Ryan Kalt is never going down quietly. A lawyer turned mining investor turned outraged shareholder turned mining CEO, he’s managed to do what many junior mining investors have long dreamed of; take the reins, clean things up, and lead a smallcap to a nice buyout.
He’s not an activist investor, yelling from the sidelines. Rather, he’s put his mouth where his money is, and hopes to clear a path of legitimacy that the retail shareholder can happily follow with his latest venture, Strike Diamond (TSX:V.SRK, Stock Forum).
I shared a beer with Kalt last week on the recommendation of a trusted source who called him both the most prolific staker in Canada at the moment, and one of the biggest pariahs in the business. It was a refreshing hour, and not just because of the beer.
Equal parts piss, vinegar and book learnin’, Kalt doesn’t suffer fools gladly, which is something we have in common, and he’s quite content to piss off the old guard – another shared trait.
I came away from the meeting sold not just on Strike, but on the man who hopes to help the company transcend. In fact -FULL DISCLOSURE- by the end of the meeting, I owned stock in the company.
But this is not a sponsored editorial piece. Rather, this is a call to arms for investors to quit moaning about your investment being blown by the same old crowed, and get involved. Gather the forces of good and get organized. Expect more for your money. Vote at AGMs. Get ornery.
Like Ryan Kalt did.
Right off the bat, I asked him how angry he must have been watching his investments sucked dry to actually move from law to mining. I didn’t have to talk again for some time.
Excuse my lack of quotation marks here, I’m just gonna let the dude roll:
Firstly, I empathize with retail investors. I have been involved in a few different industries, and some of the things that I’ve seen within junior mining rather baffle me, and no doubt baffle others. I don’t believe microcap exploration companies should be using their stockholders money to lease AAA office space, or buy themselves buildings, roll-around in company cars and trucks so they don’t have to spend their own money buying one, spend more money in a quarter on Investor Relations than exploration, have company hockey gear bags, put spouses on payroll, have an executive personally rent office space and then invoice it back to their own company at a higher price, or take atypically long and frequent paid holidays not enjoyed by people working in any other sector.
I’m going to need another beer here.
Sorry, that was a bit of a list and by no means am I referencing any one individual or company. Nonetheless, those are poignant examples that I have seen within the industry generally-speaking.
So it is not hard to see why many retail investors are disillusioned with the sector, which is a detriment to those companies taking the right approach and trying to legitimately push past being a small-cap.
In part, I think that the TSX Venture is regrettably sitting near all-time lows because too many junior mining ‘managers’ don’t seem to understand where their focus should be, especially in the sub-$5M microcap realm, which is really the group most associated with the current junior mining market malaise. More investment in exploration, not head-office, is what this industry needs. Juniors have proven they can make discoveries, but that only happens when dollars are invested in the ground.
As damaging as unproductive G&A can be, an excessive pace of share dilution and something as unnecessary as multi-year warrant extensions can both also lead to ‘fist-shaking’ results for investors. The recent epidemic of multi-year warrant extensions by numerous juniors is completely contrary to the interests of holders of common shares.
Warrant extensions are almost a given now, it seems.
Yes. While the short-term allure of financing hopes is there, I don’t see how huge, long-term warrant floats are an efficient source of future financing. Let them expire after their term!
If a warrant is exercised it means the share price is higher than the warrant strike price, and so a future share issuance of lesser dilution could instead be then set at the open-market price. Extending the warrants again and again just puts a cap on the discovery upside to those with money actually invested, IE: the common shareholder.
So you’re bringing a different approach?
My approach to being an incoming or replacement CEO of a junior resource exploration company is quite direct. Cut G&A, allocate capital to superior exploration properties, increase insider ownership and alignment, raise the quantity of time invested by management, negotiate better deals with vendors, and protect the share structure. I don’t mind ruffling a couple of feathers versus losing capital or forfeiting the opportunity cost that capital has while invested, often in an illiquid manner, in any given business.
How does the average investor spot a management team that isn’t going to soak them?
If you are a shareholder invested in a small-cap junior mining company, you are not necessarily there to be close friends with management. Rather, you should be there to have your capital managed for discovery and hopefully, in the long-run, make a nice rate of return. Searching out high-levels of insider ownership can help to improve those odds.
My personal experience has been that companies with large insider ownership also tend to source better exploration projects, as they are looking for home-run projects that can create large market capitalizations, as opposed to repeated business model or property changes designed to suit roll-back financings. So while the current bear market is indeed a rough one, it should not become an excuse for a management team not to make the right decisions.
On occasion, when I have been disappointed as an equity investor, my background and shareholding levels have allowed me to proactively make some changes in certain situations, something I am grateful for. But, look, despite my prior comments, I am actually very optimistic on the junior exploration industry when it is well managed.
In fact, there are some absolutely stellar teams in this industry and there are definitely some great opportunities for investors to create new wealth. Let’s focus the balance of the interview on that.
Kalt is riding high on good news right now. His Gold Royalties Corp (TSX:V.GRO, Stock Forum) jumped 76% on mid-February news Sandstorm (TSX:T.SSL, Stock Forum) was taking it out. For a company that closed out 2014 touching as low as $0.04, the subsequent six weeks of steady rises to $0.11, followed by Sandstorm’s $0.20 premium offer, has given investors reason to be cheerful.
I asked Kalt to talk me through the lead up to that deal.
Despite a bear market for gold companies since I founded Gold Royalties Corp. and took it public in 2012, it has successfully grown its gold royalty portfolio and established itself as a junior gold royalty platform in the gold royalty space. The transaction with Sandstorm is not only a natural maturation of its gold royalty roll-up strategy focused in Canada, which has certain limitations, but also is a good move for shareholders.
When we announced the deal in mid-February 2015, Gold Royalties Corp. had eighteen royalty interests, was generating royalty revenue from third-party gold production, had millions of dollars in the bank, and no debt. It was -and is- in all senses, a strong junior gold business.
Having said that, the team at Sandstorm Gold, led by Nolan Watson, who lives up to his visionary reputation in the precious metals royalty industry, has built a marvelous and capital-strong gold royalty company that trades both here in Canada on the TSX, as well as in the US on the NYSE MKT. Since late 2012, the market had comparably traded the respective equity trading prices of both companies during the bulk of this down-cycle. The 91% premium offered for Gold Royalties shares, relative to the pre-announcement closing price, is pretty clear evidence that the market is not currently getting things right in all cases from a valuation standpoint.
Through Sandstorm Gold’s proposal, we ensure that Gold Royalties shareholders not only continue to have a similarly-traded ratio of equity exposure within the gold royalty sector but also our shareholders will move forward with vastly superior liquidity, capital strength, and portfolio diversification.
It speaks to a shareholder-first approach when management teams are willing to put themselves out of a job to get shareholders a better price.
It is also worth noting that having a strong and independent board is also an attribute that investors should be looking for in junior companies. At Gold Royalties, we had the great fortune of director-level guidance, from portfolio build-out through the sale process, from both Steve King, who is the founder and CEO of Alaris Royalty Corp. (
TSX:T.AD,
Stock Forum) and Brian Hearst, former CFO of Canacol Energy Ltd. (
TSX:T.CNE,
Stock Forum).
I think that the average microcap needs to become more aggressive at recruiting strong independent directors, which is not an easy task. Great independent boards are a hallmark of other industries and, most notably with the small-end of the sector, they are often absent in junior mining.
So with Gold Royalties riding into the sunset, you looked for your next venture and ended up in the diamond gig… What caused you to dig in on Strike?
Well, I’m obviously invested in the project and company and would like to see Strike Diamond achieve exploration success. I believe Strike is an attractive investment proposition with low overhead, large insider ownership, a strong share structure, a great team, and of course an exciting exploration property. Strike is the operator of its 80%-interest in the Sask Craton and Sask Craton North properties. As a company, we believe that these properties have tremendous exploration potential for kimberlite bodies, combined with the rare attribute of being located in an infrastructure-rich region.
To understand Strike Diamond’s full potential, I think you need to understand the Pikoo area itself and the people involved in it so far. To their full credit, North Arrow Minerals was the first company to be truly systematically exploring this region for diamonds. Tremendous technical recognition deserves to go to the diamond-savvy management and advisory team behind North Arrow, which includes Gren Thomas, Eira Thomas, and Ken Armstrong among others. After structuring their option deal to ultimately earn 80% of their Pikoo property from Stornoway Diamond Corp., the North Arrow team has developed the project from a grass-roots concept property to diamondiferous kimberite discovery project. North Arrow now refers to the Pikoo camp as ‘Canada’s newest diamond district.’
Deciding to call an area a new diamond district, when done by such a high-quality team as theirs means a great deal and I believe speaks directly to the exploration potential of the Pikoo camp. Arguably though, I don’t think the market has yet cued in on that district-theme.
The other important aspect of the Pikoo camp is geology itself and what is being uncovered. To-date, there has been a strong scientific approach to exploring the camp, which is ultimately good for its long-term prospects. We know courtesy of North Arrow’s work and public records, that Pikoo has excellent mineral chemistry and compositions that are very rare. In fact, North Arrow has publicly stated that the chemistry concerning diamond indicator minerals in the area is some of the best chemistry ever seen in Canada. That’s a big statement, and an even bigger one coming from the caliber of their team. Now that is not to say that companies exploring adjacent to or near North Arrow, including Strike, will be assured similar exploration success, but we very much like our chances.
I would encourage readers to visit the Strike Diamond website,
www.strikediamond.com, to learn more about this new diamond camp and of course review important documents such as the 43-101 report that Strike Diamond previously published on its Sask Craton properties.
You’ve just closed a small raise – where is the cash going?
Yes, we did. The primary use of the capital raise (approx. $0.4m), in which insiders participated, was to cover expenses associated with our first till sampling program. That till sampling program, which exceeded one-hundred regional samples, was designed to look for early indicators on some of Strike Diamond’s tenure by way of kimberlite indicator minerals, commonly known as KIMs. We expect to release those results shortly. Beyond that point, we anticipate looking to raise additional capital to pursue more exploration work, including airborne magnetics and further till sampling. If we are successful in those steps, we hope to ultimately define our own kimberlite drill targets.
In an industry in which pretty much all resource sectors have been hit hard for a few years now, the diamond sector appears to have the closest thing to a little life in it – do you think the retail market gives diamonds as much consideration as they do precious metals?
No I don’t think so. Well, every so often when there is a diamond rush in Canada and then both retail and institutional investors give it their full attention. Indeed, the greatest staking rush ever in Canada happened to be all about diamonds (recall Diamet (Ekati) and Aber (Diavik) in the Northwest Territories).
We know historically, at least within Canada, that new diamond districts have been sources of significant investor interest. That is likely a byproduct of the fact that kimberlite pipes, if diamondiferous and economic, are worth a tremendous amount of money. This is the allure of an unexplored new diamond district like Pikoo and why a company like Strike Diamond is an exciting opportunity for me to partake in.
That said, new diamond plays are rare, we don’t see a Pikoo all that often. So unlike gold exploration, they frankly do not appear for investors to consider or investigate on a predictable and recurring basis. In this way, I think diamonds sometimes accidently fall off investor radars due to a lack of new camps and thus an absence of related investment opportunity. On top of that, there are far more junior gold companies listed on the TSXV than junior diamond companies. The result of that is that share of mind is often clouded out by precious metals pitches. But let me assured you, successful diamond plays do garner significant interest and capitalization. So you are right, we have seen over the past couple of years a number of significant new diamond successes within the Canadian public company space. With that discovery success and capitalization growth, we have also in turn seen a good amount of money raised for the sector.
I also am not sure investors have taken enough time to examine new plays. Pikoo is a good example. Beyond its exploration potential, the Pikoo kimberlites identified to-date occur near surface which is distinctly different than those at say Fort a la Corne which are buried by layers of sedimentary rocks.
Lukas Lundin is invested in your neighbour, and he rarely picks losers. What makes your play the better investment option?
I assume you are speaking about North Arrow Minerals (
TSX:V.NAR,
Stock Forum). Look they have a number of projects, including Qilalugaq, and multiple prospects which may be of interest to Mr. Lundin, who is as skilled a resource investor as they come. However, for us at Strike Diamond, it is really all about Pikoo.
We have been open about the fact that North Arrow’s success bodes well for the district. We are cheering for them. Indeed, the capital invested to-date by North Arrow went a long way to de-risking the Pikoo area and concretely proving that it contains diamondiferous kimberlite. It takes a lot of work and money to go from a concept through to drilled diamondiferous kimberlite, so we are grateful to North Arrow for paving a good portion of the entry road for others. From North Arrow’s experience in the Pikoo region, we now also know that one or two grains can be an important threshold for establishing a new kimberlite train, which is experience-based knowledge that other area companies have used to benefit their own exploration programs.
As it stands at this stage of the district’s evolution, I don’t think any company can definitively declare they have the “best” tenure. The consensus though is that more kimberlite bodies will be found within the region. For Strike Diamond, the fact is that we currently control more mineral tenure within the Pikoo region than North Arrow. If success continues with exploration in the region as a whole then it bodes very positively for Strike’s future. Of course, the inverse around a lack of regional exploration success also holds true but again, I really like our chances.
In addition, a large part of the mineral tenure position held by Strike Diamond is up-ice from the exploration programs of companies like North Arrow and Alto Ventures (
TSX:V.ATV,
Stock Forum), which means that if kimberlite trains are identified that extend beyond their contiguous property boundaries to us, then there is a reasonable chance that they continue and potentially are sourced from within our tenure.
I would also add that Strike Diamond has the distinct advantage of being the only company strictly focused on Pikoo, which means our full attention is on the play, as is our capital. With only 26 million shares outstanding, we are not diluting the company to simultaneously pursue other exploration projects hoping to get one right. Frankly, we believe we are on the right path with our Sask Craton property in the Pikoo camp.
So what we do know is that in less than a year, the Pikoo area has gone from two indicator trains on North Arrow’s tenure (both of which turned out to be sourced from diamondiferous kimberlite bodies), to up to 10 probable KIM dispersion trains as of the last publicly-disclosed counts, which includes trains now found outside of North Arrow’s ground. That is a tremendous growth curve in terms of potential new kimberlite bodies and the market really needs to educate itself on just how exciting recent exploration program results have been within the Pikoo diamond district. At Strike, we genuinely believe that we are on the cusp of a significant exploration camp and are looking forward to participating alongside our shareholders on the journey to be a defining exploration player in that district.
I’m in.
--Chris Parry
https://www.twitter.com/chrisparry