Jamie Keech | Focus on Management Teams Pursuing Projects with Huge Potential

Jamie Keech has a unique ability to educate mining investors, in an easy-to-understand manner, regarding the ways in which insiders have an unfair advantage over the average mining investor.  During this PDAC 2019 interview, Jamie shares regarding a recent, alleged scam and the key takeaways for investors.  He also discusses his investment research service, Resource Insider’s approach to mining investment and regarding a recent deal that he participated in.  This interview is full of advice for mining investors.

Jamie Keech is a formally-trained Canadian mining engineer. He has worked in mineral exploration, development and mine operations in Albania, Hong Kong, Mongolia, Colombia, Peru and throughout North America. His undergraduate degree is in Mineral Engineering from the University of Toronto and he has a Master’s degree Mining Engineering from the Camborne School of Mines. Jamie also has extensive experience in mining finance.  He has brought together his first-hand technical and financial knowledge of the sector and combined it with his extensive network of CEO’s and junior mining insiders to co-found Resource Insider.  Resource Insider is an investment service focused on providing subscribers with independent research and access to exclusive investment opportunities in the mining & metals space.

0:05 Introduction

1:02 Thoughts on PDAC 2019

2:27 The alleged BridgeMark Group scam explained in laymen terms

10:22 Thorough due diligence is necessary to discern potential scams

11:18 Does the Canadian securities commissions adequately penalize scammers?

12:32 Resource Insider’s approach to mining investing & an example of a recent deal

20:56 Can mining management who are issued cheap founder’s shares ever have their incentives truly aligned with shareholders?

25:32 Top three questions to ask a mining CEO at a mining investment conference

31:00 Thoughts on current finance trends in the mining sector

BEGIN TRANSCRIPT:

Bill: You are listening to Mining Stock Education. I’m Bill Powers and I’m still at PDAC 2019. I’m sitting down with my friend Jamie Keech from Resource Insider. Jamie, thanks for joining me.

Jamie: Bill, thanks for having me back for round two.

Bill: Yes. I got to meet you and record our first interview together at the Sprott Conference last year which was a pleasure and very popular. I got good feedback on that. One of the things I appreciate about you is that you offer insights and perspectives that the outsiders, so-to-speak, the average retail investor might not know about the mining industry so of course for this interview I hope you share some of those things with us. But first off, I’d like to get your thoughts on PDAC. We’re on the second day here. What are your thoughts on the conference so far?

Jamie: You know it seems like a great turnout this year. Lots going on. There was a lineup a mile wide just getting up the escalator to get in today and I mean read into that what you will but it does seem like people are excited. And there’s a ton of interest in what’s going on in the different companies, the different countries that are featuring days. Really everything. And I’ll be honest, I’m just starting to get my bearings now and starting to get into the things that I want to see and meeting with the people that I want to talk to as well.

Bill: As I mentioned in the introduction, you really can help the average investor that may not be an insider in this industry understand some of the scams and less scrupulous things that go on. In November of 2018, we saw that the British Columbia Securities Commission, they allege that there was this scheme by the BridgeMark Group. Could you talk about that in layman’s term and what takeaways should the average investor take from this?

Jamie: Yeah, I will talk about that. And I think to start, we should clarify what you mean by insider. I am not traditionally from the finance side. I’m not from Vancouver. I’m a mining engineer. I started my career working on mine sites and exploration projects all over the world. And most of my job for most of my career was exploring or then later building mining projects.

And I got more and more interested as I progressed in getting involved in the business side. And it was a huge hurdle and even as an engineer with a technical background, with pretty solid financial understanding of how these companies work, I was still very much at a loss up until probably about five years ago when I moved to Vancouver. I was pretty committed to getting into entrepreneurship and company building and financing within the industry and it took me probably two years of meeting people and talking to people and working for some of these companies that were in the growth phase to understand how they were structured, how they were financed, who was in charge of what and how they came in. I’m saying all this because it’s an incredibly opaque system even if you’re someone that’s familiar with the industry and mining in general and interested in stocks and all this. It’s really hard to wrap your head around. What’s going on day-to-day and how these things are built if you’re not involved in it or you don’t know someone who can translate this information to you.

And this is really what we try to do at Resource Insider. I’m trying to provide a service that I would have wanted to hear earlier on in my career. Both as an investor and as someone working in the space. Just trying to figure out how this stuff actually works and what’s going on behind the scenes. So you asked about the BridgeMark Group. Everyone knows that the TSX-V, the Vancouver mining scene is notoriously shady. I think we can say. And this is a particularly egregious example of that. The BridgeMark Group allegedly has been accused on allegedly doing something called a cheque swap. And to put this in layman terms, if I’m starting a mining company, call it a gold company in Mexico or a gold company in BC or any number of things and I want to finance that company, often what we’ll do is we’ll have a private placement. And that means you’re issuing equity. People get the chance to participate, buy that equity directly from the company. They become shareholders. Often because this is sort of capitalistic capital it’s intended for growth of the company, you’re gonna get good terms on that. There’s gonna be warrants involved. There’s gonna be any number of things which I’m sure many, many of your listeners are familiar with.

Often in that process or beside that process, companies will want to line up key shareholders or more importantly, consultants or people that will help the company. So they’ll do something called a cheque swap. So Bill say you are the consulting geologist that is expert in the type of deposit that I’m exploring for and I want you to be involved in this project and I want you to be incentivized to work alongside us and to see a big win, we’ll do something called a cheque swap and I’ll say, “Bill, how about this? Write us a cheque for $25,000 into this placement for stock, and you’ll get your stock, and then we’ll pay you back that $25,000 in consulting fees. But in return for those consulting fees, you’re going to have to be doing work. You’re gonna be advising us. You’re gonna be maybe on the ground. You’re gonna be reviewing data. Et cetera, et cetera, et cetera. All the things you would expect a consultant, a geologist, someone helping the company to do. And this is a really valuable tool for companies that are strapped for cash. Everyone knows a lot of these exploration companies don’t often have the capital to throw around to bring in top talent. So this is a way to bring in high quality people, high quality professionals without having to pay top dollar. You pay them in stock.

The BridgeMark Group has been accused of taking this to a whole new level in some sort of Frankenstein of what it was intended to be. So what they apparently did was through numerous companies, mining companies, crypto companies, cannabis companies, they did financing but instead of doing a really small portion of those financing as a cheque swap, you know 1 or 2% or probably less, they were doing massive portions of cheque swaps. And I don’t know the numbers exactly off the top of my head but it was 70 or 80%. So say I was raising, call it 5 million dollars. 4 millions dollars of that would end up being cheque swaps to my buddies and friends and colleagues. And so you’d write me a cheque for $300,000 and we’d pay you back $250,000 so you’d get back most of your cash, you’d have your cheap stock, maybe you’ve got some warrants on top of that. But, the key here is most of those “consultants” are accused of absolutely doing nothing. So they’re not value-add consultants in any meaningful way that the average investor or … Forget the average investor, any reasonable person would interpret that.

So they’re basically just churning through money in this. Lining up their friends with cheap stock, most of their money back and then, what happens? What happens when you get your stock, essentially free. You can sell it at any price and make a profit which is of course what these people did, driving down the value of these companies. And then there’s the poor person at home who saw this company through his broker, on the internet, wherever, wherever, wherever, and they bought this stock on the market, maybe they participated in the placement thinking that this capital would be devoted to the project, whatever that may be, to create value in everything we would expect of a company. And instead, they end up holding the bag with a bunch of worthless stock with a company with now almost no money and probably very little plan on what to even do with the project, assuming they had one of any value in the first place.

Bill: So cheque swaps in and of themselves are not illegal. What was illegal here?

Jamie: So my understanding was that there was a lack of disclosure going on. And you can do these cheque swaps as I was discussing a moment ago, but you have to disclose that that is happening. People need to understand where their money’s going. People need to understand how a company’s structured and how people are incentivized and all these things. I mean transparency’s really the key here.

Bill: So then investors should, if there’s a lot of money raised, the investor after this money is raised should pay attention to some of the news releases, the filings of the company. How would the average investor protect themselves about not being involved with a company like this that we’re talking about?

Jamie: I mean it’s really hard, I think. I think the average investor, even a lot of professional investors, assume that the company’s going to do the right thing but you make it very clear, you need to be constantly reviewing their news releases, their press releases. You should be looking at their filings. You should be looking at proxy agreements, at how the company’s been set up. If you’re going to invest in venture stocks, the investor has a lot more responsibility to inform themselves than you see in the typical blue chip stocks, to be honest. You unfortunately cannot give the company the benefit of the doubt.

Bill: Do you agree with those that say many of the securities commissions in Canada, and let’s take British Columbia Securities Commission on this one, have a lot of bark but a little bite when it comes to these things?

Jamie: I’m not sure. I think it is incredibly expensive to enforce this sort of thing and I would say people very rarely get prosecuted in Canada for this, I’ll say that. And yes, there’s … Compared to the SEC or something like that, there’s very, very little consequences is the better word. There’s very little consequences for getting caught in stuff like this.

Bill: And that’s just a reality that investors that are going to invest in companies on the TSX-V, you just have to be aware of this dynamic.

Jamie: I think so. And I think the BC Securities exchange, the Ontario Security Exchange, they’re all getting better. It is getting more … Oversights increasing, consequences are increasing but investors have carried greater risk than they do on the big American stock exchanges.

Bill: Let’s talk about your approach with your newsletter and the service that you offer to accredited investors at Resource insider. What’s your approach and can you give us a recent example of a deal that you’ve done?

Jamie: Yeah, I mean our approach is very simple. I started Resource Insider with my partner, Chris Macintosh, ’cause we were really looking for the best way to deploy our own capital in the space. We’re very bullish on mining and commodities right now. I think there’s never been a better time to build out a portfolio that it could be primed to be really perform over the next couple years. And what we’ve done is we have a subscription service, subscription research service, where members pay us an annual fee and in return for that, we provide access to what I believe are very high value investment opportunities focused on private placements in the mining and energy space.

Now what that actually looks like is, I spend all of my time talking to companies, going on site visits, meeting with technical teams, evaluating projects and finding deals that I want to invest in. And once every month, once every two months, we cover a deal, I put my own money in, Chris puts his own money in. We do extensive due diligence on management, on technical details, on the financial structure of the company, and we invite our members to participate alongside us at the same price, on the same timeline. We tell them how much we’re investing and we tell them how we’re managing our stock, and that is it. We do not receive any sort of kickback, consulting fee, commission, et cetera, et cetera, any of that bull from the companies we cover. All we are looking for is great investment opportunities.

And we wanted to partner with like minded investors who wanted to invest alongside us because if we can pool a significant amount of capital which we’ve been able to do in these deals, it really gives us a lot more leverage in terms of dealing with companies, in terms of negotiating great deals, in terms of ensuring that our subscribers get warrants, get discounts, get access to things we wouldn’t necessarily be able to get alone. We launched last September. We’ve done three great deals. We’re working on our fourth right now. It’s gone extremely well.

Bill: Bought deals only? Like where you come in and you buy the whole tranche?

Jamie: No. So we’ve typically … So one of our big strategies is we’ve participated alongside great groups. And we’ve invested in a fund, we’ve invested in early stage exploration. We’ve invested in an operating mine. But we want to be sure that we’re investing in well-supported projects. What I don’t want to do is invest in an exploration project that is gonna raise a million dollars or half a million dollars and spend that money, do their drill program, whatever it is they intend to do, and then be stranded eight months from now and have to go back to the market and beg for more capital and dilute their existing shareholders and in this trying time in the mining industry, probably finance at a discount to what they’ve been traded at.

What we’re looking for is groups that have built strong, strong partnerships, have strong backers that are there for the long haul, and then we really piggyback on top of that. So a good example of this is the one we just completed last January which was Northern Vertex. A great gold mine based in Arizona run by really a phenomenal team. And Northern Vertex came across my radar because of a relationship I have with the CEO of Maverix Metals. Maverix Metals is a streaming company, streaming and royalty company based in Vancouver which I highly recommend your listeners check out. But it’s run by a friend of mine named Dan O’Flaherty. Maverix was in the process of purchasing a stream on Northern Vertex and in sequence with that stream sale, Northern Vertex was also doing an equity financing and I started looking at it. I met with management, I met with the technical team. I went down on a site visit and really, really, liked the project. But one of the things I loved about it is Northern Vertex, in addition to Maverix, has a very, very strong backer in Greenstone Capital which is a big fund, mining focused fund, out of the UK. They’d already put in millions and millions of dollars. They were upping their investment in this financing. They were extremely committed to supporting the project. They had a team of technical people that had been reviewing the details for years.

And partnering with groups like that with Maverix, with Greenstone, really brings myself and of course our members … We’re investing alongside some of the best people in the space at the same terms. I think Greenstone, I might be getting this wrong, Greenstone’s average price would have been something around the order for 50 cents for what they put. Over 10 million dollars into this company at. Our subscribers were coming in at 25 cents as our average price, or 24 cents rather. And there was a full warrant associated with this. So when I can find opportunities like that, we’re investing in a great company who’s partnered with great, supportive people, I know that company’s gonna be there in a year from now, in five years from now, I know it has the support to succeed.

And I think, Bill you’ll know this as well as I do, all these mining projects, it’s a lot harder for them to become whatever it might be. Profitable or get through development or make that discovery. It takes longer and it’s more expensive than anyone ever seems to think it’s gonna be. And I think the problem with mining and mining people to survive in this industry, you need to be an eternal optimist. Which is good for longevity but it makes for poor time in budget estimates. And I mean if you look at it historically, almost every project takes longer and costs more than you think it’s gonna be. And you need supportive, really savvy shareholders that understand this process and are committed to the long haul, and that’s who we’re trying to partner with at Resource Insider. And we’ve done a great job of it so far and we … It’s been a really successful launch and we’ve been growing aggressively and we’ve got a couple interesting pokers in the fire for the next deal coming up I’d say.

Bill: I know that Nolan Watson and Sandstorm, I believe they put out a study didn’t they, where they said that nobody meets the deadlines, the investment thesis, IRR returns or expected profits.

Jamie: Yeah. I think one of the main ones was it was a timing study and it was like … I’m gonna butcher this but they looked at X number of companies and they wanted to see what percentage met their deadline that they had set, a feasibility study, and not one company had hit the deadline. It’s very rare.

Bill: I believe I saw a number that 35% of companies actually achieved what is written in their definitive feasibility study.

Jamie: I’d say that’s optimistic.

Bill: Your presentation at the Vancouver Resourced Investment Conference I thought was excellent.

Jamie: Thank you.

Bill: And as I mentioned in the intro you’re educating people regarding things that they’re not gonna get from the average newsletter, writer, or from most CEO’s and what you pointed out during that time is that many of the people that launch the company get founder shares. These founder shares might come in at a penny, two pennies, five cents, and then when the average guy is looking at investment thesis of the company, the company might be trading at twenty-five, thirty cents. So he or she’s investing thinking, “Oh, I hope this goes to two bucks or goes to seventy-five cents.” But the management, when they’re buying the majority of their shares, they may say, “Hey, I own 10% of the company.” But he owns 10% of the company he bought his shares at two cents. So his or her, their incentive isn’t fully aligned with the shareholders, is it?

Jamie: No. I mean this is a bit of a tightrope you have to walk because, and Bill we’ve spoken about this before. The best management teams do not need to be running junior mining companies. They can be working for investment bank, making half a million dollars a year, on a bad year. They can be working for a major mining company in a senior role, making a lot of money. So leaving that world and running a startup company, it’s very high risk. I mean even great people fail most of the time at this. So you want to be able to incentivize and reward people for taking that risk. The challenge is, you still want them to be aligned with their shareholders and if they’re getting all their stock at a hundredth of a cent which is something that actually happens, people get at a hundredth of a cent and the IPO is at 50 cents and they’ve already made however many thousand times their money. That’s not alignment.

However, there should be a position where they do get a founders round and they’re able to build a position in the company that is meaningful to them. But I’m of the opinion that they should build that position by putting in capital that is also meaningful to them. And for different people, that’s gonna be a different thing. I mean Ross Beaty has put over 20 million dollars in Equinox Gold. It’s maybe debatable whether that’s meaningful to him but that is a meaningful amount of money and he bought the majority of that stock and I believe it was at a dollar fifteen. Equinox was trading below that and I think it’s up right around there recently now. But he’s very, very aligned with shareholders. There’s gonna be other people that are young CEO’s that are 30-years-old, they’re just out of a technical role or maybe a finance or accounting role. For them, putting in $25,000 into a company is gonna be a very meaningful amount of money for them. That might be most or all of their capital. That’s someone who’s gonna be very incentivized to succeed.

Jamie: And this comes back to knowing the people who are involved and understanding their motivations and what they’re trying to do and who they are. There’s no one size fits all. Investors need to be diligent in trying to understand this.

Bill: One of the questions that I’ve heard you say investors should ask CEOs is ask them about their average cost-basis on their position within their own company. But if an investor didn’t have access to the CEO, how would he or she find that information out?

Jamie: You know, I don’t know actually.

Bill: I don’t either. That’s why I’m asking you.

Jamie: I’m just trying to think about this. You can typically find their ownership size. I probably should know this but I actually don’t think there’s a place –

Bill: It’s not in the management circulars is it?

Jamie: I don’t quite know. I don’t think so. I don’t know if there’s anywhere … Especially ’cause a lot of it would have been done privately, typically. So it won’t be disclosed. So the answer to that question is, I don’t know and it might not be possible.

Bill: Okay.

Jamie: And again, that’s why it’s important to listen to people like you. Listen to people like me, who do get the corner of these people and try to grind them a little bit on what’s going on there. And if you’re not in a position to do that, it makes it harder and it’s challenging and it’s easier to get suckered, unfortunately. That’s the reality of the space.

Bill: So you and I are at PDAC. If an investor listening to us decided to attend one of these conferences, they’re going booth to booth, besides the question of asking the CEO what’s his average cost basis for his position in his company, what are some other key questions that you would ask? Top three questions.

Jamie: What’s your value at strategy? What’s your plan? Typically at these conferences, you’re going to these booths and especially what I’m looking for is people are trying to raise money. And I really want to understand what they’re spending that money on, what exactly it’s going to, what they’re going to achieve by spending that. So someone’s saying, “We’re gonna do some geophysics and a drill program and it’s gonna be great.” That’s fine but what are they hoping to learn from that program? How are they going to then take that information and use it to add value to the company? It’s one thing to say, “Oh look we’ve got an intercept of X number of grams per ton at this depth” and that’s fine. But what are they trying to do? Are they trying to build a resource estimate? Are they trying to make a discovery and are they planning to come back to the market again and raise more money based on these results? Is this current financing going to be enough to get them through to whatever the next stage might be? Is it a 43-101 estimate? Is it a pre-feasibility study? Is it feasibility? Is it construction? Whatever. And I think you need to understand what the goal is, how much money it’s gonna cost to get there and whether you’re gonna be at risk of being diluted further prior to them achieving that goal.

And then you need to think about if it’s even realistic. Right now, and I’m sure you see this going on, there are companies that are going out there, they’re raising money, they’re completing a drill program or some sort of exploration study. They’re getting good results and then their share price is going down and they’re not able to refinance. What we’re looking at Resource Insider right now is we’re being very careful on the exploration side of things because I don’t feel like the exploration … The market’s not giving them much. Even great results, the market’s not giving them much.

Bill: It’s an liquidity event often. People exit the stock.

Jamie: And it’s a really challenging time. And what you don’t want to do is be the guy that’s gonna be diluted in six months or twelve months from now in a company that can’t possibly hope to raise money at the price they are today. Now we don’t know what’s gonna happen but that’s something I’m very cognizant of and we’re being very cautious of right now. Honestly, to answer your question, another thing I try to do is get a feel for the people. Who is this person that’s actually running this company? Are they, and again it’s gonna depend on which stage the company’s at but we’ll talk about exploration companies ’cause we’re at PDAC. Are they a geologist that’s had decades of experience, that loves exploration, that has an idea or thesis that he’s really trying to prove out and he’s incredibly focused on this? Or is he some guy that’s on his twentieth company that’s cycled through his lithium, cobalt and vanadium deal and whatever nonsense is next in line and he’s just trying to raise money and churn through the process again.

I’m very much of the opinion if you spend a bit of time with people and you talk to them, you can tell what they’re focused on and what they’re passionate about. And my advice to people, and this is something that I follow, kind of follow your gut and try to focus on the people that are genuine about what they’re doing and really motivated to do something that’s gonna add value and is beyond just some get rich quick, pump and dump, area grab, blah, blah, blah nonsense. Like find people doing big things, looking for big projects, looking for hydrate, doing something exciting. There’s a thousand companies out there. Most of them are nonsense. Most of them are garbage. Even the best companies run by the best people probably are not going to work out. So what I like to focus on are people that are focused on things that have huge potential, massive deposits, hydrate deposits, new jurisdictions. Exciting things. There’s very few things that interest me less than someone that’s staked a bunch of round around another thing that was kind of exciting and maybe they’ll sell that thing to that person. And it’s like just … what’s the point? Investors should be putting their risk capital into the mining industry. A small part of what they have that has the opportunity for outsize returns. So I would say go for the things that have outsize returns. Don’t go for the things that even if they succeed will be mediocre. That’s just not worth your time.

Bill: As you’re working on the finance side of the business helping put together some of these deals, what are some trends on the finance side of the business that investors should be aware of?

Jamie: Well what I’ve seen right now, and I think probably what everyone has seen in the news is these mega mergers that are going on. It’s a massive consolidation happening right now in them gold space. So what is it? Randgold and Barrick merged as most people will know. Newmont made their bid for Goldcorp which is in the process now and now new Barrick is making a bid for Newmont. If that goes through, which I have no idea if that’s gonna happen. I’ve gone back and forth on this, but if that goes through, that creates a 42 billion dollar gold company. The next biggest gold company would be Newcrest at 14 billion dollars. So what does … I don’t even know what portion or percentage of the space that would represent but it would be massive.

So what does a consolidation like that have? What’s the effect that it has on the sector and then of course, you’re gonna have this behemoth if that happens and then they’ll have all their third and second tier assets that aren’t gonna make sense for them to hold. And so those get spun out and they’re gonna get picked up by the remaining mid tier companies and it looks like there’s gonna be a very big reshuffle of the gold sector.

Now, if we think about this, why are these mergers going on right now? It’s because companies are trying to replenish their reserves. They’re trying to get more reserves on the books and at the moment, mining companies and mining projects are so undervalued that it makes sense to buy them as opposed to find them. So we’re gonna be going through this M&A phase for, and I don’t know how long. Maybe it’s another six months, maybe it’s another five years. But we’re gonna be seeing that. But eventually it’s gonna stop making sense to be buying existing projects on the market and people are gonna have to start finding new projects. Then we’re gonna come into a proper exploration market. And we haven’t had one of those in a very long time. And this goes to your point, exploration companies are extremely underfunded right now and finance years in the majors have determined it’s cheaper to buy existing projects than find new projects.

They day will come where that’s going to shift. And that is something we are very cognizant of and we are waiting to see because that’s when I think we really see things take off in the space. And I hope it’s sooner rather than later but I think I would be lying and so would everybody else if they told you they knew when that was gonna happen.

Bill: As we conclude here, Jamie, what would you like to share about Resource Insider? How can listeners find out more info?

Jamie: Yeah. So our website is called Capitalist Exploits and Resource Insider is a product that we offer so I would encourage everyone to go to www.capitalistexploits.at. You’re gonna see a lot of articles, a lot of podcasts, a lot of information that we put together on mining in metal space. What I would say about Resource Insider is it is not for everyone. We cater to accredited investors. We cater to people who have a portion of capital that they want to allocate to the mining and metals industry and they’re looking for technical and financial help in doing that.

We find what I view as great deals to put our own money into. We want to work with investors that are sophisticated, that have an interest in the space, that are interested in learning more and want to take responsibility in their portfolios and want to learn about these projects. We are not a newsletter that is interested in pumping some stock. We’re not trying to huck the next big thing. We’re looking to build a great portfolio and we want to work with people with similar goals. So if that’s you, if you’re looking for technical help, if you’re looking for access to great opportunities, send me an email, come join resource insider, and that’s what we’re trying to do.

Bill: Okay. Share your email?

Jamie: Yup. My email is [email protected].

Bill: All right. Well Jamie thank you for the discussion today. I really appreciate it.

Jamie: Thanks for having me, Bill.