Manuel Auvergne sat in a big, comfy chair in the landing area of the conference floor at Hotel Vancouver. It was July 2016 and he was an attendee at the Sprott Natural Resource Symposium. An attendee, not a presenter. He was the president of a small, public mining company worth about ten million dollars. They were in cash preservation mode and he didn’t want the attention of being a presenter at a conference like this. Not yet, anyway.
He only went to the conference for a few hours across the five full days of programming. He spent more time watching people live-tweet the conference on the eo.ca chat site than sitting in the main conference room. He was sitting in the chair, chatting with a few people online, when someone said hello to him. It was an outgoing French man who was curious why Manuel was not in the main room with the other people. Manuel replied that he really should be back at his office working and the Frenchman pressed him. Apparently this Frenchman was looking for a very specific type of investment opportunity and they had a brief conversation on the conference floor before realizing that they needed to have a much more involved conversation in private. It turned out to be a fruitful meeting.
That simple meeting was the first in a sequence of events that led Manuel to raise ten million dollars in new equity from the Frenchman and his affiliates. The existing shareholders were crushed by the dilution, including Manuel's family, but they were grateful for the new capital that could keep the company alive for years to come.
The new money came into Manuel's company for several reasons: they were focused on base metals, they had something in terms of an economic mineral deposit, and they were willing to do nothing and get paid commensurately. It was difficult for Manuel to do nothing with the company, but his Joint Venture with a major mining company had helped convince him that he was, in fact, doing something, even though he had fired almost all of the staff from the company. The Frenchman invested because thought Manuel's company would be well-positioned on the other side of the ongoing turmoil in the base metals markets.
In January 2016, a few months after Manuel closed the financing with the Frenchman, the junior mining market collapsed. The exchange actually enforced some of their rules around minimum levels of working capital, resulting in dozens of de-listings over several weeks. It was not pretty. There seemed to be no buyers at any price for hundreds of gold, lithium, and marijuana stocks. The ones that had gone up the most in 2016 suffered the most. Lucky for him, Manuel's company could go down little more than the one penny it had traded at for months. The market had not responded well to news of his financing since he had clearly stated his intent to spend none of the new money immediately. The few people who payed any attention at all seemed to say "I can sit on my own cash thank you very much."
Mr. Market seemed to forget that his company had a unique property in BC. They called it "naturally-occurring stainless steel" because it was so rich in nickel and iron. It was the first major deposit of it's type ever found in the world, although scientists had long known that some such deposit was likely to be found at some point in the future. They had a JV partner for the project who had spent tens of millions of dollars studying the deposit and conducting the necessary analysis to build a mine. Despite the weakness in metals prices, the project was so unique that it still made sense economically. That is, until the JV partner went bankrupt.
In the midst of the protracted market collapse over the prior years, Manuel's partner stopped doing everything that wasn't immediately profitable. Eventually, nothing that they were doing was profitable. In late January 2016, a lawyer from Manuel's partner came to him and asked him to make them an offer to buy back the stake that they had earned by advancing the project over the prior six years. Manuel was shocked, but he didn’t let this opportunity pass him by. It was a fire sale and he had raised cash a few months before for just this purpose.
Manuel and his board negotiated a deal where they paid five million dollars to buy back everything from the partner. No residual interest in an NSR, no opportunity to reverse the deal. Nothing. Manuel paid five million dollars to get back what the partner had spent twenty-eight million earning into over six years. Based on the reports completed by the former partner, the deposit was estimated to be worth one-hundred and twenty-three million dollars as a net present value in normal market conditions.
Before he even closed this deal, another opportunity presented itself to Manuel: a completely different copper and zinc project that a distressed junior simply had to sell as soon as possible. Manuel flew to Paris to meet the Frenchman and discuss business strategy in broad, hypothetical terms. He was encouraged by what he heard and came back to Vancouver with a deep enthusiasm for and commitment to the idea of a market cycle.
It was early February 2017 when Manuel closed the second deal. Approximately forty million dollars had been spent on it over the prior twenty years, with ten in the last two years alone. The junior who had owned it advanced it aggressively in the last couple years hoping that they would be in the right place when the market finally turned, but they were early. Or, in other words, wrong. They didn’t expect the capitulation event that happened in January and had not prepared for it adequately. Manuel bought the project for three million dollars, no-strings attached. This left him with a few million dollars in cash that he planned to stretch as far as possible.
The mineralization in this second project was deep underground and expensive to exploit, but the property was close to an old mine that had been in operation for decades. People had long known that the project would likely be used to keep the old mine running someday and some people had paid dearly to buy the project for that reason in the past. But now, with the reserves at the mine almost depleted, no-one cared. Ironically, the terrible market for copper and zinc had distracted people from something that was fast changing from an inevitable to an imminent event.
Of course, shares in Manuel's company traded down after the announced the new acquisition. Touching a record low of a half-penny! "Why add copper and zinc to a company with a bunch of nickel and iron that no-one will ever use? Look at the prices of these metals -- the markets are oversupplied for decades to come." The analysts said. A few cynical professional market operators put out bids at a half-penny and got filled. They did it again and again until the selling suddenly stopped in mid-February. The selling seemed to stop across the whole market at the same time, and things got quiet. Most people said the market was dead.
The two new properties made a lot more work for Manuel. He considered hiring a skeleton office staff. It was one thing to do everything on his own when they had one big project under JV, but it was another thing entirely when he owned two projects outright. Again, he talked to the Frenchman and was encouraged to make the right decision. He hired some great people at fair rates in the ruins of the junior market.
In June 2017, he started preparing for the Sprott Symposium again. He studied the deals that the Sprott organizations had done since last year. He almost offered to sponsor a booth, but didn’t because it was a point of pride that you cannot buy your way into the conference; you have to be invited to sponsor the conference. Manuel wanted to be inside that circle of influence, but he had seen that even Sprott couldn’t save all the companies in their stable. He thought it was ironic that he had actually bought the copper-zinc project from a company that had exhibited in 2016. Why didn’t somebody else in the Sprott world pick up that asset, he wondered?
While watching old tapes of the conference, he heard someone say something that struck a chord with him. They said, "the special thing about the companies at this conference isn't just that the people and projects are better, which they are, it's really the perception of the companies. The Sprott group is better able to influence the perception paid to these companies. And not just in an obvious pump and dump way, but in a long-term way." This gave Manuel an idea.
He called it the "Radical Transparency Project" and got a quick greenlight from the Board because it cost no money. He was basically going to livestream his life as President of the company. Maybe the biggest expense was for legal advice around what he could release publicly. They didn’t want him to release much at all, but he insisted and they figured something out. It started with a weekly fireside chat. Manuel would speak to a camera, the legal team would review and edit the video, then they would release it. The first video was fun: he told the story of the acquisitions made earlier in the year. The lawyers edited him a bit, but not much. Most of the things he said were already public, but the way he said them was captivating.
Before he knew it, he was sitting in the same chair in the same hotel at the same conference. So much was the same, but so much was different. This year he was on the app 'Periscope', talking to an audience of a dozen people. He was answering questions about his company and the conference in real time when Rick Rule walked by. A little saddened by the decrease in attendance at the conference, Rick seemed open to new things. He stopped and watched Manuel for a moment before he turned to go. Manuel called out to him and they chatted briefly. Rick even answered some questions from people online, which the audience loved. When Manuel posted the video on youtube later, it was his first video to ever get ten thousand views. In a week. "The market may be dead, but it's revival will happen online." Manuel told himself.
Manuel pushed even harder on the radical transparency after that. He would post videos of routine business, do question and answer sessions with people on chat, and do more writing about his business than ever before. Pretty quickly a consultant approached him, talking about 'social media optimization' as the next generation version of search engine optimization. Manuel didn’t quite understand all of the things he was talking about, but figured there was something there. He hired the consultant on a trial basis after they listened to some Hootsuite podcasts together and discussed their thoughts on social media.
Manuel was generating massive amounts of public content each week as part of routine business. Most pieces of media were boring and got no attention, but they were online forever and he was patient.
In September 2017, something strange started to happen: The metals prices started to go up! Zinc touched three dollars per pound and copper touched six! They traded there very briefly, but these were almost ten times higher than the low prices during the depths of the capitulation selling. Again, something was wrong in the global economy. It seemed that the low prices had weakened the supply chain and made it prone to disruption. Just a small increase in demand was enough to cause spasmodic price increases. Manuel was positioned to benefit from the market volatility.
Halfway through September, Manuel's phone rang, which was somewhat unusual. It was Rick. He reminded Manuel about their impromptu interview at the conference and then started telling him all the things he liked about Manuel's company. Manuel sat up straight in his chair as Rick described precise details that he didn’t expect anyone else to know. When Rick finally asked him a question, Manuel ran with it and started telling him about his plan to publicly post an offer to sell the copper-zinc project next to the existing mine. There weren't many companies around that could take that project on, but the ones who were left had some bitterness towards each other. They seemed to blame each other for the collapse in metals prices. Manuel described how the company operating the existing mine nearby would likely consider the deal, but another might come in and get it first in hopes of forcing the operator into a sale of the existing mine or buying the ore from the new deposit. "That's a lot a lot of ifs," said Rick.
Manuel replied "We are used to waiting. We waited to buy these assets, why not wait to sell them too? This bull market is just getting started. That deposit could extend their mine life by fifty years. I want to publicly offer to sell it at a rich price and wait." Rick seemed impressed, but it was a pretty quick phone call that didn’t lead to any immediate action. Manuel wondered if he came off too strong.
Manuel went ahead and worked with an investment banker to create one offer to sell the deposit outright and another to get it into production by JV. The JV deal was designed so that they could survive even if they had to stockpile the ore at surface for years before the nearby mine would take it. After the capitulation that Manuel had seen, he was careful to prepare for terrible outcomes. The banker had a hard time wrapping his head around the deals that Manuel wanted, but eventually delivered. There were a lot of unconventional things about these deals and Manuel posted all about them on social media in real time. They had a team of young people tweeting and retweeting the content he was creating. The lawyers had field day after field day at his offices, but he stayed on the right side of the laws for public disclosures, somehow.
After making the two deals publicly available, he moved on to the second property. Or, more accurately, someone knocked on his door to talk about that property. Apparently things were finally happening with a major pipeline project in BC and there was a massive impending need for steel. A local source would play well politically and naturally-occurring stainless steel sounded like just the right thing. The guy who visited Manuel was an Assistant to a Minister responsible for the project. Apparently the Minister's son was a devout follower of Manuel's social media activity and had communicated the excitement around Manuel's project to his father. "Now that's marketing that you just can't buy," Manuel said to himself. The Minister ran it by a well-known scientist for a sanity check and was surprised by the enthusiastic response that he got. The scientist was so excited about the potential of the project that he brought someone else into the conversation -- the CEO of a small, private mining company dedicated to scandium production.
Eventually the Minister got Manuel on the phone and said "Manuel, I worked in Government during the LNG boom days. I know these people. Your property would be like mana from heaven to them. Please. Please tell me you're ready to go on this." Manuel paused and said "Yes, we are ready."
For the first time in a long time, Manuel started aggressively moving the project forward. It had been almost a year since he bought it back from the former JV partner, and almost two since the BFS was completed. The price table was all messed up, but the mine plan was still solid. They even had a pilot plant on site that had been used to prove the processing flow plan. It was unique mineralization, after all. Manuel put the hammer down and got the plant running again. The permits were a nightmare, but the government expedited them because of the potential significance to the province; the project was a rare greenshoot in years of turmoil for the Province. Manuel's company produced some metal from the plant and then sent it to the lab, where they tried creating different alloys with scandium, niobium, and even titanium. They posted the technical results online as a working paper and submitted them for publication at a prestigious research journal. Scientists had talked about this kind of naturally-occurring stainless steel before, but Manuel's deposit was the first to be found in the wild. And using it to make high-strength, low-alloy steel was an unexpected and exciting development for the few people who understood what was going on.
After that, it was hurry up and wait. Nothing happened with the government or the other property. Manuel kept the pilot plant running, gathering ore from the surface and stockpiling the metal. He didn’t like waiting for other people, but was getting better at it.
Time dragged by. Soon it was January 2018, very different from a year before. Manuel felt uncomfortable spending money on the office and the pilot plant, but knew it would be worse to stop. He felt like a dog who finally caught a mail truck.
In February, the TMX Group reached out to tell him that his company had received an award for excellence in investor relations. Apparently they had liked his idea of 'radical transparency'. He also got invited to do a TED Talk in July 2018. He sent his social media team to the Sprott Symposium in his place.
Just before he went on stage to deliver his TED Talk, his assistant got a call. It was somebody from the mining company next to his copper-zinc project. They were ready to negotiate. They didn’t want the JV deal he had offered, they wanted to buy the property outright. He had developed a reputation as a hard bargainer and they were willing to buy it at the terms he had offered publicly a year before. He almost cancelled the TED talk because he was so excited, but he had come too far to stop now.
He went out and gave the talk he had rehearsed with the TED staff. He was killing it. Doing social media outreach daily over the past year had turned him into an instrument of instant appeal and persuasion. He was enjoying the thought that his ideas would live on and influence the industry when his assistants' phone rang again. He paused and looked at his assistant, whose wide eyes suggested something important was happening. He told the audience that he needed to pause for a moment and stared at his assistant, who mouthed the words "BC Government -- Public Private Partnership for pipeline - green light!".
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