CEOs from Great Bear, Snowline, and Fireweed Talk Resource Investing Success (Written Summary)
Chris Taylor, Scott Berdahl, and Brandon Macdonald - all with major discoveries under their belts - share insights into what it takes to succeed in the junior resource sector.
tl;dr:
I provide a written summary of the 6ix panel presentation I recently hosted featuring the CEOs of Great Bear Resources, Snowline Gold, and Fireweed Metals dedicated to discussing picking winners and avoiding losers in the resource space. Time stamped links to the video provided.
Companies discussed: $sgd.v; $fwz.v; $kdk.v; gbr
Yesterday I hosted another panel for 6ix and had the opportunity to sit down with Scott Berdahl, CEO of Snowline Gold, Brandon Macdonald, CEO of Fireweed Metals, and Chris Taylor, former CEO of Great Bear Resources and current president of Kodiak Copper.
Obviously that is a pretty strong lineup of modern exploration success, so I was excited to get the chance to talk to them about their stories and what they did - and didn’t do - that they attribute their current success to and become a better investor in this space myself.
The chat took just about an hour and included about 15 minutes of audience Q&A at the end. I will provide some discussion here on our topics of conversation using timestamps for your ease of use. Clicking on the timestamp itself will link you through.
Our Discussion
Brandon, Scott, and Scott tell the story of their success and the struggles
Brandon: 2011/12 - some very lean years after that. Didn’t even pay income tax one year. Almost called it quits. But bc mining had this massive shortage of people coming due to retirement he made it as a business decision. Taught him to be patient and accpt it is a non-linear path. Wasn’t until 2018 that he felt he had turned the corner.
Scott: Similar to Brandon - Was around for the peak 12 years ago and experience the downturn. Grew up prospecting as a family with his father. But their success in 2011 is what allowed them to survive. He too almost quit but COVID prevented him from switching so he took one last crack at their land package.
Chris: You have to be able to be flat broke and still want to chase your dream. In the early years of Great Bear he went deeply into debt to keep the lights on. You have to stick with your dream through the lean years of a cyclical industry.
How much does management skill or personality matter to project success? How does management skill create different outcomes?
Chris: “Wildly divergent outcomes” come from different teams. Thinks teams need to have people on it who disagree to create strong ideas. Need people who also believe in the long-term dream because it allows fuller value to be realised for shareholders.
Scott: Agrees different teams end up on different paths. However, there are multiple paths to success. Different styles and approaches can be legitimate. More important is the company taking things seriously and acting with integrity. Thinks the lean years we have experience has actually winnowed out bad actors - only true believers are left still working in the space.
Brandon: It is either there or it isn’t. Bad teams can fail to find something that is there, but good management teams will never find something that isn’t there. There are moments where it is a coin flip between two equally valid options. You can make good decisions that end up bad in hindsight - huge element of luck. Takes example of Great Bear holding out for the big final offer and counters that there will be other examples where teams reject an offer and suffer for it in the long run.
What are some risk mitigation strategies you look for as investor and executive
Scott: Snowline didn’t have a specific target but a concept of a big area with a lot of projects in it. Collected a lot of properties to mitigate geological risk. They were fortunate to hit on their first targets. Keeping a strong treasury is important so you never have to raise with your back to the wall. Multiple years of casfhlow
Chris: Don’t fall in love with your projects. GBR went through 3 or 4 primary targets before settling on the Dixie project. Agrees on having at least 1 year’s worth of cash minimum.
Brandon: Cautions against the risk of overdiluting. But emphasises the need to “take the money” 95/100 times. Risk of having too many projects in a bear market can make things hard. Understanding when you need to have project diversity before the market does.
Thoughts on royalties and streams for financing
Chris: Was keen to get a royalty spun out of GBR because the value Great Bear was creating wasn’t getting any credit in the market. Because they were creating this spinout it made the industry do a deep dive to understand what they were getting spun out. The right royalty on the right project advances it seriously. Junior explore cos create incredible value in a way royalty companies never can.
Brandon: Royalties can be your cheapest source of capital. A very competitive space - you get a lot of bids on any royalty (or stream) sale. Cheaper than equity and debt but also impairs the asset. When it comes time to build his projects he will consider royalties and streams. Polymetallic projects are uniquely made for streaming.
Scott: Knowing when your project is overvalued is a key skill on when to finance but it is always a balance to not harm shareholders. Discusses how byproducts have hidden value - something that isn’t your target and doesn’t impact the story can create value and advance your project.
Advice on what to look for in management
Brandon: Cautions against always betting on teams that have done it before. Some management teams get their big win that changes their life and priorities and gets rid of the hustle needed to succeed. This industry is a huge grind and requires teams that give full effort. Does the team still have the energy level required to achieve success.
Talk to management. There’s no magic checklist to tell, but if you know what hard work is you will tend to know how to see it in other people. Look for high levels of engagement.
Scott: Look out for executives who have active roles in too many companies. Executive team needs to have singular focus on creating value in a single company. Teams all focused on the same goal will do better than a single charismatic CEO.
Chris: As an investor, the biggest red flag there is is the CEO that talks about a quick exit. Shows they don’t have the long term commitment needed to see it through. If the CEO is making it public they are in it for the short term, senior companies know they can wait out that CEO and get the project cheaper.
Red flags? What are other red flags for you.
Scott: Lifestyle companies. What is their dedication and focus? Realise how difficult these projects are even when things are going well. If you don’t see dedication then the team just won’t be able to see it through.
Brandon: Make sure that management teams make decisions based on pursuing discovery, rather than pursuing the marketing of a discovery. You plan your marketing around your exploration efforts. Make sure the tail doesn’t wag the dog. The stock price should reflect the reality of the company. Marketing isn’t always an issue it can be.
Thoughts on paid marketing
Scott: There’s a balance to be struck. But you have to work with integrity - too much marketing in the industry that pretends to be journalism. But you have to market and get your results out there. Your rocks tell the story but they need a little help. Cases of too much promotion and choosing wrong or marketing the wrong way.
Chris: Difference between communication and marketing. Marketing will increase the volatility of your share price. Look out for teams and marketing that turn a company into a deal. Try to increase the number of shareholders who understand and believe in the story to reduce the volatility.
Brandon: Marketing doesn’t need to be a dirty word. You market to reduce the cost of capital, but it is about reducing the cost of exploration, not more marketing. Replacing good shareholders with bad ones is the result of too much marketing and it hurts your company.
What are some warning signs a company is pumping?
Brandon: Any company that dismisses risk or paints unrealistic outcomes is a risk. Long-term thinking and integrity builds the long-term shareholder loyalty you need. At some point optimistic becomes unrealistic.
Thoughts on how companies disclose results and transparency (smearing, true widths, etc.)
Scott: Look out for companies that zoom out too much to hide the size of the actual soil anomaly or signature/reading.
Chris: Consistency and transparent disclosure. Grade smearing is an important one. Watch out also for selective disclosure - you release data to release data, consistently.
How important is a formal understanding of geology to success as an investor?
Scott: There’s a spectrum. Some deposits are simple and some are very complex. You can get pretty far along by reading books on resource estimation and case studies. Mike Power from Silver Range made a good video showing footprints of different deposits. You don’t need to be an expert to put together a rough resource model and estimate. A little bit of learning will take you a long way.
Brandon: If you think you’re communicating but your counterpart doesn’t understand what you’re saying it isn’t communication. Non-technocentric communication is critical. If a retail investor is struggling to understand a company they won’t know when to buy or sell. Maybe stick with companies that communicate well, though some can oversimplify.
Chris: Invest in companies who are lead by people you would expect to be running them. Exploration companies by geologists, Mining companies by engineers, transition companies by lawyers and accountants. A mismatch can be a red flag.
Company picks or what to look for.
Chris: Diversify first and foremost. Big discoveries aren’t inherently predictable. Don’t go all-in on one name.
Scott: Look at expected value. Don’t feel like you’ve missed the boat if there is still more value to be discovered/priced in. Snowline at 45 cents was risker than Snowline at $5 because the downside risk is so much less. Where are companies on the spectrum of knowns and unknowns?
Brandon: Industry insiders have natural advantages but he sits on his losers for too long. Projects must have merit, he has to understand what they’re looking for, the prize has precedent, and that it’s the right team to make it happen. Kingfisher and Ridgeline. Trusts those two CEOs and relies on his gut test when debating on if to give someone money.
Q and A
How active are you in the market?
Chris: Invests in people he knows. Recently bought Onyx because he trusts CEO. Relies on his personal read on people in his investment decisions.
Brandon: Not very active. Pays attention to the market and other companies as a benchmark but not much of an active portfolio.
Camp food
Brandon: Great Bear had no camp. Snowline and Fireweed requires a camp. You will have an insurrection on your hands if you don’t serve good food. The marginal savings of cheap food aren’t worth it.
Scott: His team started small and the cooking crew went all out for the first season of just 12 people, but now that there’s 50 people on-site the crew is fighting hard to maintain those high standards they set. Might be worth talking to drill companies and getting their feedback
Where is Snowline in the mine life cycle?
Scott: 2 paths: Valley. Still a lot to figure out and pre-resource with a long way to go. Great proof of concept for their region. They would be remiss to just focus on just that one asset. Plans internally to try to acquire more land in the future.
What motivated Lundins to invest in FWZ?
Brandon: 5+ year conversation. No single moment. Continuing exploration success - realisation that there is a whole lot there. Understanding this project is very big and they got very serious.
How important are conferences to companies?
Chris: Important. Reading the body language of your peer group and listening to what they’re saying. Zoom has been a big help. Invaluable to understand what these people are really thinking. Reading the room and reading individual people, deals, sentiment, trends. No better place to look for a project or company than at these places. Executives especially need to be there.
Thanks everyone who viewed it live and thank you as well if you’re reading this.
-JRI
Let me know if you have any 10 bagger picks. There are some picks from the panel in the notes.