John Hathaway comments on DetourFrom a Northern Miner interview with John Hathaway at Precious Metals Summit in Zurich earlier this month: AV: You have alluded to some of your larger positions: Detour, Torex, Wesdome, Pan American Silver, MAG Silver. Can you talk a little bit about the key factors that led to those investment decisions?
JH: Every one was different. In our mind, Detour was a very underperforming asset, and we got involved in a proxy battle with the incumbent board. Paulson & Co. led the charge. We maintained cordial relations with the outgoing group. But it was clear to us that the asset was underperforming. And by the way, that’s a trophy asset. It’s a 20-plus-year mine life in Canada. Low grade to be sure, but a big land package and the possibility for much more discovery.
The headquarter count, at the time of the changeover of the board, was something like 40 to 50 people. This is in Toronto, very nice offices in Toronto — that always makes me suspicious. They’re down to 15. They brought in a good new board. They have a new CEO who is a tough-as-nails operating guy. They were paying hundreds of millions to outside contractors. Now they have cut way back on that. And the operating costs of the asset have gone down substantially. They are generating free cash, and their debt has paid down substantially.
We’re only halfway there … in terms of where they could get. Just internal things like better equipment availability and less turnover of key mine people. It just all adds up. On its own the stock has the potential to double from here without a takeout. But sure as shooting, going back to this wind down of reserves and industry production, that is a trophy asset, and it’s beyond me why somebody hasn’t figured it out by now. But they will, and I’m happy to own it without a takeover right now because there’s enough on the way of internal improvements that will carry the stock higher. But our exit strategy here, maybe two, three years out, is going to be a takeover at a big premium to where the stock is trading, hopefully, twice where it is now.
Interview with John Hathaway