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Now is the time to invest in the mining space, says Robert
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Building Canada’s next mid-tier gold
MINING | DUNDEE GOODMAN MERCHANT PARTNERS
t Dixon of Canadian investment group Dundee Goodman
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Dundee Goodman Merchant Partners is a Toronto-based investment firm comprised of a team of international mining and investing experts with a proven track record in picking winners from across the sector. Over the last decade, Dundee Goodman has gone along for the ride with the resources industry, watching prices across several commodities bottom out between 2013-15 before seeing a widespread recovery over the last four years, particularly in the gold sector. During this time, mining companies around the world put in a sustained effort to recover their damaged reputations in the investment field, developing disciplined management teams and investing in wellreceived ESG programmes. The unforeseen arrival of the COVID-19 pandemic in 2020 seemed to pose the ultimate acid test for mining’s newfound attractiveness in the investment market. But how has the sector held up throughout the wild peaks and deep troughs of a truly remarkable year? Dundee Goodman managing director Robert Dixon talks to RGN about the development of a commodities bull market, the company’s investment thesis and how mining companies have improved their investment credentials over the last decade.
Jacob Ambrose Willson: Robert,
and Warren Buffett buying
has a mood of positivity
into Barrick. This is not to say
endured across the mining
Buffett is a gold bull, but his
sector, despite metals prices
investment encouraged the
coming down slightly from
generalists to wade into the
the giddy highs of the summer
gold space.
months?
We had this big run up to Robert Dixon: We were all
around $2,070 per ounce in
pleasantly surprised by how all
August, but I think it was
metal prices have run up since
always natural there would
everything was crushed in early
be a pullback, it was only a
March. Lots of commentators
question of when. The gold
have said that a gold bull
price has been hovering
market started in 2015-16, but
around this $1,920 level for a
it was only around a year and
couple of months now. The
a half ago that gold topped
stocks have sold off as a result,
US$1,500 per ounce. That was
but when you’re looking at 10
a big milestone given where it
times your money in a couple
was in 2012.
of months, that was always going to happen with a lot of
I think the massive uncertainty
these speculative juniors. But
of COVID-19, with regards
the conversation around the
to the future of the global
Zoom channels these days is
economy, really made gold
that it’s not a question of if, it’s
relevant. Every country in the
a question of when we start
world is running humungous
to see them move up again,
fiscal deficits right now,
because the bullish factors
including the US. With this in
haven’t changed, they’ve
mind, I think gold’s moment
actually been exacerbated by
has arrived. This has been
this situation we’re in.
punctuated by certain things like Ray Dalio talking up gold
MINING | DUNDEE GOODMAN MERCHANT PARTNERS
There is also likely to be
eldest son of founder Ned
question management and
uncertainty lingering around
Goodman to refocus the firm.
have a long period of back and
after the US election. The kind
He brought back a team of
forth on all sorts of technical
of fiscal package put through
technical and capital market
issues.
by the winner will drive the
professionals; essentially
gold price in the short term.
people who are experts in
This process will eventually
My sense is that people are
all the disciplines you would
culminate in an investment
sitting back and thinking ‘okay
need as a mining company,
into treasury, with a view that
I’m going to see what happens
but more importantly as an
mining is a long-term game.
here before I push more chips
investment team looking at the
We’re not thinking about one
into the table’. Do I think
mining space.
year, we’re thinking five to
they are going to do that? I
10 years in duration. When
absolutely do and 2021 is going
At Dundee Goodman, we bring
we are parking money into a
to dwarf 2020, frankly. That’s
what we consider to be a world
company, we are looking at it
our view. This year the gold
class team of experts, with
after doing our homework and
price has gone up around $400
over 200 years of combined
aligning with management,
to $2,000. I can see a similar
experience, to really sift
with the idea of growing the
type move, maybe even more
through the boneyard of the
company.
in the year ahead.
mining space. There are up to 1,500 junior mining companies
Generalist and retail investors
JAW: Bringing in Dundee
out there at the moment,
- and even sometimes
Goodman, what are the
and maybe only 300 could be
institutional investors - don’t
key tenets of the company’s
classed as a viable investment.
have the time or the resources
investment thesis in the sector?
When we consider making a
to do the heavy lifting in terms
serious investment, we sign
of the DD that we do. We’d
RD: Dundee Goodman has
a confidentiality agreement
like to think that if you see us
been around a long time as
with the company and then
backing a company, that sends
an investment firm with asset
go into the data room. We
a signal that we’ve done some
management as well as having
complete extensive periods of
real work on it. I can cite a lot
a lot of other non-mining
due diligence (DD) to ensure
of examples when we’ve had
business over the years. But
it meets the required standard
great expectations about a
about two years ago, Jonathan
across several metrics. Our
company before undertaking
Goodman came back as the
experts make sure to really
MINING | DUNDEE GOODMAN MERCHANT PARTNERS
ROBERT DIXON, DUNDEE GOODMAN MERCHANT PARTNERS MANAGING DIRECTOR
MINING | DUNDEE GOODMAN MERCHANT PARTNERS
serious DD and then realising
certainly a higher comfort
increase the grade and grow
a number of concerns relating
level in countries like
the resource at depth. Overall,
to the investment, meaning we
Australia and Canada. So
it’s about understanding what
could not invest.
there is management and
the resource is and what it
jurisdiction, but it’s also the
could be. Based on the plans
JAW: Dundee Goodman clearly
quality of the work done
of management, could this
has a stringent process of
and the assets themselves.
expand and grow over the next
filtration when looking at
For example, Saturn Metals’
few years? We think so!
potential investments, so what
Apollo Hill gold project in
are the stand-out strengths of
the Eastern Goldfields of WA
I’ll finish with Maritime and
the companies that you are
has around 800,000 ounces
their Hammerdown deposit
currently invested in?
in resource right now. But
in Newfoundland. We started
we see the potential there
looking at this asset a couple
RD: We’re invested in a lot of
for a tremendous amount of
years ago when the company
companies, but I’ll highlight
growth with more density of
reached out to our merchant
three. Two are ASX-listed:
drilling that we are helping
banking group as an M&A
Saturn Metals and Centaurus
them fund. We also see the
defence because another
Metals. Saturn has a project in
grades improving with more
company was looking at it.
Australia and Centaurus has
drilling, which improves the
the Jaguar Nickel project in
economics.
Brazil. Then there is Maritime
DU NDEE G OODMA N AT A G L A NC E
Resources that trades here in
Similarly, when you look
Toronto. We think very highly
at Centaurus in Brazil, the
of the management teams
chatter around the Zoom
at each company. They’re all
coffees is that this is a unicorn.
technical, honest and realistic.
You don’t find many very
They know what they don’t
high grade nickel sulphide
Maritime Resources – TSXV:MAE
know and are receptive to our
deposits in the world these
Reunion Gold – TSXV:RGD
ideas as well.
days. We are talking about
Ausgold Mining – ASX:AUC
50 million tonnes grading I think management is the
at just over 1% nickel and
number one prerequisite,
within that there are higher
but jurisdiction is another
grade portions as well. Again,
key factor for us. There is
there is a lot more potential to
TOP HOLDINGS: Saturn Metals – ASX:STN Centaurus Metals – ASX:CTM
1911 Gold – TSXV:AUMB Monetta Porcupine Mines – TSXV:ME Sabina Gold & Silver – TSX:SBB Mawson Resources – TSX:MAW K92 Mining – TSXV:KNT
aj
When our technical guys were
are good. You want to align
RD: It’s difficult because a lot
looking at it, they concluded
yourself with management
of investors around the world
that with a reinterpreted
teams that know what they’re
have made those initial bets,
resource it could be far more
doing and can push things
deployed capital and made
compelling than even the
forward. Saturn, Centaurus
money. We haven’t shot all the
company appreciated. In that
and Maritime are three good
bullets, but we’ve shot some of
period of time, we pushed
examples of that.
them. So we’re sitting on some
to get a new CEO in, added
winners. Now we’re looking
three board members and
JAW: In the current bull
at the universe and saying:
reinterpreted the resource
market for precious metals,
‘Do we want to deploy more
with that new management.
are you finding that you are
into new investments or more
It’s really high grade which is
working even harder to filter
into the investments we’ve
another common theme when
out the good from the bad in
already ticked the box on?’ I
you talk about things we are
terms of the companies that
think there’s a bit of that going
looking for, and the economics
you look at?
on right now, and the obvious low hanging fruit has already
MINING | DUNDEE GOODMAN MERCHANT PARTNERS
been taken. It is getting more
your buck. We’ve seen a lot
by mining companies with
difficult and we are being
of companies over the years
regards to their investment
much more discerning.
have a decent asset but have
environment. So what would
blown the capital structure up
be your advice to investors
I think the publicly available
doing financings at pennies
looking to take advantage of
information for us is very
over the last 10 years, which
the current bull market?
much a screening tool. We are
has killed them. So we’re
looking for good management,
trying to avoid those even if we
RD: 10 years ago it was all
jurisdiction and good grades.
recognise a good asset. We’re
about showing more ounces
One factor I didn’t mention but
trying to focus on tight capital
because the market valued
is very important is the capital
structure, which signals good
ounces. Certain companies
structure of a company. If you
management typically.
were optimising their projects
can get into a company with
for scale with stars in their
a relatively low share count,
JAW: You mention some of
eyes when thinking about
you have so much bang for
the mistakes of the past made
where metals prices could
go, rather than optimising
environmental planning and
some of the bigger mining
projects for profitability. PEAs
a lot of over-promising and
companies now compared
were often used as marketing
under-delivering.
to a decade ago. The other
documents and there were
thing that has happened
mistakes in geological
But there’s been a real
more recently is a move away
modelling, mistakes in
sea change in terms of
from ETFs in the mining
community relations, a lack of
management discipline at
investment space because
MINING | DUNDEE GOODMAN MERCHANT PARTNERS
the alternatives have become
couple of miners in the world,
more competitive. Previously,
and they’re going to pay out
generalist investors could
a growing dividend in this
just buy bullion to get gold
environment.
exposure or invest in ETFs to get exposure to the gold
The AISC for gold producers
miners. That was the logical
globally right now is around
thinking from the last eight
$1,000 per ounce and we’re
years or so.
pretty close to a $2,000 per ounce gold price. In that
“At Dundee Goodman, we bring what we consider to be a world class team of experts, with over 200 years of combined experience, to really sift through the boneyard of the mining space” – Robert Dixon, Dundee Goodman Merchant Partners managing director
Now, generalist investors are
environment these companies
looking at the large individual
are churning free cash flow
companies themselves more
and that wasn’t the case a
seriously. The change has
decade ago. When you have
be to own the best quality
been led by companies like
that free cash flow you can pay
companies that are producing
Barrick Gold and Newmont
dividends and the pressure is
now. B2Gold just reported
and it has trickled down
off in terms of creating value
they are essentially debt
into other companies. If you
for your company as you don’t
free and growing their cash
think about Mark Bristow
have to go out and buy a big
balance going forward in a
at Randgold, he demanded
risky asset in a less-than-
rising gold price environment.
that projects had a certain
secure jurisdiction.
I remember where that
threshold of profitability, he
company was 15 years ago, and
paid a dividend, he was highly
I think managing in a much
it’s been a phenomenal story.
disciplined even managing
more disciplined fashion,
You can also mention Barrick
those assets in several African
creating a legitimate
and several other companies
jurisdictions at the time. He’s
competitor to an ETF and
in the same breath. It’s not
brought that to Barrick and
running companies for profit,
just the price environment,
they’re paying dividends and
not for scale have been the
which is obviously beneficial,
have reduced their debt. A
biggest drivers of this change.
but these companies are being
lot of companies have done
It hasn’t been an overnight
managed better.
the same thing. Now, rather
thing; it’s taken a decade to
than just buying the ETF,
get here. But for investors in
investors can own the biggest
the sector, my advice would
Published by Anderson Murray Media Ltd
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