Straight Talk from Lucky Pierre
People packed into the Mine Finance session at this year’s PDAC conference. The session had four panelists, one of which was Pierre Lassonde, the founder of Franco Nevada Corp. and a former president of Newmont. Kicking off the discussion the moderator asked: What’s preventing the capital markets from appreciating the value that is inherent in mining industry?
Lassonde shared his thoughts. “No. 1, I would say our industry is almost to the point of irrelevance,” Lassonde said. “If look at the magnificent seven (Apple, Amazon, Google, Meta, etc.), they have a combined market cap of $13.1 trillion. The entire value of gold above ground ever mined for the last 5,000 years is $15 trillion. With gold equities, including the royalty companies, it’s $250 billion and half of that is the six largest companies (Newmont, Barrick Gold, etc.), and then the other half ($125 billion) is about 150 to 300 companies. In the grand scheme of things for investors, they have become irrelevant.”
No. 2, very few portfolio managers are in the gold space because there have been too many disasters, such as overruns in capital costs, poor execution of mergers, etc., Lassonde explained. “Newmont shares were selling $90,” Lassonde said. “After the Newcrest acquisition, they were selling for $30/share. Investors lost two-thirds of their money.”
The physical gold market would be No. 3. Gold prices today have reached a new record high of nearly $2,300/oz. “Gold prices are not set in the United States or London. They are set in China,” Lassonde said. “China is the driver of the market today. People here are not investing in gold, let alone the gold equities. They are investing in Bitcoin. They’re in the magnificent seven where they’re making so much more money, and they look at our space and see it as a disaster.”
Lassonde said he reviewed 3,000 exploration companies over a 10-year span from 1983 to 1993. “Only five companies actually delivered mines that opened and made money,” Lassonde said. “That ratio was appalling, and it got worse. There have been no major discoveries like we saw in the 1980s and the 1990s. Think about it. Goldstrike, Hemlo, Voisey’s Bay, etc. The range of discoveries that were made were incredible and we haven’t had any of that in the last 20 years.”
There are still too many junior companies that are “a lifestyle company,” Lassonde explained. “The management raises money to pay their salaries, but the company goes nowhere,” Lassonde said. “Stop complaining, shut it down, go work for someone else. Put yourself out of misery.
“At the end of the day, the only thing that matters is shareholder returns,” Lassonde said. “That’s what companies must deliver.”
While he was president of Newmont, Lassonde said he had 360 geologists working for him. “Of them, five guys delivered about 90% of all the reserve increases and new discoveries every year,” Lassonde said. “I called them my lucky geologists. There’s a huge element of luck in our business and particularly in the exploration business, but some people have innate luck. I have been lucky and luck is preparation meeting opportunity. You must be able to take the opportunity that presents itself and do something with it.”
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