Success and Failure: Timing the Precious Metals Cycles (w/ Ross Beaty)

Success and Failure: Timing the Precious Metals Cycles (w/ Ross Beaty)


ROSS BEATY: In ’94,
when I started this, silver was trading for about
$5 an ounce, give or take. Well, I was positive. The more I read, the more
it was positive silver was going to go up to $10
by the end of the decade. Needless to say, the end of the
decade, silver is $4 an ounce. I’ve had a couple of
flops out of 14 or 15 now. Not entirely flops, because
they were all– well, in fact, only one. And that one is still
a work in progress. GRANT WILLIAMS: Well,
let’s talk about the flop. Let’s talk about that, because
it’s so easy to fail in mining. It’s so easy. There are so many
things, and most of them are outside your control. It’s nature, for a start. But then you throw in permitting
and changes of government. There are so many things
that can go wrong. It’s such a tough
landing the stick. So how was this one a flop? ROSS BEATY: My very first
company was Equinox Resources. I’ve talked about
that a little bit. And this one gold deposit
that we discovered in Nevada that we finally– another
company discovered– it turned out not to be big
enough for that company. So I was able to buy it 100%. I bought it back. A year later, the
gold price took off. I funded the purchase. Not by selling shares, but
I sold a little royalty to Franco-Nevada,
to Pierre Lassonde. And that funded me
buying the other half for about $3 million. One year later, I sold the
whole company for $110 million. Just because the gold
price had taken off, this particular company
needed a deposit like that, and it was a chance for
me to finally make a buck. GRANT WILLIAMS: But
that’s the reward. We talk about the risk/reward. That’s the kind of… ROSS BEATY: So I spent nine
years building this company. Haven’t taken a penny out. Everything I’d
made, I’d reinvest it buying more and more shares. And finally, I got
this happy ending. And it was pretty
cool because I was able to say, OK, that company is
so full of baggage and problems and hassle, I just want
to say, over to you, you can have it, and
start from ground zero. But I had happy shareholders,
because the last trading day with an all-time high. And so those shareholders,
god bless them, a lot were Americans. A lot of them were Canadians. They were people
who had followed me. Newsletter writers– Bob Bishop. Rick Rule was a
big part of that. All kinds of great,
great friends, and people who really helped
me build this company. They’d all been vindicated
for supporting me. Well, the company that
bought Equinox was Hecla. Hecla at that time was
known as a silver company. Even today, it still
is, but it shouldn’t be. It’s mostly a gold company. And even then it wasn’t. Only about 17% of its
revenue came from silver. So I looked at Hecla and
Coeur d’Alene and Sunshine. None of them. They were all trading with the
silver price, but none of them were real silver companies. They were other things. And so I thought, well, why
don’t I build a silver company? GRANT WILLIAMS: A
real silver company. ROSS BEATY: A real
silver company. If I build a real
silver company that has real leverage
to silver prices, those investors are going to
come to me instead of them. And then I looked at
the silver fundamentals. And in 1994, when
I started this, silver was trading for about
$5 an ounce, give or take. Well, I was positive. The more I read, the more
I was positive silver was going to go up to $10
by the end of the decade. Needless to say, the end of the
decade, silver was $4 an ounce. But I’d built a company. I’d gone out, and I’d been
aggressive at acquiring silver deposits and silver resources. My shareholders had rewarded
me by buying shares. The stock price had gone up
way beyond its asset value. Way, way, way beyond
its asset value. But I was able to use that high
share price to backfill value and buy deposits
that would ultimately create a company that really
delivered on our mission, which was our day one mission
of becoming the world’s premier silver equity for silver
investors who wanted equity, as opposed to buying
silver bullion. Fast forward to today,
Pan American Silver is a big company now. It’s definitely my
largest company, the one I’m most proud of. It is the second largest
primary silver mining company in the world. It’s just in fantastic
condition today. Seven operating silver mines. Or six now. We have six. We just closed one. Ran out of resource. But we’ve expanded
others where we have a trajectory of continuing
growth, wonderful management team, incredible balance sheet– pristine balance sheet. No debt. Great cash flow. So that company,
even though I got it wrong on the silver
price, we actually built a company with real value. GRANT WILLIAMS: I want to
stop you here because– full disclosure,
I am a shareholder of Pan American Silver, and
have been for a long, long time. And so I’ve watched it– ROSS BEATY: Don’t sell. GRANT WILLIAMS:
–from the outset. No, no, no. I’m not going to sell. I’m not going to sell. ROSS BEATY: Not quite yet. GRANT WILLIAMS: I’m
not going to sell. Trust me. But I’ve watched it, and I’ve
watched it with frustration. I’ve watched it with a
lack of understanding. I watched this thing that– and you sit there and go,
why is this not going up? And so to flip that around,
when you’re sitting there, you must have
shareholders calling you all the time, saying, the
silver price has gone to $50, and the stock hasn’t done
what it’s supposed to do. How do you manage
that conversation? ROSS BEATY: Right. A lot of people have
short-term expectations. And I just ignore that. I just say, pretend you
don’t own the stock. You’re going to be
happy eventually, whenever you decide to sell
it, if you hold it long enough. Because we’re in a
cyclical business. Metal appraisers drive an awful
lot of these companies’ value. Metal prices go up,
and they go down, and then they go up again. So where you buy the
stock, a big chunk of it is where you are in
the metals cycle. Precious metals or
the copper cycle. But then behind that,
you have what management does to build value
in the company. And that’s pretty
important, too, in building fundamental value. And what we try to do is
look to the long term. Not a quarter. Not even a year. But we look to try to put
an asset base together that’s going to go for
decades and decades. And that’s the hard part. They’re pretty rare. They’re pretty hard to come by. We want to try to
manage risk, so we do want to try to
spend all of our money on exploration,
which is high risk, and actually has the potential
to be worth 0, ultimately, if we don’t have any
success or any luck. On the other hand, you want to
put some money to exploration because it has the huge payoff. It gives you the 10
or the 50 or 100 times what you invest in it,
if you have that luck. So what I tried to do in Pan
American is a bit of both. Exploration, but also
acquiring assets. Building mines,
that creates value. But you have to pay a
little more to acquire them because you’ve gone
through the risk– you’ve got to pay
for someone else having done that high
risk, high reward business. And so buying well, discovering
well, managing existing mines well, like you might
buy a producing one. We bought one in Mexico. Well, it took a lot of
capital, a lot of effort over about four years. And now the thing’s
just purring. It’s generating
massive cash flow. It produces silver for
about minus $10 an ounce. It’s just a massive contributor. And so you’ve got
to look long term. And really, I ignore
people who just are fussing the value of a share. I say, look, if it’s important
to you, one day versus another, you shouldn’t be
in this business. Go and buy something
really safe, like Apple or General Electric. Something really safe. GRANT WILLIAMS:
Yeah, really safe. Yeah, yeah.

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