Tekoa Da Silva recently sat down with serial entrepreneur Ross Beaty, founder of Pan American Silver and Alterra Power.
Mr. Beaty is a legendary investor in the resource sector. He made his fortune buying up mineral assets in depressed markets and selling them years later at hefty premiums.
Is Mr. Beaty still confident you can make money buying undervalued assets in the resource sector during periods of depressed metals prices?
Tekoa asked him how the current market compared to past bear markets in resources and precious metals, and what he’d be doing today as an investor.
TD: Hi. I’m Tekoa Da Silva with Sprott Global Resource Investments and I’m sitting down here today with Ross Beaty, Chairman and Founder of Pan American Silver and Alterra Power Corp. Ross, good to see you.
RB: Good morning.
TD: I’m happy that you decided to join me here today, so thank you. I want to ask you about your background and your experience, your career in the resource business. But for the person watching, if they’re new to the resource conversation, who are you? What’s your background for that person?
RB: Well, I’m a Vancouver boy, born and raised in the West Coast of Canada and I always wanted to work outdoors. I had my first rock collection when I was young and I became a geologist and it sounded to me the perfect job getting paid to climb mountains and fly around in helicopters. It was a great deal.
But I discovered I was also a decent entrepreneur and a good salesman. I think that kind of goes hand in hand. So I’ve had a career of really not working for anybody except myself and I just started company after company after company and with a huge amount of luck, they’ve been successful in the minerals business.
I’ve recently tried my hand at the energy business, in clean electricity. It has been just a huge amount of fun and a lot of success and they’ve all been public companies. So my background is very public and there has been a lot of other shareholders that have been with me as I’ve gone on this amazing little journey of wealth creation in the resources business. It has worked out well and I’ve got five kids and one wife and just have a lot of fun living life.
TD: Ross, how did you get started in the business? Where did you cut your teeth?
RB: I went to University of British Columbia. I got a geology degree. Then I went to the London Royal School of Mines in London for a master’s degree. On the side — I hardly ever mention this — I actually have a law degree as well and qualified as a lawyer but I never wanted to practice. But it was good background.
So I really finished all that in the 70’s, going to school and working as a geologist to make money to put myself through school.
In 1980, I started with my own company Beaty Geological, a little contract geology company. I worked very hard all over the world, West Africa, New Zealand. Lots of work in the United States and Canada and in 1985, I took my first company public. Actually Rick Rule was a seed investor in that company. That’s where I got to know Rick. It was in ’85.
The company was called Equinox Resources and Equinox taught me a lot of painful lessons as my first public company. I didn’t have anybody telling me how to do things or working with me. So we ended up acquiring a bunch of good projects, a lot of exploration work and we had many, many calamities in Africa and in California.
I remember spending three years trying to permit a 50,000-ounce gold mine in California, which is just stupid. I mean it was a lesson that I learned that small projects make small money and yet they have big hassle. So you always should focus on size.
Anyway, we had a lot of projects in Nevada, in California and in Utah, all over the West and eventually found a gold mine. We had a novel exploration technique called “walking” and we walked over the mountains in Nevada and we discovered a gold mine. We staked some ground and optioned it to one company. They drilled it and dropped it, gave it back to us. Then we optioned it to another company. They drilled just a little deeper than the first company drilled and bingo, there was a really nice high grade gold deposit called Rosebud.
Well, Rosebud was owned in a 50-50 joint venture with LAC. LAC said it was a little bit too small for them. So in the bear market of 1992, we offered to buy it from LAC. We couldn’t raise money, but I was able to sell the royalty. With the money from the royalty for a couple of million dollars, we bought it from LAC, had 100 percent of the project.
The following year, we had an offer to sell the whole company to Hecla for $107 million basically on that one deposit. So it was just a matter of – the deal timing was lucky and the market turned right after we did the deal and Hecla wanted an asset like that to replace when it was going out of production.
So it was just an absolutely great deal. It was a win-win and we sold the company in the spring of 1994. At that moment, I didn’t want to retire. So I took all our team and because I thought that the US market particularly needed a real silver play. I thought this was a cool thing. This would be a cool thing to do with my second public company and so I started Pan American Silver from scratch.
We bought a shell company that had no assets and no money and I think it was a seven-cent share price. We had a mission with no assets to build the world’s biggest silver company.
TD: What year was that Ross?
RB: 1994. So it was kind of ambitious but I made some people money. They loved the idea of silver. They backed me. They raised some money. Again Rick came in right at the start. He has always been there when I started a new company as seed shareholder and Pan American went from that idea to try to build the world’s biggest silver company. Twenty years later, we are the world’s second-largest primary silver mining company. It’s a really big company. It’s in great shape, with a fabulous balance sheet.
We’re not delighted at the low silver prices today but it has been a really successful company. We have about 8000 employees now, a multibillion dollar market value, balance sheets that rival most companies in the industry, about $350 million in cash, and another couple of hundred million dollars in working capital beyond that.
So it’s in great shape and has a wonderful management team. So it has been a lot of fun building out over the years. Again, we made lots of mistakes and had all kinds of calamities. I spent three years working on a project in Russia and it was a disaster and we almost went bankrupt in 2001 with the bear market.
We had three months of cash left and we were losing money at our one silver mine in Peru. Then all of a sudden the market turned and we did a little financing with Bill Gates. We haven’t looked back. The stock went from $3 to $45 in just a matter of years.
So this is what sometimes can happen after a bear market; it can turn into just an absolutely wonderful run. Over the other years I’ve also started other companies. There was Da Capo Resources, a Bolivian gold exploration play that was sold in the mid-90s. There was a platinum project in Brazil called Altoro Resources, which we sold in the late 90s.
Then in 2002, I had the idea to build a copper play. That turned into Lumina Copper which turned into six separate companies. They were – the last of the six companies was sold last August and that was a lot of fun. We invested $170 million in a bunch of copper projects and eventually did exit for a total of $1.87 billion. So it was a really happy story for shareholders and then as you know, I started my little clean energy company in 2008, 2009 and that company is a thriving company today. Alterra Power, it’s called.
TD: For Lumina Copper, what was the market like when you formed that company? Who was the “usual gang” in terms of financiers backing that?
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