Jim Rogers And Dream Team of Legendary Investors Team Up On Gold Exploration Play, Spanish Mountain Gold Ltd.
June 25, 2012 | By Tekoa Da Silva
On April 20th 2012, a press release was issued by advanced junior gold exploration company, Spanish Mountain Gold Ltd., (SPA.V). It indicated the appointment of a new director to the company, namely, famed commodities investor, Jim Rogers. Up until that date, it was this author’s understanding that Rogers carried a disinterest toward mining company concerns, instead opting to invest in physical commodities themselves. Why would Jim Rogers become involved with a small gold exploration company, and why Spanish Mountain Gold? Is there a merit to the company which he has identified ahead of other investors? In the process of answering these questions, I found myself speaking directly with Jim Rogers himself, as well as a grapevine of legendary investors of the last century, all of whom have been quietly building structural connections to and within, Spanish Mountain Gold.
Conceived in 2008 through predecessor company Skygold ventures, Spanish Mountain Gold was formed for the purpose of exploring the Spanish Mountain gold project in central British Columbia, Canada. While Skygold had been exploring the property package since 2002, the company existed much like many other junior explorers in Vancouver, Canada, where it, “Had shared office space with other companies, shared management, and shared board members—[bottom line], it lacked focus”, explained President and CEO Brian Groves during an interview with the author. As exploration continued however, the company discovered a multi-mullion ounce gold and silver deposit within Spanish Mountain, which according to mine feasibility study manager, Wardrop Tech, appeared to be of the right size, shape, and location to warrant profitable extraction.
In recognizing the deposit potential, the board of directors realized the need for outside skill sets to take the company to the next stage of development. “I was approached in late 2007 to join what was still Skygold ventures,” explains Groves. “I joined as president and CEO in early 2008.”
What commenced following Groves’ appointment was a complete overhaul of the board, management, and of course, changing the company name to Spanish Mountain Gold.
Over the course of his first year, Groves and the Spanish Mountain team proceeded forward with scoping & economics of the project resource. The studies indicated a project potential of 200,000+ ounces(oz.) of gold production per year for more than 12 years, production costs under $600 per oz. of gold, and internal rates of return(IRR) ranging from 14%-40% depending on gold price assumptions($1100-$1600 per oz.). While intriguing as stand-alone items, the numbers themselves began to tell a contracting portion of the overall Spanish Mountain story. During Groves’ second year, a majority investor would step up to the plate and apply a new power to Spanish Mountain’s corporate body.
In the fall of 2009, legendary U.K. based investor Ian Watson (former executive committee member of Burns Fry Ltd.–which assimilated into BMO Nesbitt Burns), felt compelled to reenter the junior gold mining sector. Founder of Galahad Gold, a junior mining investment vehicle which fetched a 66% average annual IRR for shareholders during its lifespan, Watson carries with him a team of associates and investment partners which include the likes of internationally known Jim Rogers, U.K. investor & former corporate raider, Jim Slater, and many other highly influential investors who have participated in his trail of success.
During an interview with the author, Watson rattled off his junior resource investment vehicle criteria without holding anything back. He stated, “The deposit should be in a reasonably safe political territory, it should have a strong resource position, reserves are ideal–but 43-101 compliant resources are sufficient in most cases, there shouldn’t be any serious environment problems on the horizon, there should be a strong balance sheet with cash and little to no debt and no major future capital liabilities, the future production should be unhedged, the cost per oz. of gold produced and the grade of course are critical factors, a very prospective deposit open to discoveries in all directions including depth, and lastly, management that has the ability to take a project through to production.”
Did you catch all that? It is undoubtedly a serious qualification list for a serious investor.
Watson’s criterion appear to have been met by Spanish Mountain Gold, as in late 2009, a mutual contact of Groves and Watson introduced the two, and what occurred was nothing less than an investment marriage made in heaven. Watson took a sizeable position in the company at that time and has continuously added to the position over the last few years through private placements, while also assuming the chair of the board of directors.
Like the floating aroma of a thanksgiving turkey, Watson’s new investment attracted the attention and corresponding interest of a group of his associates: Jim Slater, Don Coxe, Jim Rogers, and Morris Beattie. Slater, easily one of the most famous U.K. investors during the 1960s and 70s, followed Watson’s lead by taking what has now grown to an over 10% interest in the company, while Coxe, Rogers, and Beattie all took positions on the board of directors. Coxe, strategy advisor to BMO Financial Group, and TopGun Lifetime Achievement Award winner from Brendan Wood International, was recently asked by the author his thoughts on joining the company. He said, “[It's] the people behind it…we share the same sorts
of views on the commodities outlook, these are gentlemen of quality, success…By definition they do not engage in trivial ventures, their record is of identifying great wealth before other people do. They are serious people.”
Watson shared reason on the value of having such a mastermind group of investors on the board by saying, “One of the issues that you have to face as you develop the project successfully of course is the senior financing. We want to have a very strong team in place when we go to the lenders and the gold streamers and the others when putting the senior financing together, and I think we’ve achieved that.” With regard to the recent positioning of Jim Rogers to the board, Watson further commented that, “When he started the Quantum Fund with Soros…their performance was exceptional. He’s got an ongoing interest in commodities, including gold, and he can help us both on advice, and when it comes time to…the senior financing.”
As Watson indicated, an upcoming contest to which the company must prepare, is in the raising of funds necessary to build a producing mine operation, which based on a preliminary economic assessment by AGP Mining Consultants Inc, may exceed $550 million. While some may balk or express concern at that figure, Groves on the other hand expresses enthusiasm towards the market advantage he feels the company enjoys by saying, “We know this project in terms of $550 million is a very—I’d call it a sweet spot in terms of its size. It’s not a billion dollar super project, it’s in an area that has an attractive cost base with very cheap energy, and a labor force that can be readily available.” In mitigating the project’s financial risks he added that, “We are looking at designing the project to be very robust on the downside…We are using an $1150 per oz. of gold pricing assumption for the pit design…while some other companies are now using assumptions in the range of $1300-$1400 per oz. I prefer a more conservative approach with downside robustness, so if the price of gold does slip, we’ll still have a healthy margin to allow us to operate and generate positive cash flow.”
While the success of project financing and production remains but a vision in the minds of the board, management, and shareholders, other well-known names in the mining and investment community are becoming believers as well.
In searching out further opinion on the Rogers release and perspective on the company, the author connected with market commentator and publisher of “The Grandich Letter,” Peter Grandich. Grandich is famously known for stock market timing, calling the 1987 crash, the 2007 top, and 2009 bottom, all within a number of days of their nominal peaks and troughs. In asking Grandich’s thoughts on why Rogers might have joined the company, he replied, “Having been acquainted with Jim over the years, and probably one of the handful of experts that I look up to…putting his name on this would serve no financial reward to him that he couldn’t gain elsewhere…I have to assume he believes there is validity and hope for them to develop [a producing mine]. If and when they succeed, no one is going to say, ‘Oh, Jim Rogers was the key,’ but if it fell on its face, blew up or turned into a nightmare scenario, his name would get stained, and I don’t see a man of that [stature] taking that risk unless he feels there is really something of value there…it would come as no surprise to me…that he and or some of his closest friends end up becoming shareholders as well.” Grandich has been involved with Spanish Mountain Gold since 2010 serving as an expert company consultant, and he currently holds a long position in the stock.
The final source sought out by the author in pondering Rogers’ move, was Rogers himself. During an interview he was kind enough to share his thoughts on the circumstances of his connection to the company. He said, “I wouldn’t have accepted it[a directorship role] if I didn’t think there was something, some possibilities there, I guess the main reason which caused me to accept was I knew three of the directors, who I know and admire, so because of them more than anything else I accepted.” Rogers continued by addressing his historical preference for commodities themselves rather than commodity producers or explorers. He said, “I’m usually skeptical of mining companies, especially junior mining companies, because so many of them turn out not to develop historically. So I don’t really invest in or own junior mining companies because of the history of them…except for this one example [Spanish Mountain Gold] which you asked me about.”
According to Groves, it isn’t just the team of Rogers, Coxe, Watson, and Slater who see potential in the company. Investment funds Liberty Asset Management, Royce and Associates, and Brick Capital have all recently taken positions in the company. Which of course leaves one final question remaining—If there’s so much potential here, with such legendary investors getting involved, why isn’t everybody investing in it yet?
The answer to that question might be found in an excerpt of Coxe’s “Rule of Page Sixteen” investment philosophy, which states, “Never invest on the basis of a story on Page One–that is the efficient market. Invest on the basis of a story on Page Sixteen—that’s on its way to Page One.”
If investment track records are any guide, Rogers, Coxe, Watson, and Slater, all legendary investors and stewards of capital, may help forge the company into one worth remembering. Additionally, Rogers appears to have identified solid merits which warrant his engagement. Based on his example and that of the board of directors, Spanish Mountain may be a long term bet worth considering. As Coxe further says, “I look for the big themes, the ones historians will be writing about in a hundred years—the Page Sixteen stories.”
If the author might be so bold as to leave you with one final question to ponder: On what page are you currently reading?
Disclosures: The author does not currently hold a position in Spanish Mountain Gold stock, and has not been compensated in any way by the company.
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