"I am all in." If you buy assets at the bottom of the market, you create value. If you buy it at the top of the market, you destroy value. Keith's entire net worth is invested in the precious metals sector in his two companies - First Mining Finance and First Majestic Silver Corp.
Mr. Neumeyer has worked in the investment community for 30 years beginning his career at a number of Canadian national brokerage firms. His roles have included senior management positions and directorships responsible in areas of finance, business development, strategic planning and corporate restructuring. Mr. Neumeyer was the original and founding President of First Quantum Minerals Ltd. (T-FM). Mr. Neumeyer founded First Majestic in 2002. Mr. Neumeyer has also listed a number of companies on the Toronto Stock Exchange and as such has extensive experience dealing with the financial, regulatory, legal and accounting issues that are relevant in the investment community.
Palisade Radio Host, Collin Kettell: Welcome back to another episode of Palisade Radio. This is your host Collin Kettell. On the show with us today is returning guest Keith Neumeyer. Keith, welcome back on the show.
Founder and CEO, First Majestic Silver Corp (NYSE:AG), Keith Neumeyer: Well, thanks so much, Collin. Glad to be here.
CK: In 1992 you founded First Quantum Minerals, which consequently became one of the largest copper producers in the world. In 2002 you founded First Majestic Silver Corp, which also became a multi-billion dollar business, and now you founded First Mining Finance which is in the business of taking on undervalued projects in a depressed market. As gold and silver prices begin to have a small rally here, I want to ask you to look back at all the bear markets you have experienced in the mining space and speak to how bad the current situation truly is.
KN: Okay, first off buying assets is very critical. If you buy assets at the bottom of the market you create value, but if you buy assets at the top of the market you destroy value. I think we see that time and time again. One thing I have proven over my career, which is now 32 years is that I am a good buyer. I know when to buy assets.
When you look at First Quantum, when you look at First Majestic, in both of those situations I was buying assets when no one wanted them. People were actually calling me crazy, you know, what are you doing? And I just say, "You know, it was my view," and I was right in both cases. In the case of First Mining Finance I am doing the exact same thing. But to your question, the valuations that we are seeing today are just so ridiculous. Gold has not gone down that much. Gold prices were $1900 and are close to $1200 or $1150 today. Okay, fine. It is a reasonable correction. But you have stocks that are down 80 or 90% and they far exceeded the drop in the metal prices. That is what I am doing. I am taking advantage of that difference.
CK: Keith, on the topic of buying assets in the bottom of the market as opposed to the top of the market, let us talk about First Majestic Silver Corp where you just finished the friendly takeover of SilverCrest. Congratulations on the completion there. There is a pretty widely accepted view that it is a buyer's market today. But your recent merger/acquisition with SilverCrest was done in shares of First Majestic, which is also off from its highs quite a bit. I want to ask you this to say, how do you, as the CEO of a company or any other company, decide what makes sense from an acquisition standpoint because there are so many good buys at the bottom of the market right now?
KN: Well, I do disagree with you to one degree. There is not a lot of good buys. As the CEO of First Majestic I am actually the largest private shareholder of First Majestic. Minimal dilution is the key component of any strategy that we do in acquisitions. I have to ask, what is it going to add? Is it going to add ounces? Is it going add resources? Is it going to add earnings? Is it going to add cash? Does it strengthen our business or does it weaken our business?
Historically, if you go back the last twelve years… You look at our strategy and what we did was reacquire assets that were undervalued in my view. They were poorly run. We looked at that and we said, "Hey, we could drill. We could develop. We could make this into a better operation. We can make it bigger," and we were very successful in doing that. We became the second largest silver producer in Mexico in a matter of ten years by using that strategy.
Now, today it is a little bit different because our cash is low, in the fifty million dollar range, so we have to be very careful with our treasury so we cannot afford to go buy an asset today that requires a 20, 30, 40, or 50 million dollar investment because we cannot riase the money. The money is not there. Our treasury is not strong enough to do it. In the case of SilverCrest that was a completely clean transaction. There is not a single dollar that we need to invest in that operation. It is cash flow positive today and with zero investment. It is a beautiful acquisition. I do not think there are many acquisitions like that out there and that is why we pulled the trigger on that acquisition.
CK: I know from our earlier topics that you are a major silver bull, maybe more so than on another precious metal such gold. An outside viewer would likely think that you are agnostic on which resource to invest in simply because you first started with copper, then you moved to silver in the 2000s, and now with First Mining Finance you are doing a little bit of several different commodities at once. My question here is do you have a commodity-specific preference or does it depend on the timing of each acquisition?
KN: I like commodities, period. Some commodities more than others: copper, zinc, silver, and, of course, gold, I am a big fan of. The reason why is because it all comes down to supply/demand fundamentals. The human population is not going backwards, or at least, not any time soon. Of course, mining is very cyclical. It does go through boom and bust periods. I have seen many good investment periods in my career. I am sure over the next fifty years there will be many more good investment periods. But we need metals and we are not going to be driving our automobiles, we are not going to be opening up our refrigerator without metals. Silver, for me, I think, is one of the most interesting metals because of that exact reason.
As we become more electrified as a human population the demand for silver actually increase dramatically. With cards, there is going to be fuel cell cards, there is going to be the next wave battery technologies, solar panels; silver's demand will be in defecit for ten years. I do not think the street has really woken up to it, obviously not in the price, which I think is probably confusing to some people. But if you just look at the aboveground supply of silver itself, we had 5 billion ounces of silver on the planet during the '80s when photography was the primary use of silver. Today it is down to a billion ounces. Well, that is 4 billion ounces - where has it gone. It is going to waste dumps. It is going to oceans. It is gone. It is never going to show up again.
Mine supply is around 800 million ounces a year. Consumption is about 1.1 billion. That difference is basically reinvestment flows, recycling flows, and so on and so forth. It is a huge problem. I believe that it will show up in the price eventually and I do believe that silver will outperform all other metals. That is why I am a huge fan of silver. But in the case of First Mining Finance, we are focusing on gold because I think gold assets right now are just super cheap. I think there is a huge negative view about miners and gold particularly. If I can buy gold ounces at the prices that we are today, then I will do that all day long until you run out of money or run out of companies to buy.
CK: Over the past few days we have had a pretty violent rise up in the HUI. The metals have gone up a little bit. The HUI has gone from 105 to 125 in just three trading days and that has been witnessed in the share price of First Majestic Silver. Based on your experience in the sector, does this violent move upwards, quickly, indicate to you that the bottom in the mining stocks has finally come?
KN: Well I have been saying for probably a year now that we had seen a bottom in the metals. $14.30 silver, we have tested that a couple of times. It held pretty good. Gold looks like $1100 range. It held good. I think the bottoms are in on the metals. On the equities side, of course, it is somewhat different because you have the metals bottom out for quite a period of time before people actually start moving money into the equities. Over the last couple of days we have seen some money coming into the equities, but it is a little bit too early to say whether it is a new trend. I need to get back, I am currently at a mining conference, and I need to get back on the road to talk to some institutions about what they are doing right now, how they are reallocating their capital.
I just came back from Denver about ten days ago. The view was quite negative. There is no money going into the mining sector and it did not appear at that time that any money was going to go into the equities for quite some time. The message I have heard was they needed to see a kind of 20% move in equities before they even start to get interested. Now, we have seen that. It will be very interesting over the next weeks or months if some of these big funds decide to allocate capital. They all know that the sector is extremely undervalued. We are almost five years in to a bear market. They all know and they are all making their list and they are putting First Majestic on their list, First Mining on their list. You name it. They are creating their list of stocks to buy when they are ready to buy. But as I said it will be very interesting to see what happens over the next couple of months.
CK: Your statement about the funds needing to see a 20% move and the fact that we have seen a 20% move in a lot of these equities in just three or four days underlines the fact of how quickly these things can move up. A lot of people either forget or younger people like myself have maybe never seen how quickly the market can turn around and the extreme gains that you get coming out of the bottom. I read something a few days ago that said it takes a couple years to set yourself up in the right position but millions can be made very quickly in the sector. I want to ask you if the bottom is in in the equities, what can investors expect over the next one to two years in terms of how the financial side of the business changes, how the share prices appreciate, how many more people rush in to the sector? What do you expect to have happened?
KN: I have been saying for a couple of months now, I am not sure if your listeners have heard me in other interviews. I have said in other interviews that this is back up the truck time. This is a once in a decade opportunity or even once in a lifetime opportunity for some people. The valuations that we are seeing are just so ridiculous. I am all in. That is why I created First Mining Finance because my entire net worth has been in metals. I am quite comfortable with that. I have zero real estate. I have got everything in my two companies, First Mining Finance and First Majestic Silver, and I will continue to buy more of both of those stocks. You can look at my insider trading reports and see my consistent buying of shares because as I said this is back up the truck time. This is subjective, but in my view, to be quite clear, I think we will be seeing one thousand percent gains over the next three to five years.
CK: Well, Keith, on the note of silver, I was doing some research yesterday and dealers are selling silver rounds far above spot price. Some of the American Eagles are going for $21-$22 an ounce. Maple Leafs are going for $20. Even generic rounds are going for $18 - $19 despite the spot price being between $15 and $16 an ounce. This is something we have seen on and off for the last couple of years but the spread is very big right now. Does that have any indication of a quick move that is going to come in silver?
KN: Yeah, we have seen a pretty interesting move over the last week. I guess it is, yeah, it is interesting. I am not jumping up and down yet because $16 silver is not really much to get too excited about. But when I see $18 silver I will say, "Okay, now things have changed," and at that point these shorts that are in this market are going to really have a challenge because there has been some shorts over the last while and that has partly to do with the prices we are seeing, but also there is the physical problem as well that people are figuring out. So bringing a new set of investors into this market, people I do not think realize what is going to happen.
There are two things unfolding in the silver market, which is causing the price to rise. It will be interesting to see how strong the shorts are and how strong the new longs are. There is a battle in the market for sure and one thing in favor of the metals right now is we are going into their seasonality in October, November, December, January, February are the strongest months for metals. If I was short this market I would be extremely concerned and I would be covering pretty aggressively. If that does happen then we will see silver explode.
CK: Alright and last question for you following the acquisition/merger of SilverCrest and the First Majestic, what can investors of both your companies expect over the next six to twelve months? Any big plans moving forward?
KN: Well, First Majestic, we have been looking around for acquisitions - and we always do. If you look at how I built First Majestic, it was all through acquisitions taken out in history of First Majestic - all different public companies. As of today we are the second largest silver producer in Mexico. We are producing in January of 2016, 17 million or maybe higher range, close to 20 million. I hope that we will see what the levels look like when we put them out officially. But those are big, big numbers in the silver stage.
But we will continue to look around. There are opportunities out there that we are still looking at if we can pick up some cheap assets, because the market is still very stressed. Even though we may see some relief over that last couple of days, this is not enough to take the stress out of the system. There are still good opportunities out there to purchase. Obviously, we are active in that area.
In the case of First Mining Finance, it is going after non-producers, assets within junior companies. The junior companies are the most distressed because there is no money for them. Many of these junior companies are actually close to turning the lights off and going bankrupt. I do not know if shareholders understand how bad it is in the junior space. But that is what creates the opportunity and that is why I took First Mining Finance to get in. We have taken a couple of quite interesting assets since last July. We have only been public since April. I think we have shown that we are pretty aggressive and we are going to continue that stance. There are several other companies that we are looking at, some we are in discussions with currently. I cannot predict exactly which ones will come into our umbrella. But I can guarantee our shareholders that there is going to be more action in the space and we are going to be very active in acquiring other companies.
CK: Great! So that is First Mining Finance Corp can be found at www.firstminingfinance.com and First Silver Majestic Corp, which you can find out more information at www.firstmajestic.com. Keith, thanks so much for coming back on the show and I hope you have a great rest of the time in Mexico there.
KN: Thanks for the opportunity.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.