Ahead of his appearance at Mines and Money London 2015, We caught up with Ross Beaty of Pan American Silver to discuss his thoughts on the current state of the industry, his thoughts for the future, and what makes a great mining CEO.
M&M: Ross, you’ve spent many years in the industry. Is this downturn any different? If so how?
RB: All market cycles are always a bit different and a bit similar. This downturn is just another cyclical low like I’ve seen many times in my career. It’s always brutal but it’s a fact of life in the metals industry. Bull markets feed on themselves and bears do too. This bear market is perhaps a bit longer and tougher than the others because the bull market was longer and wilder than the others. In fact it could go quite a while longer I’m afraid to say. Don’t forget that copper prices bottomed at $0.68 in the last bear market in 2001 and gold at $255 I think it was in early 2001, so while this is the fifth year equity prices have tanked, metal prices are still actually quite high.
“Bear markets always turn into bull markets and you need to be positioned for when they turn”
Who knows if they’ll go much lower but they sure could. Silver and copper prices in 2001 were at all-time inflation-adjusted lows so we’re still a long way from those kinds of prices (sorry to say). It’s important to remember though, bear markets always turn into bull markets and you need to be positioned for when they turn – nobody knows when that will come but it will come as surely as we’re sitting here today – and soon I’d say. The best time to buy stocks and mineral deposits is when nobody else wants them. Buy low and sell high. It’s very easy to say and very hard to do.
M&M: The Chinese stock market has taken a nose dive in the last few months. What are the implications for the mining industry?
RB: Ugly. China has really been the driver for the 10 year super cycle from 2002-2012 (other than the road bump in 2008-2009) as it developed its infrastructure in record time and scope. That party is now over as most metal-dependent infrastructure in built, so Chinese metal intensity use per-capita will now decline as the market shifts to consumer products rather than infrastructure.
“I also don’t think India will replace China as the new metals sink”
Of course metals demand will still be historically gigantic, but we won’t have the growth in metals consumption that we’ve been so spoiled by in recent years. I also don’t think India will replace China as the new metals sink since India has so many more barriers to rapid growth relative to china. Plus, the game is pretty much over in those countries with dreadful governance like Russia, the Stans, Brazil, South Africa and Nigeria. Once easy money disappeared in those places the ridiculous industrial growth rate collapsed – it’ll be a while before it returns in my view.
M&M: What’s your advice to investors looking at gold and silver markets?
RB: I think many commodities are in for a long boring bear market. Thermal coal is dying a slow agonizing death, as it deserves to. It’s a nasty product and has a lot of negative pricing pressure yet to come. Met coal, iron ore and the other ferrous metals are for the most part in structural oversupply and will be in bear territory for years I think. Some metals like nickel will be affected by technology and geography in terms of their production, with politics unusually important especially the nickel pig iron markets in china and supply questions in Indonesia and Philippines.
Minor metals markets have always been weird and tough and I suspect the future will be no different. Zinc and lead markets have always disappointed – supply always seems to show up when it’s not expected or needed and I suspect this time will be no different. Copper is pretty healthy I think because of secular shifts in electricity generation and consumption globally. But that’s about all I’m keen on right now except gold and, as a corollary, silver. I’m well exposed to copper right now and all I’m really buying personally is gold deals (and silver through my silver company pan American silver which I think is very cheap and so a great investment at almost any silver price).
“Gold is kind of a refuge in the storm that’s blowing around the world financial markets today”
Why do I like gold? Partly because I’m a contrarian and nobody else likes it now, always a great bottom indicator. I like it because it’s money and has always maintained its value over millennia, and partly because its supply fundamentals are pretty good right now. Partly because it’s a kind of refuge in the storm that’s blowing around the world financial markets today with unprecedented moves in currencies and energy prices, geopolitical events, religious events, environmental events and on and on .
There is simply enormous potential for unintended consequences of many of those macro-events and owning big positions in a number of good gold companies (and pan American silver) gives me real comfort that I will do fine if there is a global blow-up that affects the US currency and global financial markets. I’m not a real gold bug but I have to say that the older I get the more I feel comfortable in owning big gold resources in the ground managed by excellent people in low-risk deposits. Even if I’m wrong about gold and silver price moves (I expect gold will trade over $2000 an ounce by 2020 at the latest) these companies should outperform the market because they’re well run and have large mineable deposits at reasonably low gold prices, and if gold moves they will profoundly outperform the gold price.
M&M: Over the last few years you have diversified into clean energy. Why did you make this move?
RB: I’m a pretty hard core environmentalist, though I admit it’s a bit inconsistent with being so into mining. I’ve founded thirteen mineral resource companies and sold ten of them, and by 2008 I wanted to try my hand at building a green environmentally-friendly company. I thought I could do this with geothermal energy but it proved high risk and low return – a dreadful combination. So I started in geothermal energy and then branched out to wind, solar and hydro power.
Geothermal is a very different business but it’s fun to generate clean energy (no energy is really clean of course) and I’m enjoying applying my entrepreneurial drive in a new direction – so far, so good. Alterra power today generates about 550 megawatts of clean energy and is building 266 megawatts, so by next year we’ll be generating more than 800 megawatts – enough power to run a major city. Our ambition is to grow much larger. Our share price is up about 50% in the last year so it’s kind of counter-cyclical to the mining industry. I think the stock has a lot of upside still in it – needless to say, since I’m a 34 percent owner. I really like building something out of nothing – it’s very satisfying, like building a house I guess, though I’m sure no good at banging nails.
“I’m enjoying applying my entrepreneurial drive in a new direction”
M&M: One of the themes about Mines and Money London will the next generation of mining leaders. What makes a great CEO?
RB: Thinking like an owner. Treating your company’s money like it’s yours, but taking calculated risks. Having a simple vision and executing it. Being exposed to being lucky. Trying to think out of the box and not following the pack. Hiring good people to work with you, people that have very complementary skill sets. I don’t think you need to have particularly good people skills – I sure don’t think I do. I don’t know, I think I just was lucky again and again for the most part. That’s pretty hard to tell someone how to do.
M&M: You have a reputation as being a great builder of mining companies. What’s the one piece of advice you would give to someone entering the industry today?
RB: One piece of advice? I don’t know. I just did it without anyone telling me how to do it. I made a lot of mistakes. I had a lot of drive and I got ridiculously lucky again and again and worked with some really fine people. Some of it is just drive, some of it is intuitive I guess – like treating your company’s money like it is your own and not blowing it on stupid deals. But financial markets are like horses – some are strong starters but die quickly and others start slowly and gain strength over the long haul. It’s really hard to tell someone else how to do things – there is so much self-learning I think. I sure made a lot of really dumb decisions early on in my career but I am a fast learner and didn’t make them again. I made new mistakes and still am.
Ross Beaty will appear at the 13th Annual Mines and Money London conference and exhibition this November 30 to December 3. He’ll be presenting a keynote presentation – expanding on some of the themes above – as well as taking part in a variety in interactive events – from roundtable discussions to VIP Dinners. To find out more, download the full programme here.
The post “Buy low and sell high. It’s very easy to say and very hard to do.” Interview with Ross Beaty, Chairman, Pan American Silver Corp appeared first on Mines and Money.