Trust – As Shown on the Label
In the far distant past of 1960s/70s Australia there was a marketing campaign for a canned fish company that used to sell Canadian salmon (appropriately) into the Australian market. The catchy slogan they used was “The fish that John West rejects, makes John West the best”. I thought it splendid at the time and if Don Draper wasn’t a fictional character it might have been something to issue from his pen in one of his more sober (or not) moments. The attraction was not just its statement of intent on salmon but its potential universal application. Certainly at Hallgarten & Company there is a pile of companies (many now defunct) on which we decided to take a pass and happily dodged a bullet (or a hail of bullets). It’s a matter of trust. Do you trust this company? If we do not then we pass on it, which hopefully then also engenders trust in us from our clients in the institutional investor community.
Indeed when we decided to rename our Argentina research house in the early 1990s, from the rather matter-of-fact Ecclestone, Hickey Wilson & Company, we chose to call it Buenos Aires Trust Company. That in itself was a canny move as usually only banking institutions can use the words “Trust Company” in anglophone countries, but to the corporate registry in Argentina it meant nothing. Trust was easily acquired.
Stock market crashes test trust, particularly the trust which markets have in company managements and in regulators. However the most recent crash was way back in 2008 and that date now seems somewhat primordial when compared with the slow motion slide from 2011 until 2016 (or late 2015) that proved to be much more lasting and arguably more damaging for the mining sector than any short-lived correction.
Here we shall take a look at some of these trust issues and where trust has been lost and how it might be regained.
The markets are made up of companies, investors therein and surprise, the markets themselves. One repeated criticism over the years has been of the actions or inactions of toothless Canadian provincial regulators. We haven’t heard even vaguely as many criticisms raised against regulators elsewhere. Trust is certainly broken. And despite the long period of time since the 2008 crash, little to nothing has been done to remedy the public’s scepticism and there has seemingly been no recognition that anything was wrong.
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For us the big problem was Bre-X. It was such a cathartic event that regulators when they acted, then claimed they had “fixed the problem” when in fact they had fixed only “a” problem, but as we know, improvement is an ongoing process and in many ways the whole NI43-101 compliance band-aid has become rather tired. More on that anon, but we also have the problem that companies (and predators) have been gaming the system for years. In various corporate, or observer roles, that I have had I have raised redflags with the BCSC and the OSC and I think on only one occasion did I get any satisfaction and even then the company went back to doing the same thing in future financial reports.
Shareholders in Canadian miners and explorers have seen umpteen changes of management control over the years with no premiums offered to shareholders because of the ease with which concert-parties could be formed and oust incumbents without so much as a query. Anywhere else there would need to be a formal bid if parties holding more than 19.9% ganged together, but in Canada they can conspire with impunity. And yet some wonder why trust is broken. Shareholders have been walked on and ignored for too long.
Then there are the consultants. They have been a constant bugbear of ours. We too used to trust these qualified persons. Alas, the closer we got to the whole process the more jaded we got. When we were sent a spreadsheet as part of a PEA calculation that had links to another spreadsheet with the name of a company we knew we thought it was sloppy and amateurish. Then when we were sent one where many formulas had been replaced with “plugged numbers” that did not update and the whole calculation was found to be massively out the best response we got was “we will change it”. There was no apology, there was no shame, but the trust was gone. We have not ceased to warn companies about this consultant since that happened. It was more galling though to have to pay their contracted half a million dollar bill where they charged for the hours they spent correcting their own mistakes that I had found. The attitude was “take it or leave it” this is 2011.
Another major firm blew their credibility when we informed them that their latest “senior hire” had got his AusIMM qualification back in the dark days of the 1970s when he was designing canning lines for a fruit company. It showed graphically in two subsequent massive losses of money and credibility for miners that employed him, but all that seemingly mattered to the consulting firm was his AusIMM piece of paper. We would no longer trust them farther than we could throw them.
Needless to say their comeuppance came shortly afterwards and consultants were made to walk across the same hot coals as corporate managements and in many ways the consulting firms are still suffering the slump because companies are spending money on exploration or kickstarting micromines rather than funding resource estimate updates and PEAs. Save the rainforest through less wasted paper, I say.
Feeding the Market
Once upon a time there were brokers’ reports, newsletter writers and bulletin boards. The first have become a rarity (and always had to be taken with more than a grain of salt if said broker was also organizing a deal for the miner covered), the second have seen mass dieback as subscribers don’t want to pay to be told that Cerium has great applications as a water purifier (also as those who believed these stories have no money left for investments, let alone subscriptions) and the bulletin boards are crazier than ever without the reality check of brokers’ reports and the relative sanity of the newsletter writers.
This leaves the investing public with little to trust beyond their own judgement. Thus there is a niche in this age of social media for a service that lays out the facts with a minimum of promotion and then leaves the investors to DYODD (Do your own due diligence). We know of one website that meets these criteria, but far be it for me to drop their name here.
Information is power and one has to be careful in the wielding of that power particularly when there is so little in the way of other factual information to counter the false truths and fake news that have been highlighted so much in recent times. Maybe the mining sector has been ahead of the curve here as it was Mark Twain who described a mine as a hole in the ground with a liar standing at the top of said hole. Sifting truth from fiction has become a more critical task now that the first wave of the internet is receding leaving a very much narrower field of information sources for the bewildered investor. A process of elimination caused by the end of “free” internet and the Darwinian “rejecting the fish” (to mix a metaphor) has left fewer providers of useful analysis and commentary to the self-directed investor.
Who to trust? DYODD….
Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>