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Four of the biggest names in commodities finance face-off to discuss the state of the global economy and where stocks are going. Includes Fiore Financial’s Frank Giustra, Sprott’s Rick Rule, US Global Investors’ Frank Holmes and Murray John from Goodman & Company. A must-watch!
“Like venture capital, it’s not about cheap paper, it’s about ‘first mover advantage’, the speed to have the vision and ability to attract talent, money and an outstanding asset… Few people are able to do all three like Frank G [Giustra]. He has the know how and the know who with the energy to make it happen.”
After the Vancouver Resource Investment Conference on Monday evening, I somehow found myself in a conversation with mining, energy and movie mogul Frank Giustra and economist John Mauldin and I wanted to share a few of things that I learned listening to the two men discuss a wide range of topics.
Giustra said he never had a plan in life. He credits ambition and more importantly a positive attitude for his good fortune in business over the years.
Mauldin echoed Giustra’s sentiment about planning. He said he has authored 5 year plans for his own business life for 38 consecutive years, and that he is 0/38.
I asked Mauldin what he felt was the key to great direct response copy, to which he responded: you have nothing without thorough research and facts.
Giustra recalled cutting a deal with Hollywood movie executive Peter Guber, whom Giustra considers one of the best storytellers in the world. Guber apparently got the better of Giustra in that deal, however they became friends. Giustra highly recommends his book, TELL TO WIN, available on Amazon. I just ordered a copy.
With the gold price unable to meaningfully breakout this year, gold miners have been increasingly conscious of the quality versus quantity of the ounces they produce. The West African gold miner, Endeavour Mining (EDV:TSX), led by Neil Woodyer (Founding Partner of mining finance firm Endeavour Financial) and a slew of other mining executive powerhouses, has been consistently lowering company costs while maintaining impressive growth. The company operates 3 mines (Youga, Nzeme, Tabakoto), with their fourth mine, Agbaou, set to pour first gold in Q1/2014. The company intends to produce 300,000 ounces of gold this year and over 400,000 ounces next year by bringing Agbaou online (90% complete the construction phase). One question mark that remains unresolved within the company is whether or not they will go ahead with their fifth mine, the Hounde open-pit gold project in Burkina Faso.
The company released a positive feasibility study (FS) today which updates the preliminary economic assessment (PEA) released in January 2013 and hopes will give more clarity on their decision making process.
Highlights of the report include:
- 178,000 ounces over an 8.1 year mine life for a total life-of-mine (LOM) production of 1.44 million ounces of gold (PEA: 161,000 ounces over a 10 year mine life for a total of 1.61 million ounces of gold).
- Average gold recoveries improved by 2.5% over the PEA to come in at an average of 93.3% (versus 91.1% in the PEA) via a SAG/ball mill circuit and gravity/CIL plant.
- The grade and tonnages were roughly in line with the PEA (25Mt @ 1.95g/t gold in FS versus 28Mt @ 2g/t gold in PEA)
- Importantly, the initial capex decreased by 10% from $345 million in the PEA to $315 million in the FS.
- LOM sustaining capital increased slightly as the company looked to defer initial spending. The increase was minimal from $57 million LOM in the PEA to $62 million in the FS.
- At $1,300/oz gold, the after-tax NPV(5%) decreased from $288 million to $230 million however, importantly the overall after-tax IRR increased from 21% to 22.4%
Neil Woodyer, CEO, stated: “Hounde is a strong gold project with potential to produce approximately 180,000 ozs per year at an all-in sustaining cost of under $800 per ounce. At a $1,300 gold price, Hounde has an attractive after-tax IRR of 22% illustrating strong cash flow generation. The project also benefits from excellent infrastructure, our current Agbaou mine building expertise, and our Burkina Faso operating experience at Youga. While work continues on obtaining the Hounde mining permit, we are evaluating how best to integrate Hounde into Endeavour’s production growth plans.”
Given the backdrop of the current gold price environment, management is reluctant to commit the +$300 million of capex that it would take to build the mine given that cash wouldn’t be generated for over 2 years. A decision with regards to this mine is expected shortly. The company is set to release third quarter financials November 12 and we will look for more guidance there.
The company has stated that their decision will be based on whether Hounde will assist in achieving their corporate goal of producing gold at an average all-in sustaining cost, across all of the mines, of less than $1,000 per ounce. Using this hurdle, the case for Hounde appears clear, however, the company has yet to make a decision with regards to its development although all-in sustaining costs, according to the FS, are estimated at $775 per ounce. The company is looking at other opportunities in order to determine what the best use of their $300 million might be.
Endeavour originally gained control of the Hounde project, along with the Tabakoto mine, by acquiring Avion Gold in August 2012, in a $389 million stock transaction.
Since launching the company in 2009 and taking over the reins of Youga and Agbaou in 2010, management has diligently worked to streamline production efficiencies, company-wide, as well as make accretive transactions. Case in point, is the Tabakoto mine in Mali. The company took the project over in late 2012 when it was producing gold at $1,200 per ounce. Since then, management has consistently expanded production and has decreased average costs to $880-$920 per ounce.
By early next year the company will have four commercially producing gold mines located across four Western African countries. Endeavour is set to grow to over 400,000 ounces of annual gold production next year at less than $1,000 all-in sustaining cost per ounce. Even at $1,300 per ounce gold, the company will be generating significant free cash flow on a per share basis.
At this year’s Denver Gold Forum, Mr. Woodyer stated that: “lower operating costs were the best hedge against a low metal price,” and clearly the company is positioned well in the current environment with over 30% sustaining margins and $150 million in cash on the books (with another $50 million undrawn against a $350 million 5-year revolving credit line).
Endeavour also strengthened its board this year adding African mining expertise in Ian Cockerill (former CEO of Gold Fields) as well as Miguel Rodriquez (formerly with the IMF and World Bank) and Frank Giustra.
I encourage you to visit their website: http://www.endeavourmining.com
Please note that nothing contained in this article is to be considered investment or professional advice of any kind. We own shares in EDV and are biased. All facts are to be verified by the reader. Always do your own due diligence. Thank you.
Seventeen months after the Shpirag-2 well started drilling in Southern Albania, Petromanas Energy (TSXV:PMI) and joint venture partner Royal Dutch Shell have finally released testing results from the $75 million exploration well on Albania’s Blocks 2-3.
PMI and Shell announced a discovery at Shpirag-2 today, with flow rates of 1,500 to 2,200 barrels per day of oil equivalent (800 to 1,300 barrels per day of 35 to 37 degree API oil and 2 to 5 mmcfd of gas) observed during the test period. PMI and Shell also believe they have identified an 800 meter oil column in fractured carbonate reservoirs at the Shpiragu structure, but were only able to test 400 metres due to drilling setbacks.
“These are compelling results from a well that, due to difficulties encountered while drilling, is not the optimal wellbore into the reservoir,” said Mr. Glenn McNamara, CEO of Petromanas. “These test results initially confirm the well’s ability to flow light oil and provide early validation of the potential of Block 2-3 and our considerable investment to date in this asset. Given carbonate reservoirs are dependent on fracture porosity, and well rates can vary significantly across the reservoir, we are very encouraged to have flowing oil at these rates from our first well.”
Blocks 2-3 cover a mountainous region of Southern Albania believed to host multiple, deep oil formations, analogous to the Val’d Agri oil field in Italy, on the other side of the Adriatic Sea. Val’d Agri has been a producer for a consortium which includes Royal Dutch Shell since 1996. Petromanas was able to attract Shell as a joint venture partner on Albania’s Blocks 2-3 in February, 2012.
Frank Giustra, a director and large shareholder of Petromanas Energy, said that most wells at Val’d Agri produce with rates similar to that of Shpirag-2, with a few wells flowing at much more substantial rates, effectively carrying that field’s heavy drilling costs. Mr. Giustra said he was “very happy” with the results from Shpirag-2 via email Monday afternoon, adding that Shell is financing 2 more exploration wells in Albania with Petromanas, including Molisht-1, which is currently drilling. Additionally, results from a 450km seismic survey are to be concluded by year end.
Jamie Summerville, an analyst with TD Securities, said today’s news is a potential long term positive for Albanian neighbour, Bankers Petroleum (TSX:BNK) [Editor's note: Frank Giustra financed the original Bankers Petroleum ten years ago]. If and when the Shpirag structure starts producing, PMI and Shell’s light oil would be a cheaper diluent for Bankers’ heavy oil production at the Patos Marinza field, 50KM west of Shpirag. In a Monday afternoon alert to TD clients, Mr. Summerville added that the joint venture will require “Significant additional testing and appraisal drilling… but we assume both companies are right to be encouraged by the initial rates announced today from Shpirag-2.”
Petromanas and Shell continue drilling the Molisht-1 prospect to the Southeast of Shpirag-2. The Molisht-1 well was spud August 20, 2013 and is currently at a depth of approximately 1,400 hundred meters on its way to a targeted approximate depth of 5,500 metres. Drilling operations are scheduled to take 9 months from the initial spud (Roughly May 20, 2014), to be followed by testing.
Shell is the 75% owner of Blocks 2-3, with Petromanas holding the remaining 25%, as well as operatorship. Shares in PMI last traded at $.115 Monday, valuing the company at approximately $80 million.
Disclaimer: Exploration stocks such as Petromanas Energy (PMI) are extremely risky. This is not advice or a recommendation to buy shares in any company. We own a position in PMI and are biased. Always do your own due diligence.
Billionaire mining entrepreneur Robert Friedland’s new entertainment company, Ivanhoe Pictures, caught the attention of the Globe and Mail last week (Read: Canadian mining tycoon follows Hollywood dream). Former Friedland financier Frank Giustra is acknowledged in the Globe’s article as the other mining mogul moonlighting in the movie business; In 1997, Giustra founded Lionsgate Films, today the world’s largest independent film studio. However both Friedland and Giustra were not yet born when oil tycoon J. Paul Getty (1892-1976) made his own rounds through Hollywood. Getty recalled the close kinship between resource-men and filmmakers in his 1976 autobiography, As I See It, written in Getty’s 84th and final year.
Excerpt from As I See It: The Autobiography of J. Paul Getty - Chapter 23:
… It was then–from 1919 to 1939–that the world of California oilman and that of the Hollywood motion picture industry touched, met and often overlapped.
There were many reasons for this. First and foremost, oil and motion pictures were then Southern California’s two principal non-agricultural industries. As a normal consequence, they were among the area’s chief producers of wealth. Successful oilmen and movie-people could afford to build their homes in the more exclusive residential areas, belong to the best clubs and dine in the more expensive restaurants. Thus, it was not surprising that the circles of acquaintance and friendship so frequently interlocked and merged. Then, oilmen and people prominent in the motion picture industry shared an important trait. When at work, they concentrated on their work and worked very hard. Whenever they had the opportunity to play, they played with equal concentration and energy.
There was yet another key bond of commonality. The fate of people in both industries was decided by wild and unpredictable swings of fortune.
The Globe and Mail, Canada’s national newspaper, has published a story I wrote about Canaccord Genuity’s Global Resources Conference and why four veteran investors (Frank Giustra, Frank Holmes, Randall Oliphant and Paul Reynolds) are optimistic for gold and resources shares. The article is behind the Globe Unlimited paywall, which is worth the $30 per month for their Streetwise service alone. Please check it out and share it with friends.
I have said since you interviewed me over one year ago, this will continue and now is becoming a global phenomenon.
The Fed has worked itself (and now most of the world) into an inescapable trap.
I believe hard assets will go higher, including gold and commodities.
We had the wonderful opportunity of attending the Canaccord Genuity Global Resources Conference during the past couple of days in Miami, Florida. Canaccord put on a first class event with many of mining and energy sector’s best CIOs and CEOs on hand. Below are some of the key takeaways from the conference:
- Most miners are intently focused on the cost side with many companies such as Yamana highlighting a downward sloping all-in cost curve (Yamana is forecasting $850 all-in cost per ounce of gold in 2014)
- Yamana CEO Marrone said the words “risk mitigation” at least 3 times during his presentation – basically most senior producers are in survival mode focusing on only their lowest cost projects and mothballing everything else
- US Global CIO Frank Holmes made an excellent point regarding the huge energy cost advantage that the United States has relative to other countries such as Canada “in Toronto it will cost me $150 to fill up my gas tank, in Texas it’s only $70″ – this leaks through to every aspect of the economy and makes the US much more competitive
- Holmes was also very positive on Alamos Gold (AGI) saying that the company has an incredible cost focus and generates excellent free cash flow – we might add that AGI has one of the better charts of any mid-tier gold producer
- The Wolfcamp Shale is an absolute monster (2nd largest shale oil play in the world behind Saudi Arabia’s Ghawar) – PXD plans to have 50 horizontal wells there by 2018
- There is a $15 “Middle East risk premium” in the WTI crude oil price (i’ve heard this for 5 years though…), crude market is well supplied and likely to only become even more well supplied in coming years as more and more shale oil comes online
- Goldcorp, Silver Wheaton, Pacific Rubiales and Lionsgate Films founder Frank Giustra doesn’t see how the Fed exits from QE-infinity and thinks there won’t be any tapering anytime soon “We have to do this whole debt ceiling fiasco again in January”
- Lots of private equity guys getting involved in the resource sector buying the most attractive assets at 70-80% discounts to where they were valued just 2 years ago – this puts a “smart money” deep value bid in the market – sign of a bottom?
- Cameco sees a 20% supply deficit in the uranium market by 2018 – however, lots of uncertainty surrounding Japan’s reactors and when they will come back online, which is expected to start slowly in 2014
- New Gold (NGD) CEO Randall Oliphant gave an excellent presentation, NGD is being aggressive and continues to make acquisitions of attractive assets – if you think gold is heading back to $1500+ NGD is a way to play it, the stock could easily double from current levels if gold hits 1500
- NGD has all-in sustaining costs of $875/ounce vs. a mid-tier producer average cost of $1,050/ounce
- Silver Wheaton (SLW) gave an excellent presentation to wrap up the conference – SLW did not make any acquisitions for roughly 2 years (early 2010- early 2012) because they felt the market had gotten ahead of itself (this proved to be a wise decision)
- SLW has lower administrative costs than the iShares Silver Trust (SLV) – .32% vs. .50%
- Most executives and presenters admitted that the mining sector has terrible timing i.e. making acquisitions and ramping up costly projects when metal prices are high, and getting defensive when prices are low
The overall mood of the conference was fairly optimistic, especially considering the backdrop of a very difficult resource market. Many companies are starting to look at making accretive acquisitions, which is a noticeable change from the “bunker mentality” of a few months ago. Our favorite names from the conference were AGI, NGD, and SLW – a pairs trade of long SLW/short SLV appears to be particularly attractive from current levels. We would like to thank Canaccord for their hospitality and for putting together the best conference we have been to in a long time.
US Oil Sands (USO:TSXV) has closed its previously announced, oversubscribed $81 million financing and has added a changed lineup of all-star energy entrepreneurs to its board of directors. USO raised the money from three main strategic investors, Blue Pacific Investments, Anchorage Capital Group and Spitfire Ventures. Blue Pacific nominated Serafino Iacono (highly successful Colombian resource entrepreneur behind Pacific Rubiales Energy) and Ronald Pantin (CEO of Pacific Rubiales). From Anchorage Capital, Stephen Lehner (head of Energy investments at Anchorage) is incoming to the board and from Spitfire Alfred Holcomb has been appointed.
US energy billionaire, Rod Lewis who was previously announced as coming on to the board will act as an ‘observer to the board of directors’ as will Kevin Ulrich. Frank Giustra who was also going to come on the board, will no longer do so do to too many other commitments. These three will remain large investors in USO, through their stakes in the strategic investment vehicles who financed the company.
USO plans to use the money to bring the first phase of commercial development of their PR Springs project in Utah’s Uinta basin which contains an estimated 184.3 million barrels of bitumen. Phase 1 is expected to produce 2,000 barrels of oil per day. The company has a patented method of developing oil sand bitumen using bio-solvent technologies which are environmentally sound and capital efficient. The company has left the door open to M&A as well stating: “proceeds raised in excess of those required to finance the PR Spring project will allow the company to immediately initiate corporate development activities that may include the acquisition of or participation in other oil sands assets located outside the state of Utah.”
Since announcing the financing (which was announced at a 50% premium to the market), the stock is up roughly 100%.
President Clinton and Frank Giustra’s Clinton Giustra Enterprise Partnership released a beautiful short film about their Chakipi Distribution Network which has empowered women in Peru to start “last mile distribution enterprises.”
President Clinton commented, “At the Enterprise Partnership, we know that when women can participate in an economy, the entire community benefits.”
Mr. Giustra tells me the Chakipi model is both scalable and sustainable and that it will help thousands of people in countries like Haiti, Peru, Colombia, Mexico and elsewhere to live better lives.
Watch the video and please share it with a friend:
— CGE Partnership (@CGEPartnership) September 25, 2013
Yesterday Stockwatch reported that well known Canadian financier Frank Giustra was rolling back his public shells. These are the vehicles he has historically used to launch new natural resources ventures.
Frank Giustra’s Royce Resources Corp. (ROY), last at 1.5 cents, will ask shareholders at its AGM on Oct. 17, 2013, to approve a 1:10 rollback. The shell has 100.29 million shares outstanding. Mr. Giustra has been rolling back his shells for two years. In 2011, his Sky Ridge Resources Ltd. (SYR: $0.055) rolled back 1:3;Tapango Resources Ltd. (TPA: $0.05) rolled back 1:2; Cannon Point Resources Ltd. (CNP: $0.18) rolled back 1:4; and in 2012 his Pacific Topaz Resources Ltd. (PPZ: $0.06) rolled back 1:5. After Royce rolls back, the only remaining diluted shell in Mr. Giustra’s stable will be PNO Resources Ltd. (PNO: $0.035), which has 74.41 million shares outstanding.
Mr. Giustra has not found a project for any of his shells since March, 2011, when his Westward Explorations Ltd. launched an African iron ore explorer, West African Iron Ore Corp. (WAI: $0.03). He has, however, kept busy with plenty of other investments. Earlier this week, on Monday, U.S. Oil Sands Inc. (USO: $0.16) said that Mr. Giustra will acquire part of an $80-million private placement and join its board following the financing. The company needs piles of money to develop its PR Spring oil sands project in Utah. Then on Tuesday, Endeavour Mining Corp. (EDV: $0.81) said Mr. Giustra has returned to its board of directors. Endeavour, which owns three gold mines in Africa, has risen 10 cents since the announcement. Canaccord rates Endeavour a speculative buy, but in July it cut its target price to $1.80 from $3.
Mr. Giustra is also the sole financier of a new agricultural magazine called Modern Farmer, which last week released its second issue. It has a goat on the cover. Inside the magazine are articles about goats, outer space farming and soil cuisine, as well as a contributing article from Mr. Giustra’s good friend, former president Bill Clinton.
The Royce rollback rings the end of an era when Giustra backed vehicles, often with nine figure share structures, flourished at raising capital and developing resource assets.
The value of a shell, otherwise known as a “Lift” or “Promote”, grew to values in the many tens if not hundreds of millions, for men like Giustra, who had track records of value creation, and strong investor appetite for their products.
Investors have become far less willing to pay such promotes in light of the dreary junior resource capital markets of the past two years.
Wall Street Journal has the scoop on Eike Batista, the resource financier whose net worth fell from $30 billion to less than $1 billion over the past year.
Batista is selling assets to cover debts, but tells the Wall Street Journal that he’ll be back.
After a terrible two years, appetite for junior resource stocks is starting to return, as demonstrated by the TSX-Venture Index, a barometer for the industry.
In the coming TSX-V bull market, discoveries in shells with tight share structures will rise to mind blowing heights.
Alpha Minerals, which rose from $.20 to $7 this past year with only 27 million shares out, offers a prime example.
Related: You Should Have It So Good