Value Hive Podcast
John Swallow: Building A Different Mining Company (Idaho Strategic)
Fri Feb 23 2024Description
This episode covers various aspects of gold mining, including investment strategies, the importance of long-term growth, challenges faced by mining companies, employee input, changing landscape of gold investments, rare earth elements mining, challenges in investing in rare earths, addressing the rare earth element critical minerals issue in the US, and personal insights from a mining company executive.
Insights
Macarops Value High podcast
The Macarops Value High podcast aims for high risk-adjusted returns and continuous learning in investing. It offers differentiated research, theory, education resources, and a community of smart investors. MIT Investment Management Company supports emerging managers for long-term exceptional returns. Metemco hires new members for their investment team and focuses on supporting MIT innovators. Ticker.com provides institutional-level investment research to individual investors globally. John Swallow of Idaho Strategic Resources discusses the challenges faced by junior gold miners.
Idaho Strategic Resources' approach to gold mining
Idaho Strategic Resources has a strategic focus on building steadily over time rather than relying on sudden spikes in gold prices. The company transitioned from owning partial ownership in mill and mine properties to forming joint ventures for exploration and mine development. They aim to differentiate themselves by fostering an inclusive approach where everyone's opinion matters, emphasizing the importance of people in the mining business.
Shifting focus towards long-term growth and stability in the mining industry
The gold mining producer preferred a slow and steady increase in gold price rather than a sudden spike to build a sustainable business. They focused on building something durable with cash flows to finance growth, avoiding large raises and aiming for targeted investments. Efforts were made to shift focus towards long-term growth and stability, emphasizing sound business practices and long-term investment over short-term gains or speculation in the mining industry.
Challenges faced by mining companies and the importance of employee input
Mining companies have faced challenges with rising cost of capital, leading to more expensive funding options. Idaho Strategic Resources aims to be independent of constantly raising money and values input from all levels of employees in decision-making processes.
Managing cost inflation and gradual expansion of gold production
Cost inflation is a significant concern for mining companies, impacting profitability and decision-making. Idaho Strategic Resources aims to expand its gold production gradually over the next three to five years, targeting 10 to 20,000 ounces per year.
Creating good jobs and building a strong culture in the mining community
Idaho Strategic Resources focuses on providing good jobs that allow families to stay together in the community. The CEO and other executives make salaries similar to miners to build a strong culture. There is a discrepancy between the high gold price and low performance of junior gold miners due to changes in investor base and analyst community.
Changing landscape of gold and mining investments
Investor base in gold and mining companies has changed over the years, with less exposure to precious metals now. There is a shift towards investing in people and business plans rather than traditional gold investments. Interest in junior and major mining companies like Idaho Strategic Resources is increasing due to perceived value and cost efficiency. There is a growing focus on rare earth elements mining in the US, with increased collaboration among various organizations.
Securing claims for rare earth elements mining and the importance of relationships
Idaho Strategic Resources emphasizes their operating track record in Idaho to build trust and credibility. The process of acquiring a large land package was strategic and involved following supply-demand dynamics for rare earth elements. Building relationships and trust is crucial for rare earth processing, especially given the importance of mineralogy and metallurgy.
Challenges and long-term investment in rare earths
Investors are uncertain about how to invest in rare earths due to the lack of industry standards and models. Long-term investment is crucial for addressing the growing demand for rare earth elements. The US government may prioritize domestically sourced rare earths for national security purposes. Outsourcing of rare earth processing has led to China controlling a significant portion of the market, requiring massive investments in infrastructure in the US.
Addressing the rare earth element critical minerals issue in the US
The US lacks the infrastructure to independently produce rare earth elements and needs massive investments to do so. The US government is working towards addressing the rare earth element critical minerals issue by supporting regional processing centers.
Mining company's approach and personal projects
Idaho Strategic Resources focuses on reinvesting and stockpiling resources rather than paying dividends to shareholders. The company's real estate portfolio serves as a safety net, with potential plans to convert it into condos if needed. The interviewee shares information about their company and personal projects, emphasizing historic preservation and community involvement. The company has experienced long-term success with a significant increase in share price compared to competitors since 2015.
Chapters
- Macarops Value High podcast aims for high risk-adjusted returns and continuous learning in investing.
- Idaho Strategic Resources' approach to gold mining
- Shifting focus towards long-term growth and stability in the mining industry
- Challenges faced by mining companies and the importance of employee input
- Managing cost inflation and gradual expansion of gold production
- Creating good jobs and building a strong culture in the mining community
- Changing landscape of gold and mining investments
- Securing claims for rare earth elements mining and the importance of relationships
- Challenges and long-term investment in rare earths
- Addressing the rare earth element critical minerals issue in the US
- Mining company's approach and personal projects
- Personal insights and admiration for Warren Buffett
Macarops Value High podcast aims for high risk-adjusted returns and continuous learning in investing.
00:01 - 07:28
- The podcast offers differentiated research, theory, education resources, and a community of smart investors.
- MIT Investment Management Company supports emerging managers for long-term exceptional returns.
- Metemco hires new members for their investment team and focuses on supporting MIT innovators.
- Ticker.com provides institutional-level investment research to individual investors globally.
- John Swallow of Idaho Strategic Resources discusses the challenges faced by junior gold miners.
Idaho Strategic Resources' approach to gold mining
07:00 - 14:09
- The company's executives, including Grant and his dad, have not taken salaries for a long time and are focused on the future rather than seeking past payments.
- The company transitioned from owning partial ownership in a mill and mine properties to forming joint ventures for exploration and mine development.
- Idaho Strategic aimed to differentiate itself by fostering an inclusive approach where everyone's opinion matters, emphasizing the importance of people in the mining business.
- The company's strategic focus includes building steadily over time rather than relying on sudden spikes in gold prices, with a gradual expansion of assets and reduction of debt.
Shifting focus towards long-term growth and stability in the mining industry
13:42 - 20:43
- The gold mining producer preferred a slow and steady increase in gold price rather than a sudden spike to build a sustainable business.
- The company focused on building something durable with cash flows to finance growth, avoiding large raises and aiming for targeted investments.
- Employees in the mining community were accustomed to cyclical downturns, but efforts were made to shift focus towards long-term growth and stability.
- The speaker emphasized the importance of sound business practices and long-term investment over short-term gains or speculation in the mining industry.
- Historically, businesses started small and grew gradually, but recent decades saw a shift towards quick capital infusion and changing business models influenced by external factors like investment bankers.
Challenges faced by mining companies and the importance of employee input
20:19 - 26:59
- In the early days, mining companies in Canada were limited to specific commodities for investment.
- Mining companies have faced challenges with rising cost of capital, leading to more expensive funding options.
- The company's philosophy is to be independent of constantly raising money and only seek funding when necessary.
- Decisions on capital allocation involve input from all team members, including mine engineers and geologists.
- The company values input from all levels of employees, including ground workers and construction workers, in decision-making processes.
Managing cost inflation and gradual expansion of gold production
26:42 - 33:34
- Cost inflation is a significant concern for mining companies, impacting profitability and decision-making.
- Managing cost inflation involves strategies like paying down debt, controlling costs, and sharing success with employees.
- The company aims to expand its gold production gradually over the next three to five years, targeting 10 to 20,000 ounces per year.
- The company's unique approach includes prioritizing hiring great talent and ensuring all workers return home safely each day.
Creating good jobs and building a strong culture in the mining community
33:05 - 39:55
- The company focuses on providing good jobs that allow families to stay together in the community.
- The CEO and other executives make salaries similar to miners to build a strong culture.
- The company has a waiting list of people wanting to work for them, following a 'no asshole rule'.
- Having a list of potential employees in the mining industry is valuable for the company's success.
- There is a discrepancy between the high gold price and low performance of junior gold miners due to changes in investor base and analyst community.
Changing landscape of gold and mining investments
39:26 - 46:32
- Investor base in gold and mining companies has changed over the years, with less exposure to precious metals now.
- There is a shift towards investing in people and business plans rather than traditional gold investments.
- Gold production may be outsourced to countries like China and Russia due to high demand for physical gold.
- Interest in junior and major mining companies like IDR is increasing due to perceived value and cost efficiency.
- There is a growing focus on rare earth elements mining in the US, with increased collaboration among various organizations.
Securing claims for rare earth elements mining and the importance of relationships
46:09 - 53:04
- The speaker is excited about the opportunity in a new project and mentions positive trends in demand.
- Their project aligns favorably with larger ones geologically.
- They emphasize their operating track record in Idaho to build trust and credibility.
- The speaker prefers focusing on work rather than promotion, highlighting a back-row approach.
- The process of acquiring a large land package was strategic and involved following supply-demand dynamics for rare earth elements.
- There was a sense of urgency to secure claims due to perceived competition from China.
- Building relationships and trust is crucial for rare earth processing, especially given the importance of mineralogy and metallurgy.
Challenges and long-term investment in rare earths
52:41 - 59:19
- Rare earths lack a liquid market, making it challenging for investors to trade them easily.
- Investors are uncertain about how to invest in rare earths due to the lack of industry standards and models.
- Long-term investment is crucial for addressing the growing demand for rare earth elements.
- The US government may prioritize domestically sourced rare earths for national security purposes.
- Outsourcing of rare earth processing has led to China controlling a significant portion of the market, requiring massive investments in infrastructure in the US.
Addressing the rare earth element critical minerals issue in the US
58:49 - 1:05:45
- The US lacks the infrastructure to independently produce rare earth elements and needs massive investments to do so.
- The US government is working towards addressing the rare earth element critical minerals issue by supporting regional processing centers.
- The guest discusses potential metals they would be interested in producing, mentioning graphite as a favorable option due to its demand profile.
Mining company's approach and personal projects
1:05:15 - 1:12:11
- Mining used to pay dividends to shareholders, but the focus shifted towards reinvesting and stockpiling resources.
- The company's real estate portfolio serves as a safety net, with potential plans to convert it into condos if needed.
- The interviewee shares information about their company and personal projects, emphasizing historic preservation and community involvement.
- Long-term success of the company is highlighted by a significant increase in share price compared to competitors since 2015.
Personal insights and admiration for Warren Buffett
1:11:42 - 1:15:10
- The host congratulates John on his achievements and asks him who he would have dinner with from the past or present.
- John expresses his admiration for Warren Buffett and how he always wanted to meet him, especially after attending the Berkshire Hathaway annual meeting.
- Although John is a student of history, he admits that Warren Buffett would be his choice for a dinner companion.
- The host suggests Theodore Roosevelt as a potential dinner guest, but John still leans towards Warren Buffett.
- John appreciates the host's kind words about his work in Idaho and acknowledges the efforts of his team.