Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
At 15 years old, Jon Goodman bet the farm on a mining exploration stock.
He risked his entire $2000 net worth on Consolidated Morrison, tipped off by a broker during a summer job working at Merit Investment.
Over dinner at a Toronto steakhouse, Jon’s father Ned, an influential money manager, teased him about the bet. He said Morrison was a dog.
Breaking even, Jon cashed out the next day. Then Morrison tripled in a few weeks.
“You steered me the wrong way,” Jon complained to his father.
“I’m not at fault here,” Ned responded. “Had you done your own work, you wouldn’t have cared what I said.”
The lesson became a core principle of Jonathan Goodman.
Today, Goodman leads mining-focused merchant bank Dundee Corporation (TSX:DC-A). In a series of interviews with TheBigScore, Goodman shared wisdom about his dual career in investment management and mining, and described how Dundee Corp is positioning itself for success.
During the time I spent with Goodman, I noticed that he’s thoughtful, he listens, and he’s modest despite his achievements. Goodman’s insights on mining are some of the best I’ve heard. Read on to learn about them.
Jon Goodman was born in Montreal in 1961, the eldest of Ned and Anita Goodman’s four sons. A math whiz in childhood, Goodman dominated chess games, driving his uncle to retire from the game entirely. The family moved to Toronto in the mid 70s, where Ned’s career took off.
Goodman remembers, “Everyone thinks that we grew up with a silver spoon, but when I was born, we lived in a one-bedroom apartment and dad drove a Ford Pinto. We have two lives that we’ve lived. Before and after Hemlo.”
Through a series of daring and complex bets, Ned Goodman gained control of International Corona, developer of the ‘81 Hemlo discovery in Northern Ontario which later yielded 3 mines and over 21 million ounces. It’s still operated by Barrick today. Ned outsmarted rivals again in ‘90, taking control of the rich Eskay Creek mine as well.
Ned played a crucial role in establishing major resource companies such as Barrick, with a market cap of $40 billion, Franco Nevada ($30 billion), and Kinross ($10 billion). In the asset management sector, he co-founded Beutel Goodman, managing $40 billion, Dynamic Funds with $88.3 billion under management—acquired by Scotiabank for $3.2 billion in ‘11—and several more. A forthcoming Big Score story describes Ned’s rise.
Expectations were high of Ned’s sons, and Jonathan pursued education seriously in his early years. He graduated from the Colorado School of Mines in ‘84 as a Geological Engineer, in part to please Ned and also for skiing. Goodman then became a mining analyst in Toronto, first with a HSBC division, later Goepel Shields. While starting a family (Jon has two adult children and three stepchildren), Goodman earned an MBA at night school and CFA designation.
He recalled an invitation from Ned to attend a meeting of investors of the mutual fund business of Buetel Goodman (Dynamic Funds), which Ned acquired in ‘90. Jon agreed in exchange for a ride home.
At the meeting, Ned announced he’d recruited a world-class investment team. He’d reveal their names once they’d cut ties with their current jobs, assuring the audience of their calibre.
On the drive home later, Ned turned to Jon with a proposition. “Do you want to come join me? You’ll run the mining funds and we’ll have a lot of fun.”
“Who are the other people you’ve hired?” Jon asked.
Smiling, Ned said, “Nobody. It’s just you and me at this stage.”
Fast forward three weeks, they recruited a stellar team at the birth of Dynamic Funds. Assets under management surged from $600 million to $7 billion in a decade. Two decades in, this figure approached $90 billion. Jon credits his brother, David, as the pivotal force in Dynamic’s exponential growth during its later stages.
In the sun-bleached expanse of Northern Peru’s desert in ‘93, 31-year-old Jon Goodman couldn’t believe his eyes.
A huge gold discovery was unfolding at a price too tempting to ignore. However, time was running short.
The Yanacocha project, some 4,500 metres above sea level, was a joint venture between Newmont, Minas Buenaventura and IFC bank.
The project’s scale (eventually over 30 million ounces) was itself extraordinary. But what really caught Goodman was how profitably it could grow.
Buenaventura, a relatively obscure Peruvian mining company, traded quietly on the Lima Stock Exchange.
Through the mining grapevine, Goodman learned Southern Peru Copper (SPP) needed to sell its 15% Buenaventura stake. But Newmont, Yanacocha’s operator, would surely outbid him for it, if given the opportunity.
Racing against time, Goodman’s Dundee Precious Metals (DPM) fund secured approximately 7% of Buenaventura from SPP, narrowly beating Newmont to the punch.
Quickly, Yanacocha became the world’s best gold mine, producing over 3 million ounces yearly at its peak. Investors began taking notice of Buenaventura (which still trades on the NYSE). Just two years after his Peru trip, DPM earned 15X on their investment. It helped DPM deliver 22.8% annual returns from ‘92-’03 (Source: Towers Perrin).
“Growth funded by itself. That’s one of my key themes,” says Goodman.
In addition to running the DPM mutual fund, Goodman was CEO of Dynamic in the ‘90s, and played key roles in several other ventures.
In ‘89, the Goodmans took control of a Vancouver Stock Exchange-listed shell company, Repadre Capital, at $1 per share.
With much on his plate, Ned turned to Jon, then 27, to help oversee Repadre as co-founder of a new diamond exploration company. Repadre appointed Chris Jennings as CEO, with Jon as CFO and later Chairman. Initially, it burned through $4 million exploring Botswana. Jennings was a staunch believer in Northern Canada’s diamond prospectivity, and quietly funnelled Repadre’s money in this pursuit.
After failure in Botswana and Chuck Fipke’s Ekati diamond discovery in Canada’s Northwest Territories, Jennings left Repadre, teaming up with Gren Thomas (Aber Resources), trading his expertise for a 1% gross royalty on any find. Jennings and Thomas were cloak-and-dagger staking partners who got in early on one of the world’s biggest staking rushes. They flew up to Yellowknife, separated at the airport and stayed at different cheap motels to avoid detection before staking vast swathes of ground in the dead of winter.
Fighting for shareholders, Jon challenged Jennings on the basis that Repadre’s money had helped develop his thesis. This led to Repadre getting its own 1% royalty on the nearly 2-million-acre land parcel. Today that royalty is owned by Sandstorm Gold (TSX:SSL).
Diavik, Canada’s largest diamond mine, was found there in ‘94 when a 2-carat rock was spotted in drill core. It transformed Repadre from a 30-cent stock in ‘92 to over $8 per share by ‘96, helping the company buy other royalties.
In ’99, Repadre acquired an 18.9% stake in Gold Field’s Tarkwa gold mine in Ghana, West Africa for roughly $35 million. But delays and the late 90s gold bear market sank Repadre to $1.50 in 2000.
But the now profitable miner was poised for a rebound. Tarkwa gushed cash and kept growing, reminiscent of Yanacocha.
In 2002, IAMGOLD pursued a takeover, but Goodman turned them down. He believed Repadre’s team, led by CEO Joe Conway, was stronger. A $470-million takeover finally closed in ‘03. IAMGOLD bought Repadre at $12.60 per share, with Goodman’s man Conway in charge of the combined company.
Just weeks after the Repadre sale, Goodman began a new venture in Bulgaria that led to a greater success.
Leveraging his expertise in both finance and engineering, he left parent Dundee Corp, transforming Dundee Precious Metals from a closed-end gold fund to a mining company. It paid US$26.5m in stages for a Bulgarian asset portfolio with an operating gold-copper mine, Chelopech, that was losing $500K per month, and a gold development project, Ada Tepe. But Goodman saw opportunity.
Chelopech was modernized and expanded. Permitting Ada Tepe was a 9-year process, with wary locals fearing environmental risk. “And we managed to do it by floating a concentrate,” Goodman recalls. “We took cyanide out of the equation and we dry stacked the tailings. By doing those two things, the community felt that they had the ear of the company and it really worked well. So those listening skills are kind of important.”
Comparing his time as a mining CEO to his leadership at investment bank Dundee Capital Markets, Goodman shared a striking anecdote: a banker, upon receiving a $1M bonus, told Goodman he felt cheated. “And then you go to this mine and you find an engineer that works 12 hour days, seven days a week. And when you give them a $100K bonus off their $200K salary, they burst into tears and say, “I don’t think I deserve this.” The dichotomy was mind blowing.”
Goodman thought investing was tough until he became a miner. Then he realized how little he actually knew, despite his schooling and fund management track record. Finance teams can work around a bad apple, he says. If a miner has a perfect CEO, geologist and engineer, but a bad metallurgist, or vice versa, the whole thing fails. “It’s like this chain link fence where every link has to be right, and there’s no two industries worse suited for each other.”
DPM evolved into a powerhouse. Free cash flow in ‘23 was $310M with mining costs below US $850 per ounce. DPM’s market cap is $1.87 billion today with roughly $805M in cash and no debt. Goodman retired from the company in ‘22 after a long tenure as CEO, later Chairman.
Lila Murphy recalls researching DPM in 2004 as a hedge fund research analyst. “Seeing Jon transform a bankrupt Soviet-era disaster of a mine into a world-class company compelled me to join him today,” said Murphy. In May 2021, she was appointed EVP and Chief Financial Officer of Dundee Corp.
“No fund manager, myself included, has ever shovelled that kind of dirt and the experience is invaluable to understanding the risks and opportunities in any given mining project,” Murphy added.
Goodman worked on other successful mining ventures. As a director of Canada’s Sabina Gold & Silver in ‘15, Goodman helped recruit Bruce McLeod to lead the company, then valued at $83 million. In ‘23, B2Gold acquired Sabina for $1.1 billion. Late last year, McLeod joined Dundee Corp’s board of directors.
“Jon is one of my favourite people in the world. I feel lucky to be working with him,” McLeod told TheBigScore.
Dundee Corp’s stock chart reveals a challenging decade. Shares traded over $15 when Scotia acquired Dynamic in ‘11, yet are $1.02 today. The downturn is mitigated by the $9.34 per share equity holders received from the ‘13 spinout of DREAM Unlimited, a real estate investment firm overseeing $24 billion, which has consistently paid dividends. DREAM was established in ‘96 by Michael Cooper, a close friend of Jonathan’s, alongside the Goodman family. Including DREAM, the equity value is closer to $10.34 today, plus dividends.
However, aggressive bets by the company failed or have yet to materialize. These included a Vancouver casino project, Chad oil and gas exploration, cattle ranching, fish farming and others.
Goodman says Dundee Corp was successful in three business segments: Mining, his area of focus, investment management, driven by brother David, and real estate with Cooper. “When we stepped outside of those was where we got in trouble.”
Since ’17, the company has undergone restructuring (with Goodman as CEO since ’18), slashing G&A overheads by 75%. Assets, like the $240M DPM stake, were divested. Dundee Corp also axed about $300 million in Preferred shares and debt, improving its balance sheet. Now, having endured this painful process and returned to mining roots, Dundee Corp may be finally poised to rise.
With the stock at $1.02 today ($90.84 million market cap), Dundee Corp (TSX:DC-A) is undervalued compared to the $2.82 per share value of its asset portfolio ($287.6 million total assets, less $36.5 million market value of preferreds, divided by 88.95 million shares).
At ’23 year end, the book value of mining investments was $161.3 million. This may be understated. Non mining investments, including an automotive parts manufacturer and an Alzheimer drug developer, were $126.3 million (this includes cash of $26.3 million and net debt of $15.125M).
McLeod notes that the Alzheimer’s drug, TauRx, under clinical trial, could outperform Dundee’s other investments if successful, despite risks. Other forgotten assets in Dundee Corp could also surprise investors.
Goodman recruited several stars from DPM into Dundee Corp. They’re looking under the hood at future mining projects. “As you go through due diligence, you find things in the data that the company is overlooking, and that’s where it becomes a lot of fun.”
Dundee Corp’s largest mining investment is Reunion Gold (TSXV:RGD); it holds a 14.9% stake worth $84.34 million at Apr 1 ‘23 (93% of Dundee Corp’s current market cap).
Dundee backed Reunion confident that drilling would yield a half-million-ounce saprolite gold find in Guyana. “And lo and behold, it became a 6 million ounce beautiful asset… That’s kind of the way this business works.”
Reunion’s Oko deposit is growing and still underestimated by investors, according to Goodman. Each DC-A share owns more than 2 RGD shares, and the investment is already a double for Dundee shareholders.
Rick Howes, CEO at Reunion, is DPM’s former CEO, giving Goodman confidence in its oversight. “Oftentimes companies don’t know what the right thing to do is.”
Magna Mining (TSXV:NICU) is another cornerstone investment. “Magna is awesome,” says Goodman. He’s a director of the Sudbury, Ontario focused nickel copper developer worth $85 million (Dundee Corp holds a 21.5% stake).
A 1.5% royalty on Aura Minerals’ (TSX:ORA) Borborema gold project in Brazil is entering the construction phase. It’s among Dundee Corp’s other mining assets.
Cash-strapped miners present Dundee Corp with big opportunities. “I can’t predict where the market’s going to take things, but if we have a good ore body and we can hang onto it, great ore bodies make great cash flow.”
To attract capital, Goodman wants the industry to become more predictable. “Unless we give them better data, the generalist investor isn’t going to show up.” He’s critical of engineering reports. “Have you ever seen a feasibility study or a pre-feasibility study that had a lower capital cost than the PEA?”
“I believe we’ve created a false sense of stability with these documents. They’ve hurt our market… at some point someone’s going to have to sue an engineering firm because it’s not acceptable.”
Australian studies are better, says Goodman, because they’re more likely to build their own mines, whereas Canadian juniors develop projects to sell.
He still believes Canadians are the best miners for their emphasis on social and environmental aspects. Goodman is proud that DPM employs more Bulgarians in Canada, than Canadians at its Bulgarian operations. “As a foreign investor, you really want to make it such that these mines and businesses are run by locals. That’s what we do.”
Block-size is one pet peeve of Goodman, referring to the dimensions of ore blocks that plan to be mined. “So many of the companies we look at where they tout good feasibility studies, when you actually regularize the deposit for the right block-size, they lose the economics.”
Then there’s Net Present Value (NPV). Goodman says it’s a weak metric since commodity price assumptions are less reliable as time goes on. To him, the most important thing is how fast new mines repay their capital cost.
“Most mines start off with a 10-year mine life and you wake up 10 years later, they still have a mine life for 10 years.”
He’s speaking from experience. DPM’s Chelopech had 6.5 million tons of remaining ore when Goodman acquired it in ‘03. It has since mined over 25 million tons with 20 million more in reserves.
Long-life mines are “NPV irrelevant,” says Goodman. “If you can buy them for a quarter of NPV, you’re really buying it for five or 10 cents on the dollar of what they’re worth. You don’t need a lot of those to be very successful in this business.”
Dundee Corp avoids high capex projects. “When I look at a porphyry deposit, if you don’t have a high-grade starter pit, you don’t have a mine.”
Passive investing in ETFs and index funds are also crushing small miners. “Companies that aren’t in the ETFs, they’re orphans.” He emphasizes, “How do you find active investors? It’s very hard.”
“I think there’s more investment bankers in the mining industry than there are investors today.”
The turnaround has taken long at Dundee Corp, but Goodman feels the corner approaching.
“My goals are to make this a very valuable stock, and I want to bring some cash flow into the company. I believe that we are at the precipice of a generational opportunity in mining as the confluence of the energy transition and the continued unsustainable strategy of deficit spending by virtually every country in the world are happening at the same time.”
“We’re going to wake up one day in five or six years and find out that the values are significantly higher. And that [Dundee Corp] is dramatically undervalued and that as we continue to pull this together, we’re going to create something special.”
“John is doing a great job at Dundee,” wrote mining leader Pierre Lassonde in an email.
Investor Rick Rule was mentored by Ned and made one of his best wins with Dundee Corp in the ‘90s. The company is on his to-do list to research again, after a trusted friend recently told Rule to do “his personal balance sheet a favour and get long.”
Goodman owns over 6% or 5.5 million of Dundee’s Class A shares. He has rights to about 2 million more through share awards, options and DSUs. Insiders and the Goodman family own close to 20% of the company. Through ownership of Dundee Corp’s super-voting shares, the four Goodman brothers control the company.
“The dynamic with my brothers is really good. I came back here with their support. We are supporting each other.”
Ned Goodman died in 2022, survived by his wife of 62 years, Anita. Now it’s Jon’s turn to mentor a new generation. Matthew Goodman, Jon’s son, is a portfolio manager at Dundee Corp. Like father and grandfather, Matthew is also a CFA charter holder. Jon also serves as Executive in Residence at Laurentian University (Sudbury), home of the Goodman School of Mines.
“We spend a lot of time trying to take luck out of it,” says Goodman. “We’re trying to find real ore bodies. If you can find that quick payback pit or something that’s going to really be able to make you some cash flow. That’s how we turn these ventures into businesses.”
In an ‘02 shareholder letter, Ned told Dundee shareholders, “The supreme paradox of business life is that when the time arrives that you begin to believe everything is finished – that will be the beginning.”
Dundee Corp is stepping out from the shadows. Back to its mining roots, aiming for redemption in a new bull market. And the RGD win is early validation of this strategy.
“Investing is a passion of mine,” says Jon Goodman. “There is a certain family pride thing, but also I want my own legacy.”
Author’s family holds Dundee Corp stock at time of publication. They and the author may buy or sell securities without notice. Story may contain errors.
