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.
Ivan Bebek’s path to junior mining success began in the late 1990s in a business class at Western University in London, Ontario. His professor encouraged the ambitious young student to take a securities course and become a stockbroker. Bebek began to learn more about capital markets, value creation and what it meant to be a contrarian after readingBuffettology, a book about Warren Buffett’s contrarian investment strategies.
He returned to Vancouver with a goal of becoming the go-to stockbroker in the city. It was the “dot-com” era, but the contrarian broker saw tremendous value in the resource sector, which was very much out of favour at the time.
Bebek’s passion for mining during the Internet boom earned him a few critics. At one time, his clients were being told “He’s crazy, mining will never be what it used to be.” Going against the grain wasn’t easy but he persisted, eventually telling clients, “The other brokers are right, it will never be what it used to – it’s going to be much better!” Gold would go on to soar for the next 11 years.
Things have worked out well for Bebek and business partner Shawn Wallace. TheirAsanko Gold (AKG-T, AKG-NYSE) has completed 60% of the construction on Phase 1 of its Asanko mine in Ghana and last year, the duo sold Cayden Resources and its El Barqueno property in Mexico to Agnico Eagle for $205 million.
Bebek, Executive Chairman and his partner Wallace are now at the helm of Nunavut-focused Auryn Resources (www.aurynresources.com, AUG-TSXV). Auryn is developing its Committee Bay gold project, now owned 100% after a recent takeover of JV partner North Country Gold.
The Committee Bay deposit has grade, size, and scalability. The current resource is situated in the Three Bluffs deposit at 501,729 oz Au (indicated) @ 8.42 g/t and 772,179 oz Au (inferred) @ 7.16 g/t. The 300-km Archean Committee Bay greenstone belt where Three Bluffs is situated is open along strike and at depth, and management is optimistic it could host multiple high-grade deposits of greater than 3 million ounces. The Auryn team plans to expand the existing discovery into Canada’s newest gold district as they explore their 300-km land package.
The remote area is home to Agnico Eagle’s Meadowbank gold mine and has seen renewed interest from developers, most notably TMAC Resources, which is building the Hope Bay gold deposit. Sabina Gold and Silver has also just published a lower-capex Feasibility Study for its Back River gold project.
Cost of infrastructure is always a concern in the far North, and we discussed the viability of profitable production in Nunavut. Bebek pointed to the Meadowbank mine – just south of Committee Bay – which is on track to produce 400,000 oz of gold this year at a cash cost of $656 US.
A top objective for the Auryn team is to be the most cost-efficient explorer in the Arctic, Bebek says. The company is managing costs as it explores the Committee Bay property, where Auryn’s RAB drill rigs are coming in substantially lower than the the previous operators’ cost of drilling. This is achieved by the track-mounted RAB rig being able to pivot in a radius of 1km from its compressor. Traditional drill rigs must be disassembled, moved via helicopter, and re-assembled for each hole.
The focus of Auryn’s summer drill program is at the West Plains and Four Hills area, where 30 to 40 holes are being drilled on initial high-priority targets searching for high-grade gold. Results are expected later this fall. Other exploration work involves extensive surface sampling which is adding to the numerous already identified targets to be drilled. The technical team – led by former Newmont geologists Michael Henrichsen and David Smithson – will be reassessing the significant amount of historical work done to date on Committee Bay to further define high-priority areas on the 300-km property.
Here’s what success in the summer program looks like for the Auryn team:
Catalysts include results from the summer drill program and next year’s exploration plans. Management will also be continuously reaching out to the investment community to tell the story. They want the market to know Auryn is on the frontier of a new major gold district and that the future is bright for Committee Bay.
Bebek related that his successes haven’t come without growing pains, particularly during his time in the brokerage industry. One of his clients had a margin account that ended up on the wrong side of zero. He said it was a very humbling experience that motivated him to be more disciplined and create his own luck through work ethic and by surrounding himself with great people.
Following his two-year stint as a broker, Bebek joined the team of Roman Shklanka, PhD, P.Geo, who was responsible for discovering 7 major mines. Shklanka became a mentor to Bebek as he provided an encyclopedia of knowledge on geology and how mines are discovered. To add value to the team, Bebek was instrumental in raising $100M+ for a few juniors they had in their portfolio.
After being involved in several junior companies and grasping the technical components of mining, Bebek decided to build his first company, but not alone. Bebek met Shawn Wallace, another mining visionary who garnered his experience from the reputableHunter Dickinson Group (HDI). Wallace at the time had over 20 years experience with being part of teams that took resource issuers from explorers to developers to finally, cash-flowing businesses or sales. This partnership would favour both shareholders and themselves well into the future.
In 2004, the newly formed team had a goal to discover a gold mine initially as founding shareholders and prominent advisors. Wallace eventually took the reins as CEO and Bebek remained a very active member of the management team. The public vehicle they strove to accomplish this through was Keegan Resources.
Being incredibly ambitious didn’t make things easy for the duo. Bebek admits the Esaase gold deposit now being developed by Asanko Gold (AKG-T, AKG-NYSE) was the seventh asset they put into the company. Located in Ghana, West Africa, Esaase has reserves of 5.2 million ounces (7.9 M&I, 5.2 Reserves). The mine is under construction and scheduled to have its first gold pour in Q1 2016, after which it will produce 190,000 ounces annually. At the peak of the bull market in April 2011, Keegan was worth just over $700 million (current market capitalization about $380 million).
Bebek mentioned he is more attracted to the exploration and discovery side of the business. “The higher the risk the higher the reward,” he commented. He and Wallace brought in a top-tier mine building management group that would be more suitable to take the project into production. Wallace remains an active director of Asanko Gold.
Their second venture was Cayden Resources, where Bebek held the CEO role and Wallace acted as Chairman. This was one of the most successful mining deals of 2014 – Agnico Eagle acquired the company in an all-share deal valued at $205 million. It was Cayden’s El Barqueno project in Jalisco, Mexico that attracted Agnico. Bebek credits Dan McCoy, PhD, and Jim Slayton for visiting the site and advising on the quality of the asset. Bebek and the Cayden team used the same strategy for Cayden as they did for Keegan, identifying if grade and scalability are present. Cayden’s El Barqueno had both – and was snapped up.
Both co-founders have held chief executive officer positions in previous ventures and been successful. I asked Bebek what it takes to be a good CEO and he responded, “You need a great work ethic. A good CEO covers every aspect of their company and he/ she surrounds himself with the best possible talent in the business. Leadership is also a fundamental attribute. You have to inspire your team and have them believe in the company’s vision. Optimism is very important. You must hold a positive outlook on the future because mining is so cyclical you have to see past the downturn.”
Success is never a linear curve, and we chatted about some of the challenging times in his career. One that stood out was navigating market conditions during the 2008 financial crisis.
“It was scary in 2008 when Keegan went from $5.75 to a low of $0.49 in a few months with the crash,” Bebek said. “If I had sold all my assets at that time I would have likely been near zero with taxes owing. But just after that time, we were one of the first companies to go marketing. Three months later we were financing at $2.40/share and approximately 16 months after that we were trading at $9/share. Going through that taught me you have to trust yourself, your team, your abilities in what you are trying to accomplish and your asset.”
Monday, Auryn Resources increased its recently announced financing to $5.8 million ($1.20 units with full $1.70 2-year warrants) because of increased demand. The private placement is expected to close on September 16, 2015. Here’s the news release.
Auryn Resources is presenting at this week’s Precious Metals Summit in Beaver Creek, Colorado.
Click here to subscribe to Auryn’s corporate email list (recommended). Also, follow the company’s insider trades and discussion in CEO.CA chat, an “investment conference in your pocket.” Auryn’s chat room link: http://chat.ceo.ca/AUG
POSTED BY ANDREW NELSON
