Ross Beaty: Fabulous Gold Stock Buying Opportunity Right Now

Mining entrepreneur Ross Beaty believes it is an excellent time to invest in gold and gold equities. In this interview, Ross stated: “it’s obviously a fabulous buying opportunity right now, especially anything with gold attached to it. Because gold has such fabulous fundamentals today. Probably the best that I’ve seen in my entire career….People are going to put some of their money into gold as a long-term store of value and its price will go up. So anything with gold in it is likely to be good.”

In addition to providing commentary on the recent sell-off and volatility in the gold stocks, Ross specifically shares why he has invested in Lumina Gold and its spin-out company Luminex Resources: “you’ve got so many shots of big, big value creators in this company, it was a very easy thing for me to participate in. And I think I’m now the largest shareholder at 20%. I would buy the stock every day if I could. It’s just a really, really great exploration speculation with multiple assets, any one of which could give you a multiple of where the stock is trading at today. So it’s cheap, well-managed. It’s got enough capital to follow its business plan for the year. Those are all things, the things I look for in an excellent speculation and Lumina Gold has that in spades. Luminex has that I would say even more. So that’s why I’m an investor.”

Ross Beaty is a geologist and resource entrepreneur with over 45 years of experience in the international minerals and renewable energy industries. He is an internationally recognized leader in both non-renewable and renewable resource development, having founded and divested several companies. In addition to Pan American Silver, Ross is the Chairman of Equinox Gold Corp., a mid-tier gold producer.

0:15 Introduction

2:39 Why Ross invested in Lumina Gold & Luminex Resources

7:33 Selling Lumina Gold’s 17M AuOz Cangrejos deposit

10:40 Handling recent extreme volatility in mining stocks

13:23 COVID-19 crisis and long-term disruption to mining?

15:35 Base metal outlook

17:02 Silver outlook

19:02 Genesis of Pan American Silver

20:48 Mistakes to avoid in this mining bull market

23:36 Characteristics of a stellar mining entrepreneur

26:04 Are ESG issues stressed too much in Western culture?

28:06 Final advice

TRANSCRIPT:

Bill Powers: Welcome back to Mining Stock Education. I am your host, Bill Powers. Thank you for tuning in today. Well, my guest today needs no introduction if you focus at all in investing in the natural resource sector and mining stocks. I’m talking about mining entrepreneur Ross Beaty. He’s a geologist, a resource entrepreneur and has over 45 years’ experience in international minerals and renewable energies industry. He is the founder and chairman of Pan American Silver and he’s also the chairman of Equinox Gold Corp.

So Ross, I welcome you back onto the show. We were able to meet in person briefly at the Sprott Symposium last year. I appreciate you taking some time out of your day and how about we start with you giving a little commentary on Luminex resources. You own about 20% of the company. What are your thoughts on the advancement of Luminex’s Condor project and why did you launch Luminex Resources?

Ross Beaty: Well, thanks Bill and it’s a delight to be on your program again. It’s kind of a quiet day, of course. We’re all self isolating right now with this COVID-19 virus problem that’s affecting the globe and so I have lots of time. I’ll be here as long as you want me here. So just talking to my Luminex specifically. I mean, I have to say it’s a spin-out company from the original gold company called Lumina Gold. Lumina Gold when in Ecuador back in 2015, I think it was, and acquired a big gold deposit called Cangrejos and also a whole bunch of other exploration ground and then another company.

So it had a whole multiplicity of assets in Ecuador. And for the first two or three years, it really just focused on exploration of the Cangrejos deposit. And it turned into a real winner. It started with a resource of a couple of million ounces. And today Lumina Gold has a deposit at Cangrejos, it’s 17 million ounces of gold. It’s in a resource category. I mean, it’s a giant deposit right on surface. And it’s a beautiful thing. So because the whole business plan of Lumina and the Lumina Group has always been to acquire these big or discover these big gold deposits or mineral deposits.

The original Lumina Group was copper, Lumina Gold is gold, discovered big gold deposits and then add value through the exploration and the feasibility stage of economic work, de-risk these deposits and sell them to big companies that want to build big mines on them. That’s always been the business plan of the company. So consistent with that, Lumina has spent five years exploring four or five years exploring this deposit, doing a lot of economic studies as it’s now ready to sell the company or sell the deposit to a major company.

And in order to kind of make it simpler to sell, a couple of years ago, Lumina spun out Luminex it was a share for share exchange to all of the Lumina shareholders. They all got a proportional number of shares in Luminex. I forget exactly when it was done. It was done like the end of 2018 I think and that cleaned up Lumina Gold to the extent that Lumina Gold only had one deposit, Cangrejos and it could cleanly be sold to a third party without any other assets going along with it that the buyer would get basically for free. So everything else went into Luminex.

What Luminex had or has is it has a large portfolio of exploration assets in Ecuador. It has a big gold deposit called Condor, which has a large gold resource on it in the South East corner of Ecuador and it has a major new discovery called the Camp Zone. And the Camp Zone is the announcement that Luminex just made, its latest drill results on the Camp Zone and it’s particularly exciting for me because Luminex is just full of assets. It’s full of exploration properties. Any one of which could become, could create a tenfold increase in the value of Luminex any one of which, and there’s five or ten different, different properties in Luminex. So it’s just pregnant with value.

What it doesn’t have is it doesn’t have any quantification of the value of any of these things through economic studies like preliminary economic assessments or feasibility studies or anything else. So we can’t say to investors tangibly this particular deposit is worth $600 million or $800 million and here’s all the economics as to why we cannot show yet to analysts that, “yes, this is likely to be an economic deposit. This has got these values and these costs and this and the net value.” But that’s coming.

It just is to me is you’ve got so many shots of big, big value creators in this company, it was a very easy thing for me to participate in. And I think I’m now the largest shareholder at 20%. I would buy the stock every day if I could. It’s just a really, really great exploration speculation with multiple assets, any one of which could give you a multiple of where the stock is trading at today. So it’s cheap, well-managed. It’s got enough capital to follow its business plan for the year. Those are all things, the things I look for an excellent speculation and Lumina Gold has that in spades. Luminex has that I would say even more. So that’s why I’m an investor.

Bill: Your business plan is to discover, develop and then divest these projects. When it comes to Lumina Gold and the 17 million ounce gold deposit there, you made a pretty bold statement in January. I was in the room at VRIC when you said your intention was to sell this deposit this year. What more can you share with the market regarding that and as an entrepreneur, how can you make something like that happen?

Ross: Sure. Well, this is not going to surprise anybody. This is something we’ve been saying all along for years. The business plan of Lumina Gold has been to develop this deposit a little bit along into a large resource Explorer. It as far as we can de-risk it get land figured out, get all the land put together, the title situation, cleaned up, the metallurgy figured out and economic studies to demonstrate its value and we’ve done all of that. So we could explore it. It’s wide open. We could add another five million ounces to it I’m sure. But it doesn’t add much to the net present value of these things if you just keep finding more and more and more low-grade ounces that you’re going to mine after year 30.

We have a potential mine plan here of producing 300,000 or 400,000 ounces a year for decades. And so the way the economics work when you discount the future value of cash, if you discover ounces you’ll only going to mine 20 or 30 years from now, it doesn’t have much present value. So we said, “Okay, we’ve got enough to demonstrate to a major mining company that it’s a huge deposit.” It’s it’s going to be a tier one deposit and it’s time now to show it to these companies and say, “Okay, who’s interested in taking this on?” So we’re doing that right now and we’re doing it in just the usual way that we’ve done this in all the other six companies we sold in the Lumina Group.

We’re showing it quietly to people. We’re saying, “We’re interested. If you’re understanding and taking the company over, we’d be willing to talk to you.” If we don’t get any interest, we’ll just keep exploring it, keep developing it ourselves at this point in time. Obviously, the gold market is strong right now; however, the COVID crisis is hammering a lot of companies and making things very uncertain today.

So we certainly can’t guarantee to any investor that we’re going to sell the company. It’s very much going to depend on interest and then, of course, price. And I’ll say one thing, we have no interest in selling it at today’s price to anybody. I think you could take that off the table right now. It would only be at a significant premium to today’s price. So it’s in progress and it’s kind of a conventional situation where like I said, we’re talking to a bunch of people.

We’re also looking at places where we can continue to add value to the deposit. And there’s a multiplicity of areas there, but basically we’re not going to develop it ourselves. It’s got a large capital cost $800 or $900 million I think is the last estimate we made. And that’s more than we want to tackle ourselves. So we’d like to turn this over to a large company to develop it.

Bill: Ross, in the last two weeks, as you know, we’ve seen extreme volatility in the markets. I’ve had, even in my own portfolio, I don’t know how many cease tradings in the last, just couple days, both on the way down. And then today, couple of times on the way up. So there’s uncertainty, there’s this volatility. How do you handle that both as a mining executive and also as an investor in your own portfolio?

Ross: Yeah, it’s always agonizing when the market corrects so quickly and so violently. The last time we saw this was in the financial crisis, 2008-2009. There was another big correction after dot-com bubble that burst in 2000. I’ve seen a few of these in my career and they’re heart-wrenching, they obviously have terrible impacts on your net worth if you are long a lot of things. You have to be courageous though and realize that when things go down so much, they’re also going to likely bounce back up. They typically do this and I don’t see why this is going to be a different situation today. So it’s obviously a fabulous buying opportunity right now, especially anything with gold attached to it. Because gold has such fabulous fundamentals today. Probably the best that I’ve seen in my entire career. And you’re seeing that in the price action of gold this week. I just think it’s going to be, it’s going to continue as government’s going to flood the market with liquidity, devaluing the value of paper money. People are going to put some of their money into gold as a long-term store of value and its price will go up. So anything with gold in it is likely to be good.

So I don’t worry too much. I’ve got a lot of my own personal net worth tied up with Pan American Silver, its silver mining company and gold. I’ve got Equinox Gold, pure gold mining company, and of course Lumina Gold and Luminex are my other big investments. And I just feel very, very solidly that gold is going to do well in anything that has gold in the ground or gold in production will also do well.

It’s not maybe going to be the first thing that that comes out of the gate because when people sell, they sell everything. But now, I think you’re seeing quite a nice run in precious metals companies. So I don’t agonize too much. I try to seek opportunity when other people seek fear. That’s what I want to be buying. And of course the opposite is true too.

It’s maybe not the best time for us to be selling Lumina Gold. In fact, if we can’t get the price we want, we won’t sell it, we’ll keep it and we’ll wait for a time when there’s more appetite for these kinds of companies. But we think there’s enough appetite this year that we’ll be successful and that’s the business plan.

Bill: As we talk, there’s a number of mines around the world that have shut down due to the COVID-19 crisis, which has also kind of initiated a financial crisis that we’re in the midst of. Do you see the potential for a long-term disruption this year and how might that in a worst case scenario affect the mining industry?

Ross: Well, it’s a double-edged sword really. You have the loss of production from mining companies hurts those mining companies for a short term. The term being dependent on how long this crisis is going to last. Is it going to be a month? Is it going to be six months? Nobody really knows. I don’t think it’s going to go beyond six months and then it’s going to bounce back beautifully, mines will reopen and it’ll be back to normal.

But at the same time as you lose production across the board, we’re losing iron ore production, coal production, copper production, gold production as these mites have to shut down when countries say, “We’re shutting down, get into your homes and stop the spread of this thing.” Well, if you lose that supply, that usually is good for the price because it means people need to pay higher to get demand that they want. And particularly in a time when demand goes up, like it’s going on right now with gold and supply is going down, usually that has a very good effect on the price. So that helps all companies involved with gold over the medium, sure. And when the mines are running again, that price is up higher, they make more money. It’s a good thing.

So there’s a lot of stress right now and the companies that have to close their operations, they have to do a lot of managers work to have orderly shutdowns and put things on care maintenance and it costs lots of money to do that. And then they have to put more money in when they start up again. But over the mine life, I suspect it’s just going to be a blip and something in a year from now and we’ll sort of say, “Oh, well that was a bad memory, but maybe put it in the rear view mirror.” So in long term, it probably won’t have too much impact. And so that’s what I do. I try to take the long-term view and we just sort of muddle through this and manage it as best we can. And every day is a new day. It’s a rapidly changing world. We just have to manage it as best we can with good people and try to maintain a healthy financial condition in a worst case.

Bill: Even as gold is on the rise, could you foresee if we do have an economic contraction that some of the base metal commodities, the price could go lower and therefore the expected bull market in those commodities could be pushed back a few years?

Ross: We’ve just seen that, Bill. We’ve seen the most massive correction on base metal prices since 2008 I mean they’ve been crushed. Copper is below most mines’ cost of production. That’s not going to last, it’s just a blip and it’ll go back to probably $2.50, $2.80 maybe even $3 for shortly. And when the world’s stimulus kicks in, when all the fear and the self-isolation is over, the world will get back in business. China’s back in business already and China drives huge amount of metal demand, especially for the base metals and the ferrous metals.

So when things return, you’re going to see with all this new money pouring into infrastructure projects trying to get the economies back on, you’re going to see a lot of new demand for metals. It’s going to be very good for the price of all metals across the board with the single exception of, well, it’ll be good for all metals, but the only thing that will not improve I think is oil.

I mean oil, it’s been punished so much from too much supply and not enough demand. I just see that as being in the penalty box for years to come. But the rest of the sector should do pretty well looking forward to say six months to a year.

Bill: Theoretically, if silver industrial demand doesn’t rise over the next few years, but then investor retail demand for silver as for its economic value rises, do you think that we could see something like we saw in 2011 just from investor demand in silver?

Ross: Silver of course because it’s both a precious metal and an industrial metal, has its foot in each camp, but quite frankly, Bill, my sort of base case scenario for silver is extremely bullish. I think silver has been hurt relative to gold in the last year because its industrial demand has gone down somewhat driven by less demand from China. China’s demand for all metals has come down over the last year or two and that’s hurt every metal that is an industrial metal including silver.

But if you realize where silver’s, big demand growth is, it’s in renewable energy, particularly photovoltaics, which is now the largest single use of silver of all. And silver’s use as a digital metal because it’s the best conductor of electricity and heat of all metals. So it’s got fundamental application and digital technology of all kinds. Anything electrical uses silver. Electronic uses silver. And I see demand growth rising very significantly, particularly if my scenario of industrial production of all kinds in Asia and in the rest of the world picking up late, late, late 2020 based on all the stimulus it’s going to come back and very much like happened in 2009 to 2011. So I see silver’s industrial demand picking up, but I also simultaneously see silver’s demand picking up as an as a precious metal following that of gold.

So it wouldn’t surprise me to proportionally see silver actually outperform gold and all of the base metal complex. I could see it quite easily in the next 12 months silver being the best performing metal of all, seconded by gold. And then after that probably copper and some of the other metals below that.

Bill: When you’re looking at starting a new mining venture, I believe if I understand the story of Pan American Silver, didn’t you start with silver as a commodity and a bullish outlook and that was kind of the genesis of why you started Pan American Silver?

Ross: Well, Pan American started because I just sold a gold company called Equinox Resources and I wanted to start something new and I picked silver because I didn’t think there was a single company that offered investors good exposure to silver on the public market space, none at that time. That was 1994. So we started Pan American as a custom creative vehicle to give equity investors exposure to silver, at pure exposure to silver as a primary silver play. And I thought also that if we worked hard, we could build a real leading, globally leading, silver mining company. And silver wasn’t really in a bullish outlook at that time. Silver was trading around $5 an ounce and in 1994 and I was naive and was very confidently and predicting that silver would be over $10 by the end of the 1990s. And of course I was completely wrong.

It was actually lower than $5 by 2000 I think it bottomed at $4.03 in 2001. I was wrong, but in the meantime we built a big company and it’s turned out to be a fabulous company. It’s now the world’s second largest primary silver mining company and also a very, very large gold producer. So it’s been a lot of fun and a great journey.

And we’re trying to do the same thing with Equinox Gold to make it into a world-class gold major. And we’ve been going for two years now and I would say we’re pretty well on our way. It’s going to produce about 600,000 ounces in 2020 and where we should be producing nearly a million ounces by the end of next year. So it’s been a lot of fun.

Bill: Ross, you’ve gone through several mining cycles. As you look at the upward phase of this expected bull market, what would be some mistakes that you would point out for both executives and investors to avoid?

Ross: When you go through the school of hard knocks like I have, you make a lot of mistakes. I’ve made a lot of mistakes in my very first company, Equinox Resources, but I do learn from my mistakes and I make new ones. So I’m still making new ones like we all do. But I have learned a few things and one is when you’re building a public company and you’re giving investors, it’s a risky business, an extremely risky business. So you want to have a return outlook that is large to offset the risk. So don’t focus on small projects. They take all the effort of big ones and they just don’t give you that upside. Gives people an opportunity to make triple or quadruple their money, not a 15%, 20% return. That’s not where we’re in business for. And you only do that by taking a fair bit of risk, but you’ve got to manage your risk.

You’ve to make sure you’ve got enough capital to execute your plans well. You’ve got to spend your capital on what you say you’re going to do because that’s how you build trust in your investors. A lot of investors are very forgiving. If you raise $5 million to drill a bunch of holes and you’re unsuccessful in all those holes, but then you find another project that you think might be just as good to drill, people are likely to give you a second chance because you spent the money as he said you would. But if you’re going to divert that money to someone else, you’re never going to get another chance to raise money from those investors. You might find other suckers around, but investors like people to say and do what they say they’re going to do. Investors like trustworthy management, generally speaking.

So if you can convey that you have a solid management team, you’re professional group, you don’t tell a whole bunch of stories that of school that aren’t true. You try to promote within the boundaries of what is reasonable, what you can achieve. People will have confidence in you and bet on you. So having a big target, a big focus is important, having a simple focus as well, something you can communicate easily to investors, not be too spread out. It’s all of these things are important.

At the end of the day it’s such a risky business that I’m really surprised that I’ve been able to be successful multiple times because it doesn’t seem to me to be sort of rocket science how you do these things, but I’m always surprised at how few people manage to do it and I think people take shortcuts.

Bill: Does it come down to ambition? Because that’s a question I ask as I’ve talked to management because it seems like you could take a mediocre project, put it in the hands of an ambitious, driven executive and he or she might make something out of it. Whereas the next guy couldn’t even raise enough money to get through the year.

Ross: I think there’s a lot to be said for that for sure. I have to say myself, I’ve been a very driven individual. I’m an old fart now, but I have been driven all my life. People that work with me and will know that and I’m not very patient. I like to push on. I think the mark of most good entrepreneurs is that they are very driven. They don’t wait for the phone to ring, they pick up the phone and make things happen themselves.

But you can’t do anything yourself. You’ve got to work with really, really good people. You’ve got to work with a great team of people who can put your ideas and your dreams into action. And none of these companies can be built with one person. They’ve all got to involve big teams and it’s a matter of hiring good people and working well with good people. At the end of the day though drive and energy and enthusiasm is a big part of it for sure.

Bill: You were able to do what you did because you had that first big win. So isn’t that first big win in your younger career kind of necessary to launch the further success that one would have?

Ross: Oh, for sure. I mean, I had my first big win after having my first 100 big failures, but I took a shotgun approach to my business where I knew there was such a high risk of failure in an individual exploration project, I had a 100 exploration projects going on over the course of four or five years and bingo, one of them, a gold deposit in Nevada jumped out and that was the one that made my first fortune.

I was able to sell my first company at an all-time high and every single investor in that company made money. And so it was very easy for me to finance my next company, which is Pan American Silver, which I started with nothing more than a dream. We had a company with no assets, an eight cent share price and just an idea, but a strong management team and a friendly and willing shareholder base that I could go to and say, “This is what I want to do. I’ve done it before. I want to do it again now.” And after that it was relatively easy, I’d say relatively easy. Believe me, we made a lot of horrible mistakes and wasted a lot of people’s money. But at the end of the day, we made a dollar tuning into something more than a dollar. And that’s the metric of being successful.

Bill: Earlier this month at PDAC, Ross, I had some conversations and there are some that think that in the Western society, in the mining sector, that perhaps ESG issues are being stressed a little too much. What would be your opinion here?

Ross: Yeah, I mean the world has moved very much to rewarding companies that look after the environment and their social governance aspects. I love it. I think it’s great. I think it’s good that investor world rewards companies who do a good job of looking after their employees, making sure they’re healthy and safe, who look after their communities and making sure that they have good relations with communities and share some of the bounty of the natural world that they’re mining.

And of course, try to work well with national governments. We’re all kind of partners in this business and it’s important that the proceeds return to everybody. At the same time, if you make a mess of your environment as you mine, then you’re not helping anybody at all. In fact, you’re hurting the world. So every company that looks after the environment and their employees and the communities around them, that’s all what ESG means. It’s just an acronym. It just means looking after the other stakeholders around you, not just your shareholders. You have to look after your shareholders too, of course.

But it’s very important and I think every single company should pay a lot of attention to it. It’s good business if you do it well, you make more money than companies that don’t do a well. If you have accidents at your mine, if you have environmental spills, you get fined, you have roadblocks, you have all manner of difficulty with your communities and the local governments. To avoid that, do a good job of mining. Leave the mining area better after you leave and then when you took it over and there’s ways to do that. This is not rocket science. Make sure you don’t have tailings spills. You just have to do it these days. It’s a very good thing. I totally support the move towards more environmental and social governance.

Bill: When I spoke with you at the Sprott Symposium last summer, your parting advice was don’t sell your gold stocks too early because this gold bull has a ways to run. As we conclude here, any parting wisdom you’d like to leave with my listeners?

Ross: I’d say the same thing. Don’t take 15% off the table just because the stock’s going up 15%. This is a secular move in gold. It’s now I’d say more like the 4th or even 5th inning, but it’s still got a long way to run. I wouldn’t be surprised to see gold over $2,000 in the next little while, even maybe by the end of this year. And in those sort of runs when it has a great run, anything with gold in it that you hold. A gold junior, a gold intermediate, a gold major, is going to have outsized returns and hang on. But don’t forget also that when you’ve had a great return, take some money off the table because when everybody’s biting and when ducks are quacking, there’s a lot of irrational values with some companies and that tends to come down to Earth after a little while. So it’s a good thing to take some profits off the table of some of these companies, when they do have a good big run.