Vision to Exit: How we Built and Sold our Projects

00:00:09 Andrew Pollard and I recognize that this is an investor’s conference. I can't think of a better way to end the event than with a panel stacked like this. On stage between the four of us in 2016 we were responsible for some of the most talked about acquisitions. One of us is known for never missing an episode of Judge Judy. It's a very highly accoladed group of people here.

00:00:41 Although they all look very different, if you look at their CVs their backgrounds are strikingly similar. All of them hit a big very early in their careers. Most importantly they followed it up with a string of successes in an industry where the odds are stacked against you. All three of these people have figured out the secret sauce. Between them there's billions upon billions of shareholder value creation.

00:01:12 This is something that you're not going to see locally very often. Thank you all for coming here today. Starting on my right probably with the best nickname you'll ever find in junior mining the queen of diamonds, who is credited in her 20s with making a discovery which ended up turning into the second largest diamond mine in Canada. She kicked off the Yukon Gold Rush last year with her take out of Kaminak, a cold buy Gold Corp, for half a billion dollars.

00:01:42 In her spare time she formed a company that is best known for pulling out softball sized diamonds. They account for 50 percent of the global diamond production of massive carats - Eira Thomas. Second up we've got no slouch himself. He's never made second place look good in a competition. He was runner-up to the Gold Corp Challenge and decided to follow it up with about three billion dollars of shareholder value creation between 2000 and 2013.

00:02:18 When company Frontier Gold was acquired for 2.3 billion dollars plus a few spin notes which added to the kitty, in his last year he was chairman of True Gold Mining which was sold for 240 million dollars to endeavor Mark O’Dea. Last but certainly not least we pulled out of retirement; he started in his 20s with a gambling personality, went back to the same project he struck his richest on in his 20s as a Geologist, culminating in a sale of terrain metals for $650 million then he decided to finally be the face of his own deal.

00:03:01 In three years he took new market gold from an idea to $1 billion take out by Kirkland Lake - we got Doug Forster. If I could maybe just start with Eira then we'll work down. You were three of the most talked about acquisitions of 2016. What do you see happening in the industry right now?

00:03:30 Doug Forster: It seems that there's been a shortage of projects. There seem to be people kicking the tires, there's not the fervor of activity. Did you see it picking up more?

00:04:42 Eira Thomas: I think we've been through a really difficult three to five years in this in this business. I think for those companies, those individuals that have been through cycles before understand the value of perseverance. I think what we started to see in 2016 was some of that perseverance paying off with some of the senior companies starting to look around for assets, particularly in the gold space. That's what created an opportunity for us at Kaminak. We were hopeful that it was a sign of things to come. The market hasn't completely taken off to the degree where I would say we're all really satisfied. It’s the quality projects with quality people that are really working to advance their projects and de-risk them are coming on the radar of larger companies. There are opportunities in the space to continue to sell these assets and look for other acquisitions.

00:04:50 Andrew Pollard: Mark you did see activity, maybe valuations on a per ounce basis going up as people try to beat each other out?

00:05:00 Mark O’Dea: I'm not sure if the valuation per ounce is going to go up. You know just kind of circle back to the original theme. That is as recently as 2015 we were still in the doldrums, early 2016 we were still companies in sort of the fetal position. They were focused on shoring up their balance sheets and paying off debt selling assets to do it - certainly the M&A cycle had not begun. I think the true gold deal to endeavor in in March of 2016 was a kind of Ground Zero – it kicked off I think.

00:05:39 A lot of other deals and it became okay again for intermediate to major mining companies to get back into the acquisition mode. The Kaminak deal, the new market deal obviously came close on the heels of true gold in it, it has continued to today with Exeter, Gold Rock, Integra - I’m probably missing a few. You know there were a handful of really good deals over the last 18 months. We're also seeing more importantly I think an acceleration of strategic toeholds investments in juniors.

00:06:21 Andrew Pollard: Alright.

00:06:21 Mark O’Dea: Development stage juniors there's not a lot left, there's probably six or seven or eight maybe that are in good jurisdictions with good projects good returns. We're seeing in the last two years 460 million dollars invested by corporates in those other development projects, compared to 160 million in the previous two years. There's been a massive increase in strategic investments. A lot of these companies have more than one major invested in them which is creating a lot of tension, excitement.

00:06:57 Andrew Pollard: Right.

00:06:57 Mark O’Dea: Yeah.

00:06:58 Andrew Pollard: Doug maybe if I might redirect the question a little to you. You know a theme among conferences like this is the term optionality - companies pursuing a development of assets or marketing assets that may only be economic at 1,400 gold or 1500 gold. Do you think that with the spate of acquisitions has happened the lack of projects that are economic at these prices? Do you think we're going to see a run on acquisitions of projects that may only be economic at a higher level before gold gets there? Do we have to wait till $15 hundred gold for the acquisitions to happen for a $15 hundred project?

00:07:36 Doug Forster: It's a good thought Andrew. You know we're in the gold business - if you're in the gold business you have to believe the price of your commodity is going higher. When we bought three gold mines in Australia for new market gold was 11 hundred – no-one wanted those assets. It was hard to fund those assets at the time actually, back in 2015. 14 months later Gold 1350 we sold that company for a billion dollars - those mines are doing very, very, very well for Kirkland Lake.

00:08:06 You have to have a long term view yes - of course you don't want to be looking at gold assets for instance that require $2,000 gold. That is a wish list that I'm not subscribing to necessarily. You do have to have a long-term vision; this is the business we're in. I think ultimately right now we're in a good part of the cycle and this is a good time for investors. I think we've seen not a complete buy-in yet from institutional investors in the gold sector for instance. I think that's going to come.

00:08:39 I think we'll see elevated prices ahead with good management teams. I think most investors can do quite well in any market. This is going to be a rising market in my view.

00:08:51 Andrew Pollard: When you started the company in 2013 obviously writing was on the wall for the industry - I mean it was dark times. What made you feel confident in actually paying money to buy this production? When you were trying to catch the proverbial knife at the right time you could have gotten cut.

00:09:08 Doug Forster: Yeah it's – it's interesting typically. I would say when we acquire we're looking to start a new deal. We acquire the asset first then great assets attract great management teams. In the case of Newmarket we actually had the management team, we had the board, we had Lukas Lundin, we had Randall Oliphant, we had Ray Threlkeld, Doug Hurst, Blayne Johnson and others. We did a little bit a little differently that gave us the confidence to make the deal flow.

00:09:38 Right, we had the people and we knew those great people would attract great assets. It did take two years longer than I would have liked we ended up with quality assets in a tier one jurisdiction - ultimately the shareholders did very well.

00:09:55 Andrew Pollard: Do you think to our sister Eira because look Carlos one of the few emerging juniors that does something well that would be considered a four-letter word in mining which is pay a dividend. Obviously you've got a lot of skill in the game, as did the other co-founders. Do you think that is that what made the decision to return profits to you instead of just chasing growth being the biggest, baddest?

00:10:19 Eira Thomas: Well the diamond sector is a bit different because growth is actually pretty difficult. It's a very small space, there's very few economic minds. Even if you want to pursue growth it's not something that you can necessarily do within a time frame that's really going to pay dividends to your shareholders. For us the decision was quite simple - until we found the right asset to acquire we're generating lots of cash and we've got a really healthy balance sheet. We felt that this was a really great opportunity to actually return cash to our shareholders.

00:10:55 As a result we attracted a much higher rating I think than most of our peers in the space. It's just a testament to the way the market has moved. I think a decade ago growth is what everybody wanted to see. Shareholders were willing to pay up for those companies that had the most aggressive growth strategy. We've seen a real migration away from that now to shareholders looking for companies that are responsible with their cash,

00:11:23 that have strong balance sheets that are positioned to weather down cycles. Companies that are thinking about how to maximize value for the shareholders. That's been a real change I think in the last five years.

00:11:36 Andrew Pollard: Do you think management having a significant amount of skill in the game decides whether you're going to do what's probably in the best interest of the shareholders too you know return a profit versus just –

00:11:48 Eira Thomas: Absolutely.

00:11:49 Andrew Pollard: You know, right

00:11:50 Eira Thomas: Absolutely, I think that's always something to really pay attention to as an investor. Especially if you're doing your research. Looking at the assets at the end of the day a quality management team is great. How much skill, you know how big a check have they written, are they exposed, are they aligned with your own interests.

00:12:13 Doug where could you pay a dividend at the end? Or was it something that was ever on the radar for you? Or were you always chasing other acquisitions?

00:12:21 Doug Forster: I've actually never paid a dividend.

00:12:23 Andrew Pollard: Right

00:12:25 Doug Forster: I'm actually kind of proud of that we put money back in the ground in most of our companies. Kirkland Lake who purchased new mortgages started paying a dividend. If you look at the correlation there isn't a direct one-to-one correlation between companies that pay the highest dividend shareholder return in terms of the share price. Yes it's an income for shareholders, yes it's important ultimately we tend to focus on growth invest in growth. Now of course you know Newmarket started as a $40 million company, know Kirkland Lakes as a $2.2 billion company, which is the time to start paying a dividend.

00:13:01 Typically I like to reinvest capital to create value for shareholders in the ground. If want to get dividends they can certainly choose from a number of companies that do that.

00:13:11 Andrew Pollard: In terms of I'll throw the server to.

00:13:12 Eira Thomas: Just I am sorry.

00:13:15 Andrew Pollard: Yeah maybe.

00:13:16 Eira Thomas: I was just going to say that agreeing with Doug there is a fundamental difference between commodities as well. With diamonds again the growth opportunity is much less than it is with a sector like gold. I agree with Doug in that sense, it just depends.

00:13:34 Andrew Pollard: Mark when you commission true gold then see through to commercial production, was it always your goal when you got it there to position it to get taken out or would you have been happy running it as a producer yourself maybe growing the company?

00:13:51 Mark O’Dea: Tells always easier with the take out for sure. You know you have to be nimble - we were at a very, very, very, very dark time in the in the market as we all remember. It became clear sort of halfway through of the financing efforts of true gold. That the only way to extract value from this opportunity was going to be to build it produce an operating mine see what happens then. I kind of liken an analogy to building a house right - if you build a house that you want to live in then probably someone might want to buy it one day.

00:14:32 If you build a house to flip chances are you're going to be stuck with it right.

00:14:36 Andrew Pollard: Yeah.

00:14:37 Mark O’Dea: We built a house to live in it. We got approached shortly after pouring gold. We built an operating mine, and financed it in the toughest time in the market that I can remember. We got approached by Endeavor - what really sealed the deal for us was not so much the headline number it was a $240 million headline number. What sealed the deal for us was we got deep into the weeds. What Endeavor’s plans were to grow organically?

00:15:10 We were convinced that Endeavor was going was on the right track, had the right balance sheet and fixed the right backing the right team to turn into a million ounce of your producer. Since we've done the deal we ended up owning true gold, ended up owning 20 percent of Endeavor and Endeavor went from $12 to $27. It turned out to be about a $550 million deal for true gold shareholders through that rewriting of being part of something much, much bigger which wewe believed in at the time that we negotiated that sale.

00:15:47 Andrew Pollard: I was going to say a $240 million is very small for you. Yes – yes glad were able to get it up there.

00:15:52 Mark O’Dea: It's big enough.

00:15:55 Andrew Pollard: All three of you had success both at the base of your own deals and you've also had a lot of success forming companies, I guess backing entrepreneurs to be the face of them. What do you look for in a CEO or a management team that you're willing to put your name and your money to ultimately? I'll give it to Doug.

00:16:13 Doug Forster: Yeah, I think track record first of all, and experiencethat maybe a track record of creating value for shareholders or for just making discoveries or for taking projects to feasibility. Whatever your strategy is you look for that type of track record. I always look for people that I can work with, trust and respect. That's really important to me - have fun if you're going to have fun if you're going to work with people who you enjoy being with. Ultimately it was already mentioned.

00:16:40 I think regarding skill in the game critical senior managers CEO senior VPS hopefully will write a check to the best of their abilities. You know not every woman will want to write the same check. They’ve got to have some exposure, some risk that drives them. All of us who succeed create value for shareholders.

00:17:03 Andrew Pollard: What about you Mark, you obviously have oxygen capital you formed countless companies? What do you look for in management team?

00:17:10 Mark O’Dea: Well over the last 12 or 13 years we've created eight new full first CEO so full-time first-ever CEOs that have come out of the oxygen group of companies, which is something that I'm very proud of. They're not people who had ever been CEOs before but they had the passion, the drive, the commitment. I'm just looking for smart people who are hungry. They can be mentored, you can build support around them to help them grow and get up the learning curve; not everybody comes with a track record.

00:17:46 You know often people who've had a couple of tickets get pretty complacent. I'm looking for smart young people who are hungry, ambitious and want to hit a home run.

00:18:01 Andrew Pollard: Okay, I'm available Eira what about you? I mean obviously look harder in our spare time it's already reached a billion dollars in sales. She knows a thing or two about that.

00:18:12 Eira Thomas: I'd I think that both Doug, Mark touched on the same points that I would make, I think mentorship is really important. I think it’s critical when you're putting together a team to recognize that it's never about one person. That you need a complement of skills if you're going to be successful you can find the smartest person. If they can't work with the broader group of executives in that organization then it may not be successful. I think what you see certainly it’s been my experience over 25 years of doing this is that you really have to put the right people around the table.

00:18:52 As Doug said people that like to work together that respect working together and actually have fun doing it that frankly isn't as easy as it sounds. I think anyone that's been serially successful in this business understands that putting together that group of people is really the key.

00:19:13 Andrew Pollard: Alright that is great. You know we touched on this before a little bit. The last bull market was sort of marked by companies wanting to be the biggest and the baddest and they wanted to add ounces. They wanted to increase reserves. They wanted to go after projects in there to ever higher valuations. You know in the declining market that led to some crazy write downs too. Do you think that this go around maybe the lessons have learned it might be the rise of the single asset company?

00:19:41 Ormaybe the smaller profitable producers may become the flavor of the day. Doug you know about productions, I’ll start with you.

00:19:50 Doug Forster: Well I mean it takes the same amount of management time to run a small gold mine as a large gold mine. I think ultimately to have impact on your bottom line your net asset value your earnings cash flow per share you’re hopefully looking at something that's material, something's larger in terms of acquisitions. Yeah a lot of lessons were learned in the last cycle. We saw a lot of deleveraging over the last few years, a balance sheet because they became extremely debt ridden through acquisitions. Acquisitions where top-line growth as opposed to focusing on bottom line success all that led to what we know now is a lot of write downs as you said Andrew.

00:20:33 I think now the focus really is creative acquisitions strategic acquisitions that impact earnings cash flow per share of that asset value. Bringing strategic assets together like gold cores recent purchase of Exeter then Jenny bean with Berek that was an interesting deal, it brought those two assets together under senior management leadership. I think every asset is different. You know when I have my metrics of what I want to look for on acquisition there's a whole suite of them, I never get all of them. You know each asset is different and specific.

00:21:14 I keep a very broad mind in terms of what I'm looking for, what type of acquisitions - each one is unique. That's the way we try run our business.

00:21:22 Andrew Pollard: Mark 00:21:23 is a topic completely. Obviously you made her name of the Gold Corp challenge. Integra did an event a few years ago, PDAC, which had a million-dollar prize. It was an AI focused company that came up and was able to delineate the best exploration targets. I'm wondering if you see any transformative technology that is about to be unleashed that could change the game in mining or exploration or whatever if there's something you're backing.

00:21:50 Mark O’Dea: I wish I had the secret weapon like that - I don't. I mean I'm not seeing anything that is super transformational out there. I mean I did walk around the auditorium during the last challenge, there was some interesting stuff. I kind of saw it all as more some incremental gains as opposed to something completely transformational.

00:22:13 Andrew Pollard: Not the Hoover fiction of mining –

00:22:14 Mark O’Dea: Not –

00:22:14 Andrew Pollard: Or amazon affiliation.

00:22:15 Mark O’Dea: Not quite there yet no.

00:22:15 Andrew Pollard: Yeah

00:22:16 Mark O’Dea: No.

00:22:17 Andrew Pollard: Alright then.

00:22:19 Mark O’Dea: Unfortunately it means this mining is still very much a boots on the ground business right, there are ways to improve efficiencies that sort of thing. There’s no way around like walking the rocks, getting to know what you're looking at, putting together a geological picture without that you're kind of just chasing blind targets.

00:22:38 Andrew Pollard: I read do you think as a geologist that the next discoveries that will move the needle will they be found? You know in far-off far-flung places or will they be old mining camps or will they be in you know Yukon for example it.

00:22:51 Eira Thomas: Yeah I think it's going to be a kind of a combination quite frankly. I agree with Mark, we haven't seen new technology that's really been transformational. We have seen a lot of efficiencies. Sean Ryan who's at the conference today would be an example in the Yukon, he’s really tried to deploy kind of revised techniques to be more efficient in cover larger areas. You know smaller portable rigs different techniques for sampling. You know we every few years see new advances in geophysics which are which are all helpful.

00:23:28 They're helpful in being able to explore remote regions that we obviously have a lot of in Canada. I think we'll see some of that brownfields exploration. I think it will necessarily continue because quite frankly we don't have enough money going into the ground by junior explorers now to really lead the way with new discoveries, development. You know we need to see a recharge that part of the segment of the business too. I think reinvigorating discovery is happening at that level.

00:24:02 I think companies that are in production are going to continue to invest in brownfields exploration as a way to add to their resource reserves. I know, back to Doug's point about growth. I think we have moved on for growth, for growth's sake. I think companies are looking to ensure that whatever they do acquire is going to be a creative. NASA also set a higher bar when it comes to new assets coming into production.

00:24:32 Andrew Pollard: Right, you know this is an investor's conference obviously. You’ve all been very generous with your time as we're closing it out. You know much of the narrative is often focused on projects. My whole business is predicated on people. If you follow the good teams they know what they're doing an ultimately win. I'd like to give all of you an opportunity to maybe let the investors out here figure out

00:24:54 how do they back you? How do they invest in what you're doing go along for the ride? Maybe certainly with Doug go down.

00:25:00 Doug Forster: Well I think the number one investment strategy that I've always employed myself personally is when someone asked me whether it's institutional retail investor is investing with people. Assets come and go, good people will find the right asset if the first one doesn't work. In terms of investment philosophy stick with good people that you can talk to, don't avoid you and their CEO or people on the board make sure you can talk to them to get the information you require. It's a tough business; it's not easy creating value for shareholders in any sector let alone the mining sector basis it's cyclical. I think we're in tune now for a pretty exciting time for investors. You know we're talking about M&A here.

00:25:28 My motto is you know we're not for sale but everyone has their price. Yeah ultimately don't play something necessarily as a takeout play at play stock. Because you know that the asset is sound it can be enriched and if management is good we'll stick to it. Ultimately if you do that I think investors will do very well whatever commodity you're investing in – gold, copper, zinc or whatever it is.

00:26:16 Andrew Pollard: You have Calibre right that's one of yours.

00:26:19 Doug Forster: You have a Calibre mining absolutely. It's one we're focused on in Nicaragua. It’s development stage, and got resources at an earlier stage through two big partners to mid-tier partners. In gold, Sentara then we have a hundred percent on ground as well. We quite like Nicaragua it’s a great, great place to do business - we've been there for seven years it's a great place to be. Outside of Calibre I would invest in anything that Eira and Mark are doing.

00:26:47 Andrew Pollard: Yeah, Mark how do you know what's the best way for someone to sort of back you? What you're doing right now I know you've got something you want to go?

00:26:54 Mark O’Dea: I get to do shameless promotion right now.

00:26:56 Andrew Pollard: Of course

00:26:57 Mark O’Dea: Okay.

00:26:58 Andrew Pollard: I am.

00:26:59 Mark O’Dea: Alright, Thank you. The two deals that are alive well in our oxygen stable of companies are Pure Gold, Liberty Gold which has recently changed its name from Pilot Gold. Pure Gold is focused in Red Lake on the Madison mine in Ontario. We're drilling off brand new zones of a legacy mine much like Integra just did - actually it's a great analog. We're finding new zones of 10 to 20 grand material we've hit five new zones. By the end of the year we should have a new resource out - it's a permitted mined site with a mill tailings facility with power.

00:27:40 You can kind of do your own valuation analysis on it. It's a goodbye. Liberty Gold has just gone through a rebranding - it's focusing exclusively on its Great Basin projects in the southwest US. In Nevada Idaho, Utah we've got three past producing open-pit Carlin deposits. Gold Strike is our flagship project that we’re drilling off aggressively right now. I would just say that over the last five years there have been eight new open pit heat bleach mines built in the world, and two of them have come from our group. Both reached commercial production last year so karma reached commercial production in Burkina Faso which we built in October.

00:28:27 Long canyon reached commercial production in November which Newmont built. We think gold strike is our third.

00:28:34 Andrew Pollard: You, Eira you close it down.

00:28:36 Eira Thomas: Okay, well I'll be quicker because you really have to stay tuned for my next deal because it still works. I will maybe make a pitch for that for the Yukon generally there's lots of exciting work going on in Yukon. It's certainly a jurisdiction to keep your eye on. Then maybe outside of gold I will make two lesser-known promotes for two companies that I'm involved in advising. One is in the diamond space that's a little company called North Arrow which is exploring one of the largest kimberlites in Canada.

00:29:13 Located in a very good jurisdiction very close to Tidewater 00:29:17 it has a population of very rare high-quality orange diamonds that's a very good value stock - that's North Arrow. The other project that I'm certainly intrigued by is one called Strongbow - they are looking to put the South Croft tin mine back into production in Cornwall. For those of you that have an interest in looking outside of the gold space, I think those would be two very good projects to have a look at it.

00:29:48 Andrew Pollard: From diamonds to tin, oh my goodness. Okay well you listen we're out of time. I want to thank all of you for your time, this is a panel that you'll never see locally at one of these events. I'm thankful that you came up here. Yeah the conference is officially done, thank you all for coming may the next Bull Run come as quickly as a lesson disappeared. Good day thank you.