Dundee’s Goodman on how to avoid mining’s investment pitfalls

Jonathan Goodman has had it with rosy economic studies from junior miners that fail to live up to expectations.

“Have you ever seen a feasibility study or a pre-feasibility study that had a lower capital cost than the PEA?” asks the president and CEO of Dundee Corp. (TSX: DC-A) on a Zoom call.

“I believe we’ve created a false sense of stability with these documents. They’ve hurt our market… at some point someone’s going to have to sue an engineering firm because it’s not acceptable.”

Goodman has been trading mining stocks for nearly 50 years and has had a long career as a mining executive, analyst and portfolio manager. He says Australian studies are better because they’re more likely to build their own mines, whereas Canadian juniors develop projects to sell.

To attract capital, Goodman wants the industry to become more predictable. “Unless we give them better data, the generalist investor isn’t going to show up.”

As a teenage speculator, Goodman’s legendary father Ned mentored him to do his own research. After becoming a professional engineer and bank analyst, Goodman led closed end fund Dundee Precious Metals to 22.8% annual returns from 1992-2003.

He recalls visiting the Yanacocha gold project in Peru in the early ‘90s, part owned by Minas Buenaventura (NYSE: BVN), at the time an obscure Peruvian mining company. Goodman’s fund secured a 7% stake, leading to a 15% gain in two years, as Yanacocha grew to nearly 3 million oz. peak production.

“Growth funded by itself. That’s one of my key themes,” Goodman says.

In ‘89, Goodman co-founded, was initial CFO, and later chairman of Repadre Capital, a dormant $1-per-share shell company once controlled by Murray Pezim. Under Goodman, Repadre began as a diamond explorer, evolved to a royalty company through the Diavik diamond discovery, and later acquired an interest in the Tarkwa gold mine in Ghana. Iamgold (TSX: IMG) acquired Repadre for $12.60 in 2003 and later sold the Diavik royalty to Sandstorm Gold (TSX: SSL).

Then Goodman transformed Dundee Precious Metals (TSX: DPM) from a passive investor to an actual mining company. Through the US$26.5 million acquisition of a Bulgarian mine portfolio in 2003, DPM modernized and expanded Chelopech, then permitted and built Ada Tepe.

Recalling the nine-year permit process for Ada Tepe, Goodman says, “We took cyanide out of the equation and we dry stacked the tailings. By doing those two things, the community felt that they had the ear of the company and it really worked well. So those listening skills are kind of important.”

Goodman retired from Dundee Precious in 2022. The company is a $1.8-billion market cap miner today with roughly $800 million in cash and no debt.

In 2018, Goodman rejoined family-controlled Dundee Corp. as CEO. The company, which incubated Dynamic Funds (sold to Scotia in 2011), DREAM Unlimited (spun out to shareholders in 2013), and others, faced financial challenges after a Vancouver casino bet and others struggled or didn’t materialize. After a difficult restructuring period, Dundee Corp. has returned to its mining investment roots.

Goodman says he’s as optimistic as he’s ever been about mining. “I believe that we are at the precipice of a generational opportunity in mining as the confluence of the energy transition and the continued unsustainable strategy of deficit spending by virtually every country in the world are happening at the same time.”

Dundee Corp. is looking under the hood at future mining projects, signing confidentiality agreements, and doing its own modelling. The company owns a 14.9% stake in Reunion Gold (TSXV: RGD), developing the Oko deposit in Guyana, worth roughly $85 million. It holds a 21% stake in Magna Mining (TSXV: NICU), a Sudbury nickel-copper junior. Other mining investments include a 1.5% royalty on Aura Minerals’ (TSX: ORA) Borborema gold project in Brazil.

Industry challenges

Returning to the topic of engineering studies, block-size is another of Goodman’s pet peeves. “So many of the companies we look at where they tout good feasibility studies, when you actually regularize the deposit for the right block-size, they lose the economics.”

Then there’s net present value (NPV). Goodman says it’s a weak metric since commodity price assumptions are less reliable as time goes on. To him, the most important thing is how fast new mines repay their capital cost.

“Most mines start off with a 10-year mine life and you wake up 10 years later, they still have a mine life for 10 years.”

He’s speaking from experience. Dundee Precious Metals’ Chelopech had 6.5 million tonnes of remaining ore when Goodman acquired it. It has since mined over 25 million tonnes with 20 million more in reserves.

Long-life mines are “NPV irrelevant,” Goodman says. “If you can buy them for a quarter of NPV, you’re really buying it for five or ten cents on the dollar of what they’re worth. You don’t need a lot of those to be very successful in this business.”

Dundee Corp. avoids high capex projects. “When I look at a porphyry deposit, if you don’t have a high-grade starter pit, you don’t have a mine.”

Goodman sympathizes with CEOs having a tough time finding investors. “Companies that aren’t in the ETFs, they’re orphans.”He says he thought investing was tough until he became a miner. Finance teams can work around a bad apple, he says. If a miner has a perfect CEO, geologist and engineer, but a bad metallurgist, or vice versa, the whole thing fails. “It’s like this chain link fence where every link has to be right, and there’s no two industries worse suited for each other.”

Mining is a big part of Dundee Corp.’s investment portfolio. At year end 2023, the book value of mining investments was $161.3 million. It also holds non-mining investments, including an automotive parts manufacturer and an Alzheimer drug developer, with a book value of $126.3 million (this includes cash of $26.3 million and net debt of $15.1 million).

Dundee Corp. stock is undervalued compared to the $2.82 per share value of its asset portfolio ($287.6 million total assets, less $36.5 million market value of preferreds, divided by 89 million shares). The company has a $90.8-million market cap.

“I can’t predict where the market’s going to take things, but if we have a good orebody and we can hang onto it, great orebodies make great cash flow,” Goodman says.

— Tommy Humphreys founded CEO.ca, now part of EarthLabs Media, which also owns The Northern Miner Group. Read more about Goodman’s journey as a mining investor at Tommy’s blog, TheBigScore.com.