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.
Track record is everything in junior mining.
Mark O’Dea took Fronteer Gold from a $1 million shell in 2001 to a diversified mine developer that sold for $2.3 billion to Newmont in 2011.
The Vancouver-based, 45-year-old Newfoundland-born geologist also created Aurora Energy in 2006, and sold its Labrador uranium assets for $260 million to Paladin Energy in 2010.
Along the way the accolades rolled in: 2000 Goldcorp Challenge runner-up, 2007 Globe and Mail “40 under 40” honoree, 2011 AMEBC Murray Pezim Award winner, 2011 finalist for EY Entrepreneur Of The Year, 2013 inductee to Casey Research Explorer’s League. Mr. O’Dea is an entrepreneur mining investors should follow.
We touched base with Mark by phone on Friday to discuss his philosophy and recent ventures. (Listen: Mark O’Dea CEO.CA Podcast Link (MP3)).
O’Dea speaks modestly about the Fronteer experience: “It came at a time when the market really lent itself to exploration companies that were good at finding deposits and could create value in the ground fairly quickly.”
The model for company building has had to evolve since the height of the 2011 bull market, when O’Dea sold Fronteer. Today, investors are more concerned with profitability than size. “It’s less about making a deposit as big as you possibly can, and less about value in the ground, and a lot more about making a project smaller, more nimble, less capital-intensive, and more profitable.”
O’Dea is involved in two new companies. The more advanced, True Gold Mining (TSXV:TGM), is developing the Karma project in Burkina Faso, West Africa — a country that’s become one of the best jurisdictions to build a mining business, he says. True Gold has progressed through typical permitting issues — social, water, native rights, etc. — that characterize mining in the Americas, moving Karma forward with broad community support. After just a year, True Gold is already at the mining permit phase. “I can’t imagine that pace in any other jurisdiction,” says O’Dea.
“In the next few months we’ll have our feasibility study completed,” he continues. “We should be approaching final permitting by year-end, followed by a production decision, project financing decision, and then mid next year we’ll start development.”
And True Gold has attracted some impressive investors. Both Teck Resources (TSX:TCK.B) and Liberty Metals & Mining engaged in months of due diligence before coming on board, sold in part by Karma’s rapid progress. “It was advanced enough to be quantified in terms of creating a mining project,” O’Dea explains. “The amount of capital needed to build the mine was not a lot — $130 million or so.”
True Gold is also a favourite of Exploration Insights (EI) editor Brent Cook. In a September 29, 2013 alert to EI subscribers, Mr. Cook wrote that “True Gold’s Karma deposit is one of the most advanced, simple low cost gold mining projects on the market… Financing should not be a problem, and if all goes well, Karma could be in production by late 2015. If all goes better than well, True Gold may not be building the mine itself.”
Note Mr. Cook, Teck, and Liberty each paid more than the current market price for True Gold’s shares, which last traded at $.31. The three resource giants’ involvement in True Gold is an endorsement for other investors, but Mr. O’Dea will have to live up to his track record in this market. Potential in the mining space isn’t worth what it used to be.
O’Dea’s second company, Pilot Gold (TSXV:PLG), has assets in both Nevada and Turkey. O’Dea speaks favourably about the mining environment in Turkey, comparing it to Burkina Faso. “We’ve been in Turkey for ten years now, operating there in joint venture deals with Teck, and we’ve had a lot of success. The exploration potential there is tremendous; there’s a huge endowment of gold and copper that we’ve been able to get on the map and drill off. Right now we’re advancing two projects with Teck, both fantastic in their own right.” O’Dea says to expect steady newsflow from Pilot Gold over the coming year. Just this morning, the company announced impressive drill results at its Kinsley Mountain gold project in Nevada (News Release).
When we asked Mark for his thoughts on gold, he clarified that gold itself hasn’t performed too poorly, but gold equities have badly suffered relative to the actual price of gold. We are very close to a bottom now, O’Dea thinks, and investors will soon return to the sector. “Businesses have been taking measures to clean up their acts. Mining companies have been rationalizing assets, and paying down debts. There have been big systemic improvements in the whole sector which will herald more investment in the next year.”
O’Dea likes a couple other commodities as well. “We have copper exposure in Turkey and we also have exposure to nickel in a private nickel company that we formed a year ago (True North Nickel).” The company is exploring in the West Raglan Belt, a nickel mining region in northern Quebec. Early drill results are encouraging, and O’Dea says that when nickel fundamentals look promising, they’ll roll the company out.
We asked O’Dea who else we should be paying attention to. Not surprisingly, he likes companies that share attributes to True Gold. For development-stage companies, O’Dea mentioned Sulliden (TSX:SUE), Kaminak (TSXV:KAM) and Probe (TSX:PRB). O’Dea says he respects B2Gold (TSX:BTO) and Alamos (TSX:AGI) for delivering on their promises. He also clarified that he doesn’t own any of the names he shared with us.
Finally, we asked the geologist if he still spends much of his time prospecting out in the field. With a cheerful chuckle he responded, “The only thing I prospect for these days is investors”.
We thank Mark O’Dea for joining the CEO.CA Podcast, and encourage listeners to check out True Gold Mining and Pilot Gold for more information.
Please note that nothing contained in this article or the associated audio file are to be considered investment or professional advice of any kind. All facts are to be verified by the reader. Always do your own due diligence. Also, please note that republishing of this article in its entirety is permitted as long as attribution and a back link to CEO.CA are provided. Thank you.
Previously on CEO.CA: Sprott’s Rule and the Bear
