₪ David Pescod's Late Edition May 28, 2007
AN INTERVIEW WITH PETER BROWN,
CHAIRMAN, CANACCORD CAPITAL CORP.
(As of May 17, 2007)
We finally got it…An interview with Chairman Brown himself. A more charismatic personality than Peter Brown, the force behind Canaccord Capital over the last decades would be hard to envision. Now with the commodities boom waging, there is probably not a more interesting personality around. We’ve always had trouble over the years getting him to commit to an interview, particularly when it got to stock picking.
Canaccord is the advisor or financier for so many companies, Mr. Brown just didn’t want to antagonize people. But we thought hey, if we can get Eric Sprott and the like to come up with names, surely we could convince Peter to do the same! After much cajoling and begging on our part, he finally phones us and agrees to share his picks...
Mr. Brown: As to the 1990’s when particularly, mineral resources were neglected for so long, there was accumulation of very good work by really professional mining teams with no market reflection and as the market got better in the early 2000’s, because of the back-log of good geological work, these guys were able to raise a lot of money – record amounts of money for exploration and it’s global exploration all over the world. With the result, they were starting to produce some really significant discoveries such as Aurelian Resources (for an example) and I believe that in the mining side, there are more good companies running excellent programs in potentially world-class ore bodies; than any time in history and I like a lot of them. Every once in a while, one will emerge which will be THE current discovery and I am very confident that this BC-based property called Serengeti Resources will be just the one. Run by ex-Cominco executives who are extremely knowledgeable and thorough, I think the stock has pulled major drill holes so it has a limited market cap. They have announced five holes that are really spectacular in a big anomaly and they are jammed between Northgate’s Kemess and Mount Milligan, except they are twice the grade of Kemess and three times the grade of Milligan. So there is one that I would pick as my favorite only because I think it is in the current major discovery mode. I believe it has the potential to be a huge deposit.
Dave: Now, let’s get back to the questions that we are supposed to be asking at the beginning…Mr. Brown, this is a big time for you, you are hitting your stride at 65 years of age and Canaccord has been an amazing company that you’ve built. Can you go over some of the history and what you see next?
Mr. Brown: We have two iterations in Canaccord. One, we won initially when we bought the firm in 1968. We wanted to be the biggest financier of junior venture capital which included both resources and junior industrials because we saw a void in Canada and we achieved that goal. Then in 1990, we decided that we would convert ourselves from “the” to “a” product and develop a full range of products with the view of becoming number one – the largest independent in Canada. Which now we are with $750 million in revenue and the number two independent would have a two in front of that number. At the same time we wanted to be global. So we have now established ourselves as a very good European operation and we have acquired 11 firms in Canada to get here. Our most recent acquisition was an American firm which is our entry into the U.S. market. Our goal was to be able to say to the companies that we finance, we can find you buying support in the three markets and say to our clients that we can bring you high beta gross product developed in the three markets, U.S., Canada and Europe. In less than a decade, we’ve gone from $50 million in revenue to $750 million in revenue and we have such a broad talent pool today that I am very confident in the next few years we will go through $1 billion in revenue.
Dave: We are a little upset that you weren’t a better salesman and couldn’t get us over to Canaccord decades ago instead of the four years that we’ve really enjoyed our time here. How many brokers does Canaccord have now?
Mr. Brown: There are about 700 licenses, but there around 450 full-time brokers and David, the only reason we couldn’t get you over here earlier is that you were just a slow learner! We only tried to recruit you for what, seven or
eight years?
Dave: Thanks for that! Now back to the mineral and mining business, which is part of your forte over the decades, a lot of this has to do with China and Asia. Do you see this going for another decade or two, like so many other commentators?
Mr. Brown: I just look back to the 1900’s. The average resource cycle was 17 years and there’s usually a good reason. They usually follow a depressed period where metal prices are low, there was no exploration, no new commodities coming on stream and then going into a period of demand. In the 1900’s you had a resource boom from 1906 to 1923, from 1933 to 1953 and 1968 to 1984, so averaging 17 years. We are in one now.
I think it’s driven by more than China and India. There are probably five or six economies driving this – Vietnam, Brazil, etc. So I’m of the view that we are in one of these long term metal cycles. You tend to get corrections in the middle where you almost think it’s over, but then it will go again. We are seven years into it and I think this could be a 20-year cycle. A good reason for it – you start from low inventories, no new production and then to bring the production on stream to satisfy a growing demand, by the time you explore, permit it, build it, put it into production, build the infrastructure, it takes about 17 years. So I’m long term on the resource side and very bullish. Short term, I’m probably a little more cautious and a more selective stock picker, but long term, I’m very bullish. When I turn more bullish I will be heavily weighted in resources because I think that’s where the games are going to be over the next decade.
Dave: It’s been interesting to note the phenomenal performance by some metals versus others. For instance, precious metals have actually had a pretty lousy last four or five months while others commodities such as nickel, moly and the like have virtually soared. Do you have any favorites of the different commodities at this time?
Mr. Brown: Not really. I’m pretty comfortable with the gold price here and can easily see it somewhat higher. I’ve never been one of those $2000/ounce fellows. You have to be careful of the extremes in them because there’s a big hedge fund feature in some of these metals that can cause some pretty big volatility. The peaks are higher and the corrections are bigger because of them. I guess if I had to pick a favorite of the base metals it would be nickel. Silver at the moment seems to me to have some catch up to do, but I like the precious metals. The currency issues are larger today than anytime I remember in my lifetime, so I think that for a while, gold was trading more like a commodity than a hard currency and I think the value in hard currencies has certainly elevated. There is much more awareness of the need for some hard currency than there was ten years ago.
Dave: You mentioned you are a little cautious on the markets right now. For the last five years, we’ve always had a correction in the mining sector around the springtime.
Mr. Brown: I think the markets generally have a seasonal nature. Usually if I look back nine years out of ten, the first quarter tends to be the best because it’s new money being dedicated – RRSP’s etc.
Generally, the June quarter tends to be the worst because it’s tax time. Summer is the second worst because it’s the summer and the fall is the second best. So the expression, “Sell in May and Go Away” - I just thought they said that because they couldn’t rhyme anything with March. There really is a seasonal aspect to stock markets, there is no question.
Dave: Getting back to the crucial part of this interview, the stock picking ideas. For awhile you have been reluctant to give three favorites because Canaccord does have
so many clients.
Mr. Brown: On the mining side, I can safely give you Serengeti Resources because at one time it’s very well managed, limited stock outstanding, spectacular results, jammed between Kemess and Mount Milligan. So it’s big mining country with unbelievably great results. I think it’s on its way to being a world-class ore body if this continues and you are going to know in a hurry. I can pick it because it’s right in the new discovery stages and I would have said the same thing about Aurelian Resources six months ago. There are so many good programs and these companies are so well funded that we are going to get some discoveries here and I think this is an important one. It’s in B.C. which has a favorable climate with limited market cap, and a very good management team, so it stands out. I could pick another whole series of stocks that I could say have world-class potential, very good management teams, but this one is just at the breakout of taking their dirt to being worth a lot of money.
Dave: So your number two and number three picks would be?....
Mr. Brown: I’m not doing that. I’m only giving you one and that one stands out to me. There are so many companies that I like. I will give you a stock to “watch” not necessarily to “buy”. The Aurelian Group have a stock, a uranium stock called U308 Corp. that was drilled by the French Majors in the 1970’s and they walked away because of the political troubles at Guyana at the time, not because this property wasn’t very good. In between the old drill results and the current radio-metrics and the silolometre work they’ve done (and they’ve announced a couple of holes) and again, it’s a very limited cap with less than 25 million shares out trading at about $3.50. I think if the next group of holes equal or better the first ones (there is a very big target, there’s 42 targets on the property) I think that could be a very big story, but I would wait for those results.
They have the potential to be one of the bigger or better uranium stories. With 25 million shares out at $3.50 – you’re talking about an $80 million market cap, which is pretty cheap for a great uranium play.
Dave: Now you’ve also been along on the Aurelian
story, any further comments on that one?
Mr. Brown: It’s a great mine. It’s just a wonderful mine. They got hurt by the election and some speculation about the government in Ecuador and its mining policy that is seems to be defining, but it is not clarified yet. They’ve got to come out with what their mineral policy is. This is easily over 10 million ounces, so far and has the potential to be a lot bigger. That was a major worldclass discovery. I bought Aurelian after the first discovery hole. So you know it has great geology, just like Serengeti; you know it has great management, and you are just waiting for the third dimension. Serengeti has a hole here of 350 metres roughly of .6 copper and 9 grams of gold.
Dave: We have one last question for you. For a guy who has made his reputation and made a firm based on resources, mainly mining…..
Mr. Brown: That’s not true. Mining may be one of our first loves for a lot of us, but if you look at our underwriting business by transactions (and we lead more underwriting than anyone in Canada) it’s almost 50-50 resources and non-resources which gives us a great balance. Mining is for some of us within the firm is our first love and we know how to play it very well. But our business at Canaccord is really split right down the middle between resources and non-resource product.
Dave: The question we were getting to is what is your “Women’s Intuition” on oil and gas prices for the future.
Mr. Brown: I don’t see $100 a barrel in the short term. My sense would be that the prices are getting more stable. If we get a slow down in the economies on the short term, I could see energy cheaper rather than more expensive although I’m probably of the mood that it’s bottomed. In the long run, when you consider that Americans have 800 cars per 1000 adults and the Chinese have eight, I think it speaks pretty well for the petro-chemical industry.
Dave: Thank you very much, Chairman Brown! |
