what are the things that you look for there?

Chad Williams: Well you know, in terms of lack of planning, we talked about basically underestimating the time to raise capital. I look for budgets or use of proceeds. I look for a target. It’s okay to dream. It’s okay to have an objective. Sure. It’s okay to say I am doing this because if I am successful, I will find 1Moz. And if I find 1Moz, it will be worth USD$50M. And if I find 1Moz, somebody will buy me. It’s okay to walk me through your thought process. As you say, drilling is not a plan. Drilling on a certain property is not a plan. That is an activity or a tactic. A plan is having a grand vision of, if I do certain things, then those outcomes may happen and therefore that’s how we make a lot of money.

Matthew Gordon: I guess it comes back to that point we made when we talked about earlier, which is something about having a business planning in place and being able to describe the moving parts, but what is the helicopter view here? We are going to do M&A, we’re going to acquire these money assets and we’re going to divest them by being on different continents or whatever, whatever their thing is. But our exit point is very clear. It’s here. Now working back, here’s how we get there. You’re looking for that kind of clarity?

Chad Williams: Yes. And everything can be distilled into one thing. And I know it seems overly simplistic, but again, it’s taken me 30-years to figure this out: the recipe for success in mining is to increase your NAV per share – your net asset value per share. So it’s okay to issue shares as long as your asset value, your net asset value grows more quickly. Okay? And why companies get into trouble is they either destroy asset value or they, or they issue an incredible amount of shares and therefore they dilute the asset value. And I would say the follow on is, if you get the NAV per share thing right, you need to then make sure that people are awarethat you’re doing that. There is no award for modesty or bashfulness in mining. There are something like 2,000 mining companies. So it’s a very, very crowded field. So you could be doing all the right things in your basement -nobody will care. You need to get out there.

Matthew Gordon: So here’s a question for you: if a company’s got cash, do you want to see them do cash buybacks or do you want to see them creating multiple dollar returns for each dollar they have in the bank? And how would they go about doing that for you?

Chad Williams: Whatever, you know, I’m on a bunch of boards and whatever a management team proposes to me, whether it’s drilling or building a mine or doing nothing, or a share buyback, I don’t care what it is, I will simply respond to them and say, is it NAV per share accretive? So for example, if we’re trading at a fraction of NAV, then you should be buying your stock. If you’re trading at a multiple of NAV, and Franklin Nevada was famous, Seymour Schulich was famous for that. I mean, guy is a genius and you know, every time he used to watch a stock, and every time it got to over two times NAV, he would issue securities. He would issue shares. And I said, Seymour, you don’t need the money. He had USD$1Bn of cash. He said, I’m creating value by issuing securities.

Matthew Gordon: Interesting.

Chad Williams: So, you know, it all comes down to that – we don’t have to overcomplicate things.

Matthew Gordon: So you’re looking for that one thing – that’s fascinating. Okay. I think people watching this will note that loud and clear. And then of course, you know, not all companies are in a lucky position to be cash-producing, or half cash, but they all have one thing in common: they’re burning through it, doing whatever they did, they hunkered down or drilling the bejaysus out of their assets. They’re spending money. So they got to have an eye to the future. And as you say, and again we referred to it earlier, don’t come trotting up saying I need some money by the end of next week. That doesn’t work.

Chad Williams: No, it doesn’t work. But, when I was running Victoria Gold, I used to market, and investors would say, well, you’re here looking for money. I said, actually, no, I’m not. I’m here to tell you what I’m doing and then I’ll be back in six months looking for money or a year or whatever. But I’m planting seeds to build trust and credibility so that you know what I’m doing. And don’t forget – these Fund Managers like yourself, Matt, I’m sure, or any investor in general, we do get up in the morning and we say we need to make money. Like you cannot underestimate the pressure that these fund managers are under to generate returns. They are allocated pools of money and they need to generate returns. So they are desperate for ideas.

Your job as a mining executive is to help them out and to demonstrate to them how you’re going to create value for them. And you’re not going to be a troublemaker. You’re not going to be a basket case. You’re not going to be calling them constantly for more money, and you’re over budget or you’re just taking too long. You know, put yourself in their shoes; they need to manage money. Managing money is an extremely difficult job. I wouldn’t wish it on my worst enemy. I mean, I’ve done it. And your performance gets measured minute by minute, day by day, week by week. It is devastating, especially in these markets.

Matthew Gordon: Yes, there’s nothing soft about it. The numbers are there every hour of every day, and people are looking at you and they know and they know. It’s true. It’s true. It’s not a bad job, but it’s not an easy job for sure.

Chad Williams: It’s very stressful.

Matthew Gordon: Very stressful. Okay. So let me flip this on its head, Chad, which is, you know, for retail guys, they should be asking the same questions that you, as a big fund broker, M&A guy, institutional guy asks, they should be asking those questions too. And we’re at least expecting to be told those things by the management team. And if the company can’t articulate those things, you would say that’s a red flag?

Chad Williams: Pass. Yes. You don’t need to buy any particular stock, absolutely. You know, other things that I look for are, as an investor I look for, so we’ve talked about things:  planning, you know, trust, we talked about transparency, simplicity. There will be another hot thing, whether it’s Uranium or Cobalt or Lithium. So do some research on the macro economics as well so that you’re prepared and you can have a discussion with management. And trust some experts. I would say one of the things as well as is, you can ask management what is their track record of success? If a group has made money in the past, odds are they’ll do it again. It’s not a certainty, but you know, if this person is, say they’re 50-years old and they’ve never done anything in their life of any note, never won any awards, or if they’ve never been in the top of their class, or won the Olympics or whatever, you know, I’m making things up here, then odds are they’re going to have a mediocre performance, right?

Matthew Gordon: Yes. We see that a lot. We see that a lot. Okay, Chad, we should probably wrap it up there. I mean, we’ve trotted and skipped through a lot of things there and I’ve enjoyed that, but it sounds to me it’s like as you say, it’s taken years for you to kind of distil it down into those simple headlines. But these are very basic things that you need to, we need to understand, of any one, any group or any company to be able to say, here’s my hard-earned cash – I trust you. I’m going to give this to you because I know you’re going to make me rich and I know when by.

Chad Williams: Or at least you are going to give me the highest odds of me getting rich. I mean there’s no certainty; there’s hope. There’s no guarantee. And you know, if I lose money, I only get angry if people have misled me or have failed to execute on their plan, or you know, like stuff happens, you know; look at the current economic context. Can I be upset at a CEO because it’s stock is down 50%? It’s not his or her fault. But what are you doing to mitigate the risks? What are you doing to preserve cash? Or even, what I prefer is, what are you doing right now to be aggressive? What are you doing to use this as an opportunity? Because most people are in the foetal position right now. Very few of us are very aggressive.

Matthew Gordon: You’ve hit the nail on the head for me; we’re having these conversations this week and last week with companies; I think the companies who are getting out there, they’re getting on the front foot. You’re talking about getting on the front foot, right? You’re saying, I want the biggest share of voice in this marketplace because the companies which don’t have anything, have gone quiet, and they have gone quiet because they’ve got nothing. It’s very hard under this severe spotlight to say anything believable about your company. When there’s money sloshing around, it’s easy. Everyone thinks everything’s going to make money for everyone, right? And we’ve seen companies go into hiding, not just into the foetal position. They’ve gone to a foetal position hiding behind a wall in the dark. They have gone. And I’m interested in hearing from the companies who today are confident enough to say, look, the market is the market, but here’s what we  acknowledge that. Here’s what we know. Here’s what we’re going to do, and this is why we think we will eventually you know, when, or maybe when is a strong word, we will make it through this, so trust me and trust my team. Those are the guys I’m listening to in the next, you know, last week, this weekend and next week. The ones that have disappeared; that tells me something. It tells me a lot.

Chad Williams: Yes, yes.

Matthew Gordon: Now, I also heard that you are joining the board of RNC Minerals – is that true?

Chad Williams:  I did join the board on January 1st. Yes.

Matthew Gordon: Well done. Well done. How are things there?

Chad Williams: Things are, things are good. You know, talk about a group that’s active and I’ve been very, very pleased. I’m obviously on the board, so I’m preaching for my own company here but they’re doing well operationally. You know, they had the fires, which was a very difficult situation for them. So they dealt with that properly. Very well in fact. Now, with the virus, they’re dealing with that as well. They have a very good operating team in Australia. We have a lot of cash and the reason I joined RNC is that I was very close as an analyst to that company, in those days it was called Goldcorp. I mean, it’s morphed; Goldcorp had Red Lake, and Red Lake in those days it was the Arthur White mine. It was a very low quality mine in a camp, in an area that had very good quality mines, and nobody could figure out why Arthur White was such a dog. And then lo and behold, the geologist had a theory and he said, poke a hole here and you’re going to find some high-grade. And he found an amazing, a very small but amazingly high rich ore body.

And I find that Beta Hunt has many similarities, there is no guarantee of course, but it reminds me of the old Arthur White Mine where Beta Hunt was you know, a lower grade Nickel mine in fact, and had some Gold in it. And then all of a sudden we’re finding extremely high grades of gold, and it’s a different population of gold. And I don’t know what it means in the future, but I do find it very interesting. Yes. I want it to be associated with that.

Matthew Gordon: Well, we’re talking with Paul Hewitt next. Yes, the new guy. Well he’s not new anymore. It’s been 8, 9-months. But hell of a turnaround story as well. It’s been fascinating. We’ve been following it since the middle of last year. Great, great story.

Chad Williams: That’s a good example of, he’s done everything right. He’s added NAV per share and yet the stock is a quarter of what it was a year ago, you know? And so it’s frustrating for management teams when those kinds of things happen, but it’s not his fault. He’s done, in my opinion, he’s done everything right.

Matthew Gordon: It’ll get there. I think the good news for them is they don’t need to go to market for cash. They’re producing positive cash flow. And there’s a bunch of, I think, genuine catalyst about; you know, everyone talks, ‘oh, there’s a catalyst event’  and they come, they go; no one cares. But in their case, I think there’s a couple of biggies just around the corner. So yes, we’re going to catch up with them next week and talk about their end of year report.

Well, like say, Chad, thanks very much. I do appreciate that. I mean, it’d be lovely to talk to you again. If you ever get a moment from your busy schedule, and it gives you a view of the markets and what you think’s going on.

Chad Williams: And I’ll be I’ll be shaved and…

Matthew Gordon:  Oh, no way. Don’t do that. Well, hopefully you’re not still in your cabin there in 6-months, right? You’re going to go crazy.

Chad Williams: Come and rescue me.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Red Cloud Securities company logo

Leave a Reply

Your email address will not be published. Required fields are marked *