In an interview at this week’s Global Mining Symposium, David Elliott, a founding partner at Haywood Securities and new inductee into the Canadian Mining Hall of Fame, spoke candidly about his career and how he and his partners built Haywood from a small firm of fifteen employees into a leading merchant bank with 313 employees and about $10 billion of assets under management.
Haywood Securities would go on to back over 400 exploration companies in the junior mining space and spawn a long list of success stories to show for it, including Alamos Gold, Bema Group, CGA Mining, Globetrotter Resources, Midas Gold, Ventana Gold, Reservoir Minerals, Fiore Gold, EMX Royalties and Transition Metals.
Elliott, who generally prefers to stay out of the limelight, spoke for an hour with Anthony Vaccaro, publisher of the Northern Miner Group, about how he and his partners David Shepherd, John Tognetti, and Rob Blanchard, acquired Haywood in 1986 from George Bealy, who stayed on as a shareholder.
“John called me one day and asked me if I wanted to start a small brokerage and I said yes,” Elliott told Vaccaro. “I said, ‘What about Haywood?’ He was working as a trader at the time at Haywood and David and I had previously opened a company and gone through the regulatory process and knew how much work that was … So I said, ‘let’s talk to Haywood, they are already registered, it might be a small firm but it’s a place to start.’”
Elliott said the vision starting out was to build a strong retail base of clients and institutional clients as well as a good research department. “They didn’t have a reputation in mining,” he said. “They were a small firm … and it was more of a service company … it wasn’t a firm that generated ideas or did banking or finance and so we had to really build it up from the start.”
In the early days Elliott and his partners first concentrated on filling the retail base, and then set up a formal institutional desk in 1998 – much of that business initially coming from their contacts on the London circuit and funds across Europe. “We were one of the first people bringing in some of that capital into Canada,” Elliott said. “The funds we were talking to, anyway, wanted to invest in early stage, high-return, high-risk, so they would take a very small percentage of their capital and do that, so a lot of it was in exploration.”
Meanwhile, the team had started building its research capability. “The banks in the 1990s were closing down a lot of their research teams, and so a lot of good analysts became available.”
Determining which companies to invest in ultimately depends on the people and the science, he said. “To me, it always boils down to people, and I’ve always focused on backing intelligent science so I always wanted to partner with geoscientists that have strong technical skills, who spent a lot of time in the field, mapping, have worked in different geological environments and have a passion for discoveries,” he said. “A good geoscientist will find good projects. They’ll be in the right geological environment that hosts projects of scale.”
By having strong science, Elliott added, you are able to better manage exploration risk.
Another way of managing risk, he said, was using other people’s money (like a bigger mining company) on some of the exploration.
“But you still need to have the science to generate the ideas, acquire the land positions, because you want to acquire them by staking, not third parties, because you lose a lot of leverage that way. And then you want to work them up so there is a level of scale … and create a competitive environment with larger companies, to have them come in as a partner.”
Turning to the current climate, Elliott noted that the industry isn’t seeing much M&A activity.
“A lot of the companies that were active in the M&A space in the last cycle, [have] just finished cleaning up their balance sheets and licking their wounds,” he said. “We’ve seen a couple, like Barrick and Randgold, and Newmont, but we’re not seeing a lot …”
If a company can raise equity capital right now and make sure salaries are paid, it might not be as motivated to look to merge their company, he said. What’s more, valuations are going up and down. “They are all over the place, and, in that environment, it’s hard to have a lot of M&A activity. Will it come? I think there will be some. But there has been such a lack of exploration funding over the last ten years and new discoveries, that there are not a lot of good projects out there.”
As an example, he noted that Haywood has a company in production in Nevada that has “looked at a lot of stuff over the last few years, [and] we haven’t found anything that interests us for the size we are. I think that’s a problem.” He also pointed to recycled projects out there that haven’t worked two or three times already. And even if you see something today that you’re interested in, you have to do the due diligence, do a site visit, look at core, and that’s difficult to do during a pandemic and travel restrictions, he added.
Elliott attributed the lack of exploration in recent years to several factors, including a lack of capital. “Pennies have been thrown at some things over the last few years that needed billions of dollars,” he said, adding that the easy, near-surface deposits have already been found.
“The opportunity now is covered deposits that are maybe deeper … and sizeable deposits are harder to find when they are covered like that.”
Despite the difficulties, however, Elliott is hopeful more deposits will be found.
“I still think there are exploration possibilities. You just have to have the right science with the capital to try to find these deposits, and it has to be on a steady five-year plan or number of years. … It’s got to be a steady flow of capital that allows good science to find the deposits, but I do think they will be found.”
At the same time, Elliott acknowledged that while there are jurisdictions that are geologically endowed, the question is whether they are countries where mining companies can get a social licence to operate and permit a mine. “The world is shrinking where you want to put your investment dollars,” he said. “North America, Canada is a good place. I think Australia has the geology and you can build a mine. There are a few places in South America that can deliver. Colombia is an interesting geological setting where you have these deep-seated intersection zones that can create sizeable deposits. Peru.”
As for ESG, mining companies – especially Canadian ones – are doing a lot better, he said.
Generally, companies are “trying to do a better job in those areas,” he said. “There is always room for improvement, but I think there is a dedicated shift with companies in our sector that are trying to do the right thing.”