Goldcorp (TSE:G) Chairman Ian Telfer says small mining companies should borrow less
SmallCapPower | October 23, 2017: At his first Mines and Money Americas show in Toronto, veteran Canadian miner Ian Telfer of Goldcorp Inc (TSX:G) (NYSE:GG), the world’s largest gold company, delivered a powerful keynote outlining the future of the mineral resources industry. Telfer, who finds place in the Canadian Mining Hall of Fame, is considered a visionary with a stellar reputation of identifying lucrative opportunities in the mining sector for the last 30 years. As companies hang tight while the industry undergoes a tectonic shift towards green metals for electrification of public transport, the Goldcorp boss cautions overzealous emerging players against accumulating too much debt. In the backdrop of the Mines and Money Americas conference, Ian Telfer sat down with our reporter, Rachel Lee, to talk about his outlook on gold prices, what drives him to chase success after all these years and the two critical errors every mining company must avoid.
Here is a verbatim transcript of our interview:
Rachel: On SmallCap Power in Toronto we’re pleased to be with Ian Telfer, Chairman of Goldcorp, at the Mines and Money Conference. Ian, thank you for joining us here.
Ian: My pleasure.
Rachel: Now your background was actually in Accounting. How did you get a jump-start in the industry?
Ian: Good question. Completely by accident! I was working with an Accounting firm and someone called me up and asked me, would I be interested in another job, it’s slightly different, and I said, yes. And then sort of at the last minute I asked, “And what industry is it?” You know? And they said, “Oh, mining.” I said, “Oh, great” but I knew nothing about mining. I’d never audited a mining company, I’d never been to a mine, and I just fell into it.
Rachel: Right. Now, what’s your thought on the decline in industry gold reserves and the potential decrease in gold production over the next few years?
“All the major companies are treading water or shrinking.”
Ian: Well, it’s certainly an issue for our industry. All the major companies are treading water or shrinking. And so the amount of gold coming from mines is starting to decline, and over the next 10 years, I think it’s going to decline quite dramatically as mines run out of ore going forward. So that’s a big challenge for us, because all of us here at this conference have been in this industry for a while. It’s been a growing industry the whole time and, like everything in life, when it’s growing there’s something for everybody. When it starts to shrink, it starts to get a little tougher.
Rachel: And this will affect the gold price in which ways?
Ian: I think it will have a big impact on the gold prices. It will take the world a few years to realize that gold production is going down, jewelry sales will remain the same, investment demand for gold, I think, will remain the same or grow, depending on how the world goes. So I think the supply of gold from mines declining will have a big impact.
Rachel: Now you have six to eight large-held camps at this moment. And let’s talk about this year and the number of M&A transactions that you’ve gone through. Can you give us an overview?
Ian: Well, we did a little bit to consolidate an area in Chile with working with Barrick and Kinross and ourselves to put together. We’re very excited about that. We also have another joint venture down there with Teck. So we’re very excited about that one, too, and then our latest acquisition up in the Yukon is Kaminak.
Rachel: Now let’s talk about your focus on the community where you operate. You say that in the mining industry it’s very important for companies to be able to take care of the community. How important has that been for you personally in the long term?
Ian: Oh, extremely important because most mines are found in remote locations and so whatever community is there, or whatever community rose up around there, becomes very, very dependent on the mine. And the mine, in return, has to help with education and healthcare and clean water and infrastructure. So it just becomes part of what you do, and so because of that, being in the mining industry for as long as I have been and in so many places around the world, it just becomes part of your DNA and you’ve got to really work with that community to make them successful.
Rachel: So, Ian, I want to ask you what does it mean for you to be an entrepreneur?
Ian: Well, an entrepreneur, I think, is someone who creates something out of nothing. Has an idea, and it can be an invention or it can be a computer or it can be a way to combine a bunch of mining companies, but you start with a piece of paper and out of that you create something. And so that’s my idea of what really defines an entrepreneur.
Rachel: When you started to build your company, what was the main factor that drove you to your success?
Ian: We started in, you know, 2001 and my view was that the price of gold was about to go up fast. So there was an opportunity to put together some small companies into something larger and take advantage of that price rise. And the reason we were so desperate was because I thought the price was going to go up tomorrow and we didn’t have any gold. And so we worked as quickly as we could to buy everything that anybody would sell us that had any gold in it because we were so confident in the rise of the price.
Rachel: Let’s talk about some major mistakes by mining companies. I know that the two main things that you’ve said are debt and overvaluing one’s own assets. Can you expand on that?
There’s room for debt, or there’s a place for debt, but small companies should be very careful about over-borrowing.
Ian: Right. Well, that in anyone’s life is dangerous, but in mining, it’s really dangerous because when the commodity price goes down, if you have too much debt, you are so exposed. And it’s been the single biggest reason that mining companies have gotten themselves into serious trouble. There’s room for debt, or there’s a place for debt, but small companies should be very careful about over-borrowing. The other issue was the…
Rachel: Overvaluing your assets.
Ian: Overvaluing your assets. Well in companies that are looking at merging or getting together, you know, they’re always very critical of the company they’re looking at and their assets and the value, but they’re not as critical of their own. And so a lot of times they pass on making an acquisition because they think that theirs is so much more valuable than theirs. The reality is if you ran them both through the same screening, you’d probably find yours weren’t worth quite as much as you thought. And so the big mistake that a lot of people make, they overvalue their own assets.
Rachel: I know that in an article that I read about you, you said that you had a run-in with technology in the late 1990s, and you’ll probably never go back to it. Is there anything else that you’re doing besides gold that we might be interested in?
Ian: I’m involved with an oil company in Mexico. You know, PEMEX is privatizing many of their assets, and so there’s an opportunity there to grow, I think it is a significant energy company in Mexico. So we’ve been working with that for the past three years as Mexico sorts out how they’re going to go through this process, but it’s working very well, we’re very excited about it, and that’s my other focus.
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