Agnico Eagle: The Most Successful Gold Company in the World | Sean Boyd and Jimmy Connor
Summary
Company Growth: Agnico Eagle has grown from a single mine with a $200 million market cap in 1998 to the third largest gold producer in the world with a market cap exceeding $50 billion, emphasizing a focus on quality over size.
Risk Management: The company strategically manages geopolitical and financial risks by focusing on regions with stable mining environments and maintaining low financial risk, which has been crucial to its success.
Canadian Focus: With 75% of its gold production in Canada, Agnico Eagle continues to invest heavily in Canadian projects, leveraging its strong regional expertise and geological potential.
M&A Strategy: Agnico Eagle's growth strategy includes strategic mergers and acquisitions, focusing on assets that complement its existing operations and offer geological upside, rather than merely increasing size.
Exploration and Development: The company maintains a significant exploration budget, focusing on regions with high geological potential, such as Nunavut, to ensure long-term growth and resource expansion.
Industry Challenges: Despite a shrinking investment base in the mining sector, Agnico Eagle believes in building high-quality businesses that attract generalist investors by demonstrating strong performance and risk management.
Leadership Philosophy: The company's leadership emphasizes long-term thinking, risk management, and building a high-quality business that benefits shareholders, employees, and communities.
Future Outlook: Agnico Eagle aims to continue its strategic focus on quality and value creation without a specific goal to become the largest gold producer, but rather to strengthen its business sustainably.
Transcript
[Music] We just happen to find ourselves in the gold mining business, but our job was really to build a highquality business that could withstand the ups and downs of the commodity price. So interesting. Agnika Eagle was the only company of any size that never ever sold an ounce of gold forward. We did not financially engineer our business. Our job was to find it and produce it as cheaply as we could. And in doing so, we created this highquality business that grew over time. to the point where we're now the third largest gold producer in the world, the largest market cap mining company in Canada, and we did it by focusing on quality. [Music] Sean, Piknico Eagle is one of the world's largest gold mining companies, and when you became the CEO in 1998, there was only one producing mine. The market cap was 200 million, give or take. Now there's 11 producing mines and the market cap is over $50 billion. And before we discuss how you achieved this remarkable growth, I want to first spend a couple of minutes on the founder of Nikico Eagle and that was Paul Penna. And he was uh quite a remarkable man in many respects and even though he passed away many years ago, his legacy still lives on through the culture of ano and this is one of the reasons why has been so successful because of its culture. Maybe you can spend a couple of minutes talking about Paul, what type of man he was and what his legacy is at Igno. >> Yeah, there's two parts of that. Number one, he was a people person. Um, so we got a good sense of of Paul always, you know, coming into the office looking to do good. So that was that really was what defined Igno uh certainly in the early days. And um a lot of great stories. U one famous one is Paul um would would know the homeless people's names in and around the office and he would uh make a point of getting us to go um to these uh homeless people and and give them jackets uh winter coats, provide them with food. Um, so that made a strong impression on us early on that, you know, not only was it our responsibility to work hard for our shareholders, but it was also our responsibility because of the success of the business to give back and and that's been a big part of who we are. But Paul also had a um he had a twinkle in his eye for the markets. He was a broker at a young age. Uh, love the markets, love Bay Street, love the action. Um but he sort of connected that with his business in terms of managing risk and understanding risk. Um and so that's one of the reasons we've been successful is we've managed geopolitical risk. Paul was not big on going into areas where it wasn't promining. Paul was really big on keeping financial risk low. Um and why he did that was he wanted to be more aggressive with the drill. he wanted to be more aggressive developing deposits and so we just carried that on. we've done it in a much bigger way. But um the grounding and the foundation of the company whether it's doing good based on our success but also how we manage the business and deliver for our employees and our communities but more importantly our shareholders was set very very early on by Paul and quite often success comes from the performance of rituals and Paul had many of them and one of the rituals that he would follow on a regular basis was reaching out to share homeworks and because of this he developed a very strong and loyal shareholder base. Can you just expand on that and what exactly he did to develop that shareholder base? >> Well, at one point we had about 40,000 retail shareholders. We would basically print 40,000 annual reports a year and they were largely going to the retail investor and a big uh number of those were Americans and we were one of the first Canadian companies to be trading on the NASDAQ market. So Paul would reach out on a daily basis. He would he would prepare a list of calls that needed to be made when he got into the office early. Those were largely based on monitoring share transaction buys and sells from the retail base and he'd phone them just to touch base. But he was also big on on sending out um momentos or or swag, let's say. Um but it was very unique to Canada. We were probably one of the biggest buyers of canned lobster in the country and we would ship that canned lobster out to shareholders. We'd have a storage uh room in the basement of the tower that we uh had our office in and we would often that was part of my job even though I was controller my job was to go down there and help bring it upstairs and we would wrap it up and ship those out. So what Paul did is he made it a positive experience to be a shareholder of Nikico. So even though the stock was going up and down based on the gold price and based on things happening within the business, that was not a big concern because the shareholders valued the relationship they had with the management team. >> That would be a lot of cans of lobster. >> A lot of cans and heavy 24 tins and it was fabulous lobster from PEI actually. So Sean, I want to discuss Igno's path to becoming the third largest gold producer in the world. And you already touched on this, but a big part of it has to do with risk and managing risk. And when I look at a mining company, one of the things that really stands out to me is geopolitical risk. And we have seen many instances in recent years where worldass assets, worldass mines have been nationalized or stolen by foreign countries. And Io has never had this issue. And maybe you can just expand on that in how you and your team look at country risk. >> Yeah, mining is tough enough. You're dealing with nature. So, what you try to do is improve your odds and you can control some risks. And one of the risks you can control is where you want to do business. And so, here we are, third biggest uh producer of gold in the world. And we're not everywhere. We have 11 mines, but basically in four districts. So, what we've tried to do is be a global player, but use a regional focus. And in those areas where we find ourselves, we've already taken a view that we can build a successful business over multi-deades. And so that lowers the risk. We've also taken the view to lower financial risk. And so we want to do what has built uh Nico and continue to do was to drill. make take a view on geology, take a view on geological upside, get involved in districts we know we can do business in um and drill those deposits and use the mindbuilding skills to build those mines. We build them ourselves. We're our own general contractors. So, we've been doing that for decades. So, there's a lots of things that we do to improve our chances of building highquality mines that can last for a long time. But primarily is we don't want to be everywhere. We want to be focused on regions we know well, we can establish strong partnerships, we can get settled in because our experience has been the best value creation is once you get that production base established, your geologists get more familiar with the deposits and you can drill them and grow them. And then once you drill them and grow them, if you have that inherent uh in-house mine building expertise, you know what to do with those deposits as they continue to grow. So that's been the formula for our success. And 75% of Igno's gold production is in Canada. Are you going to continue to focus on Canada? We still have lots of growth ahead of us in Canada. We've got some big deposits. So, we own two of the biggest deposits in the world. They're in the top 10. The detour mine, which we just recently announced that as we open up the underground and build an underground component, we can take this mine to over a million ounces of annual output. The Canadian Malardic Mine will be producing over 700,000 ounces this year. that has the opportunity to continue to grow. So that's a big part of our focus. Uh we have a deposit in Kirkland Lake, Upper Beaver, which has a copper credit to it. That'll be lowcost ounces. We have projects in none of it, Hope Bay. So we've got a lot of opportunity to continue to invest in Canada, which we will continue to do. But basically, we've built the company by following geology and following geology in parts of the world where we're comfortable doing business. So Canada will continue to be the core um but we'll be opportunistic as we look at other parts of the world that we feel we can do business in where there's good upside and good geology. But we also feel a responsibility given our long history in Canada being a Canadian company based in Canada run by Canadians is to continue to work hard in in building out our uh capacity. Um I don't want to use the word Canadian champion. Um, but in a sense, what we want to do is be a Canadian-based company that can operate any deposit anywhere in the world we choose to be because we have the experience, we have the skills, um, we have a successful strategy and we have the financial capacity to be able to do it. Sean, Canada is a very large country, very small population wise with only 40 million people, but landwise very large and there's so much more land to explore and you are active in Nun. What's your long-term strategy for Nunovet? Well, Nunovet, we just see it as a really good opportunity to leverage off of what we've already built in Canada. Um, it's actually not that far in terms of flight time from our base in the Abativi, 4 hours. Um, so when we first went to none of it 2007, the concept was to build off the experience set that we have at the Abatibi and build new deposits in Canada's north. So we're sort of on the frontier. We're a quarter of the GDP of none of it now. None of it's three and a half times the size of PRIT. Uh the population of none of it is in the resource development business. They own a direct interest in 18% of the land mass and it's basically they selected that 18% based on the geological potential of of that area. Um so we've built strong relationshipships up there. The exploration potential is immense and so it's how do we leverage what we've built leverage those partnerships. Um but there's tremendous interest in Canada's north uh because of the resource potential there. uh there's interest from our adversaries, whether it's Russia or China, to try to um take positions in Canada's north. So, it's an opportunity not just for Agniko to generate above average returns for our shareholders, but it's an opportunity for the country when we think about it um because of its resource development. But it's going to take coordination. It's going to take industry building the base. It's going to take government to help us build infrastructure. And it's not just infrastructure like ports or air strips or roads. Agniko's the number one road builder in none of it. We've built around 300 km of roads. So that's part and parcel of the investments that's required. But there's also investment in communities that's needed for housing and other social infrastructure because the north really for Canada is about presence. It's about sovereignty. It's really about defense. And the best way to um improve your uh sovereignty in that region is to use it. And presence, there's no better definition than presence is mining. 365 days a year, 24/7 those mines operate. There's 40,000 people in Nunova. So, as we uplift the communities, we build more in the communities. We build more resource deposits there. We can diversify those economies. And that's just not going to benefit the industry that's there or the communities that are there or the people living in those communities. It's going to benefit 40 million Canadians over time. It's going to benefit generation after generation after generation. And we need to start now though. We need to start investing and working together. And IO's at the forefront of this and we're going to continue to focus there because we just see we just see tremendous potential there. >> Do you see the potential to find another Mardic or detour? Um there's certainly large greenstone belts there. Uh our Hope Bay project, which was a project that the federal government essentially said to a Chinese controlled mining company that they couldn't own it. Um that's one that's sitted sitting on a major greenstone belt. Massive upside in terms of exploration potential. We're spending a significant portion of Agniko's large exploration budget there. We've had some really high-grade results over the last little while. Um there's tremendous potential there. So our focus is when we took it over uh it was a small mine. We put it on care and maintenance. Why to drill it? It's grown. We're working on plans to reopen it much bigger than what it was. Um but as we've said, the best way to create value is once you build the production base. So we're going to restart that at some point, probably announce something next year and then continue to drill. So there's tremendous potential up in Nunova to find big long life deposits. >> So another big risk is the gold price and this is something you cannot control and we've seen many times when the price of gold would drop 10 20 30% in a relatively short period of time and we saw this in 2013. Maybe you can just describe for us how you and your team were able to navigate through that arduous time. Yeah, I I think we distinguish ourselves um in 2013 because we took our time to understand um what that drop in gold price of about $400 would mean to our business. We weren't reactionary. We needed to think it through and we were thinking it through on the basis that we wanted it to have minimal impact on our employees and our headcount. And so that's what we did. It took us a few months to put a strategy together. Um and effectively we had a small reduction of headcount due to early retirements. But actually in 2013 we were one of the best performers of all the gold stocks during 2013. We didn't eliminate our dividend. We reduced our dividend as part of adjusting to the reality of $400 drop in gold. And as we came through 2013, our relative valuation multiple was still compared to our competitors very strong. And look what happened in early 2014. Uh, O Cisco was put into play and we were in a good position given our knowledge of the deposit, given its proximity to our main operating base, given the relative value of our stock to be able to use it as consideration in a potential deal. and that resulted in a successful deal with Yumana in splitting up essentially Canadian Malaric. >> So let's discuss consolidation and M&A now and a big part of Igno's growth in recent years has come from M&A and I'm looking at Kirkland Lake Detour and also Malardic and not just but many companies within the gold mining space. Do you think consolidation is going to continue? >> I think it's going to continue. it needs to continue because um there's too many players now for the number of highquality development opportunities that exist in the gold business at the moment. So it needs to consolidate but it needs to do it smartly and you know we just don't need consolidation just to have companies get bigger. We need a consolidation to occur or and continue over the next year two years so that the right assets end up with the right players and that's the perspective we took a few years back. Um during co we were really active um a lot of players weren't active during co we were active um even though we were social distancing I had bankers at my house um to talk about ideas. I had CEOs at my house in the backyard social distancing talking about ideas uh because we realized that it was getting more expensive to build mines. It was getting riskier to build mines. Even though we had a good track record of building mines, doing them ourselves, we felt it was the time to be buying. Um but again, we were patient and we weren't just buying anything to get bigger. We were actually buying things that fit fit the existing asset base, fit the skill set, were well matched, had geological upside, and that's why we were able to do a few deals over the last few years to get to the point where we are today. So, um, we think that's the approach that others should take. How do you actually strengthen your business? Consolidation just to get bigger doesn't work. It actually has destroyed value over years. We're here now because we weren't empire builders. We were mindful of opportunities based on geological upside. We were very patient. Think about Malardic. We got the first half in 2014. We got the second half in 2023. So, we were patient. It's always something we kept our eye on. And in order to be successful in M&A, you have to run a good underlying business. Our M&A strategy right now is to deliver every quarter production and costs. Keep that relative meltable up high. Don't abuse it. Wait for the opportunity to present itself and move quickly. We're a company that doesn't have bureaucracy. we can make decisions quickly um because we have a strategy that our team understands, our board understands. And another reason we've been successful in M&A is we have a board that works side by side with management. They're fully up to date on things that we're looking at. Um every time we meet uh before we do the regular board, we have a separate strategy session, senior executives, CEO, board talking about strategy. So all of that to say is we're going to continue to keep our eyes open. We're going to continue to add good assets when they make sense even though we have a strong project pipeline. And we think the industry will continue to look for ways that it can consolidate and streamline because as you know resource investors um have shrunk in terms of money under management. What we've tried to do all along is build a highquality business that happens to mine for gold because that can attract the generalist investor. So what M&A has to do for the industry is to make it stronger, make the businesses better so that they're more attractive to the generalist investor. >> And so you're going to grow by way of M&A. What about through the Joel brand or exploration? >> Well, that's still a big part of our success is go into regions that have geological upside, build those relationships, get that experience. our exploration budget this year $300 million. So that's sizable, that's significant. Um just in the region from Detour to Kirkland Lake to Valdor in the Abatibi gold belt where we have the anchor assets would be detour and would be Canadian Malarctic and in the mix would be Macassa and Lauron and Goldex. We have 90 million ounces of reserve and resource and there's still deposits in there that are wide open. none of it. Great potential, underexplored, massive region, big part of our exploration budgets up there. So, that's been a big part of our history. Keep those drills turning. Um, keep those deposits growing and being mindbuilders at heart, we know what to do with those deposits when they get bigger. >> Sean, you and your team have acquired a lot of companies over the years. Was there one company or one deal in particular that might have caused you a lot of stress? Um well I think um they're all unique. Um, I think the one because it was early on and it was really other than Agniko consolidating with Demogamy Mines in the late8s, this was one where we were going out um into um another market which was Europe and we were essentially making a bid for a uh Swedish listed junior that had a deposit in northern Finland north of the Outerric Circle. And that was a deal where we were uh original investors at roughly 14% created a lot of value for the shareholders uh made a premium bid. Uh but we got a lot of push back out of the gate uh from um hedge funds that uh amassed a fairly sizable position uh to try to block the deal. Our stock went down 30%. Um but we were patient. Eventually, we acquired it within about 6 months without increasing the bid once. We just kept with the same bid. Now, that wasn't easy uh because technically um with a Swedish listed company, you need to get 90% approval, but once you're over 60%, you can actually petition to have the company delisted. So after several bid extensions, we finally got to 60%. And we basically at a mining conference said, "Well, actually, we just passed an important threshold. Um, we're not saying we're going to do it, but we now have the ability to take this company private, and if we choose to do it, we're going to have hedge funds become mine builders with us to build a deposit north of the Arctic Circle in Finland." The next tender was over 90%. and we successfully got that deposit which uh it turns out is Europe's largest deposit in terms of gold reserve um still has a lot of potential there in a good region um where we've been able to create a lot of value for years Sean the investing sector has changed drastically in the last 10 years the number of funds that have allocated money toward the mining sector the gold sector has diminished significantly the number of funds which are focused on mining have disappeared. And if you look at assets under management in the UK in 2010, there was $40 billion in AUM, which was focused on the mining sector. Now that's down to 12 billion. In Canada, the number went from 16 billion down to three billion. So these funds focused on mining and gold in particular, they're disappearing. What does the sector have to do to get more people involved, get the generalists involved? Yeah, I think that's actually a bullish sign. That's when things start to turn turn back up. Um because the funds lose patience. Um and it's interesting that that's happening now because we're seeing a renaissance in terms of um governments, in terms of investors, in terms of populations understanding the importance of mining as we work towards the energy transition. And we need critical metals. So at a point in time where there's going to be more opportunities when highquality big mining businesses are going to be required to actually bring those new deposits into production. Uh we're seeing the resource investment base shrink. So that presents a challenge but it also presents an opportunity because I think more money will come back in as the mining industry can articulate the quality nature of the business as we work on that next generation of deposits. But as we've said many many times is that we just happen to find ourselves in the gold mining business. But our job was really to build a highquality business that could withstand the the the ups and downs of the commodity price. So interesting Eagle was the only company of any any size that never ever sold an ounce of gold forward. We did not financially engineer our business. Our job was to find it and produce it as cheaply as we could. And and in doing so, we created this highquality business that grew over time to the point where we're now the third largest gold producer in the world, the largest market cap mining company in Canada. And we did it by focusing on quality. Size came after quality, but we did it by focusing on quality. And we think that that's where the industry needs to focus to get more investor attention, generalist investor attention back in the space. the resource space I think will come back you know based on mining companies growing and that's going to be successful M&A successful um uh exploration but also risk management because what investors want we think is exposure to the underlying commodity in a way where they get leverage because the companies are good at finding more companies are good at expanding uh companies are good at managing costs and that's when you get good leverage and better leverage than just investing in in the commodities So I think the formula is there. Uh as an industry we just have to execute and it it will come. >> You raised a lot of good points and I think the key one you raised was performance and we really haven't seen the gold equities perform that well in spite of the price of gold moving significantly higher. A lot of the producers are factoring in maybe $1,500 $1600 gold. Okay. And a lot of people say the mining industry is a destroyer of wealth and a lot of the CEOs are poor stewards of capital. What do you have to say to that? Um there's been some some bad examples out there of of stewardship in terms of responsibility to the owners of the businesses where as we said there were companies that were more focused on empire building rather than building the highquality business over time. So, I I think there's there's certainly work to do, but I think the mining industry has to do a better job of telling its story um telling the benefits that we bring to employees and communities that tend to be remote um to get that message out. But, um I think the industry is really well positioned uh to do that now. And I think what it's going to take, it's coming. um at these prices. When you think about $2,400, wait till we see the quarterly earnings coming out over the next couple of weeks based on a realized gold price somewhere in the $2,300 range when average cost maybe $900 cash cost for the industry. There's a lot of margin there. We haven't really seen that. And I think the challenge the gold industry's had, it's never really had the price levels that the base me metal industry has had in terms of high and sustained high prices. We've had peaks and then it's fallen off here. We seem to have a underlying conditions where this could be maintained nicely over 2,000 for a while. That's going to send a strong message to investors to that for those that haven't looked at the sector closely. They're going to see these earnings coming out of a lot of these companies and they're going to say, "Wait a minute, maybe we better revisit that because look at the free cash flow. Look at the margins. Look at the ability to be able to manage costs." um we haven't been able to do that in the past and Nico's done a better job than most, but now I think you're going to see a lot of companies at these gold prices um doing really really well. >> As an investor, I have invested in a lot of mining companies over the years and I've made a lot of money, but I've lost a lot of money. What advice would you give a generalist or a retail investor on investing in the mining industry? >> You're picking management, and I'll just use an example. Fidelity out of Boston has been a shareholder of Igno Eagle since the late 70s. Always own stock, traded around it. Now, why have they been successful with this investment? Because they have taken the time to understand our business, understand who we are, um, building that relationship with us, and building a comfort level around our strategy, around management's willingness and discipline to stick to the strategy. That's the best way to do it is to find those highquality companies uh giving you exposure to commodities you want exposure to and trading around those core positions. >> And Sean, what advice would you give a young CEO who might be managing or overseeing a single asset company with one producing line? >> That was us not too long ago. Uh you have to think long term. You have to manage risk. Uh, I've seen a lot of companies come and go. And the companies that aren't around now are companies that got um the assessment of risk wrong and they put themselves in a position where they were beholden to a bank, let's say, or they made other mistakes where they um didn't properly assess the deposit or the opportunity. Um, so it's about hiring good people, people you trust, and you listen to those people. I'm an accountant. I was fortunate in the very early days we had such a high quality strong team of technical people that were very generous with their knowledge and experience and we essentially trusted each other and we made decisions together. But the one thing don't be in a hurry cuz if you're in a hurry nature will bite you. We're all dealing with nature when we're in the mining business and it can throw a curveball. So you got to make sure you understand the downside and you protect the downside. Think about it. A lot of companies did that around the commodity by hedging. We didn't do it. So, we were basically saying we were confident in our ability to manage our costs to find gold at the right price that allowed us to continue that business. So, don't be in a hurry. Be patient. It's not about building an empire. Your responsibility is to build a highquality business. Look after your employees and look after your communities. When I hear you talk about Igno and the importance of building a quality business, creating cash flow, creating shareholder wealth, paying out dividends, I can't help but think this is the type of company Warren Buffett would want to invest in. But we both know he does not believe in gold as an asset class. If you had the chance to sit down with Warren Buffett, what would you say to him to convince him that IO would be a good investment for him and his shareholders? >> Well, I would look at the track record from late '9s. um when I was still relatively small but had 1 million. Um when we ran the analysis a couple of months ago, we were up 10 times in terms of stock price. Uh where our peers were flat, some down, some up a little bit, maybe one to two times. And so we were able to actually work in a tough business, understand our opportunity set, understand our risks and manage them, and still do it in a way where not only do we generate superior returns in a tough business over time, but we actually put ourselves in a position where we're stronger than we were 25 years ago in terms of our ability to continue to do more of that. Um, so I would just point to our track record and I would point to shareholders like Fidelity who have been with us a long long time and over that time uh have made a lot of money. >> Sean, as we wrap up, how do you see Nico evolving over the next 5 years? >> Uh, we'll continue to stick to a strategy that's worked because it's a strategy we're comfortable with. Um, and it's a strategy that matches and fits our skill set. Uh but I think the beauty of where we are now uh from one mine 50 million in revenue in the late '9s to to the company we are now literally because we never set out to build a company this size. We just focused bit by bit, piece by piece on putting things together to make us better every step of the way. Uh and so I'm asked that question a lot by employees. You know, what do we look like in 10 years, Sean? What do we look like in 15 years? My answer is always, I'm not sure. I'm not sure what we look like, but I know what we're going to feel like. We're going to feel like the company that you want to work for that's been the same company in terms of feel for the last 30 to 40 years. That's our job to maintain that culture. So, we'll know what it feels like to work here. We'll know what it feels like to be a partner with the communities. What size it is, where we're operating, I'm not sure, but I know it'll be a high quality business. Nico is currently the third largest gold producer in the world. Do you see it becoming the largest gold producer in the world? >> Um I wouldn't say that that's something that we uh strive for because it's something we've never really said we need to be this size or we're not successful. It's really how strong is this business in this industry? Uh how can we keep adding value? Uh that's what the real focus is. And so if you had told me 10 years ago that we would be third largest, um I wouldn't have said no, but I I would have said, "Boy, but that's not the goal." I can remember when Goldman Sachs would come in and they'd say, "Look, you got to sign us up as defensive advisers. We got to protect you cuz look at the thing. You're sitting there at number 16 in market cap. All these other big guys will be looking at you guys and they're going to eat you up at some point." And so we were down here and the goal wasn't to be here. It was just to get better. And all of a sudden, every time they came in with that spreadsheet, we were moving up the ranks and do it in a way that we're doing it the right way. So, it's not really what we built, it's how we've built it. We built it the right way. >> Well, Sean, that was a fascinating story. I want to thank you very much for sharing your insights with us today. >> Very good. Thank you for uh inviting me and thanks for taking the time to listen to our story. [Music]
Agnico Eagle: The Most Successful Gold Company in the World | Sean Boyd and Jimmy Connor
Summary
Transcript
[Music] We just happen to find ourselves in the gold mining business, but our job was really to build a highquality business that could withstand the ups and downs of the commodity price. So interesting. Agnika Eagle was the only company of any size that never ever sold an ounce of gold forward. We did not financially engineer our business. Our job was to find it and produce it as cheaply as we could. And in doing so, we created this highquality business that grew over time. to the point where we're now the third largest gold producer in the world, the largest market cap mining company in Canada, and we did it by focusing on quality. [Music] Sean, Piknico Eagle is one of the world's largest gold mining companies, and when you became the CEO in 1998, there was only one producing mine. The market cap was 200 million, give or take. Now there's 11 producing mines and the market cap is over $50 billion. And before we discuss how you achieved this remarkable growth, I want to first spend a couple of minutes on the founder of Nikico Eagle and that was Paul Penna. And he was uh quite a remarkable man in many respects and even though he passed away many years ago, his legacy still lives on through the culture of ano and this is one of the reasons why has been so successful because of its culture. Maybe you can spend a couple of minutes talking about Paul, what type of man he was and what his legacy is at Igno. >> Yeah, there's two parts of that. Number one, he was a people person. Um, so we got a good sense of of Paul always, you know, coming into the office looking to do good. So that was that really was what defined Igno uh certainly in the early days. And um a lot of great stories. U one famous one is Paul um would would know the homeless people's names in and around the office and he would uh make a point of getting us to go um to these uh homeless people and and give them jackets uh winter coats, provide them with food. Um, so that made a strong impression on us early on that, you know, not only was it our responsibility to work hard for our shareholders, but it was also our responsibility because of the success of the business to give back and and that's been a big part of who we are. But Paul also had a um he had a twinkle in his eye for the markets. He was a broker at a young age. Uh, love the markets, love Bay Street, love the action. Um but he sort of connected that with his business in terms of managing risk and understanding risk. Um and so that's one of the reasons we've been successful is we've managed geopolitical risk. Paul was not big on going into areas where it wasn't promining. Paul was really big on keeping financial risk low. Um and why he did that was he wanted to be more aggressive with the drill. he wanted to be more aggressive developing deposits and so we just carried that on. we've done it in a much bigger way. But um the grounding and the foundation of the company whether it's doing good based on our success but also how we manage the business and deliver for our employees and our communities but more importantly our shareholders was set very very early on by Paul and quite often success comes from the performance of rituals and Paul had many of them and one of the rituals that he would follow on a regular basis was reaching out to share homeworks and because of this he developed a very strong and loyal shareholder base. Can you just expand on that and what exactly he did to develop that shareholder base? >> Well, at one point we had about 40,000 retail shareholders. We would basically print 40,000 annual reports a year and they were largely going to the retail investor and a big uh number of those were Americans and we were one of the first Canadian companies to be trading on the NASDAQ market. So Paul would reach out on a daily basis. He would he would prepare a list of calls that needed to be made when he got into the office early. Those were largely based on monitoring share transaction buys and sells from the retail base and he'd phone them just to touch base. But he was also big on on sending out um momentos or or swag, let's say. Um but it was very unique to Canada. We were probably one of the biggest buyers of canned lobster in the country and we would ship that canned lobster out to shareholders. We'd have a storage uh room in the basement of the tower that we uh had our office in and we would often that was part of my job even though I was controller my job was to go down there and help bring it upstairs and we would wrap it up and ship those out. So what Paul did is he made it a positive experience to be a shareholder of Nikico. So even though the stock was going up and down based on the gold price and based on things happening within the business, that was not a big concern because the shareholders valued the relationship they had with the management team. >> That would be a lot of cans of lobster. >> A lot of cans and heavy 24 tins and it was fabulous lobster from PEI actually. So Sean, I want to discuss Igno's path to becoming the third largest gold producer in the world. And you already touched on this, but a big part of it has to do with risk and managing risk. And when I look at a mining company, one of the things that really stands out to me is geopolitical risk. And we have seen many instances in recent years where worldass assets, worldass mines have been nationalized or stolen by foreign countries. And Io has never had this issue. And maybe you can just expand on that in how you and your team look at country risk. >> Yeah, mining is tough enough. You're dealing with nature. So, what you try to do is improve your odds and you can control some risks. And one of the risks you can control is where you want to do business. And so, here we are, third biggest uh producer of gold in the world. And we're not everywhere. We have 11 mines, but basically in four districts. So, what we've tried to do is be a global player, but use a regional focus. And in those areas where we find ourselves, we've already taken a view that we can build a successful business over multi-deades. And so that lowers the risk. We've also taken the view to lower financial risk. And so we want to do what has built uh Nico and continue to do was to drill. make take a view on geology, take a view on geological upside, get involved in districts we know we can do business in um and drill those deposits and use the mindbuilding skills to build those mines. We build them ourselves. We're our own general contractors. So, we've been doing that for decades. So, there's a lots of things that we do to improve our chances of building highquality mines that can last for a long time. But primarily is we don't want to be everywhere. We want to be focused on regions we know well, we can establish strong partnerships, we can get settled in because our experience has been the best value creation is once you get that production base established, your geologists get more familiar with the deposits and you can drill them and grow them. And then once you drill them and grow them, if you have that inherent uh in-house mine building expertise, you know what to do with those deposits as they continue to grow. So that's been the formula for our success. And 75% of Igno's gold production is in Canada. Are you going to continue to focus on Canada? We still have lots of growth ahead of us in Canada. We've got some big deposits. So, we own two of the biggest deposits in the world. They're in the top 10. The detour mine, which we just recently announced that as we open up the underground and build an underground component, we can take this mine to over a million ounces of annual output. The Canadian Malardic Mine will be producing over 700,000 ounces this year. that has the opportunity to continue to grow. So that's a big part of our focus. Uh we have a deposit in Kirkland Lake, Upper Beaver, which has a copper credit to it. That'll be lowcost ounces. We have projects in none of it, Hope Bay. So we've got a lot of opportunity to continue to invest in Canada, which we will continue to do. But basically, we've built the company by following geology and following geology in parts of the world where we're comfortable doing business. So Canada will continue to be the core um but we'll be opportunistic as we look at other parts of the world that we feel we can do business in where there's good upside and good geology. But we also feel a responsibility given our long history in Canada being a Canadian company based in Canada run by Canadians is to continue to work hard in in building out our uh capacity. Um I don't want to use the word Canadian champion. Um, but in a sense, what we want to do is be a Canadian-based company that can operate any deposit anywhere in the world we choose to be because we have the experience, we have the skills, um, we have a successful strategy and we have the financial capacity to be able to do it. Sean, Canada is a very large country, very small population wise with only 40 million people, but landwise very large and there's so much more land to explore and you are active in Nun. What's your long-term strategy for Nunovet? Well, Nunovet, we just see it as a really good opportunity to leverage off of what we've already built in Canada. Um, it's actually not that far in terms of flight time from our base in the Abativi, 4 hours. Um, so when we first went to none of it 2007, the concept was to build off the experience set that we have at the Abatibi and build new deposits in Canada's north. So we're sort of on the frontier. We're a quarter of the GDP of none of it now. None of it's three and a half times the size of PRIT. Uh the population of none of it is in the resource development business. They own a direct interest in 18% of the land mass and it's basically they selected that 18% based on the geological potential of of that area. Um so we've built strong relationshipships up there. The exploration potential is immense and so it's how do we leverage what we've built leverage those partnerships. Um but there's tremendous interest in Canada's north uh because of the resource potential there. uh there's interest from our adversaries, whether it's Russia or China, to try to um take positions in Canada's north. So, it's an opportunity not just for Agniko to generate above average returns for our shareholders, but it's an opportunity for the country when we think about it um because of its resource development. But it's going to take coordination. It's going to take industry building the base. It's going to take government to help us build infrastructure. And it's not just infrastructure like ports or air strips or roads. Agniko's the number one road builder in none of it. We've built around 300 km of roads. So that's part and parcel of the investments that's required. But there's also investment in communities that's needed for housing and other social infrastructure because the north really for Canada is about presence. It's about sovereignty. It's really about defense. And the best way to um improve your uh sovereignty in that region is to use it. And presence, there's no better definition than presence is mining. 365 days a year, 24/7 those mines operate. There's 40,000 people in Nunova. So, as we uplift the communities, we build more in the communities. We build more resource deposits there. We can diversify those economies. And that's just not going to benefit the industry that's there or the communities that are there or the people living in those communities. It's going to benefit 40 million Canadians over time. It's going to benefit generation after generation after generation. And we need to start now though. We need to start investing and working together. And IO's at the forefront of this and we're going to continue to focus there because we just see we just see tremendous potential there. >> Do you see the potential to find another Mardic or detour? Um there's certainly large greenstone belts there. Uh our Hope Bay project, which was a project that the federal government essentially said to a Chinese controlled mining company that they couldn't own it. Um that's one that's sitted sitting on a major greenstone belt. Massive upside in terms of exploration potential. We're spending a significant portion of Agniko's large exploration budget there. We've had some really high-grade results over the last little while. Um there's tremendous potential there. So our focus is when we took it over uh it was a small mine. We put it on care and maintenance. Why to drill it? It's grown. We're working on plans to reopen it much bigger than what it was. Um but as we've said, the best way to create value is once you build the production base. So we're going to restart that at some point, probably announce something next year and then continue to drill. So there's tremendous potential up in Nunova to find big long life deposits. >> So another big risk is the gold price and this is something you cannot control and we've seen many times when the price of gold would drop 10 20 30% in a relatively short period of time and we saw this in 2013. Maybe you can just describe for us how you and your team were able to navigate through that arduous time. Yeah, I I think we distinguish ourselves um in 2013 because we took our time to understand um what that drop in gold price of about $400 would mean to our business. We weren't reactionary. We needed to think it through and we were thinking it through on the basis that we wanted it to have minimal impact on our employees and our headcount. And so that's what we did. It took us a few months to put a strategy together. Um and effectively we had a small reduction of headcount due to early retirements. But actually in 2013 we were one of the best performers of all the gold stocks during 2013. We didn't eliminate our dividend. We reduced our dividend as part of adjusting to the reality of $400 drop in gold. And as we came through 2013, our relative valuation multiple was still compared to our competitors very strong. And look what happened in early 2014. Uh, O Cisco was put into play and we were in a good position given our knowledge of the deposit, given its proximity to our main operating base, given the relative value of our stock to be able to use it as consideration in a potential deal. and that resulted in a successful deal with Yumana in splitting up essentially Canadian Malaric. >> So let's discuss consolidation and M&A now and a big part of Igno's growth in recent years has come from M&A and I'm looking at Kirkland Lake Detour and also Malardic and not just but many companies within the gold mining space. Do you think consolidation is going to continue? >> I think it's going to continue. it needs to continue because um there's too many players now for the number of highquality development opportunities that exist in the gold business at the moment. So it needs to consolidate but it needs to do it smartly and you know we just don't need consolidation just to have companies get bigger. We need a consolidation to occur or and continue over the next year two years so that the right assets end up with the right players and that's the perspective we took a few years back. Um during co we were really active um a lot of players weren't active during co we were active um even though we were social distancing I had bankers at my house um to talk about ideas. I had CEOs at my house in the backyard social distancing talking about ideas uh because we realized that it was getting more expensive to build mines. It was getting riskier to build mines. Even though we had a good track record of building mines, doing them ourselves, we felt it was the time to be buying. Um but again, we were patient and we weren't just buying anything to get bigger. We were actually buying things that fit fit the existing asset base, fit the skill set, were well matched, had geological upside, and that's why we were able to do a few deals over the last few years to get to the point where we are today. So, um, we think that's the approach that others should take. How do you actually strengthen your business? Consolidation just to get bigger doesn't work. It actually has destroyed value over years. We're here now because we weren't empire builders. We were mindful of opportunities based on geological upside. We were very patient. Think about Malardic. We got the first half in 2014. We got the second half in 2023. So, we were patient. It's always something we kept our eye on. And in order to be successful in M&A, you have to run a good underlying business. Our M&A strategy right now is to deliver every quarter production and costs. Keep that relative meltable up high. Don't abuse it. Wait for the opportunity to present itself and move quickly. We're a company that doesn't have bureaucracy. we can make decisions quickly um because we have a strategy that our team understands, our board understands. And another reason we've been successful in M&A is we have a board that works side by side with management. They're fully up to date on things that we're looking at. Um every time we meet uh before we do the regular board, we have a separate strategy session, senior executives, CEO, board talking about strategy. So all of that to say is we're going to continue to keep our eyes open. We're going to continue to add good assets when they make sense even though we have a strong project pipeline. And we think the industry will continue to look for ways that it can consolidate and streamline because as you know resource investors um have shrunk in terms of money under management. What we've tried to do all along is build a highquality business that happens to mine for gold because that can attract the generalist investor. So what M&A has to do for the industry is to make it stronger, make the businesses better so that they're more attractive to the generalist investor. >> And so you're going to grow by way of M&A. What about through the Joel brand or exploration? >> Well, that's still a big part of our success is go into regions that have geological upside, build those relationships, get that experience. our exploration budget this year $300 million. So that's sizable, that's significant. Um just in the region from Detour to Kirkland Lake to Valdor in the Abatibi gold belt where we have the anchor assets would be detour and would be Canadian Malarctic and in the mix would be Macassa and Lauron and Goldex. We have 90 million ounces of reserve and resource and there's still deposits in there that are wide open. none of it. Great potential, underexplored, massive region, big part of our exploration budgets up there. So, that's been a big part of our history. Keep those drills turning. Um, keep those deposits growing and being mindbuilders at heart, we know what to do with those deposits when they get bigger. >> Sean, you and your team have acquired a lot of companies over the years. Was there one company or one deal in particular that might have caused you a lot of stress? Um well I think um they're all unique. Um, I think the one because it was early on and it was really other than Agniko consolidating with Demogamy Mines in the late8s, this was one where we were going out um into um another market which was Europe and we were essentially making a bid for a uh Swedish listed junior that had a deposit in northern Finland north of the Outerric Circle. And that was a deal where we were uh original investors at roughly 14% created a lot of value for the shareholders uh made a premium bid. Uh but we got a lot of push back out of the gate uh from um hedge funds that uh amassed a fairly sizable position uh to try to block the deal. Our stock went down 30%. Um but we were patient. Eventually, we acquired it within about 6 months without increasing the bid once. We just kept with the same bid. Now, that wasn't easy uh because technically um with a Swedish listed company, you need to get 90% approval, but once you're over 60%, you can actually petition to have the company delisted. So after several bid extensions, we finally got to 60%. And we basically at a mining conference said, "Well, actually, we just passed an important threshold. Um, we're not saying we're going to do it, but we now have the ability to take this company private, and if we choose to do it, we're going to have hedge funds become mine builders with us to build a deposit north of the Arctic Circle in Finland." The next tender was over 90%. and we successfully got that deposit which uh it turns out is Europe's largest deposit in terms of gold reserve um still has a lot of potential there in a good region um where we've been able to create a lot of value for years Sean the investing sector has changed drastically in the last 10 years the number of funds that have allocated money toward the mining sector the gold sector has diminished significantly the number of funds which are focused on mining have disappeared. And if you look at assets under management in the UK in 2010, there was $40 billion in AUM, which was focused on the mining sector. Now that's down to 12 billion. In Canada, the number went from 16 billion down to three billion. So these funds focused on mining and gold in particular, they're disappearing. What does the sector have to do to get more people involved, get the generalists involved? Yeah, I think that's actually a bullish sign. That's when things start to turn turn back up. Um because the funds lose patience. Um and it's interesting that that's happening now because we're seeing a renaissance in terms of um governments, in terms of investors, in terms of populations understanding the importance of mining as we work towards the energy transition. And we need critical metals. So at a point in time where there's going to be more opportunities when highquality big mining businesses are going to be required to actually bring those new deposits into production. Uh we're seeing the resource investment base shrink. So that presents a challenge but it also presents an opportunity because I think more money will come back in as the mining industry can articulate the quality nature of the business as we work on that next generation of deposits. But as we've said many many times is that we just happen to find ourselves in the gold mining business. But our job was really to build a highquality business that could withstand the the the ups and downs of the commodity price. So interesting Eagle was the only company of any any size that never ever sold an ounce of gold forward. We did not financially engineer our business. Our job was to find it and produce it as cheaply as we could. And and in doing so, we created this highquality business that grew over time to the point where we're now the third largest gold producer in the world, the largest market cap mining company in Canada. And we did it by focusing on quality. Size came after quality, but we did it by focusing on quality. And we think that that's where the industry needs to focus to get more investor attention, generalist investor attention back in the space. the resource space I think will come back you know based on mining companies growing and that's going to be successful M&A successful um uh exploration but also risk management because what investors want we think is exposure to the underlying commodity in a way where they get leverage because the companies are good at finding more companies are good at expanding uh companies are good at managing costs and that's when you get good leverage and better leverage than just investing in in the commodities So I think the formula is there. Uh as an industry we just have to execute and it it will come. >> You raised a lot of good points and I think the key one you raised was performance and we really haven't seen the gold equities perform that well in spite of the price of gold moving significantly higher. A lot of the producers are factoring in maybe $1,500 $1600 gold. Okay. And a lot of people say the mining industry is a destroyer of wealth and a lot of the CEOs are poor stewards of capital. What do you have to say to that? Um there's been some some bad examples out there of of stewardship in terms of responsibility to the owners of the businesses where as we said there were companies that were more focused on empire building rather than building the highquality business over time. So, I I think there's there's certainly work to do, but I think the mining industry has to do a better job of telling its story um telling the benefits that we bring to employees and communities that tend to be remote um to get that message out. But, um I think the industry is really well positioned uh to do that now. And I think what it's going to take, it's coming. um at these prices. When you think about $2,400, wait till we see the quarterly earnings coming out over the next couple of weeks based on a realized gold price somewhere in the $2,300 range when average cost maybe $900 cash cost for the industry. There's a lot of margin there. We haven't really seen that. And I think the challenge the gold industry's had, it's never really had the price levels that the base me metal industry has had in terms of high and sustained high prices. We've had peaks and then it's fallen off here. We seem to have a underlying conditions where this could be maintained nicely over 2,000 for a while. That's going to send a strong message to investors to that for those that haven't looked at the sector closely. They're going to see these earnings coming out of a lot of these companies and they're going to say, "Wait a minute, maybe we better revisit that because look at the free cash flow. Look at the margins. Look at the ability to be able to manage costs." um we haven't been able to do that in the past and Nico's done a better job than most, but now I think you're going to see a lot of companies at these gold prices um doing really really well. >> As an investor, I have invested in a lot of mining companies over the years and I've made a lot of money, but I've lost a lot of money. What advice would you give a generalist or a retail investor on investing in the mining industry? >> You're picking management, and I'll just use an example. Fidelity out of Boston has been a shareholder of Igno Eagle since the late 70s. Always own stock, traded around it. Now, why have they been successful with this investment? Because they have taken the time to understand our business, understand who we are, um, building that relationship with us, and building a comfort level around our strategy, around management's willingness and discipline to stick to the strategy. That's the best way to do it is to find those highquality companies uh giving you exposure to commodities you want exposure to and trading around those core positions. >> And Sean, what advice would you give a young CEO who might be managing or overseeing a single asset company with one producing line? >> That was us not too long ago. Uh you have to think long term. You have to manage risk. Uh, I've seen a lot of companies come and go. And the companies that aren't around now are companies that got um the assessment of risk wrong and they put themselves in a position where they were beholden to a bank, let's say, or they made other mistakes where they um didn't properly assess the deposit or the opportunity. Um, so it's about hiring good people, people you trust, and you listen to those people. I'm an accountant. I was fortunate in the very early days we had such a high quality strong team of technical people that were very generous with their knowledge and experience and we essentially trusted each other and we made decisions together. But the one thing don't be in a hurry cuz if you're in a hurry nature will bite you. We're all dealing with nature when we're in the mining business and it can throw a curveball. So you got to make sure you understand the downside and you protect the downside. Think about it. A lot of companies did that around the commodity by hedging. We didn't do it. So, we were basically saying we were confident in our ability to manage our costs to find gold at the right price that allowed us to continue that business. So, don't be in a hurry. Be patient. It's not about building an empire. Your responsibility is to build a highquality business. Look after your employees and look after your communities. When I hear you talk about Igno and the importance of building a quality business, creating cash flow, creating shareholder wealth, paying out dividends, I can't help but think this is the type of company Warren Buffett would want to invest in. But we both know he does not believe in gold as an asset class. If you had the chance to sit down with Warren Buffett, what would you say to him to convince him that IO would be a good investment for him and his shareholders? >> Well, I would look at the track record from late '9s. um when I was still relatively small but had 1 million. Um when we ran the analysis a couple of months ago, we were up 10 times in terms of stock price. Uh where our peers were flat, some down, some up a little bit, maybe one to two times. And so we were able to actually work in a tough business, understand our opportunity set, understand our risks and manage them, and still do it in a way where not only do we generate superior returns in a tough business over time, but we actually put ourselves in a position where we're stronger than we were 25 years ago in terms of our ability to continue to do more of that. Um, so I would just point to our track record and I would point to shareholders like Fidelity who have been with us a long long time and over that time uh have made a lot of money. >> Sean, as we wrap up, how do you see Nico evolving over the next 5 years? >> Uh, we'll continue to stick to a strategy that's worked because it's a strategy we're comfortable with. Um, and it's a strategy that matches and fits our skill set. Uh but I think the beauty of where we are now uh from one mine 50 million in revenue in the late '9s to to the company we are now literally because we never set out to build a company this size. We just focused bit by bit, piece by piece on putting things together to make us better every step of the way. Uh and so I'm asked that question a lot by employees. You know, what do we look like in 10 years, Sean? What do we look like in 15 years? My answer is always, I'm not sure. I'm not sure what we look like, but I know what we're going to feel like. We're going to feel like the company that you want to work for that's been the same company in terms of feel for the last 30 to 40 years. That's our job to maintain that culture. So, we'll know what it feels like to work here. We'll know what it feels like to be a partner with the communities. What size it is, where we're operating, I'm not sure, but I know it'll be a high quality business. Nico is currently the third largest gold producer in the world. Do you see it becoming the largest gold producer in the world? >> Um I wouldn't say that that's something that we uh strive for because it's something we've never really said we need to be this size or we're not successful. It's really how strong is this business in this industry? Uh how can we keep adding value? Uh that's what the real focus is. And so if you had told me 10 years ago that we would be third largest, um I wouldn't have said no, but I I would have said, "Boy, but that's not the goal." I can remember when Goldman Sachs would come in and they'd say, "Look, you got to sign us up as defensive advisers. We got to protect you cuz look at the thing. You're sitting there at number 16 in market cap. All these other big guys will be looking at you guys and they're going to eat you up at some point." And so we were down here and the goal wasn't to be here. It was just to get better. And all of a sudden, every time they came in with that spreadsheet, we were moving up the ranks and do it in a way that we're doing it the right way. So, it's not really what we built, it's how we've built it. We built it the right way. >> Well, Sean, that was a fascinating story. I want to thank you very much for sharing your insights with us today. >> Very good. Thank you for uh inviting me and thanks for taking the time to listen to our story. [Music]