A conversation with Ross Beaty, Mining Investor and Entrepreneur.
Which entrepreneur wouldn’t want to replicate Ross Beaty’s business success? It wasn’t always so easy for the young Beaty, who tells us about the mistakes and lessons learnt. Beaty makes time to talk us and shares some of his thoughts on a variety of topics outside of mining too. We start with his childhood and early years. What three things are important to him? What shaped his thinking and drove him into mining? We talk about his management style today and what he looks for in manager of his projects.
And let’s be honest, if he puts his name to a project it has more chance of success than most as he can bring money to the table. He appreciates that but there is still a lot to do to be able to build a globally significant mines. But you have to like risk.
So when is he going to retire and what’s is he going to do? And what is his take on Naked Shorting?
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- Identifying Winners and Losers: Knowledge of Putting Together Deals
- Mood in the Market: Optimism for the Future
- What Will Make Generalists Come Back to the Uranium Space?
CLICK HERE to watch the full interview.
Matthew Gordon: Hey Ross, how you doing, Sir?
Ross Beaty: I am well, thank you. How are you?
Matthew Gordon: Yes, not bad. Not bad. Surviving. Holed up. What about you?
Ross Beaty: It is a very strange world: I haven’t travelled in 2-months now and it’s a little bit, you know, you go a little bit stir crazy, but it’s kind of nice where I live. I live on an Island. I’m kind of self-sufficient here. You know, we are suffering through it as best as best we can and it’s not a bad lifestyle, to be honest. It is good for the planet.
Matthew Gordon: Yes, it is good for the planet. It is strange to be getting withdrawal symptoms about not being in an airplane. I never thought I’d feel that. Well, thank you very much for joining us today. A slightly unusual one too. We’re not here to promote one single company. We are usually grilling CEOs about their performance. So, we are going to talk about you today. People are interested in you and where it all began. So, we have got some nice gentle questions. Are you ready?
Ross Beaty: Okay. I am ready. I’m intrigued.
Matthew Gordon: We are interested in how people get to where they are, what sort of made them the man they are today? And so, I want to sort of start off from sort of understanding where you grew up, what was life like as a kid?
Ross Beaty: I had a pretty good life as a kid. I grew up in a kind of traditional Canadian middle-class family. My dad was an entrepreneur in the lumber business and I was just, I was always interested in the outdoors: I just loved hiking and camping. And so, I gravitated to that from an early age and I wanted a job working in the outdoors all the time, so I became a geologist. And then, after a few sessions at different universities, I started my first company right out of, pretty much out of university. It was called BD Geological, and I ran a little contract geology company and built that up. And then I started my first public company in 1985, which was called Equinox Resources, and then I’ve just had a whole stream of companies ever since then. My first company lasted nine years and I sold it to a big US mining company and started a new one the next day. There has just been a whole succession. I think I’m on number 15 now, so it’s been a lot of fun and a lot of travel, which I love. And working with great people who’ve helped me build these companies.
I was a good geologist, but I also found I was a good salesman; so, I could sell shares and I could tell stories and part people from their money. And by a lot of good luck as opposed to good management, we found Gold mines and Silver mines and we built companies and so they made more money than they gave me and they returned the favour; every time I started a new company, they backed me again and again. So, it has been a happy and successful career, which I’m pretty much at the end of now, Equinox Gold will be my last company. And it has been a great run, a great journey and a tremendous amount of fun.
Matthew Gordon: Right. Okay. Good summary. This could be either the shortest interview I’ve ever done, or we can go back, I want to get back to your childhood. Okay. So, I’m fascinated because I’ve got 4-kids, and they have each have different personalities, and I know who’s probably going to do what. They’ve got very different desires and needs and personalities. So, when you were growing up, your dad was an entrepreneur, you have had an entrepreneurial life, and the question I’m asking you is, what influence did your parents have on you, or did your father have on you when you were growing up? Or did you feel it is innate in you? You were always going to be a ‘salesman’, as you put it?
Ross Beaty: Yes. It’s hard to say really; I have 2 brothers and I had a sister, she died when she was young, and my dad actually died when he was young. He died in 1973, I think. He died when he was 55 of a car accident. So,, I didn’t have anybody to bounce ideas off when I was in the business world. I would say I just got his genes, and we had a pretty lucky early life because I was given a tremendous amount of freedom. I was always a hyperactive little shit. I was always busy running around and constantly arguing with people and just…you know. So, my mother’s solution was to just kick me outside and call me back when it was time for meals.
I’ve always been pretty active. I’m going to say I’m pretty impatient and selfish and greedy and all those things that make great entrepreneurs. But I would say no; my 2 brothers, I have 2 brothers say none of them became entrepreneurs. One is a great engineer and he worked for a company through his life and the other one was a printing salesman, so the apple didn’t fall far from the tree in my case, but in their cases, they were just sort of living ordinary middle-class lives. So that was, my personality, I guess, was sufficiently different and that is where I went. And I would say I made a lot of my own mistakes. I never had a mentor or a particular guiding light when I was building these companies. I just, it was a school of hard knocks and like I said, I made a lot of crazy mistakes, and in hindsight, crazy, but at the time they all seemed very clever and luckily, there were more good decisions than bad decisions and the outcome was positive.
Matthew Gordon: Okay. That’s interesting. Do you think your father would be proud of what you’ve done?
Ross Beaty Yes. Oh yes. Well, of course, he would be very proud and of course, my mother. My mother always was; of course, mothers are proud of chainsaw massacres. So ,mothers are always proud of the children, whether they are thieves, rapists and murderers, but fathers are a little tougher, and I know he would have been proud of me, for sure. It has been a great career and I think I’m very proud of having done it without having to lie and cheat and steal. And some of the short-term thinking that certain people in this industry have followed over the decades, I’ve been involved with it, and it never usually works out very well. It’s not hard to do things right. You do need luck. And I got luck. And with that luck plus working very hard and being very driven and motivated, it worked out; without any of those ingredients it would have been harder.
Matthew Gordon: Well, I’m intrigued in terms of what are the sum of the parts of the man, right? Because a lot of people are watching this, they will be looking for clues. They may be starting out like you now, we all once did, looking to sort of see, do they have the right characteristics and so forth? But you say you’re a workaholic. I think I just heard that was one of the criteria there. Does that leave time for your family?
Ross Beaty: I didn’t say that.
Matthew Gordon: You are not a workaholic? You work hard?
Ross Beaty: No, no, I’m not. No, I’m not. Especially when we had kids, I spent a huge amount of time, and for me, it was always about juggling; it was always about having three balls in the air at any one point in time. One ball was my business, for sure; I wanted to make sure that was healthy and thriving. One ball was my family. I have 5 kids, I have 1 wife, we celebrate our 40th wedding anniversary in 10 days. And I have me, and as long as I’m happy, my family is doing well and my company is doing well, it works. If any one of those balls drops, it’s a disaster. So, I spend a certain amount of time looking after the me, and me; I really am driven to be an outdoor person. I love skiing and hiking and camping and canoeing and traveling and I just love moving around, so I made sure there was that part of my life that I was getting a lot of personal fulfilment from.
The businesses were all doing well; that required a lot of work, for sure. But it tended not to include work on the weekends or in the evenings like a lot of true workaholics do. And it was very important that we had a strong family, and we have got a strong family. We always have had, I’ve got a wonderful wife and it has worked out quite well for everybody I’d say, in terms of that mix. I think if you lose one of those ingredients, everything else becomes more difficult. And so, I wanted to try to make sure all those three pieces of the personal puzzle were healthy, and it’s been a successful life because of that.
Matthew Gordon: Fantastic. Nice balance. Well, let’s get on and we will stick with the work bit now, okay? What type of manager are you?
Ross Beaty: I am a very decentralized manager. I like to work with smart people and I really give them a lot of runway to do their own thing, and I just try to help manage them and we make mutual decisions. I also try to be quite hands on though; I try to visit all the projects and try to have a complete understanding, technical understanding of what’s going on. And so, I can help really inform the decisions with personal experience. I’ve got to see things with my own eyes. I’ve got to touch the ground, go underground, for example, look at opportunities personally before I can really get a good sense of them. I can’t do it from reading a book, or a report or online.
Matthew Gordon: Okay. And you talked about mistakes that you’ve made along the way, and we say to people, you probably learn more from your mistakes than you do from the successes. So, what are the big moments you think, boy, I’m not going to do that again? Or maybe I’ve now worked out what I should be doing.
Ross Beaty: Yes, well, like I said, I am a quick study. I do learn quickly. And I, when I realise I’ve made a terrible mistake, I try not to repeat it. Instead of that I make other new mistakes, and that’s kind of what life’s all about, right? It’s just a one-way street; every time you come around a corner there is this sort of new situation that may or may not be something that you’ve experienced already. And the world changes so you can’t always apply experience that you’ve learned 30 years ago to what’s going on today. It’s a different world. We have different markets, different investors, different ways of looking at things, different social issues, all kinds of things that are different. So, you know, there are a few ingredients though that I have learned and number one is working with nice people, good people and if you can’t get along with somebody, change. You have goy to cut quickly. The quicker you cut, the happier you’re going to be and the happier they’re going to be.
Another is to focus on scale: look for big projects, big opportunities, big ideas. I spent 3 years of my life trying to permit a 50,000oz a total Resource Gold deposit in California back in the late eighties and it was 3 wasted years. It was ridiculous what we tried to do. So those kinds of things are just a waste of time, a waste of energy.
And try to be opportunistic. In other words, set yourself up for things that are going to happen as to things that are happening today. I’ve done that quite frequently in my career and it has always been very successful, particularly trying to look at long-term commodity price trends that will eventually drive markets.
I got into the Gold business in the eighties. It worked out well. I got into Silver business in the nineties, the Copper business in the 2000s. I went into renewable energy in late 2000, in 2008, I started a renewable energy company. Then I got back into Gold in around 2015, 2016, and that has been a pretty good run. So, I try to look at what’s going to happen in future trends as opposed to what’s happening today. The best opportunities are those where you’re taking advantage of weakness elsewhere, or markets that just seem to have it wrong. When I started a Copper company in early 2000, a group of Copper companies, nobody wanted to know the word Copper, and that was when I was buying like a drunken fool. I was buying everything with Copper that I could find. And sure enough, Copper went from an all time low to an all-time high in just 4 or 5-years. And every one of those workflows, Copper deposits I bought became incredibly valuable. We sold them all for nearly USD$2Bn. So, it is stepping back, it is reading a lot. It’s traveling a lot. It’s looking at what’s going on in the world and what’s going to go on in the world, and making a prediction and then trying to set up a business that takes advantage of that trend and takes advantage of that.
We live in very cyclical markets: bull markets beget bull markets. Bear markets beget bear markets. That’s why we have these cycles. And so, if you’re in a bottom of a cycle, you want to be preparing for when the cycle turns and goes up. Those to prepare, who are lucky enough to have the capital to prepare themselves and get the assets that will do well in an up cycle are going to benefit disproportionally, and vice versa. If you are at the top of the cycle, that’s when you want to be selling. That’s when you want to be turning to cash up, to try to take advantage of when the cycle changes and it goes down again. These are multi-year events, but they always happen, they always will. We are in a down cycle today in many respects because of this COVID crisis. This is the time to be loaded up on equities and buying things that other people have destressed and have to sell. That’s just how these markets work. So that’s worked very well for me, and it’s a kind of a basic thing. It sounds very easy to say, it’s rather more difficult to do.
Matthew Gordon: Yes. It does sound easy to say, but people talk the story of being, about the contrarian philosophy for investing, but when you’ve got money, it feels like it’s slightly easier to actually deliver on that. Because we saw this with Uranium and Gold previously, and obviously with the debt which happened with the market reset, people who had been talking very aggressive, contrarian type language were terrified to actually place a bet. I’m talking retail here, okay. They were terrified. They were asking each other, where they had been bullish before, they were now asking other people’s advice, should I, should I? I just find that kind of interesting. It was the definition of a contrarian environment, but the human psyche comes into it when actually being, you know, the last pitch of the innings; you have got to place your bet and a lot of people didn’t. I thought that was interesting.
Ross Beaty: Right? It is very easy to say and very hard to do. And of course, I mean, there’s different ways to do it of course. And it is a very different world between being an investor where you can buy and sell someone else’s company anytime you want; you are by definition a short-term investor because you can sell anytime, and nothing will happen to you or the company. If you are on the other side, like I’ve been, which is basically a developer most of my life, I mean, I’ve been an investor at different times, but mostly I’ve been a developer of my own businesses, and I only sell once or I don’t sell at all. When I sell once, it means I sell the whole company, and I’ve done that, I don’t know, 10 or 11 times with different companies I’ve started, but you have to hold for the long-term.
So you’re building, you’re investing in projects or you’re investing in people, you’re investing in ideas when you start these companies from scratch, and you try to get your timing right; and so you want to start them at the bottom and sell them at the top. And that’s actually something I have done. And you have to have a lot of courage of your convictions because there’s always people who say you’re an idiot; you are doing the wrong thing, you are selling out at the wrong time. There’s always people who second guess you. And sometimes they’re right. Sometimes you’re right. But you just have to have the courage of your convictions and you have to have enough control of your business to actually make those decisions and you’ve just got to do it. And so whether you’re a nurse or you’re a company builder, you have to think long-term and you have to play these cycles in our business, I’m not saying it’s the same for selling a brand or some other service to somebody, but in the commodity game it is a cyclical business and you can actually do very, very well if you pick the cycles right.
But you don’t have to necessarily have a lot of money when you’re in the development world. Like when you’re starting these companies, I mean, I have lots of money now and I had money starting probably, well, after I sold my first company, Equinox, I had a bit of money but when we got our Silver company going we didn’t have a lot. We had very, I would say, very supportive shareholders and they financed us again and again at, at good prices and with that money, we were able to build up an asset base that was very successful, I guess, when Silver prices took off after 10-years or 8-years, it took a long time. But finally, they went and boy, everybody was happy when they went.
I mean, I was completely wrong. I thought Silver, when I started my Silver company in 1994, I had the confidence of ignorance and I was able to sell the idea that Silver is going to the moon. It started at USD$5.20 I think when I started Pan-American in 1994. And I was saying to everybody, by the end of the decade is going to be up to USD$10 and everything we buy now is going to be ridiculously valuable. And of course, the predictable happened: by 2000, at the end of the decade Silver was USD$4 p/oz. It was at an all-time low in real terms, and yes, we had scrubbed together a company that actually had a whole bunch of assets and after a near death experience, a very near-death experience starting in 2001 where we almost went bankrupt. Luckily right after that, the Silver base took off, we had this wonderful run of the super-cycle in early 2000: Silver went from that USD$4 price in 2000, in the fall or the winter of 2007 it went all the way to USD$48 an ounce, 6-years, 7-years later.
So it was a glorious run. We were well positioned for the run. We had the asset base for it. Yes, we had almost died, but we were lucky enough to just come out of that all-time low with that tremendous asset base, a lot of goodwill from shareholders, a good name as being a primary Silver company, one of the very few in the world, and our share price went from USD$3 a share to a nearly USD$50 a share during that glorious run. So, it was a happy time. Maybe if it had taken another year or 2, we might’ve gone bankrupt and that would have been the end of the story, but we didn’t.
Matthew Gordon: Yes, it’s amazing; those moments and the paths just split right or left and there’s a lot of very successful people who can remember that moment where it could have gone either way, a very, very different story, very different outcomes.
Ross Beaty: Forks in the road.
Matthew Gordon: Forks in the road, right? So you must appreciate the power and the value of your name being associated with a project. I know you told me Equinox is the last hurrah, but for last few years if you’ve been involved in a project, you put your money in it in some capacity or other, people follow you. There’s a value to that because the view is, there is a successful guy. If I can just get a bit of what he’s got, it’ll be okay. Right? So, do you mind if we sort of delve in and sort of see how true that is, what have you done?
Ross Beaty: Well, it is true. I mean there is no question that success generates followers and people who like to get onto your bandwagon. And in this business, because I’m a very public person because all my company investments, almost all of them are public investments and whatever I now buy something, it’s not very meaningful to me unless I have a fairly big stake in it. I’ve a multimillion dollar stake, 10% plus. I don’t care if I’m showing up as an insider or not. In many times I am. And if I am, it is very public. And so, you got a lot of people who will buy based on my name or Lukas Lundin’s name or Richard Warke’s name, or any of these guys who have been serially successful, and they’ve made a lot of money. Not always, not every company, there’s been some dogs in the portfolio, but there’s been more winners than losers. So, there are people who do pile on. And that’s true.
That’s particularly true for when I have been more traditionally an investor in companies; where I will look at a hundred companies and pick two or three to actually do a private placement and then trust the management to build value, add it again, that has been more successful than unsuccessful, but I’m not doing that right now. I’m not hardly doing that. I’m doing that a tiny bit. Mostly right now, 90% of my world, my business world is actually Pan-American Silver, Equinox Gold, one or two little private companies that we have that aren’t public, but we’re working on quite hard and the Lumina group, which comprises today two companies, or two and a half companies within a group that has been close with me for 15 to 20 -ears, a very, very good management team and I’m really backing them financially versus being too active in the companies. But I do try to help out where I can. I would say that’s still in my orbit as a developer versus an investor where I have absolutely nothing to do with management.
Matthew Gordon: Can I just ask? Who are the guys in the market, apart from your own team, who you admire at the moment, when you look at either CEOs or management teams or companies, who do you admire and go, actually, they’re doing a good job?
Ross Beaty: One of the realities in this business that I’m in, because I’m so much in the trenches with my own companies, I actually don’t, I don’t really listen to other presentations. I mean, I know all the guys very well, but I don’t really know the fundamentals of their business. I have an enormous regard for Randy Smallwood of Silver Wheaton or Wheaton resources. He’s a very smart, very lovely guy, wonderful guy. I have a tremendous amount of time for Lukas Lundin. He’s a dear friend of mine, smart, driven, a huge amount of fun, generous competent, just great. And he has very good business sense and works with really good people. And so, his companies are strong and they’re strong for a reason; they are very well led. Beyond that, Donald Lindsay at Tech, I have enormous admiration for Don. He’s a smart guy. He’s a great leader. People love working with him. Core investment for me. I have a lot of time for Tech. Those are a few names.
Amongst the juniors, I just don’t know them well enough to really comment, to be honest. I don’t have a, I mean, I know certain people in certain companies, but I don’t know enough about the companies themselves to really give you a sense of who I would back.
Matthew Gordon: I guess the bit I wanted to understand from you, obviously, was, maybe not now because I appreciate you’ve just explained where you are now, but let’s say in the last 10, 15-years, has that track record, has that money, allowed you to be a little less right or a little bit less choosy about the project because you know that you following your cash would make it work?
Ross Beaty: How has it been? How’s it made me less choosy? I think when you are an investor, you won’t have a big win on every single investment. The more money you have really doesn’t matter; a lot of money, a little money. What you, what you luxuriate in, when you have a lot of money is, you can afford to be wrong again and again, and you’re not going to really change your lifestyle a lot. And small investors simply can’t do that, which is a big difference to me. But having said that, I don’t like losing money. I don’t like looking stupid. I think there’s a lot of ego in all of this, don’t forget; a massive amount of ego in everything that I do. I always want to be seen as being smart and right. It’s just an unavoidable intimate, personal characteristic, Carl Icahn is the same and anybody who’s a public figure who goes after companies and has as a brand or a cachet, they always want to be right. And that’s a very natural human, human instinct.
So, whether I’m a developer or an investor, you could say the same thing; I’m always trying to hit for the fence, trying to make a home run of every single thing I do. And most of the time you swing for the fence and you might get a bunch, or you might run halfway to first and get thrown out, but often you do get that home run. I’ve had a lot of home runs in my career, a heck of a lot of home runs. They feel fabulous.
Matthew Gordon: Yes, they always do, right? That’s why you get out of bed in the morning. But do you think if someone took all your money away today and you were, you know, the young Ross Beaty in today’s environment, could you do it again? Is it a different world now compared to back then?
Ross Beaty: Yes, yes.
Matthew Gordon: You could do it again?
Ross Beaty: Yes, yes, it’s definitely a different world. It’s definitely a different world, but yes, you can do it again. I mean, all the ingredients to success are more than anything: hard work, a lot of drive where you make the phone calls, you don’t wait for the phone to ring, and that’s true in any business, I think, in any sector; it is the people who have that extra bit of drive, not necessarily any smarter than anyone else, but just that drive. If I’m looking to hire somebody, that’s what I’m looking for. Somebody who’s got drive, somebody who’s got an interest in what they do, a motivation to work hard. And then you put in place the ingredients for success. In our business, you put in place the opportunity to have lots and lots of drill holes, and because when you drill, usually you get bad results, but every so often you get good results and it’s a statistical thing. Obviously, you want to drill good projects, but not all of them are good. That’s the nature of the business. But boy, if you get a success, it goes straight to the bottom line. It’s real immediate capital value. And so, you want to position yourself for that kind of success if you’re in the exploration business. And if you’re in the mining business, you want to watch two things: you want to watch, obviously, the size of the project you remember because the bigger the project, the more valuable it’s going to be for you, and you want to try to get your timing rate on the commodities.
So, if you start a business at the top of the cycle and the cycle goes against you for four years, you are going to have more and more difficulty funding your dreams and trying to build any kind of value at all. It’s just going to be a, it’s almost a losing proposition. It’s very difficult. Whereas if you started at the bottom and you get your direction right, it’s going to be a pretty happy time because even if you buy something that is a marginal project, or acquire or discover something that is quite marginal at one point in time, the price rises, it has real tangible value and you can sell it, you can develop it, you can do all kinds of ways to realise on that. You don’t see that kind of thing in other businesses. That’s what makes the mining business so beautiful when things go well and so terrible when they don’t.
Matthew Gordon: I think that’s right. I think that’s right. But a few things you said there, I think one of the phrases you probably touched on earlier was also courage; you’re not frightened to make a few mistakes along the way. And the wisdom comes with time. For sure. But the other thing you said there which was interesting to me is that having the money allows you to do things that some companies, some management teams don’t make time to put in place or are unable to put in place because money can paper over cracks, but it can also, as you say, through the drill bit, release potential, assuming you bought at the right price. So, I mean, do you look at the market and go, boy, there’s some nice assets there. They’re struggling, I could do something with that?
Ross Beaty: Yes, I mean that is a difference for sure between now and when I started out, I can certainly say that my last two large companies, Equinox Gold and my renewable energy company that was called Alterra power, which we ultimately sold to a big Montreal-based company a couple of years ago, both of those companies would not have done nearly what they did without my ability to back them financially. I was able to backstop Equinox Gold, not once, not twice, but three, three times now with a significant pot of cash that they needed to get kind of over that hurdle to acquire some means, to finance a program. And with that support and my own, as you might put it, my own brand, other shareholders came in at the same time to provide additional capital and we were able to get over that hurdle and built scale, not just when we started, but several times since. I mean the company is only two and a half years old, but we have done this now three or four times, where I was able to put a significant amount of cash in and it really helped the story. I couldn’t have done that if I was starting out with no money.
Like I said, with my first company, I had no money. I mean, my total investment in that company was USD$3,000. And then I bought more shares every time I made some money in something else, I would put into buying more shares. And then I, so eventually I built up a decent position in the company before we sold the company.
But today it is very different in that respect. If I was starting over today, you’d have to go through that struggle. But that’s kind of what business is about. You start at one scale and then if you develop things and are lucky enough to capitalise on it, you start again and you try to scale up like that, and that is very much my story.
I guess the one thread that has been consistent is I have been lucky. I have been very lucky in getting markets right and in making discoveries in where I live and how I finance it. I have had a lot of luck. I’m not saying you can’t get that luck or you couldn’t get that luck if you started again today, but because the business does reward luck; I mean, it does have a lot of luck in it and a lot of people do get that luck. So yes, you can start today. I’m sure you could. This is a long, very long answer to your simple question. Could you do something? Could I do something today? Starting out as a young geologist the way I was starting out in the early eighties, and I’m absolutely confident you can. In fact, I know people who are doing it. There are some young geologists out there. They’re very smart, very dedicated and hardworking people and they’re making big successes out of it. However, the one thing is, I do think this is not for everyone. So not every person is just made to be an entrepreneur. Thank God, because otherwise the world would spin out of control. So if you’re going to try to get into this business, look at yourself in the mirror; ask yourself who you are, what you’re good at, and if you feel you’re actually not a risk taker, this is not a business for you; you shouldn’t be an entrepreneur. You should be an employee because you can be a great part of someone else’s team and still be incredibly rewarded and fulfilled and make lots of money. But if you’re not born to be a risk taker, which is fundamentally what entrepreneurs are, I mean, I love risk. I thrive on risk. I embrace every, every time I see a risk, I just want to wrap my hands around. But it is a weird kind of a thing, but a lot of people aren’t like that. My wife isn’t like that. She’s exactly the opposite. I mean, she’s a doctor; every time I sneeze, there’s some horrible calamity that’s happening to me. And so, it’s not for everyone, that is what I’m saying. And if you’re not an entrepreneur and you try to be, you’re not going to succeed. So, know who you are.
Matthew Gordon: I think that is good advice. It is calculated, measured risk, but you’re assessing multiple variables very quickly to make decisions. I like that.
Ross Beaty: I use a coin. I flip a coin.
Matthew Gordon: Nice. Nice. Keep it simple. Okay. I think someone wrote a book about that. They went through a year making decisions based on a flip of a coin. I’m not sure it ended too well, but it could have. Can I just ask you about Equinox please? Because we have interviewed Christian Milau a couple of times. Really nice guy. I like the story that he painted. And it would probably give us a good chance to understand your thinking when you’re putting these teams together because like I said, you financed them, not once, not twice but three times. And you’d put together a bunch of companies for low-grade bulk Gold recovery. So how did you get that team together? How did that story come to you? It is your last hurrah – how is it going to finish?
Ross Beaty: So, I like Gold first of all, the commodity. We’re in a good secular bull market, and regardless of COVID, by the way, things that are going on in the world financial field and just generally with the amount of money that’s floating around the world and being stimulated every place today, it’s just the macro market, the macro environment for Gold is fabulous. And it started being fabulous since about 2015, 2016. So, I had a couple of Gold investments, of course I have a Silver company, Pan-American, which is exposed to Gold, and Silver markets pretty well. But I really like Gold, and I kind of, I had just sold in 2017 my renewable energy business that I spent much of the last eight years working on. And I kind of wanted to have a last hurrah in Gold, I mean at scale.
I mean the market today, and that is size. The market is very different than it was 20 years ago. It really rewards scale. We have all this, this robot money, the ETF money, the computer-based buying and selling, and so much of the investment today is dumb money. So, what that is rewarded by is getting scale, getting somebody with a lot of liquidity and size and leverage.
So, I had a little company that was a cash shell. I am good friends with Richard Warke. He had a Gold business that was kind of just sitting there, it was a one asset company called Newcastle. And then Christian Milau and his team had a Gold company with an asset in Brazil that was kind of not really going anywhere, so we thought if we put them all together, we could we could build something at scale. And that was something that made sense to me. I agreed to chair it and to make it my last company. And so, we named it after my first company, Equinox Gold, was named after my first company, as a kind of a way to bookend my careers with Equinoxes and Gold companies.
And we went out hard. We started the company, it went public just right at the very beginning of 2018 as a 3 way merger. And we really haven’t looked back. We bought a Gold mine in California and an operative Gold mine at the end of 2018, which gave us one producer, a little bit of Gold production that year, 25,000oz in 2019, because we then opened up our mine in Brazil we had a little more Gold production. We produced 200,000oz last year. And then at the end of the year we acquired Leagold, which has now built a significant six-mine portfolio: two development projects, one in California and one in Brazil, plus the expansion of a mine in Mexico. And we’re going to produce over 600,000oz this year and we’ll be on the road to about 1Moz sometime next year.
So it has been just an absolutely exponential growth, and that’s precisely what I felt was the right strategy today to get leverage to Gold in both operating business; on an income statement and also on your balance sheet with respect to very large Gold reserves and resources. I think we have something like 24Moz now in our reserves and resources. So, it is a very, very leveraged vehicle now that the market has absolutely embraced the business plan. The guys are good strong managers. Mostly the management team is Christian’s team supplemented by Nelson, some strong people from the Leagold teams.
So Equinox Gold now is a mid-tier producer going on the way to the journey towards becoming a senior producer. And there’s no magic to a million ounces a year, but it does separate you. If you hit a million ounces a year, there’s only 15 companies in the whole world that produce a million ounces or more. So, you’re in a very small club and it’s a club that investors want today. They want that size, they want that liquidity, the ability to go in and out with big volumes of money. And we now deliver that. So, we have grown very satisfactorily in the last couple of years from that idea that we created back in the end of 2017.
Matthew Gordon: Okay. So, lovely idea. You brought it together with your, well the people who surround you and your own capital and you built that into it. Was it a $1Bn? $2Bn? What is it at today?
Ross Beaty: Canadian dollars – it’s about CAD$2.5Bn, USD$1.8Bn.
Matthew Gordon: $1.8Bn. Right. Okay. So ,when we last interviewed Christian, it was USD$1.2Bn. I’m intrigued by the team that you’ve put in there and how you incentivise them. When I spoke to Christian, he said to me that the entrepreneurial spirit is in the company, and by that, you can demonstrate that by saying, they don’t take big salaries, but they do take positions themselves. They use their own cash and are incentivise with, whether it be options or warrants or whatever is on the table to make them hit targets, to incentivise them to hit targets. As you say, not everyone is entrepreneurial and self-driven. Some people need incentives, but I liked the fact that they weren’t sort of taking big wages off the table. Because we have interviewed some pretty big companies along the way and it just seems to be they’ve reached that point where they’re not quite sure, they’ve run out of ideas as to how this thing moves to the next stage, and therefore what does it do for the shares? Because ultimately, we buy shares, we’re not all sitting at your side of the table. We’re sitting here investing in your companies. And we are looking to make money on shares. So I liked that, and it continues to grow but where does it stop? What’s the end game here? Are you going to be taken out or is this thing just throwing off cash and you’re throwing out, throwing back dividends?
Ross Beaty: Right. So, in my case the outcome for Equinox is really the same as that for Pan-American Silver, which I started 25-years ago, or 26-years ago now. Really the plan is to build a world-class Gold mining company that will become simply a world name, a brand in its own right, in the world that will last a long, long time and not be something that someone else buys or is offered for sale. A company that will outlive me, that I will probably pass my shares onto my kids or simply put them into the foundation that I have, the nature foundation or environmental foundation that I have, where most of my money goes when I kick the bucket, if not sooner.
I mean, I have no particular need for money. I have a great lifestyle. I don’t do any of this to earn money to spend. I just do it for the fun of making money and creating wealth for me and for other people. But once you’ve made it, I also have a lot of fun giving it away; so I’ve given a huge amount of money away and I’ll continue to do that. It is great. It’s great fun doing that as well. So, for Equinox there’s no plan to sell. For some of the other companies like Lumina Gold for example, it’s 100% of the business plan to sell that company. It’s an exploration company. It’s not a producing company. And the idea there is to sell it to a big developer, a big Gold producer, the same way as I’ve sold so many other companies in my career.
Matthew Gordon: Yes. We have got Marshall coming on in a couple of weeks and we have interviewed him last year a couple of times as well. Yes, so I mean there’s like USD$1.2Bn worth of capex required for that. You’ve no interest in funding that I presume?
Ross Beaty: No.
Matthew Gordon: None. In and out. Okay.
Ross Beaty: Different business, different business plan.
Matthew Gordon: Okay. Tell me a little bit about Pan-American because you’ve delivered, you’ve given what? USD$450M back in dividends over its time, as throwing off cash. It’s a huge Silver producer. Is it just more of the same? Is that the idea?
Ross Beaty: Yes, it is, it’s more of the same. It’s a much bigger company now than it was a few years ago because we combined with Tahoe resources at the beginning of last year. So not only does Pan-American produce, it’s the second largest primary Silver mining company in the world, but it also produces a lot of Gold: it will produce almost 600,000oz this year. So, it’s a very leveraged company to Gold as well as Silver. And it’s got an impeccable balance sheet, great cashflow, multiple assets in multiple countries. So, just a really good diversified major company in the solar business as well as the Gold business that I hope is going to last a long time. Those companies are hard to build, but once you built them, they’re actually, they kind of run of themselves.
The thing about all these companies though, don’t forget all these operating companies, the mining business, the reason there’s a market for these junior companies, the exploration companies that have good assets, that are setting themselves up to be sold, the reason there’s always a market for those companies is because major companies eat their future every single day, right? Their reserves deplete. And unless they replace the reserves through their own discoveries or by buying other companies, they go out of business. Their whole business plan dies unless they sustain their production by acquiring other companies that have good discoveries, that will allow them to sustain their production for many years, or they discover it themselves. And major companies aren’t very good at discovering mines themselves. So therefore, they generally go out and buy them from juniors. And that’s why there’s always this great market for the junior companies that are successful; they’re going to be bought.
And so Pan-American Silver probably, like Equinox Gold, they got to a certain point where they’re not making their own discoveries quickly enough to support their depletion of reserves from mining and they have to go out and look for other companies. And that’s probably going to be what these companies are going to do for a long time.
Matthew Gordon: It’s very tough, a very competitive environment, which doesn’t make things any cheaper, but if you can find a niche, find your position in this, I guess you’re saying that you can, you can do it with the right drive and ambition.
Ross Beaty: You can do it, you can do it. And yet companies do make mistakes. They buy companies that are dogs, or they build a mine that turns out to be a dog. This is a very risky business. And even the people in the business like me, we often make terrible mistakes. We buy the wrong thing. Pan-American bought a company in Argentina that had the biggest Silver resource in the world. It was fabulous deposit in the middle of a perfectly good place to mine, in the middle of a kind of a windswept no man’s land in the middle of Argentina, Pampas in Southern Argentina. And it had every technical reason in the world to be a really great place to build a mine. There was no biodiversity loss, no environmental issues at all, no people, no nothing.
And yet, weirdly, we had terrible luck, the province was a place where another company had made a discovery of a really rich Gold deposit in a ski resort. And the people in the ski resort went bananas and they banned mining, and they threw out the baby with the bath water and they banned mining in the entire province. Well, I couldn’t figure any reason that that would persist because it was so illogical to me and obviously, no technical or environmental sense. So, I thought, well, let’s go and buy this company that’s got this great deposit there. The deposit is perfect for us, and at some point, they’re going to change the law and allow open pit mining.
Well, it has now been, I think it has now been 10-years, 10 or 11-years that we have owned that deposit. And I still have that kind of blind optimism that they’re going to change the law, but so far they haven’t, and maybe they never will. So, if they never do, that will have been a really, really dumb thing to buy. But you’ve got to take risk and you’ve got to swing that bat and try.
If it is permitted, it’s going to be a home run. If it’s not, it’s going to be a strike out. So, that’s your risk and reward ratio when you make all these decisions on these companies. And so, I can say that from personal experience.
Matthew Gordon: I mean, that nearly happened with Taho, didn’t it? There was nearly a sort of sticky moment there. I mean, it was idle for well over a year. I mean that must be tough going?
Ross Beaty: Well, it still is. It still is idle. I mean, we bought Taho in 2017, right at the bottom of the kind of there was a low in the Gold price. The Taho price had been crushed because its main asset was put out of operation by a constitutional court in in in Guatemala. And we came along and said, okay, well the value of the purchase is based on their other assets. And that’s been for us, it’s been almost a home run. I mean, the timing was just beautiful ,and the assets are good and we got the Silver asset in Guatemala for free. And if we hadn’t restored that operation, then we’re going to make a payment to the Tahoe shareholders. But if we don’t, we don’t pay for it.
And so, it was a very well structured deal. But to be honest, to this day, it’s not running yet. We need to get social licensing in Guatemala. We’re working very hard to get it. And we may get it and we may not get it. It’s just the way it is. We’re pretty sure we will, because again, it’s a resource that is very high grade, very, very low-cost mining. The mine is built, everything’s there. It’s a tiny footprint. It doesn’t cause any real issues with anybody. It generates a massive amount of wealth for the Guatemalan economy. There’s no real logical reason in the world that that mine shouldn’t be running again, creating wealth for the Guatemalan people and for Pan-America. But so far, it’s not running. That’s all I can say.
Matthew Gordon: Sometimes you win and sometimes you have just got to wait to win. Can I talk to you about, so we have got this big European, Asian audience , Canada is, obviously the North American market is huge, but can you give me your view on things like naked shorting, the uptick rule, et cetera, and any other things like the quirks of the Canadian TSX, TSXV exchange? Do you think that those things are being properly regulated? Do you think that those things are being looked at properly? Do you think they’re an inhibitor for people coming from outside of Canada to invest in Canadian companies?
Ross Beaty: You know, I really don’t have a dog in that fight. I don’t, I don’t really, I’m happy with things as they are. I don’t make a fuss about this kind of stuff. There’s way too many things going on in the business that are far more important, that require time and energy and money and focus than to worry about this kind of stuff. I really have absolutely no opinion on it. I can take it or leave it. It doesn’t matter to me,
Matthew Gordon: But I guess it doesn’t affect your type of business. It is just interesting to me. We have got some pretty big names who sit on opposite sides of the table on the topic. I wondered if you had a view.
Ross Beaty: No, and don’t forget that, again, I’m not really an investor and even if I wasn’t an investor, I’ve never been an unfriendly, hostile investor and I just don’t engage in that kind of thing. Life is too short. There’s so many easy ways to make money in this business really if you get things right: invest in good people, invest in nice looking projects that I’ve got a bit of understanding of what they look like because I’m a geologist and I can read the news releases pretty competently. And I’ve been to so many places, I kind of have a pretty good feel for countries and all the risk envelopes around those things. So, I focus on those things. I don’t worry about all the other stuff.
Matthew Gordon: Okay. One last one for you is, really the advice to retail, family office investors around the ratio between Gold and Silver. I’m not a big Silver guy. Gold I understand. Uranium, I understand, but Silver not so much. It’s always been to me a very volatile commodity. But people talk about the ratio between Silver and Gold and the relationship between Silver and Gold. What’s your view on where Silver can go?
Ross Beaty: Right. I think the Silver-Gold ratio, it’s only a statistic that has meant something because it has been relatively consistent: around 55:1, for quite a few years, for several decades, I’d say for a couple of decades. Inherently, it means nothing. Every commodity is different. The one thing that’s consistent between Silver and Gold is that they’re both precious metals. They’ve always been used as money for many, many centuries. They both have ingredients that make them a store of value for a lot of people who want a store of value. How Silver differs from Gold of course, is it’s also an industrial metal. And so, it’s increasingly industrial as it is used in more things than any other metal in the metal spectrum. Silver has more uses than any other metal. And I could go on for hours about what all these uses are.
We use it in every single thing in daily life. Every time you pick up a computer, a calculator or electronic calculator or a cell phone, you use Silver. It’s used in mirrors. It’s used in resin alloys, it is used in everything digital. Of course, it’s a beauty adornment. It is jewellery, it’s Silverware. It is money. It’s got all of these different uses. Its largest use today, you probably don’t know this, it’s largest single use is as in photovoltaic cells. It is 100Moz nearly that it’s used now in photovoltaics, out of 1Bnoz total demand.
So it has got all these uses and therefore, you have got to look to industrial markets to understand that part of the Silvery equation, and quite frankly, in the last year and a half, or 2-years, industrial metals have all gone down in price because China has changed from being an infrastructure economy to a services economy and a consumer goods economy and that uses less metals.
With this COVID crisis, of course, all metals have, have come down with decreased industrial demand. Silver is in the middle between a classic industrial metal, like say, Zinc and Gold, because it’s got elements of both. So, if Gold does well, industrial metals do poorly, you’re going to see that Gold-Silver ratio increase because Gold will do well, and Silver won’t. Silver is in the middle somewhere. By the same token, if we re-inflate this fall, if the markets come back to some kind of a strong economy based on all of this crazy amount of stimulus that’s going on everywhere in the world, that juices demand for industrial metals, all driven by pouring money into infrastructure projects and whatnot. If it juices demand for industrial metals and Gold does well, you could see a perfect storm for Silver.
You could see Silver benefiting, both as an industrial metal and as a precious metal, and actually outperform Gold. Well, if it does that, that Gold-Silver ratio is going to go down and it will recover to something less than a hundred, maybe 80, 90. Who knows what, but you’ve got to look at both of those markets to understand it. So, I think Silver has a potentially fabulous outcome this fall or this next year if, in fact, Silver demand is increased in industrial production as well as Gold doing well and Silver coming along with the coattails of Gold. And if that happens, obviously the Silver-Gold ratio will change significantly. It’s strong where it is. The Gold-Silver ratio is high right now because Gold is outperforming Silver. Gold is outperforming industrial metals. That’s why it is, in a nutshell.
Matthew Gordon: You are a precious metals guy, so I guess you don’t really have an opinion on the next thing either. But this wave of nationalism and trade Wars and national security, which is affecting a lot of other commodities, especially around the EV thematic, and even Uranium, I guess. Do you have an opinion as to, is this going to, because we talked about cycles earlier and obviously things like the ebb and flow, but what’s your take on it?
Ross Beaty: On economic nationalism? You mean on trade? Trade barriers and tariffs and so on? Yes, I would say the more the world goes to a protectionist state, and of course, we’re really just looking at one country that’s doing that. Right. Really. The more they go protectionist in the US, that will decrease, it will have a negative effect on global markets, I would say for sure. I mean it is, it’s not rocket science. I was going to say, it is basically economics that if you put up trade walls, you decrease demand and actually you make the country’s economy worse. It has been tried so many times in the last 50-years, or a 100-years, really. It has a logical outcome: costs go up, demand goes down, or prices go up, demand goes down and things are used less. It will have a negative effect and I don’t think it will persist. It’s not smart economics. It’s not smart policy. It’s maybe good politics for a while, but it’ll fall apart.
Matthew Gordon: It’s also good TV, right?
Ross Beaty: It’s good TV. Yes. It plays to that guy’s base, as ignorant as it is.
Matthew Gordon: There you go, that is a fantastic place to finish this conversation. Ross, it’s been a pleasure talking to you and I learned a few things there. So, I do appreciate you taking time out of your day for us. And I’m going to let you get back to your family and whatever else you’ve got lined up for today. Thank you very much. We’ll speak to you again soon.
Ross Beaty: Thank you. Thank you very much.
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