Ross Beaty | Don’t Sell Your Gold Stocks Too Early

Mining titan Ross Beaty shares regarding what motivates him as well as discusses the elements of what makes a mining company successful.  He discusses his goal for Equinox Gold and why he helped found Osino Resources (20% shareholder).  Ross also advises mining investors not to sell their gold stocks too early because this gold bull market still has a long way to go.

The career achievements of Ross Beaty are as multi-dimensional as the man and the companies he founded and led over almost four decades. He is first and foremost a geologist with a passion for exploration and a discerning eye for projects with economic potential.

He is one of Canada’s most successful mining entrepreneurs, with 13 of his companies creating an estimated $6 billion of shareholder value since 1994. He built his flagship, Pan American Silver, into one of the world’s largest silver producers with seven mines in Latin America.

Beaty is also one of the most influential people in the global mining industry for his pragmatic support of environmental causes, ability to build bridges with civil society, and remarkable legacy of philanthropy.

Bill: You are listening to Mining Stock Education. I appreciate you tuning in and I’m still reporting from the beautiful city of Vancouver. I am at the Sprott Natural Resource Symposium still. I just got done with a panel of five mining legends as Rick Rule refer to them as. One of those mining legends is sitting before me here. His name is Ross Beaty. If you follow this industry, then you know this mining titan already. If you’re listening to this podcast and you want to know more about resource investing, one of the key things you want to do as a newer investor is study the life of successful mining entrepreneurs. So I hope that you learn some of the qualities of a successful mining entrepreneur through this interview with Ross. So with that being said, Ross, welcome to the Mining Stock Education podcast.

Ross: Thank you very much.

Bill: I’d like to start by learning what motivates you. If you go booth to booth at a mining conference and you say what’s your goal here? The CEO is going to tell you the the correct answer: “to create shareholder value.” But as I analyze that, that’s probably a secondary or even tertiary motivation. Most people are motivated, in my opinion, by ego or money, fame or fortune, gold or glory. When you kind of do a psychoanalysis of yourself, what do you think? What truly motivates you to do what you do?

Ross: Well, a little bit of its the glory and the money and very much ego gratification that comes constantly when you have success. I think anybody that doesn’t, says he doesn’t believe that is lying. And in my case, either I have an ironclad ego that it needs constant stroking or I have a very shallow ego that needs constant stroking. In any case, there’s some of that for sure. But I will also say that we only have one journey through life and you want to be doing something that’s fun, and if something’s successful, it’s fun. It’s true that creating wealth for yourself is fabulous, but if you can create it for thousands or even tens of thousands of other people, it’s even more fabulous.

And the one thing that’s very cool about the mining industry specifically is that a good mine, a good discovery that creates a mine creates hundreds and hundreds of millions of dollars, and very often billions, and and even occasionally tens of billions of dollars for entire communities and countries. So the mining business is one that generates gigantic wealth. And often that’s forgotten when people invest in it, it’s certainly forgotten when people complain about it as they do from time to time.

So I’d say just the narcotic joy of success, repeated success, it just makes you want to go back again and again. One of the neat things about this business is also discovery. And you can only have that in a few businesses. I mean, you can do it in an Research and Development business where you discover a gene or a chemical. You can do it in oil and gas, although it’s a pretty boring business, let’s face it. But in mining, a good drill hole that converts might cause $50,000 or $100,000, and it might discover something worth a couple billion. That’s pretty cool. You’re really generating real wealth there. So a good drill hole…I wouldn’t say like Robert Friedland did today that it’s better than sex. I wouldn’t agree with that, but it’s pretty, pretty darn good and it’s addictive and you just want to do it again and again.

So a whole bunch of things. And also, I guess just to finish off your long answer to a simple question, I’m not much of an engineer. I’m not much of a carpenter. I don’t know how to wire two wires together. But I’m good at building companies and so I’ve found something that I’m good at, I’ve stuck to it, it’s worked all through my life. It’s been a tremendous journey, a lot of fun. And a lot of people have helped me do this. And on the whole we’ve had way more wins than losses. And I’ve just had a wonderful time and I wouldn’t do anything differently if I was to do it again.

Bill: And when you say you’re good at building businesses, building businesses is essentially building people, isn’t it?

Ross: Well, it’s, it’s a bunch of things. People are important. Definitely, you need to have a good team with you. You have to have people that are smart and trustworthy and so on. But to be honest, it’s way beyond that in the mining business. You have to get your commodity right. You have to get your cycle right. You have to go to places that people want you to work and not want you to go away. It’s very boring to have roadblocks and strikes and that kind of thing. If you’re in tough places, you want to stay away. I went to Russia trying to overcome that problem, but I got blown up because Russia just is a dump. It’s a terrible place to explore and a terrible place to build things. Russian is just brutal people in terms of treating foreign investors badly, so that was for me a mistake because I should have known better. But the prize was so great that I overcame what I thought was the risk factor because of the size of the reward.

In this business it’s more than just people. It’s having a good gut instinct of exploration success yourself. It’s an ability to put deals together. You’ve got to finance, there’s a lot of good geologists that can’t finance their way out of a paper bag. So I would say a lot of skill sets come into to being successful entrepreneur in this business.

Bill: It was said on the living legends panel that we like to look for “management-proof assets”. What’s your thoughts on this comment?

Ross: Well that’s an easy thing to say. It’s a rather more difficult thing to do because world class assets are really rare. And in my experience, I’ve actually seen complete idiots get lucky. It doesn’t happen very often, but when it happens, they make a lot of money for people. So you have to kind of hold your nose sometimes and work with people who maybe aren’t as smart or as savory as you might like, but that’s rare, quite frankly. That’s rare. And on a balance of kind of opportunities you’re going to do better with people that are smart, that you can trust. And that really is the very first thing you should look at when you’re judging an investment.

But it’s the same as a country. A lot of people judge countries. And while it’s true that certain countries, you should just simply stay away from. When I call, I would say much of both Russia and many of the Commonwealth of independent states around Russia are in that bag, that basket. Other places like Venezuela, you just can’t invest there today. It’s a terrible place. But don’t be too clever about that or too cute, or analyze things too closely because things that are terrible places today, tomorrow might be wonderful.

And the opportunity to get in to terrible places cheaply that turn out to be great places over a five or ten year period, that is a massive opportunity. And by the same token, investing in places that are great today can be a mistake because they may turn tomorrow or you may find either through indigenous issues or political differences, but in one party to another that a good place is bad tomorrow. So that’s why I always stress the importance of a diversified portfolio for an investor in this high risk business.

Bill: That’s definitely a contrarian perspective which you articulated. One of the comments that was said on the living legends panel was you have to find other people’s mistakes and make money from them. And that’s one of the things you’re doing with Equinox Gold, isn’t it?

Ross: Well, with Equinox Gold, we’re also… In a certain sense the mistake you’re referring to was a company that started building a mine when gold was $1,800 an ounce and ended up having that construction complete when the gold price had dropped down to 1,306, and six months or eight months into the mine life the gold price is $1,100 an ounce. So right there you lost the profit margin from that mine and eventually it had to shut down.

Now there were other problems there as well. They did make some mistakes. And so what we’re doing now is we’re trying to fix the mistakes and get into an environment where the gold price goes from $1,200 to back up to $1,800 and I think that’s what’s going to happen right now. And that’s the importance of timing. So it’s not that simple. Because we’re in a cyclical business, when the tide is going out, when the metal prices are dropping, really it’s hard for a genius to make money. It’s just tough. You lose that margin. And that’s the difference between being in the mining game. By the same token, oil and gas is the same, versus building a computer or a car where it’s all about marketing.

We don’t have any marketing risk. We sell our products in world markets. That’s one of the nice things about our business, but we’re price takers. We just take the price as it is. And if the price drops, we’re out of luck. And if we’ve borrowed money betting on say a $1,400 gold price that goes down to 1,100 we could be bust. With the smartest people in the world, the best project in the world, just bad luck. On the other hand, you get your timing right, it’s just a joyful experience, the tide comes in, all ships float.

Bill: I recently took part in a private placement and this company’s a sponsor of this podcast that being Osino Resources. You also own 20% of that company. This is a gold exploration company in Namibia. When I was talking to Heye Daun, the CEO, he said, “Yeah, Ross was a geologist many years ago in this country.” Perhaps you can share with us that story.

Ross: Sure. Well actually Osino is a good example of the things that I actually like and therefore invest in. So I’ve got a handful of investments like Osino, but the very first thing that Osino impressed me with is the CEO. Heye Daun is just a super guy. He’s smart, he’s pleasant, he’s honest, he’s hardworking. All of those things are really, really important. And he’s got lots of experience in the area that not a lot people know about. It’s an under explored area, Namibia. Heye lives there. He just lives and breathes and dreams that region. So he’s smart. He’s experienced. It’s really hard to beat that formula.

Now, he is exploring. He is in a high risk early stage exploration business. So I’m financing high risk stuff. And when you finance high risk, you have to take the chance that your investment’s going to go to zero because not everybody finds gold mines. But you’re improving your odds if you invest in good people with reasonable prospects in a region which should be good for gold investment long-term. And Namibia’s a fabulous jurisdiction today. I’m going to bet that it’s going to stay like that. But you know what? It’s a bet. So it’s one of many of those kinds of companies. I’ve got another one in Finland, another one in, believe it or not, Kyrgyzstan. For me that’s a big stretch. But in Kyrgyzstan, the opportunity there is so humongous that the reward overwhelms the risk.

And with a guy like Heye Daun it’s way lower risk on the people side, on the jurisdiction side, but it’s pretty high risk on the exploration side. And I’m going to bet that his hard work and his tenacity and his own team are going to beat the odds and make that a successful play.

Bill: Rick Rule has told me in interviews that he never invests big with a younger CEO unless he has a solid firsthand referral. The story as understand it with Heye Daun is that you had a positive experience with him in Ecuador, is that correct?

Ross: Absolutely. I got to know Heye there, and he’s one of those highly investible individuals. Very nice guy.

Bill: So as we conclude, Ross, we have investors of all skill levels and ages listening to us. It’s mid 2019, the summer doldrums, although gold is a little more exciting right now. What final advice would you like to leave with my listeners?

Ross: Well, if anybody has held gold stocks for a while, I fell in love with gold in sort of 2015, kind of close to the bottom of the market in my opinion. Bottom, it had been a bare market for four years. Gold had gone from $1,800 down to about 1,050. I mean, I have plenty of other investments in nickel, zinc, copper, and silver of course. But just talking about gold for a second, I got in very close to the bottom. I mean, I didn’t know it was the bottom, I just knew it wasn’t the top. And this is a cyclical world, so you’ve got to play these cycles. Gold broke out really in January of 2016. it went up from 1,050 to maybe 1,150, 1,200, 1,250. Went back to 1,150, bounced around 1,200 for the longest time. And then bing this year it’s up to 1400 something. Well that’s quite a move. And most of the gold stocks have all done better than that because equities always outperform gold on the way up and they under-perform gold on the way down. That’s just the way beta works, and leverage works.

But I would say to your listeners, be careful not to sell too early. I personally think we are sort of in the fourth inning of a gold bull market where the last few innings we’re going to see gold go bananas. I mean way over $1,800 previous high set in 2011. I could go on for an hour about all the reasons for that, which I’m not going to, but just let’s say I happen to believe in gold is going to have a lovely run. If you have gold investments, maybe take some money off the table. They’ve made pretty good money this year, but do not sell everything. The big money is yet to come. And that’s what I’m counting on in my gold investments. My biggest one is Equinox Gold right now, the company I’m trying to build into a million ounce gold producer.

Bill: This is Mining Stock Education and you’ve been listening to mining legend Ross Beaty. Ross, I really appreciate your time. Thank you for speaking.

Ross: Thank you very much. Pleasure.