LINDSAY CLARK sat in on a presentation by GEOFF LOUDON, who chairs two small Kiwi mining companies, on mining investment.
Geoff Loudon is a prominent exploration geologist and Sydney-born international investor who has chosen to live in Christchurch. He is also chairman of the small New Zealand mining company L&M Mining and the pioneering international company Nautilus Minerals, which plans to mine the volcanic seafloor off Papua New Guinea.
Loudon was asked to speak at the last AusIMM minerals conference on, ‘How to make money in mining’, and is a regular attendee at New Zealand AusIMM branch conferences. In 2012-13 he was awarded the prestigious AusIMM Presidents Award.
“Making money out of mining is a difficult task and was particularly so in 2013,” Loudon said upfront.
High risk capital has evaporated. About half the 1200 small exploration or junior companies listed on the Toronto Venture exchange were expected to run right out of money by this past Christmas.
“Is this the end of junior mining as we know it? Well, when you have as many grey hairs as me, you will know it has been this bad before. In fact it’s been worse.
“Only a few years ago in 2009 things ground to a halt during the financial crisis. And between 1999 and 2002 the gold price sunk as low as US$244 an ounce, way below the current price.
“The best opportunities whether in mining or business are in the darkest hours. That is when good opportunities pop up if you are still alive to take advantage of them,” Loudon said.
Minerals are a commodity business, which is cyclic. When prices are at their highest, even the biggest companies think the good times are never going to end. The opposite occurs when prices are at their lowest.
So what are the hallmarks of making money in mining? What are the indications of successful executive teams?
“Often it seems to be having their own skin in the game, and being disciplined about acquisitions.”
And avoid companies with large corporate multi-layered managements who don’t understand what is going on at the workplace.
Loudon said the first company he worked for in PNG, if these principles of making money were applied, “would have failed all of them”.
An example of a gold mine that did work with a bigger team was the Lihir gold mine in PNG. It was a successful operation for a number of years and was eventually sold off three years ago for $10 billion. “The buyer wasn’t all that pleased later on,” he noted wryly.
Another mine, a small alluvial gold mine near Gore in Southland, “was a complete cock-up, though technically highly successful. And I was responsible.” Because the gold grade was not correct, it was a “financial dud” and the plug was pulled on the operation.
Another opportunity that Loudon was involved in was a copper project in Peru with two friends.
“This was one of my successes in mining – though we weren’t quite sure at the time.
The project was known to have 400 million tonnes of copper ore at a grade of 0.6 with bad metallurgy by reputation. The reputation was so bad that no one submitted a tender except ourselves.
“Drilling was done and higher grades were found. Eventually another company paid $680 million for the project. So that was a profitable mining venture.”