Gold Mining Executives: “You Have To Be Able To Survive The Lows In Order To Reap The Benefit Of The Highs”
November 27, 2013 | By Tekoa Da Silva
I had the chance to connect recently with Bill Reid and Jason Reid, Chairman and President & CEO, respectively, of Gold Resource Corporation.
It was a fascinating conversation, as the father & son duo have operated a mining company with such a conservative fiscal framework with regards to capex spending that, “everybody rolls their eyes,” in the industry, upon hearing the team’s rule of a one-year payback time or less.
Speaking towards the cyclicality of the mining business, Bill noted that for investors, “You have to understand from the beginning that this is a cyclical business. Now actually this last cycle has been a good one. It’s been basically an up-cycle for the last decade. The gold price on January 1st vs the gold price on December 31st has been up the last 11 years…So this has been a good cycle. 2013 is the first year in a while that we’ve had a down-cycle in the gold price and of course, people are ready to bail out. [So] we’ve had a pretty good run [but] I don’t think it’s over yet.”
Commenting on the sentiment usually found at extreme market tops and bottoms, Bill explained that, “When we’re in an up-cycle, people can never see a reason why it’s going to go down but it always does. When we’re in a down-cycle, people can never see a reason why it will go up, but it [always] does.” In order to operate successfully as a miner Bill added, ”You have to be able to survive the lows in order to reap the benefit of the highs.”
With respect to thoughts and observations made growing up in a mining family, Jason commented that, “I watched Bill and David [my uncle] struggle in the mining business…when gold was $250 oz. It was a struggle during that time frame, when most of their associates were either run out of…or quit the business…[mining] is a very tough business, it’s not for everybody…[so I think] it says a lot about their character to be standing here today.”
Based on experience through market down-cycles, Bill noted that one of the most important questions, “Every investor should know about [and ask]…[is] how many years of payback is involved in allocation of capital?…The industry will throw out all these things; internal rate of return, net asset value, even discounted cash flow…What does that mean to the average investor? It doesn’t mean anything.”
“A two to three-year payback [or less],” Bill added, “[Instills] the discipline to not get sidetracked by a lot of these lower-grade ‘ounces in the ground’ concepts…We always wanted a one-year payback…[because] we looked at this [business] from the beginning as, ‘We’re here to make money and share that money with the owners of the company.’”
When asked about the fundamentals of a gold investment, Jason said, “Your thesis to own gold and silver two years ago, I would argue is not only as intact as it was then; but given all the additional monetary devaluation, it should be even more so…Over and over in history…it’s [been] repeated where governments or kings take perfectly pure gold and silver rounds and when they want to [overspend]…they dilute the rounds whether it be with copper or some other base metal…eventually the society abandons [the currency]…[and] the government or the king then go back…to the gold standard.”
Sharing a final comment for metals and mining investors, Jason noted that, “Timing is everything [and] I think we’re in a great time. We’ve been having this pullback over the last two years, but prior to that, we had a 12-year bull market…when we finally turn back around—it’s going to be very exciting.”
This was a powerful interview, conducted with a company and management team which has avoided much of the internal pain seen by the mining sector over the last two years. It is required listening for serious precious metals investors and market students.
To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to your desktop:
To learn more about Bill Reid, Jason Reid, or Gold Resource Corp, visit: GoldResourceCorp.com
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Tekoa Da Silva
Bull Market Thinking