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A RESOURCE MORE THAN FOUR TIMES THE SIZE OF THE PEER GROUP AVERAGE
be into that model ahead of any other. And truth be told, were
the decision Electrum’s alone, we would have multiple drill rigs
on Donlin right now. For the industry desperately needs reserve expansion at these grades. The CEO of Wheaton Precious Metals, Randy Smallwood, used a nice turn of phrase with Kitco to describe the collapse in grades and the fact that “it is getting tougher and tougher to find good solid assets and opportunities to grow”: Geological Inflation. As he put it far more succinctly than I am ever wont to do: “Having good long-life assets against this backdrop is incredibly important.”9 That is indeed our philosophy as well.
WHITHER THE DOLLAR AND CHINA?
For years I argued that, in a world where all paper currencies are toilet tissue, at least the dollar was double-ply. And as currencies are relative instruments, of the fiat currencies the dollar remained the best. Thus, one should own gold and the dollar simultaneously. Of course, I am always met with a raised eyebrow with that one because one of the most persistent myths remains that gold somehow needs a weak dollar. It does not, as illustrated with this case in point.
I distinctly remember the day I sold my energy company in 2007. Oil was well north of $100 with Goldman Sachs claiming that a spike to $200 was possible – bless their hearts – and the dollar stood at $1.47 against the Euro. Gold had a $600 handle. And thus are put to rest two myths: First, that gold is a commodity like oil and will trade with commodities in tandem; second, that the dollar (having strengthened to its present $1.20 versus the Euro) needs
to fall for gold to rise. Myths are wonderful things. Since that day some 13 years ago, gold has tripled during a period in which the dollar grew even stronger. Meanwhile, oil declined to a fraction of where it was when I had to decide in which currency I wished to be denominated as I pounced on the gold-mining opportunities that would present themselves. A year later, this would include NOVAGOLD, the company that had successfully and famously fended off a hostile takeover bid by Peter Munk’s Barrick.
While the fiat currency alternatives to the dollar are ripening for sure, reserve currencies usually take a while to wither. After all, in an article published in the Washington Post and appropriately titled “How Trump made China’s currency great again,” the author cites the Nixon-era Treasury Secretary John Connally, who quipped – wickedly yet not incorrectly – to a group of European finance ministers that the “dollar is our currency, but it’s your problem.”10 So I will only say this: Watch China. I think of China as Dean Martin did of Sinatra when he said, “It’s Frank’s world; we just live in it.” American hegemony is receding as China’s is rising – a process that accelerated materially, in both directions simultaneously, during the last several years.
9 March 12, 2021 Kitco interview titled “Geological inflation is here; how does this affect gold and silver price?”
10 https://www.washingtonpost.com/opinions/2021/01/20/how-trump-made-chinas-currency- great-again/
Donlin Gold* 39.0
8.4
Moz
Moz
* Represents 100% of measured and indicated mineral resources, inclusive of mineral reserves, of which NOVAGOLD’s share is 50%. See “Cautionary Note Concerning Reserve & Resource Estimates” and “Mineral Reserves & Mineral Resources” and associated information on page 50. † Peer group data based on company documents, public filings and websites as of March 29, 2021. Comparison group of 15 projects based on large (2Moz Proven and Probable cut off ), North/South American gold-focused development projects with >75% projected revenues from gold.
ELECTRUM’S ALGORITHM
It is true that my enlightened complacency might be influenced by the belief that I have found a formula to making outsized returns in natural resources when one owns the right
asset in the right macro environment. Despite prospering in this business for nearly three decades, my personal perspectives are more qualitative – really as a historian who applies what he believes to be some of history’s important lessons. That has proven to be a strong comparative advantage in commodities investing, even if I still freely admit that the extent of my knowledge of the nuts and bolts of mining would fit generously into a thimble.
Knowing what I do not know, from the very outset of my
career I thus made it the first order of business to surround myself with people of the greatest integrity – that is, who are not afraid
to tell me when the emperor is naked – and who are also at the
top of their games in their respective spheres: wise individuals
such as my “Doctors Nyet,” Ken Rye and fellow NOVAGOLD board member Igor Levental, in analyzing and negotiating deals; first-
rate geologists, led by the remarkable Dr. Larry Buchanan; and enormously successful and battle-proven mine operators and builders, best exemplified in my experience by NOVAGOLD’s very own Greg Lang and Richard Williams. Electrum puts serious money into exploration. If we are really lucky, this formula can make 10x
on a discovery. And if we get the macros right, we can expect that windfall to multiply a further 10x. Thus, should my team and I have the choice of where to put Electrum’s risk dollars today, it still would
peer group average†
8