“Good assets are hard to find and hard to buy. When they become available they seem way overpriced, but my experience has been that you can’t overpay for good assets,” Telfer told delegates at the AME Roundup 2022 in Vancouver, Canada.
“Barrick is on a mission to tie up the best assets around the world but they keep running into the price problem. They will never get there if they are looking for assets using a low gold price. Barrick is on the way to going out of business as competition is intense and the price always seems too high.”
Barrick set the tone for M&A in the gold space in recent years with its 2019 zero premium transaction with Randgold Resources. More recently, it is believed to have lost out on acquiring Great Bear Resources and its Dixie project in the Red Lake district of Ontario, Canada because it would not pay a premium.
In a talk titled, ‘Building a gold mining company, what works, what doesn’t’, Telfer shared the tenents he has learned over 40 years of running gold companies about how to grow a major gold company, and why he believes the industry is not going down the right path.
Telfer, the former chair of Goldcorp and current chair of Aris Gold, said you could only grow a large company by acquisition and not by exploration.
“You can’t build a major mining company by exploration. It has never happened and it never will,” he said.
He added that big mining companies should not undertake grassroots exploration.
“I wouldn’t do any exploration if you are looking to grow. Large companies have not been particularly good at it although spent a lot of money,” he said.
Instead, companies have to make a number of acquisitions.
“The acquisition process is outside the expertise of the technical people in a company, it looks expensive and so on, so not everyone is comfortable with acquisition but it is the only way to get there,” he said.
Telfer also advised people to never put the wise and worldly onto a company board as they tend to have a strong opinion about what a company should do next but probably lack a singular vision of where the company is going.
“Most successful mining companies are run by one person with one vision with a clear idea of what they want to do,” he said, referencing Lukas Lundin, Ross Beaty and Robert Freidland.
However, this advice seems hypocritical as it is in stark contrast to the board of Aris, which includes Yamana Gold’s Peter Marrone and former Goldcorp CEO David Garofalo, with Frank Giustra as strategic advisor.
Telfer also advised to only take on very limited debt, never hedge production, buy everything with shares and to not pay dividends.
“Gold shares are only bought by people who think the price of gold is going up,” he said.
“When investors get the impression that management thinks the price of gold may go down they abandon the company. … The majority of people buying gold shares are not buying for dividends.”
