Vancouver - Hitting it big with one company during a career spanning more than two decades in the public mining sphere is certainly commendable. Two big market successes might even be considered remarkable. When it reaches three or more, however, a certain pattern of success starts being attributed to the individual or organization, and such is the case with Stan Bharti and his Forbes & Manhattan group.
Forbes now controls roughly 25 publicly traded companies focused on the resource sector with a combined market capitalization of several billion dollars. It employs over 50 mining engineers and geologists, more than 40 financial professionals and four full-time securities lawyers. It has raised at least $3 billion for exploration and development over the past four years. And all the while it is exploring for economic mineral deposits across more than 40 projects located in 22 countries around the world.
From precious metals producers to base metals explorers, from energy companies to fertilizer companies to commodity traders, the Forbes group has had more than its fair share of successes recently, as well as a few letdowns.
In a telephone interview from the group's head office in Toronto, Forbes' founder and executive chairman, Stan Bharti, explained the reasons behind his company's relatively high rate of success and what he says it takes to run one of Canada's largest resource groups.
"We've been able to hire very good people, that's been a key part.
"I tell people, we don't trade stocks - we build assets. When I get involved in a deal, I know it's three to five years before I'll unlock the value and sell the stock, because that's how long it takes."
Born and raised in India until he was 16, Bharti left to complete a mining engineering degree in Moscow and later a master's degree in London. He found a job with Falconbridge in Sudbury, Ont., and made the move to Canada in the 1970s.
After more than a decade working as an engineer, Bharti co-started a successful mining consulting and contracting firm in the late 1980s called Bharti Laamanen Mining, or BLM, which also acquired struggling mining assets and tried to turn them around. The business essentially went public in 1994 when it was acquired by Toronto Stock Exchange-listed William Resources, with Bharti becoming president.
"We did a lot of acquisitions," recalls Bharti, who led William Resources to projects in South America, Mexico, Australia and Scandinavia, including the Jacobina gold mine in Brazil and the Bjorkdal gold mine in Sweden. By 1997 the company was producing more than 200,000 gold oz. per year, but a series of debt-laden, share-dilutive acquisitions proved to its downfall when commodity prices plummeted at the end of the decade.
Bjorkdal went into receivership, Jacobina was shut down, and William was forced to restructure about $70 million of debt. The stock fell to a few pennies before the company reorganized itself as William Multi-Tech, a "technology incubator," amid the 2000-2001 internet bubble. That didn't amount to much, however, and by 2003 William had rolled back its shares 1:100 and changed its name to Valencia Ventures (vvi-v), how it remains today. (Remarkably, it remains in the control of Forbes & Manhattan, though it trades for around 8¢ a share and is currently run more or less as a shell.)
As Bharti tells it, when the resource sector started to bottom out at the end of 2001, he and his team thought of a better business model than that of William Resources. "What we recognized was that the biggest value proposition is in junior stocks. The challenges and difficulties with junior stocks are that most junior companies don't have the financial know-how, the technical know-how and cannot hire the technical/financial expertise to build these companies to where they should go, to unlock the value of the asset.
"And for juniors to unlock the value of these assets isn't a two-month process, it's a three- to five-year process. You have to take a good asset, put a good management team around it, support it with financial and technical backup, and then unlock the value slowly by taking a project from advanced exploration through to feasibility and production. So we said let's create a model that allows us to do that."
Bharti started the family-owned merchant bank Forbes & Manhattan in 2001 to invest in junior exploration companies and their assets. He brought in lawyers, accountants, engineers, geologists, IR people, "the total depth, so that it could operate like a major, like a Barrick, without the overhead of a Barrick.
"We started initially with two or three companies, and it's grown now, we've got about 25 companies within the group... but the model is the same. We will either find an asset, put it into a shell, put our own capital into it and then built it over three to five years, or look for an undervalued asset that is in a public company, invest in the public company - and that way take control of it - and then unlock the value."
Forbes' first success came in the form of Desert Sun Mining, which optioned the mothballed Jacobina gold mine from a restructuring William Multi-Tech in early 2002. Three years worth of exploration, infill drilling, metallurgical testwork, advanced modelling and construction brought Jacobina back to production at a rate of around 100,000 gold oz. per year in 2005. Major gold miner Yamana (yri-t, auy-n) then picked up the company in 2006 for $450 million, or around $7.50 a share.
An even bigger winner for Forbes was Consolidated Thompson Iron Mines. On May 12, 2011, resource giant Cliffs Natural Resources (clf-n) closed its acquisition of the Quebec-focused iron ore producer for $4.9 billion.
Along the way, Forbes has carved out a reputation in the mining industry for bringing mid-sized, advanced-stage mineral projects to production quickly. Typically, the projects will be in districts which are difficult for juniors to work in or projects that are deeply discounted by the market for a variety of reasons.
The group's Peruvian explorer Sulliden Gold (sue-t) suffered for almost a decade from land claim problems and an overbearing local drug lord before Forbes came in and brokered a deal in 2009; its Avion Gold (avr-t) was transformed with the 2008 acquisition of the Tabakoto gold mine in Mali from a formerly beleaguered Nevsun Resources (nsu-t, nsu-n); Allana Potash (aaa-v) picked up a past-producing potash project in Ethiopia; Apogee Silver (ape-v) operates in troubled Bolivia; Vast Exploration (vst-v) acquired a block of oil claims in northern Iraq's Kurdistan region; the list goes on.
Bharti attributes the usually accretive acquisitions to his large network of contacts and the even larger network of his international advisory board. The board includes five retired US military generals (three from the U.S. and one each from Canada and the U.K.), a former Canadian Minister of Foreign Affairs and, most interestingly, former CNN talk show host Larry King.
"These advisers help you open doors in developing countries," explains Bharti. "I sometimes tell people you can either buy political insurance, or you can have a good adviser that's connected in the country." He notes Vast Exploration's acquisition of its Iraqi oil claims, in which retired Gen. Jay Garner, the man who first governed Iraq after the 2003 U.S.-led invasion, helped introduce Forbes to the right people and sign a deal.
According to Simon Marcotte, Forbes' vice-president of corporate development, Larry King has even helped the company arrange a meeting with Vladimir Putin, the current prime minister of Russia.
And while this extensive network has often helped Forbes obtain many potentially valuable assets, it has not always led to a smooth ride for shareholders afterward. Several recent Forbes promotions have ended up as underachievers lately as they struggle with production issues, notwithstanding their impressively quick construction times.
Forbes' Crocodile Gold (crk-t), for example, hit a high a $2.40 in early 2010 after Bharti and his team put the company's Australian gold mines into production within a year of taking control. Crocodile has since slumped to its current one-year low of 75¢ after a series of problems hampered production, such as monsoonal rainfall, maintenance issues and lower-than-expected grades. After originally forecasting 2010 production targets of 120,000 gold oz., it poured just 81,800 oz at an average cash cost of $1,109 per oz. during the year. For 2011, it predicts similar production in the range of 85,000 oz. to 100,000 oz., much less than the original forecasts of 200,000 oz.
At Alexis Minerals' (amc-v) Lac Herbin gold mine in Val d'Or, Que., the company produced 22,600 gold oz. in 2010 at an average cash cost of $1,261 per oz. (this ballooned to $2,020 per oz. in the fourth quarter). The company's average realized gold price: $1,215. Shares of Alexis are down from 20¢ at the start of 2011 and from around 50¢ the year before; they currently trade around 9¢ apiece. Nevertheless, Forbes still hopes to turn both the mine and the company around. It raised $17.5 million this month for Alexis in order to advance its Snow Lake gold project in Manitoba toward production as well as lower costs at Lac Herbin.
"Some assets we have just not been able to unlock the value," admits Bharti. He points to what happened at Crowflight Minerals (cml-t) last year as one example. (After facing mining difficulties and financing issues at the company's Bucko Lake underground nickel mine in northern Manitoba, Forbes lost control of the company to its current Chinese backers, the Hebei Wenfeng Industrial Group.)
"Don't forget, some of the assets that we acquire, sometimes they take some time. The market sometimes doesn't have the patience. Our goal is always to take the project to the final degree. That's the way you unlock the value."
And like any good promoter with a handful of companies to choose from, chairman Bharti could not quite be persuaded to choose just one as his favourite. "I really only get involved in projects that I'm passionate about and really believe in. These are all projects that I think have a lot of potential, especially in a bull market for commodities."
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