by @tommy on November 2, 2017
He Built One of the World’s Largest Gold Producers. Now Ian Telfer Is Cornering Mexico’s Oil Privatization
Ian Telfer’s office at Goldcorp looks nothing like the rest of the company’s double story headquarters atop Park Place, a pink marble tower that is one of Vancouver’s largest skyscrapers.
The Goldcorp chairman’s corner suite overlooks a spectacular view, like an eagle’s nest atop the city. The walls are painted dark, giving the impression of a chic hotel lounge more than a workspace. Warm paintings of local landmarks decorate them. Ian Telfer, a trim, dapper figure and a giant of the gold business, is seated behind the desk. He shrugs his shoulders, nonchalantly, and tells me he bought the paintings from a local artist he found in a coffee shop.
I used to work in the building myself, as a summer student for RBC Dominion Securities. During a 2006 building renovation, there was a lot of buzz about the new tenant taking over the penthouse suite. That tenant was Goldcorp. Ian Telfer and Frank Giustra’s Wheaton River Minerals had successfully navigated the gold boom of the early 2000s and acquired Goldcorp to become Canada’s second largest producer. It was the talk of the town then and still is today.
I had no connections to the gold business then, but was curious about what was going on upstairs. It was a surreal experience to be back in the building last month to meet the man behind Goldcorp and hear his insights on an array of topics.
Telfer says he learned the resource business through osmosis, working alongside a group of extremely colourful and talented entrepreneurs.
His first job in mining was with brash Brazilian Eike Batista, who later became one of the world’s richest people, before losing nearly everything and landing in jail on bribery charges (wrongdoing which he denies). Their Brazil-focused gold venture, TVX Gold, eventually merged with Kinross (TSX:K), and the experience enabled Telfer to cut his teeth in the gold business and in Latin America; he lived in Brazil for five years and even learned Portuguese.
Following the TVX experience, Telfer was asked by legendary mine developer Robert Friedland to lead a much hyped Venezuelan gold explorer: Vengold.
Telfer was reluctant to take the job. He discussed the opportunity with his friend Pierre Lassonde, another gold legend. Lassonde encouraged Telfer to accept the offer, but also suggested he request a piece of the action on Friedland’s other deals. It was a smart move — Friedland agreed and Telfer ultimately got an early seat at the table of Diamond Fields International, Friedland’s famous $4 billion nickel find in 1995, and one of the most successful mining deals ever.
“Satisfaction comes from solving problems, not material success,” says Telfer. He found more than his share of problems in Venezuela, where Vengold came up empty. Although the company was able to acquire an interest in the rich Lihir mine in Papua New Guinea, the timing was lousy. Gold prices plummeted to $250, along with Vengold’s share price. The company owed $100 million and Telfer was the last man standing as CEO. Still, he was smart enough to capitalize on a brief recovery in the gold price, when he sold the Lihir interest, saving the company from certain insolvency and repaying the creditors. He was left with a shell and $30 million cash.
With this shell, Telfer would launch a tech incubator called Itemus — it was 1999 after all and the tech boom was in full swing. Itemis had a great run from pennies to around $3 a share, but like so many companies at the time, it went down with the 2001 dot-com crash.
Not one to stay down after a setback, Telfer soon linked up with Giustra to map out plans to launch Wheaton River Minerals, now Goldcorp, and the rest is history. Today, the company has more than 20,000 employees and $15 billion in market capitalization.
He also conceived the idea behind Goldcorp spinoff Silver Wheaton (now Wheaton Precious Metals, TSX:WPM, market cap $12 billion) and the now-prevalent mining financing technique we refer to as ‘metal streaming’.
Telferisms
“Make big life decisions based on whether you would regret not doing it later,” Telfer says.
“When you make an acquisition [in mining], you know you paid the wrong price. Only later do you find out if you paid too much or too little.”
“Success is not about buying the fancy new car, it is in the work you do that enables you to buy the car. In other words, happiness comes from solving problems.”
Giustra says Telfer’s managerial secret is in dealing with one problem at a time, starting with the most urgent, and not getting too fussed with problems that aren’t immediate or get in the way of solving today’s problem.
“That and absolute secrecy in anything he’s looking at,” Giustra says, “Absolute.”
Portfolio manager Frank Holmes says Telfer’s personality sets him apart from other gold executives. He’s charismatic and fun to be with. Telfer’s knowledge base is broad and deep, Holmes says, as a result of voracious reading, watching movies, and spending time with an eclectic group of friends and a devoted family. As an accountant with financial discipline and a flare of personality, other executives can’t help but want to work with him.
Renaissance Oil (TSXV:ROE)
The main reason I came knocking on Mr. Telfer’s door was to learn about his recent big bet on Mexico’s oil privatization. A few years ago, he co-founded Renaissance Oil (TSXV:ROE) with energy executive Craig Steinke, to build an oil company focused on Mexico, where Goldcorp is already the largest gold producer. The country is in the midst of privatizing much of its oil and gas industry, which was nationalized 70 years ago. Renaissance is becoming the go-to name for international energy investors interested in Mexico and at 1,500-2,000 barrels per day, it is now the second largest producer in the country after state-owned Petróleos Mexicanos (PEMEX).
Telfer tells me that at this stage of his career, he’s only interest in doing something he’s really excited about — a project that can scale into something big. He says, somewhat ruefully, that the oil and gas business is easier than hard rock mining. “With oil, when you drill a hole and find something, your troubles are over. With gold, when you drill a hole and find something, your troubles are just beginning.”
The Renaissance opportunity came about 3-4 years ago when PEMEX decided to commence the privatization process. The state-owned enterprise was having problems with technology and obtaining sufficient capital to effectively operate its oil and gas assets. When they announced that they were going to launch an auction process to sell them off, Telfer’s ears perked up — it was perfectly suited to his skill set and ambition. He had extensive experience operating in Mexico with Goldcorp (for 15 years) and had become very comfortable with the country.
He decided to dive in head first and launched Renaissance. When the first auction came up for onshore assets — Telfer calls them “neglected fields” — Renaissance bid aggressively and was the most successful bidder, and the only foreign winner. They have since worked hard to optimize the acquired properties, and they are now generating positive operating cash flow.
With the price of oil eventually dipping into the $30 range, the company was able to build a world-class technical team. With this team and its capital position, Renaissance is eligible and well-positioned to bid on everything else as it comes up in the privatization process.
According to Telfer, while the auction process has been slower than expected, it is starting to gain momentum, and is being noticed by the major oil companies around the world. The whole process is speeding up and Telfer is clearly excited.
“Larger companies are looking at Mexico and wondering, ‘How do we get in?’ ‘Who knows anything about this?’ So we are feeling the love right now. Anything is possible,” he says.
Hearing Mr. Telfer speak it’s hard not to share his enthusiasm for Renaissance and opportunities in the resource business. By the end of the meeting I’m thinking, maybe this could be my office someday. “Anything is possible.”
Learn more about Renaissance Oil in Mexico at www.renaissanceoil.com and follow ROE on the TSXV.
