Mining Billionaire Pierre Lassonde discusses the #SilverSqueeze , gold mining business and offers key advice for speculators. Pierre comments on the silver price in historical perspective and where it might be headed. He shares his number one advice for executives of gold producers as well as what type of mining investment he likes now outside the precious metals. Pierre talks about the current-day gold royalty sector and what is necessary for a start-up royalty company to succeed. He discusses a couple key traits mining speculators must have in order to succeed. Finally, Pierre discloses that he believes “that we are ripe for massive new discoveries…And I think we’re due for one. And if and when it happens, it’s going to juice up, the energy of people. And I would be looking very much for that kind of event over the next few years. I just know in my bone, it’s going to happen.”
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0:00 Introduction
1:45 #SilverSqueeze commentary
3:47 Where is the silver price headed?
5:33 Dow-Gold ratio 1:1
6:47 Type of new gold royalty company you’d invest in today?
8:28 Thoughts on prospect-generative approach to royalty generation?
9:29 Consolidation needed in the gold royalty space?
10:18 Do the best royalty opportunities reside in the base metal space?
12:04 Number one advice for executives of gold producers
13:22 Commentary on gold producer at-the-market mergers
15:03 What gold price do you use to analyze a development project?
15:50 “Copper is the metal of the future”
17:04 Becoming a successful mining speculator
20:14 Final advice
TRANSCRIPT:
Bill Powers: Thank you for tuning into Mining Stock Education. I’m your host Bill Powers. And in today’s show, you are going to be hearing from mining legend, Pierre Lassonde. Now, if you’re not familiar with Pierre, he invested with his business partner, $2 million into a Nevada project in exchange for a royalty. And then two years later, 50 million ounces of gold was discovered that eventually became and was the founding deposit for Barrick. And that $2 million investment returned over a billion dollars. So he understands what it means to speculate and make extreme outsized gains in the mining stocks. He also understands what it means to run a mining company as he is the founder of Franco-Nevada. He also was the president of Newmont Mining. So Pierre has a very storied and illustrious history as an executive and investor in the mining sector. And also he was the past chair of the World Gold Council, so he understands the precious metals markets very well. So it’s my pleasure to introduce him to you. Pierre, welcome to Mining Stock Education for the first time.
Pierre Lassonde: My pleasure to be here Bill.
Bill: Well, thank you for joining me. You comment on the precious metals market, and I’d like to start by getting your insights and commentary on what is occurring with this social media push for the silver short squeeze to burn the commercial banks. Do you think that with this group-sourced effort to buy physical bullion and buy call options on $SLV, could they really burn the bullion banks this way?
Pierre: You know, it reminded me of the Lamar and Nelson Bunker Hunt episode of the 1980, when the two brothers from Texas cornered the silver market and they pushed the silver price from $5 back in 1975 to over $52, which was, think about this, 40 years ago was unheard of. And of course it collapsed and they ended up going broke. The silver market today is so much deeper. It’s a market worth over $20 billion of trading every day. There are no short positions. The commercial banks, they will short on one market and they will go along on the other market, but they never, never go naked. So this idea that there’s a huge giant short position in a silver market is completely loony tuney. And the effect of the Reddit crowd is I think going to be temporary.
But the difference between that and a GameStop is that they’re not going to lose all of their money because the metal has a real fundamental value. I mean, it is trading even before this all Reddit thing at $25. So even if they push it up to 30, like this morning, it’s down, I don’t know, 7-8%, they’re still not going to lose their money. So I don’t feel too too bad about it.
Bill: Do you also think that the CME will just change the rules of the game, so to speak, in order to make sure that the player that they want to win, wins? Because that’s been something that’s been pointed out by those that are trying to organize this short squeeze?
Pierre: I think at this point, I don’t think they have to do anything. I really don’t. I think the market is functioning really well. The fact is that the commercial interests are along the silver market just as they are along the gold market. So the benefit from having the Reddit crowd coming in, they’re not going to get squeezed, there are no short. So I don’t see why they would change the regulations at this point.
Bill: There’s been many that have pointed out that if you use the true inflation calculation that we used decades ago, silver at an inflation adjusted high would be about $1,000, going back to, if you compare it to 1980. What are your thoughts on the silver price and where it could be headed?
Pierre: Well, if they use the $52 where the Hunt Brothers got it too. Yes. I mean, you could have some numbers like that, but the reality is that this was not a real number. And the fact is that silver, back in 1960 was a 75 cents an ounce. And by the mid 70s, it was up to $5 an ounce. If you use those numbers, the $25 is not that far off. And the silver production, I must point out, has grown at a much faster rate than inflation, much faster.
Bill: What about the Dow to gold ratio? This is something that you point out often, and you expect that the Dow and gold to be a one-to-one ratio. How soon do you see that occurring? What are your current thoughts on this?
Pierre: I haven’t given a lot of thought to that question and the play that’s going on is the financial authorities are using interest rate suppression, it’s really financial repression. And when will that end is when it battles inflation, because at this point, the bond holders are losing against the financial authorities. But if, as in when inflation starts to pick up, if they keep the suppression and the interest rates, then I think you will see the gold price start to go up quite dramatically. And looking at the last cycle of vis-a-vis this cycle, I think we’re looking at about a double time. And so I’m thinking 28 years in total for the cycle. We’re 20 years into it. So sometime in the next 21 years. So sometime I would say in the next five to seven years would be the timeframe that I have in mind.
Bill: You founded essentially the gold royalty business with that investment I mentioned in my introduction, which became Franco-Nevada. There has been a flurry of new gold royalty companies over the last five or so years. If you were going to invest in a new precious metals royalty company at this point, what are some of the characteristics that you would want to see in that company?
Pierre: You know, that question I’ve been asked many times over the last 10, 15 years and my answer is always the same is that, the first deal that any new mining royalty company does, has to be a really great deal. What made Franco-Nevada special is the fact that, on our very first deal, Goldstrike turned out to be just about an incredible mine. And that has given us the cashflow and the balance sheet leverage to start to buy everything in sight. I think the same with Royal Gold, their first royalty was there. And if you look at Wheaton River, the founder of Wheaton River, Ian Telfer understood that really, really well and engineered a deal within his own company to create the silver royalty that started Silver Wheaton at the time.
And I would say it’s the same thing today, because if your first deal is not a great deal, then you’re going to end up in a death spiral. You keep issuing shares to buy more stuff, and you keep issuing shares. You dilute the shareholders and you go nowhere. So I think the key is your first deal has to be a really, really good deal for the company.
Bill: What do you think about the prospect generator model that generates their own royalties and then sells some off and take some multi-decade approach? Do you like that approach?
Pierre: Well, it’s essentially the same as the junior exploration company model. And that model is incredibly difficult because the odds, I love statistics and I even wrote a book on mining shares and what not. And the odds are simply one in a thousand. Okay. So of the 3,000 junior companies that are trading today, I would say only three will create mines that are going to be very good for their shareholders, that you’re going to get a return on your money and then some, two, three times your money. So the idea that you’re going to generate your own prospects, it’s a very difficult one, very difficult.
Bill: Do you think there needs to be consolidation in some of these smaller royalty companies in the sector right now?
Pierre: I think at the bottom more than likely, yes, because the ones that are too small or not like they to be able to have a balance sheet to compete with the bigger companies. So, yes I think at the lower echelon you need some consolidation. Because at the end of the day, the only real way to grow in this business is to use your balance sheet to buy great royalties or put up money with companies, junior or intermediate company that want to grow and that are using the royalty model. So, yes, I think that you will have to see some consolidation at the lower level, but not necessarily at the top tier.
Bill: Pierre, over the last 18 months I’ve spoken to many commentators and executives that say because the gold royalty business is so competitive now that the best opportunities actually lie in the base metal royalty space. Would you agree with that?
Pierre: No.
Bill: Do you want elaborate?
Pierre: Well, look, back in the 1990s, we tried to float, actually we did float the base metal royalty company, it was called Redstone Mining, and we put David Arkell in charge of that company. And he tried and tried and tried for like 10 years and he didn’t go anywhere. And then finally we folded it back into Franco-Nevada. The reality of the base metal space is that, the number of discoveries per year, and the number of mines is a fraction of the gold space. Whereby you’re going to find 20 gold mines in a year. You may not even find one copper mine.
Two, the development time for copper assets is in the decades. It can take 20, 30, 40, 50 years to develop that kind of assets. So you just don’t have that kind of staying power. And three, if you look at again, the base metal, the very large company dominates this field and they don’t need your money. So it’s a very difficult space. Now, it’s a great space if you can latch onto one, absolutely. But to single it out as a strategy, as a model, my sense, you’re bound for failure.
Bill: Pierre you had together a group of executives of gold majors and mid tier producers. What would be the key advice that you would give them at this point in the cycle?
Pierre: Discipline. The gold equities got absolutely trashed in the last bear market. And we’re still suffering from that because the executives at the time threw caution away and overpaid for acquisitions, the shareholders never saw any returns. In fact, they got the opposite, they had value destruction. I think it is time for the industry to show the rest of the world that this is a real industry, that it has return to shareholders and that the management cares for the shareholders. So it’s a discipline is absolutely the most important thing for the industry right now. And through all of that, the industry is actually making the best margins ever, ever. So now is the time, really to do that and save a little bit for growth, because I think it is important if you’re a producer today to show some growth. So that would be my advice.
Bill: If I recall correctly, you were a little critical of the Newmont-Barrick Nevada assets merger saying that the synergies wouldn’t yield that much savings to shareholders, that’s point one and correct me if I’m wrong, but point two would be, there’s been a lot of at the market mergers with these gold producers as a means to growth. Do you like seeing that? And then what’s your further commentary on the Barrick-Newmont Nevada asset merger, now that it’s been some time?
Pierre: If you look at that proposed merger, the only synergy, and it was a real one, was the merger or the put together of all the Nevada assets of the two companies, which has been done. And that has yielded some synergy, but at the higher level, there was very little to be had. And I think the two companies are demonstrating that and Newmont is doing incredibly well by itself and so is Barrick. So I think the result of that tussle has been the right result and for everybody, I’m very pleased about that. What was the other part of the question? Sorry.
Bill: There’s been other gold mergers, for example, Equinox Gold and Leagold, that’s an example.
Pierre: Yep. I think that that shows discipline and it shows as well the management of these companies are really looking after the shareholders. They’re saying, there’s no premium, but if we put the two companies together, we can save more money for the shareholders. We can have a growth profile built in, a better balance sheet. That is excellent. That is the kind of things that this industry needs and needs more of it.
Bill: Pierre when you’re looking at a development stage project for your own personal investments. And of course, you’re going to look at it as an executive as well. What gold price are you using when you analyze a development project?
Pierre: To be very candid, my whole life I have used essentially either the spot price or the consensus price. I don’t try to predict the gold price into the future. I just look at what is it today? Or what’s the consensus? And I say, well, if I’m buying, this is what it’s worth today. And that’s what we do.
Bill: Not the trailing two-year average price?
Pierre: Well, I think the consensus usually is around that number and that’s as good a number as anything.
Bill: Outside of the precious metals, what type of investments are you looking at personally in your personal investing?
Pierre: Oh, look, as far as I’m concerned, the best, best deposit in the world that you can have or find today is a copper-gold deposit or a copper-gold-silver, or a copper-silver deposit, but something with copper. Because I really believe that copper is the metal of the future. In fact, our entire civilization rests on copper, on one metal, and it’s copper. Because without electricity, we have nothing. We have no transportation. We have like no communications. We have nothing. And with the emphasis on greening the world, we’re going to use more copper. So copper is absolutely the fundamental basis of our civilization and it’s going to get better. And with that in terms of fundamental money, I would say gold and silver is also part of the greening of the world. So these three metals are to my mind, the best place to be at this point in time.
Bill: Pierre, what can you share with my listeners about the characteristics needed to be a successful mining speculator? As I mentioned, you turned a $2 million investment into over a billion dollars of cash flow. What are some of the key characteristics that people should develop in their own speculation?
Pierre: I ran a portfolio back in the 1980s of junior mining companies. And that’s where I cut my teeth if you want, in terms of speculation. And I think that the two recommendations that I would have is, one, when you invest, you invest first and foremost in people. Because good people will make good things happen and bad people, I don’t have to tell you the rest. So the number one aspect of investing is look at the people, look at the management team, have they proven before that they can do it? Have they shown that they can do it? I’ll tell you a story. When I was at Newmont, as president of Newmont, I had 340 some geologists in our team. And out of this 340, I had about five geologists who discovered 80% of all the gold Newmont discovered. I called them my lucky geologists. You know what I mean? And they are people like that in the world. And there are people like that in the junior world. So first and foremost, look at who you’re putting your money up with.
Think of the Bre-X story. The management team was a two-bit team from nowhere and all of a sudden they were sitting supposedly on the greatest deposit in the world. I was suspicious from day one. And I ended up shorting the stock and making a ton of money. It’s all about people. Number two thing as a speculator is ride your winners and cut your losses. People have a really hard time of cutting their losses, but put yourself a limit down and say, if the stock goes down 10%, get it out of your portfolio, like get rid of it and ride your winners. Like stock goes up 50%, just don’t run and sell. It’s Oh, I got 50%. You’re going to lose it all.
The 1980s, the portfolio that I ran, 90% of the money I made in two stocks, believe it or not and it was Barrick and Echo Bay. And these two stocks, Echo Bay ran from, I bought it on the issue at $4 or $5. And I think it ran to $32, $36 and Barrick the same thing, except it was a 10 times and all the other stocks, I didn’t make any money. I kept cutting the losses, kept cutting the losses. So ride your winners, cut your losses.
Bill: That goes to the saying, it doesn’t matter if you win or lose, it matters how much you win when you win and how much you lose when you lose, right?
Pierre: Yep. Very much so.
Bill: Well, Pierre, I really appreciate your time today. Any concluding thoughts in light of what we’ve spoken about that you’d like to share with my listeners?
Pierre: I would say that we are ripe for massive new discoveries. Like if you look at again, the 70s, the 80s and 90s, every one of those decades saw a discovery of major, major proportion, whether it’s a Nickel at Voisey’s Bay or the diamonds in the Northern Canada or a Yanacocha in Peru, in the 90s. And we haven’t seen a discovery like that in a long time. And I think we’re due for one. And if and when it happens, it’s going to juice up, the energy of people. And I would be looking very much for that kind of event over the next few years. I just know in my bone, it’s going to happen.
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