David Harquail, president and CEO of gold royalty company Franco-Nevada (TSX:FNV; NYSE: FNV), first started coming to the Prospectors and Developers Association of Canada convention when he was a kid in the ’60s. His job was to transport rye and scotch from his dad’s car to the suite the exploration geologist had booked at the Royal York.
As potential investors examined the targets on the hand-coloured geological maps spread out over the bed in the smoky suite, Harquail remembers the tinkling of ice in their glasses.
He also remembers that before they left, quite a few of those investors would actually hand over a cheque to the elder Harquail, James, who had worked for mining legend Thayer Lindsley before going on to form a number of exploration syndicates.
“I think those investors, because they were getting a one-on-one with the fellow that was coming up with the project and executing on the project, they had a pretty clear view of what their odds of success were and what they were buying in terms of the prospect that summer,” Harquail told an audience at PDAC yesterday.
“That was a different era and none of those things that they were doing there you could probably do today.”
Opening up the popular commodities and outlook session at the convention, Harquail noted that face-to-face communication with investors is missing today. Instead, companies deal with a lot of intermediaries: brokers, analysts and fund managers who are not risking their own money.
Moreover, investors are in too big a hurry to get their money back, and their short-term focus is at odds with the long-lead nature of mining.
In the last 12 or 13 years, Harquail says investors have embraced a total of four short-term investment themes, each one lasting for two or three years: optionality, net present value (NPV), growth and cash flow.
“What I find fascinating is that in an industry that’s been around for millennia, investors are coming up every two or three years with a totally new investment theme for the business,” he said.
“I think each of these things has led to a lot of problems, and as an industry, when we see what investors want, we actually give them what they want.”
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