Steve Todoruk: A Healthier Gold Mining Industry - Maurice Jackson

Steve Todoruk of ‘Sprott Global Resource Investments’ sits down with Maurice Jackson of ‘Proven & Probable’ to discuss the current state of the Gold Mining Industry. Mr. Todoruk has a proven pedigree of identifying promising new discovery plays, time and time again. Investors will want to grab a pen and paper and take notes as Mr. Todoruk conveys some of the unique, qualitative criteria that has made him one of the most highly regarded, sought out investments minds in the space.

Steve has 30 years of industry experience working as a broker at Sprott Global Resource Investments Ltd. and as an exploration geologist prior to joining Sprott.

Youtube:

Transcript:

Maurice Jackson: Welcome to Proven & Probable. I’m your host, Maurice Jackson. Today, we have an exciting show for investors as we will be discussing how to identify new discovery plays. Joining me today is one of Rick Rule’s handpicked investment executives, Steve Todoruk, of Sprott Global Resource Investments which is the preeminent name in the natural resource space. Steve, thank you for joining us today.

Steve Todoruk: Maurice, thanks for having me.

Maurice Jackson: Steve, before we begin today’s discussion, please share with investors your background and your unique niche-specific skillset that you offer for investors at Sprott Global Resource Investments.

Steve Todoruk: Well, I’m from Canada, from Vancouver and I went to university to study geology. And after graduating, I worked in the field for several mining companies, big companies like Newmont and others and then juniors, was an owner in a mining exploration consulting firm. We did exploration work for other mining companies that didn’t have geologists. And then that led me to getting involved in running my own junior mining exploration companies. I was president of two exploration companies for about 12 or 13 years and acquired properties around the world and raised money to fund drilling and what-not.

And about 13 years ago, I guess now, Rick Rule asked me if I’d consider leaving those roles and move down to California and work for him as a stock broker to help pick gold money stocks for my clients, figuring and hoping that my experience would help, you know, pick good money stocks and keep clients away from the bad ones. So, wore a number of hats in the industry and hopefully that helps my clients or investors invest their money efficiently.

Maurice Jackson: Well, it’s quite an impressive résumé I must say. You know, Steve, we’re delighted to have you on today’s show. You have a proven pedigree of identifying promising new discovery plays time and time again. So I know investors want to grab a pen and paper and take notes. I’d like to begin today’s show with an article you published that I thought was aptly entitled a Healthier Gold Mining Industry where you identified some significant developments that are taking place in the sector. What inspired you to publish this piece now?

Steve Todoruk: Everybody is obviously fairly excited and happy to see things improving and share prices going up for the start of the year after the horrific 4-year bear market that we’ve had, which I’ll say is definitely the worst that I’ve experienced in my 40 years in the industry. So I just thought it would be timely to sort of give my thoughts as to part of the reason why I think stocks are doing so well. Going back several years, a lot of the big mining companies when metal prices were high got all excited and were making expensive acquisitions via takeovers and what-not, building new mines. And the catch was a part of the formula that didn’t work out is gold went to $1900 an ounce. Cost of production continued climbing and spiraling out of control as well. So, even though we had high metal prices, mining companies weren’t making a lot of extra money.

And then the house of cards started to fall apart and metal prices dropped very quickly, but the cost of mining stayed up quite high for a number of years. So, it really created quite a dilemma and then some ugly situations for the big miners that led them to start slashing cost wherever they could, laying off all their geologists, you know, slashing to totally eliminating exploration, looking for new deposits for their future growths, laying off employees and head off. So it’s just everything. They’re doing whatever they could and their share prices were, you know, just— Barrick, for example, I think was—Barrick Gold, the biggest gold mining company in the world, I think it was $52 a share and they fell all the way to a little about $6 last fall. They were the—you know, the dirtiest most hated word in the gold mining industry if you want.

And along the way, you know, they along with everyone else is trying to, you know, pay down their debt and after, you know, a year and a half, 2 years of doing that, cost started to come down. You know, one of the biggest—the second biggest cost in mining are fuel cost at a mine and with oil dropping from $100 a barrel down to $30, now it’s $50, that was another big saving for the company. So it was timely. Copper prices come down, you know, copper for copper wiring used at mines. That’s another big savings, so all the costs were coming down.

And with the cost cutting, the miners were starting to get their house in order by the end of—you know, late the end of last year. And then with gold starting to rise from $1050 in January up to its high of $1280, you know, all that nice little rise in gold prices was basically going to the bottom line financially. And after all that house cleaning, investors liked that. It was a good combination. So now we’re in a situation if cost stays somewhere around where they are right now with the current gold price and if it goes up even a little bit more, most of the gold miners are quite healthy today. So then you start to get the trickle-down effect where you’re seeing these smaller gold miners enjoying a similar situation. It’s even trickling down to the exploration companies and they were all but dead for the most part the last 1 or 2 years.

No exploration companies were able to raise any money from investors because investors were paranoid to, you know, spend their money on anything called gold. But we’ve now seen that full trickle down even little junior exploration companies that have nothing really that were a penny or 2 pennies, they’re up at 5 cents and investors want to finance them. So you’re seeing a lot of companies that are financed, so hopefully that paves the way going into the future that will see more companies out there with more drills turning trying to make those new discoveries. That was basically the gist of the article.

Maurice Jackson: You know, as an investor, that sounds so enticing to me. And it’s also the classic example of the cure of high prices is high prices and the cure for low prices is low prices. Although it took 4 years, those that stayed the course I think are going to benefit here in the near future. As we noted earlier, your niche is identifying promising new discovery plays. Why have you dedicated your professional career to this endeavor?

Steve Todoruk: The role of every exploration company is to go out and make a brand new discovery, find a brand new deposit of gold or silver, uranium, iron ore, nickel, diamonds or iron ore, that’s the role of the—with the company when they’re announced that they’ve just made brand new discovery. It usually means they’ve drilled the—they’ve gone up to their mining property. They’ve generated targets and they’re drill-testing them hoping to, you know, get that first good hole. If they do, that’s the discovery drill hole. And then the game plan for the next 2 to 3 years is to move the drill over and try and keep growing it bigger and bigger. And if they’re doing that, the asset or the deposit get more and more valuable, you usually see the share price go higher and higher as that deposit gets bigger and bigger.

In the article I just wrote that you’re referring to, I highlighted in there that we’ve just had two of those success stories come to culmination. Reservoir Minerals and Kaminak gold 3 to 5 years ago made brand new discoveries and they were able to successfully grow them into big deposit and in each of these cases, bigger companies came along and took them over. So that’s your discovery—your classic discovery play from start to finish.

Maurice Jackson: Steve, share with the audience some of the returns that you and your clients have experienced in the past.

Steve Todoruk: Well, I had a lot of clients in both Reservoir and Kaminak in the case of Reservoir Minerals. I think it was about 3-1/2 years ago when they announced that first drill hole, within a couple of days, the stock went from $0.55 to $1 and that’s typical reaction, a sharp spike up. You know, on that announcement, I can say, “Okay, there it is. That’s the drill hole I’m looking for” and I started recommending my clients get into it at rate around $1 a share. Most of my clients were in before $2 a share and I think right now they’re trading at $8.75. They were offered at a little over $9 in their takeover. So there’s one play that’s kind of hot off the press from $1 to $9.

Reservoir owned 30% of that project and we see that kind of share price appreciation. If they owned 100% of that project and made the same discovery, the stock would have done, you know—call it 3 to 4 times better than that. Going back to 2006, the very well-known example of one of these types of discovery plays was a little company called the Aurelian Resources out of Toronto. They had a property in Ecuador and they—one day they announced the brand new discovery. The stock literally went from $0.50 cents to $3 in about 2 days on that announcement.

By the time I talked to the president of the company, did some due diligence and said, “Okay, I’m comfortable recommending that to my clients,” I strongly recommended that we get in at $3. Few of my clients said, “Steve, the stock just went from $0.50 to $3. Why didn’t we get in this?” “I didn’t know they were going to make the discovery, but now I’m telling you, this is really good-looking. If there’s going to be a big deposit, that’s just the first drill hole. It’ll take them 2 to 3 years to drill this thing and find out how big and valuable it is.” Two years later, Kinross Gold took them over $34 a share. That was a homerun.

Maurice Jackson: Yes.

Steve Todoruk: You know, they—Aurelian owned 100%. Ideally, if I had a crystal ball, I’d be able to guess which junior is going to be able to make the next discovery, but you can’t do that. There’s always somebody in the stock earlier only. They’re backing friends or family. You know, the guy running the company. They’re helping to finance that company and seed financings, early on financing, you know, they got lucky. You know, the surest way to increase your chances in this game is wait for the discovery drill hole. If you’re going to try doing this time after time after time, there’s no better way—I think it’s a proven fact, then wait for that good discovery drill hole and sit back and wait. You know, general rule of thumb is that in the case of Aurelian and the case of Reservoir Minerals, both drill holes were big holes. They were really wide and very good grades. You tend to drill those kind of big holes in the middle of big deposits, not in small deposits.

Maurice Jackson: Well, again, thank you for your voracity because, you know, there are some opportunities that sometimes don’t come to fruition, so I’m glad you shared the history behind how this all works out. You know, I’d also like for you to share with listeners some of the criteria that you look for in a new discovery play and why is that criteria so important.

Steve Todoruk: Well, kind of what I just mentioned there, you know, I’ve got a couple of rules of thumb that if a company makes a brand new discovery, you know, what defines big in my mind. I kind of say I want to see a drill—if it’s an open pit target, I want to see a drill hole that’s at least 150 meters wide of ideally over 1-1/2 grams per ton. And ideally it’s better and I’d love to see a first hole that’s 350 meters wide of 2 grams or 2-1/2 grams, but that’s harder to get. You can still—you know, if you’ve got something that’s 150 to 200 meters wide and it’s going to, you know, give you 1-1/2 gram grades on average, you probably have a nice multi-million ounce gold deposit.

Maurice Jackson: All right. And if I may just slightly interrupt you, now the grams per ton that you’re referring to was specific to gold, is that correct?

Steve Todoruk: Yes.

Maurice Jackson: Okay.

Steve Todoruk: Yes, for gold. You know, there is similar criteria for silver deposits or for copper deposits. For copper deposits in the case of reservoir minerals, you know, they’re just saying in the mining industry, the best place to look for a new mine or new deposit at your own mine. That’s why reservoir went over to Serbia. There’s a big copper mining complex that’s been mining copper there for 100 years called the Bor Mining Club Complex and there’s really high grade smaller deposits and much bigger copper deposits. So I said, I knew Reservoir very well and I knew they were starting to drill. I basically said if they ever show me a drill hole that’s 150 meters wide, better than 1% copper equivalent, I’m in. Well, that’s what they did. I think that first drill hole was close to 200 meters wide just around 1% copper equivalent and I didn’t know what laid ahead, but they went on to drill remarkable holes, some absolutely fabulous, really high grade holes of copper and gold.

Maurice Jackson: Well, you know, I have to thank you as well. You and I have had discussions offline and you made me aware of reservoir minerals and I did my due diligence on that and I took part of this growth that has been going on here in the last month with reservoir. So, thank you.

Steve Todoruk: No problem.

Maurice Jackson: Steve, for investors, there are literally hundreds of exploration companies throughout the world, and although you may wish to deploy capital in these companies, you may be surprised at the restrictions by traditional brokerage firms. By that, I’m referring to OTC which are over-the-counter pink sheets. Can you expand on this on why this is not a concern for your clients at Sprott Global Resource Investments?

Steve Todoruk: Yes, over the years, quite a while ago, Rick Rule, my boss, recognized that problem and realized and knew the best place to buy your stocks is in the most liquid markets if possible. So, he didn’t want to be able to do in restricted buying in the US in the OTC pink sheets, so we’ve set up business relationships to allow us to very easily buy in the Canadian markets or in Australian markets or other foreign markets.

Maurice Jackson: Awesome. Now, last question for you, sir, what did I forget to ask?

Steve Todoruk: Oh, jeez. We could talk all day. It just depends on what you want to talk about. It’s exciting times. You know, I think we touched on a few basics—there’s other strategies that investors use in this space. It really comes down to the individual, you know, are you knowledgeable in this space? Or do you have someone that can help you? I personally would like to have, you know, someone that knows what they’re talking about, that’s very familiar with this space. I always sort of say that if I wanted to buy biotech stocks, I sure want to be talking to somebody who knows something about biotech, not just, you know, chatting away or making recommendations. So, that’s our specialization. If anybody would like any help, feel free to contact me.

Maurice Jackson: Now, I understand that you will be offering a complementary portfolio review for our listeners?

Steve Todoruk: Yes, I’m always happy to do that. If you send me your listener’s stocks or call me up, I’m more than happy to go over them.

Maurice Jackson: And what will be the contact for that, sir?

Steve Todoruk: You could email me at stodoruk@sprottglobal.com. I think you’re going to give that. And my phone number is 1-800-477-7853.

Maurice Jackson: All right. And for our listeners, we ask that you please put in Proven & Probable in the subject line. This will allow Steve to streamline the emails a lot faster. Steve Todoruk of Sprott Global Resource Investments, thank you so much for joining us today on Proven & Probable.

Steve Todoruk: Thanks, Maurice.

Maurice Jackson: All the best to you, sir.

Steve Todoruk: Okay, thank you.

The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.