Finding Gold In The Capital Markets – Part 2 – Ep. 7
This is part two of a two part series with Gordon Keep.
In this episode, Gordon elaborates on his experience building over 250 companies and the lessons he’s had with public venture capital.
Gordon is the CEO at Fiore Management and Advisory Corp. From his early days with the TSX Venture, helping write regulations, being an early mover into South America with what was Yorkton Securities and on to his enduring partnership with Frank Giustra to build some of the world’s most notable resource companies.
This is a history lesson where Gordon reflects on some of the deals that put Canada on the map as a major player in the international resource space. This is also a tactical discussion. We discuss listing through CPC’s, RTO’s and IPO’s, what to pay for a shell, how to pick partners and how to tactfully take profits… We also talk timing… They won huge on Uranium, Gold and Lithium, but lost on Potash… In Gord’s words, they missed it by about 8 or 9 months.
Gordon, Frank Guistra and Brian Paes-Braga now lead the Fiore Group where they continue to advise and build remarkable companies. This is an episode you won’t want to miss… in fact, listen closely with a notepad as there’s so much value in the experience he shares.
Gordon Keep on:
* This is a software-transcribed article.
Cory Cleveland: [00:00:40] Welcome back to part two of a two part series with Gordon Keep. If you didn’t catch Part 1, I highly suggest you put it on your list. Gordon is an unsung legend in the capital markets. He’s built or contributed to building over 250 companies some of which have become jaw dropping success stories. Like taking a nascent oil and gas company from 25 cents up to 30 dollars. He and his partner Frank Guistra have traveled the globe identifying assets, assembling management teams, structuring deals, and finally financing them for growth. When you listen here Gordon elaborates on these four components and their importance in a good deal. As I mentioned in the previous episode, this felt like a crash course in public venture capital and operating a public company. So stay tuned as there’s a ton of valuable information here.
Cory Cleveland: [00:01:32] When you’re looking at an RTO candidate… Not a candidate as an asset to buy, but as a vehicle to take an interest in, what do you look for?
Gordon Keep: [00:01:48] I’ll start the question differently a little bit. There’s four key aspects of it. Find a great asset or others doing it. Then you need to figure out who’s going to run the deal. I don’t run 250 companies. We have people we know that do it. And we retread the people and they do that deal and it gets taken over. Then they look to do the next deal. So there’s a bunch of company runners up there that we want to keep supporting. They may run two or three companies at once. I think it’s big enough on this can’t so you need a management team. We will augment that with some of our people either on the board or maybe one of our people will be CFO or something for a period of time until they were big enough to hire people. The third leg of the table is the structure which is what the question is coming to. And then the fourth is put money into the package stirring hopefully it all works.
Gordon Keep: [00:02:49] But your question on the structure which is my role in this group is I have a group of people up there that fix broken companies and they do that by themselves mostly or with their group of friends where five of them, because that’s the limit of what you can do without triggering a takeover bid will acquire a bunch of shares in the company through a private placement after rollback whatever that clean it up rid of the old assets clean up the debt settle the debt, have what now is a clean vehicle. And there might be some small stuff in there where you should it’s less than fifty thousand dollar problem. You know it’s there and you know you’re acquiring and that’s the cost of acquiring.
Gordon Keep: [00:03:41] Then they will sell you depends on who you’re dealing with, but they will sell you a portion of their position or all of their position depending on what price you’re paying. A lot of them will sell you 90 percent of what they have done to create the company that’s somewhere near their costs because their costs are not cash because their costs are the fact that they’re managing and they’re charging many fees and they’ve got other stuff they’ve done that has created shares for themselves. That isn’t necessarily a cash cost. So you can end up with two and a half three cent, four cent cost base. On some of the share positions they may have bought some shares of the previous old management they got for next to nothing. So it’s a blended version. And they keep the 10 percent because they know that that 10 percent when you pay them two or three cents and if you are a proper smart deal into it it goes to a buck, they’ve made a couple of years salary and they can roll in and work on creating another deal. These are people that do that for a living.
Cory Cleveland: [00:04:47] Quick question do that. I mean you can look at a CPC and rule thumb value we used to throw around was about half a million to a million bucks is what you value that CPC at. Is that the kind of thing you’d look at for an RTO?.
Gordon Keep: [00:05:00] Yes. The market changes it. If you were looking for a vehicle a year ago one in the crypto space, basically all the vehicles got used last fall. Everybody who could do anything to raise money or go public with was out of vehicles. I’d phone them up and say what you got. I got nothing. It’s going to be six months a year before being able to properly clean up vehicle thats ready to be public… to have an asset go in to it without people worrying about it. I mean that’s the other thing you have to make sure about… the deal you’re acquiring… You gotta make sure that the guys because a lot of people that are coming. We found them. Met them in the States. Met them in South America met them in Europe and they want to go public on our exchange. They don’t want to know about some old ancient oil well in Alberta that’s been bleeding oil for 30 years on the ground. It actually happened to me in one of my big deals. Cost me a hundred grand of my own money to buy out of that problem which I had no idea because (inaudible) oil well which was not any of the financials. So that’s occasionally, but out of two hundred and fifty, I’ve had two problems. You’ve got to be careful but that one caught me up but it was a lesson.
Gordon Keep: [00:06:18] So you want that vehicle you want to have as tight as possible so as many shares of the issued capital, the price. That was the question you asked me the half million dollars probably on the lower end, now. I’m usually looking more around $750 $800. Some people are asking three million bucks because they think they got the Cadillac of shells. Themselves and myself don’t talk for very long because that’s not reasonable in my world. But it’s really a function of how much of a share position they own that they can transfer to you is key. And I guess at some point back a few years ago there was a few shell sellers that I would approach and they would give them to me. Paid zero for them. Because they kept that 10 percent themselves and one went to seven dollars a share and they had a million shares. Seven million bucks for being a shell seller. That’s not a bad living. Yeah so but they knew. Not everyone’s gonna do that. They’re doing it because we have the history and history of taking 2 cents to five cents deals and turning into multi dollar deals. So they say give me one of those a year, they’re quite happy. Now they don’t all go to seven bucks either.
Cory Cleveland: [00:07:41] With another question. How do you tactfully take profits if it’s not an exit?
Gordon Keep: [00:07:45] Well that’s that’s my problem I don’t take profits very well. I still write stuff up I write it down and…
Cory Cleveland: [00:07:54] Nice to see we have something in common.
Gordon Keep: [00:07:58] Well yeah. Every minutes we do everything independently to a certain extent. Here once the deal is up and launched with our share positions, often I walk into Frank and said hey what do you think of this stock. And he goes you still own it. “Crap”. Yes I’m a little late on that one. So I’m not a good example of how to do that. I’m also on a series of boards and so on. And it’s true. I’m because I’m the governance guy within the group, detail guy. I often represent our interests sitting on the board. Now I’m an insider therefore he knows exactly how many shares and options I have… You also have to publicly disclose and therefore any time I sell it’s public knowledge. And if I sell ten thousand shares I’ll get 20 e-mails. What are you abandoning the company? I had 2 million. It’s not necessarily material to the nature of the situation. So yes it does put constraints on myself. Ability to sell.
Gordon Keep: [00:09:05] Tactfully, the right way to do it I think is to support a company throughout the piece if you feel and you have to if you’re going to be in the deal creation business and moving from one to another to another to another. You have to. You have to take your capital out but your capital back into another transaction. But you want to do that when the company is able to handle the sales. So that’s a situation where its had a success, whether it is a drill hole or some other business success. And you’ve got all the sudden every day you get a million shares trading. So if you sell 50 thousand shares a day in those markets you’re not affecting the price. You’re not hurting the company. And you’re taking some profits off. Mostly in my sales strategy is which is sometimes work sometimes isn’t very seldom will hit the bid. Gordon Keep: [00:10:03] Because that’s a negative to a company in which I’ve helped create. If I bought some shares from somebody else I’ll hit the bid all day long. But I won’t do it for the deal to start off and then I usually layer it. So it’s a 50 cent stock, I’ll put ten thousand fifty and fifty three and fifty seven and sixty. Let it breathe. So I’m not sitting there. Not everybody does that. That’s me personally. So yes I’m usually one of the last guys holding shares. But you have to realize… People have to realize you have to sell at some point.
Gordon Keep: [00:10:41] I still own Wheaton River is a deal we created in 2001 which became Goldcorp. I still own those shares. That’s what 15 years so I held onto my Lionsgate shares a few of them right to the end. I wanted to be beginning and I wanted to be at the end. I gave up about six years ago and the stock went a lot higher. But yeah it’s not an easy answer and it’s something that causes friction. It’s going to cause friction because no one wants to seller. Everyone only wants buyers. It’s only a market if you get buyers and sellers.
Cory Cleveland: [00:11:22] When talking about structure. What kind of share structure do you prefer? Something that’s that’s tightly held or a large share float with higher liquidity?
Gordon Keep: [00:11:33] Well yeah that’s an excellent, excellent. And the answer is not as simple as it seems. The answer depends on the market. In some cases in softer markets like we are in right now you need a fairly tight vehicle 10 million shares 20 million shares of issued capital maybe 30. And it’s going to trade in today’s market that stock if it’s our stock with 30 million market cap, I mean shares issued… It’s going to trade in the twenty seven – six million dollar market. Back in 07 when anything was running and everything was running. I used to take control of the vehicle and we’ve announced that its now our vehicle and we’re running it as a shell looking for assets with no preconceived idea of what’s going in it. And people would jump all over it because what was happening was when we halted that stock and did an RTO it was gapping. Use UrAsia as an example the shell was trading at 30 cents, the next trade was a buck an half. That’s where we finance that deal. So the people that we’re following and so want to make sure they were near our deals and ready to jump in a retail way were bidding the stock up because they would be happy to pay 75 cents and go to a buck and a half then worrying about sitting at 30 cents. So back and then they stock exchanges used to call me up and go Gord, this company it’s trading at 70 million market cap. I said ya, I know. He says, what’s it got in it. I says my name and five hundred thousand bucks. Yeah well that’s ridiculous. I said, ya I know… do I put a news release saying quit buying my stock? But when we found a deal that market cap of 70 would turn in two or three hundred million.
Gordon Keep: [00:13:31] So that was a different market and it happened a lot. And so in those cases you want a large vehicle lots of liquidity and you obviously can own more shares in a bigger vehicle for that for yourself. And those were very profitable times for very many people. It changes. You know, Hive, we did last August of 2017. That was a very large company. Hundred million shares. And but it traded 10 million shares a day. We did a whole bunch of financings so at the end of the day there’s three hundred million shares issued. So it’s all people it but it was a hot space at the right time with the right product great structure great management team and we were first that’s a lot of our successes which we do into is is identifying areas that are going to be topical and of interest to the investment community in crypto is very much. We were the first public company in it went to ridiculous valuations because of that and we were able to raise two hundred million dollars between September and December on the back of that same and now the stock is back to where we went public. Unfortunately I still own it. How.
Cory Cleveland: [00:14:57] How about we get into where you focus and but we look for opportunities.
Gordon Keep: [00:15:05] Our skill sets because we learn so much in the days of our Yorktown and others and internationally a lot of contacts. We understand the international community are able to take risks in Columbia before lot of people would take risks there. We were in Kazakhstan, going back to long conversation when you had South America open as soon as it got sort of a maturish, all of a sudden the whole former Soviet Union exploded. All of those satellites now were available for investment. So we went into Kazakhstan as and as part of that. And that was our uranium deal which was hugely successful because we timed it right. And it is to my knowledge the largest ever deal done on the stock change at its launch. We did a five hundred million dollar financing at launch. We bought one mine and two local projects which are three became mines.
Gordon Keep: [00:17:01] But we took a lot of criticism for that and I think that was actually the one that the article was on because it looked like we made a ton of money because we own a ton of shares and we did. It’s own time as well for me but others did. And the reason why people are missing on that is we sat back and looked at and said uranium has been in the seven to eleven dollar price range forever. And we think the clean energy and then all these aspects of uranium is going to change and come about. So when we went public it had gone up to twenty two dollars. And in fact our technical report writer of 43101 would not let us use one fifteen dollars in our forecast even though it’s trading at twenty two because it had been at seven to eleven forever. This was in his mind in an anomaly but no one remembers that when they give us heck for what we made on that deal. Uranium went up to a hundred thirty six dollars.
Gordon Keep: [00:17:15] So a year and a half later we sold at 18 bucks a share. It went public at a buck and a half or whatever in the seed capital a quarter. A lot of people made a lot of money then it went down… where is it now. Actually no. It’s around 30 dollars pound but it was the high and off it fell and it wasn’t successful.
Gordon Keep: [00:17:47] So what we look at is opportunities of what people want and what we think they’re going to invest in a more much more recent example it’s like three years ago when we just wasn’t even Frank and I. It was our new partner, Brian who identified that the battery industry and therefore lithium and cobalt were going to be areas that were going to probably have growth. Were going to be a shortage of. We did our research looked around created a company to go and find lithium talked about some of the pricing and we’re right. And now it’s fallen back off as… Everything has its it’s time matures and either… And who knows whether this crypto space weather is it maturing now and going to bounce back. Or was that just the fad?
Gordon Keep: [00:17:47] The Internet was a fad in 2000. It’s not a fad anymore. But a lot of people lost a lot of money in 2000 when it matured into a crashing situation. So we look for that situation. Obviously you know one of its early successes in 2001 was Wheaton River which we got hugely criticized for buying a mine in Mexico at a… I can’t remember what the price of 350 million bucks or whatever for an existing producing mine from a private family in Mexico. The Louisemans, and gold was three and a quarter, 350 something like that an ounce and everyone and this goes back to UrAsia… When we went public in UrAsia, everybody said that we had overpaid for that. That we were wrong. We weren’t paying it because we thought uranium was going to be twenty two dollars. We thought it might go up to 50 or 60 bucks. The fact that one two hundred thirty six was awesome blue sky. Same thing with Wheaton River. We bought that and everyone said you’re paying market retail value. That’s not a wholesale price here. You’re way overpaying for that asset and the answer was you’re right. If you think gold’s going to stay at 350 we think those a thousand bucks and we were right.
Cory Cleveland: [00:19:54] So what informs the bets your taking?
Gordon Keep: [00:19:59] That’s mostly Frank. Frank’s very very smart.
Cory Cleveland: [00:20:04] As you said before an ideas guy.
Gordon Keep: [00:20:06] He’s an ideas guy. But he’s more than that though. He does a lot of research. Back then his premise was all about the US dollar going to come down therefore gold will go up, be more demand for gold. He wrote a whole bunch of papers, which I actually still have in my drawer back in the early 2000, 2001, 2005 about why he thought gold was going to come off and he wasn’t wrong. It’s just you know he does the research. It Is like Brain did with lithium.
Gordon Keep: [00:20:10] You just look at it and see where the markets that the market will adjust everything has had a spot crash one that we went to the product space missed and missed it by about eight nine months. So that deals that we did. It’s got a mine, its just got no one who cares. So we did our job is just no one cares about potash anymore. Its not in the hot space. So everything has its moment in time and then it corrects. As has called for come back. So right now we’re looking for gold assets.
Cory Cleveland: [00:21:08] The next question is what are you seeing? What do you think?
Gordon Keep: [00:21:13] We think that the next moving commodity in this market. So we’re out through our networks trying to find a logical gold opportunity as well we still have some very strong gold deals. Our Sandspring deal which is a huge resource down in Guiana but we bought that in the previous cycle, but they gave it away to us because they couldn’t find it themselves. If we invested that would be one of the broken things. One of the companies I guess you could put in that category. Yes it was there we went and helped them finance because they couldn’t do anything. Seven cents then it went up to 50 cents and now it’s back to a quarter. And we’ve been funding it and keeping alive from a quarter or thirty five. That’s a mine that needs thirteen fifty gold and it hasn’t gotten there. That will eventually be a huge winner because ultimately gold will go back to nineteen hundred two thousand dollars and that will be a very very profitable asset. We’re not always right on our timing.
Gordon Keep: [00:22:18] We still think that’s a winner. Another historic company Silver Wheaton which is now precious metal another company we spun out of Wheaton River and that was done solely because… Not solely but there was no silver companies. Silver is for those that dont know mining well is a byproduct. It’s very few straight silver mines. There’s a few but not very many. It’s mostly a byproduct of gold mines copper mines. It’s just stuff that gets produced as a main product is. And the Americans are huge silver purchasers. So the actual valuation was, if Gold was one, silver was two with the value of silver. The market was paying twice as much for the same value of silver as for the value of gold. And Leachman was at a lot of soldiers part of that so we thought, well why don’t we bifurcate the company such that we can isolate the silver opportunity and then people can invest in it as strictly as a play on silver. And we did that and GoldCorp Wheaton River whatever keeps 80 percent of the asset we created three dollars in ninety price per ounce purchase price, etc. Then they went did a few other deals as well. Let’s stock took off its one and it has 40 employees and I can’t remember how many billions of dollars. It’s it’s a huge success. And Wheaton River ended up selling its position for two billion dollars. We created a whole ton of value because one never reported previously the were reporting in gold equivalent ounces.
Gordon Keep: [00:23:37] So we’re getting that to two for one in value. And Franko Nevada was way ahead of us, more on a royalty basis on than a streaming basis. Even today a lot of what we created with Silver Wheaton as it’s structured still is used by the other team. Still even using this price established we’re talking twelve years ago. So that’s a timing thing. That’s reading the market and seeing that that’s a product that the market’s ready to invest in and then figuring out how to make it work. We tried to do the opposite with a copper mines with copper gold. We get a gold streaming company based on base metals. It didn’t work. It doesn’t work because in any case metal mine, they just shut down. It’s a gold mine with silver is always going to produce because of precious metals. So if the economy caused the problem where you had you got all the gold at a certain price. But even though the gold was still profitable. If copper wasn’t the mine shut down or reduced its production for reduced copper plus 2008 hit. August 2008 is about when we launched that company which is about the worst possible time. The market crapped after that and that was the other reason it didn’t succeed. But it wasn’t. No one tried to do it again because it didn’t work right now an even Wheaton River and the timing thing the other big asset we bought was Alan Braer which actually had some interesting dynamics in it but can you elaborate on those.
Gordon Keep: [00:24:45] Well Allen Braer was a what was everyone thought was a mine about to be dead. Again this is 2004, 2003, 2005… something like that and it was almost mined out. I can’t I’m brain dead on names. So two large companies owned it and Wheaton River approached one of them and they were selling it. I think we bought it for 80 million dollars. 50 percent of that mine (inaudible) is still producing today. Almost done. I think it’s in his last two or three years. But any time when you think a mine is done and then you get a bump in commodity prices the mines aren’t we. But it was a big company. Big companies can’t turn and make they put up for sale year or six months or eight months before that. We made an offer even though it looked like the market was starting to turn then they weren’t in a position to take it out somewhere. That’s not the way the big companies operate. So we paid the meeting monthly but I think 40 in cash and 40 and notem and we made 80 million bucks in the first six months. We paid that off right away. So it was like that. And the reason was that too big builders of Wheaton River.
Cory Cleveland: [00:27:00] And is an example of something that you would have structured up as an RTO?
Gordon Keep:[00:27:18] Not that one that was a bolt on to Wheaton River. Actually Wheaton River wasn’t truly an RTO. We just acquired a shell, financing it and acquiring assets, so it’s not quite and RTO.
Cory Cleveland: [00:27:25] Excuse us as we took a quick break here. We enter this conversation about midpoint discussing what works and what doesn’t work in promoting a public company.
Gordon Keep: [00:27:34] This business doesn’t work that way. It’s a relationship business it’s a trust business. It’s a trial and error business. So the fact you pay someone to do something and it doesn’t work, and it worked last time… What happens on the third time? Work or not work.
Cory Cleveland: [00:27:54] For so many smaller companies and CEOs who perhaps it’s the first kick at the can, or maybe they’ve done it five or 10 times they still look and go, what the hell is the formula?
Gordon Keep: [00:28:06] And the formula changes with the market, with the times, the sophistication. If you look at stuff back in the 90s versus now it’s a completely different world. There’s a lot more sophistication, there’s a lot more expectation there’s the Internet which you can get information which you couldn’t get back then. So people are way more informed or also way more misinformed by various real fake news or other issues that are out there. These chat rooms and so on.. There’s… I don’t go near them, I don’t read them, I don’t look at them because they’re only going to piss me off because they’re 90 percent wrong and 90 percent vitriol.
Gordon Keep: [00:28:55] So I don’t need to read them, go to bed angry at myself for them or want to converse with them because that’s the other problem with a public company. It can’t get into social media battles of any sort because that’s a form of disclosure. So you can’t give us… Separate disclosure to say something to one person you have to tell the whole market that. So I don’t go anywhere near social media.
Gordon Keep: [00:29:16] Now it’s a huge tool for your generation and people today how they communicate and get their messaging out and so on. So I’m approaching the dinosaur age in that I don’t do it but at the same time you have to be careful when you do do it. And that’s a pitfall of being in the public domain.
Gordon Keep: [00:29:39] Now in that areas you have a lot of young people who who are really energetic really smart really know how to do things but they don’t necessarily know the definitions that trips you up in the regulatory world. The Securities Commission and to a lesser extent the Exchange has been going to town on a lot of companies in the last six months eight months with disclosure that’s happening in the social media space that either is sanctioned or isn’t sanctioned by the company and how they’re going to balance that disclosure. And if you pay someone in the old days if you hired a letter writer but he wasn’t controlled by you you just paid him to write a letter and he’d send it out. He could say your company sucks but probably isn’t going to do that if he’s being paid. But you you didn’t actually edit his work because then you owned his work so he would write or she would write whatever they were doing. The Commission has changed their stance on that today that if you pay someone to write any sort or distribute any sort of information on your company you own it because you paid for it you own the responsibility for it to be balanced and accurate. And they have really started to go after a lot of companies where as you know that stuff’s spreads almost like a virus it gets out there and then people change the heading into something very promotional because they want to own it for their investor base or their chatroom’s space or whatever.
Gordon Keep: [00:31:24] Again I’m speaking somehow unintelligently because I really I’ve never been in the chat rooms. I don’t know what it even looks like. That they can come back and say well you said this but now it’s saying this. So they may make you print a retraction release on something that is over promotional or now taken so far out of context that it’s actually wrong. And that’s a delicate balance for them as well as for the public companies as to where you go with that. And it got so much a little off topic here but even in the U.S. markets the OTC market which is over-the-counter but they’ve got a more viable, Trying to be… not exactly the venture market as a a place to build companies but as a place to trade companies where if you’re on the queue execute me that means you have a certain amount of regulatory oversight basically if you’re on the TSX Venture you qualify for QX and QB and it allows the U.S. brokerage firms to trade you. Well this year and a bit ago, last October, a year ago October they came out with their promotional policy. Where if used… and we got caught in it with one of our companies where a… They said look at this promotion, it was high. Actually, look at this promotion that’s out here and because it was such a hot story with the crypto space etcetera, everybody was covering it and claiming it is their idea to buy this stock because it was taking off and trading tons of volume which is why it was trading tons of volume. It sort of got a life of its own but none of the stuff that was being written we had any control over. We didn’t pay for it. It didn’t come from the guy that we were paying. They were taking some of his articles and then just piecing it together and then putting a real promotional overtop on it. And so when we tried to list down there they said we won’t list you because you’re too promotional and all your material… Here’s some material we’re reading and this is way too promotional for us which is something I had never done before. And we pointed out to them “we’ve raised $200 million dollars. We’re a true company. And that’s just someone else’s crap. It’s third party crap. It’s not us”. They said I don’t care. And they have done that to a bunch of legitimate companies where they make them put out a news release disavowing all this social media crap, that’s crap. And yet it wasn’t theirs. So I won’t let my company’s list down there right now because it’s too risky to have to put out a news release saying all this isn’t true. When you didn’t put it out in the first place. Right. It just tanks the company with a really bad image. So it’s a minefield out there to be in the public company’s space at the moment.
Gordon Keep: [00:34:12] The question you asked me recently when we were offline for a second was how do you find the right shell? Who do you deal with? This business is full of scoundrels as well. So you’ve got to be careful that… who you’re working with that you can trust and that the deal they’re saying they’re bringing to you and the shell that they are identifying as a legitimate vehicle for your business actually is what it is. And if… the question you asked me is half a million dollars the right number. So, if someone listened to this, goes out says “oh this is $400 thousand, I got a good deal”. Or maybe not, because you don’t know the person well enough just because it’s $400 doesn’t make it a better deal than $500 if it’s not well structured, well put together.
Gordon Keep: [00:35:04] So if you’re new to this space as a CEO you need to surround yourself with advisers, of people that have been in this space (that) can identify who are the right crowd to work with and who are the crowd you want to avoid and try and avoid as many pitfalls as you can that you don’t, you don’t trip yourself up and destroy your company by having married the wrong guys, the wrong team of people.
Gordon Keep: [00:35:30] And there’s tons of them out there. I know how to weed them out because I’ve done this enough times. There’s people that…
Cory Cleveland: [00:35:39] What are some of the telltale signs?
Gordon Keep: [00:35:45] You know what… The problem is there’s a lot…
Cory Cleveland: [00:35:47] People say “Oh yeah, he’s my friend, he’s my buddy.
Gordon Keep: [00:35:49] Ya, not even that. I mean yes obviously you know, that’s your it’s your gut feel. It’s how they present themselves. Do you feel you need to have a shower after you’ve talked to them? Does what they’re saying makes sense? The problem that we’re trying to address in this conversation is those people that are not familiar with the space and haven’t done it enough times to know and be able to have that smell test. It’s… there’s so many different times I’ve been in meetings with people and said well… How could you all believe that? well, they didn’t know any differently. They don’t have any measuring sticks to measure what they’re being fed because they’re you know as the saying goes a lot of it was Greek to them that they didn’t know and it goes to investor relations contracts and people that are running those. You’ve got to know who they are and where they’re going to take that information. I’m sort of alluding to in this this other social media stuff or other websites or so on that they might create.
Gordon Keep: [00:36:55] They may start out legitimately yours but then they deviate off a bit because that’s making the money by selling it to some other publication or other channel of distribution. And it’s no longer the product you approved. And yet you paid them initially. So you sort of own it and so, can you trust those guys to do what they’ve contracted with you to do? And some of that means you have to sit on top of them. Right now any article goes on any of our companies or in the IR space. My team has to read it as a governance basis and say OK yeah there’s nothing in here that I think the regulators are going to have a fit with or IIROC’s going to make you restate your statements.
Gordon Keep: [00:37:43] Sometimes IIROC doesn’t like a certain word and they will do that but very seldom but it’s a risk because right now you’ve got an industry that’s exploding as part of the social media. You’re not just in the mining world anymore. In fact that’s almost been left behind in the last year or so. So you’re into this whole new industry stuff that no one really knows enough about. To know whether this crypto deal’s better than that crypto deal or this A.I. is better than that A.I. or any of these stuff.
Cory Cleveland: [00:38:19] And the language behind it.
Gordon Keep: [00:38:20] Yeah. You don’t have enough people with enough experience and that’s very very… it reminds me very much of 2000. Whenn everything with the dot com after it went to the moon and price just… and it’s like, the complaint that Commission’s had here, just because you make yourself sound so blockchain doesn’t mean you’re actually in the blockchain. And they you know… their stocks would double overnight by putting the word blockchain in their name.
Cory Cleveland: [00:38:46] Right.
Gordon Keep: [00:38:47] And so the commissions have now banned that kind of activity and have warned investors to make sure there’s actually something underneath the name of the company besides just the name because you don’t want to just hurry up and buy before it’s too late kind of approach and find out it’s too late for you. Rather than too late for the profit. So you really do need, if you’re going to come and get in this area. You can’t do it on your own. You need to find someone that you trust, respect, it’s got a history of doing good deals to give you guidance whether that’s your legal counsel or whether it’s groups like ourselves that have done it before and give you… I meet with people constantly and give them… public or and if they’re trying to do make us or ask us to be part of their deal. It may not be big enough or there’s not enough a reward in it for us. We don’t do it for free.
Cory Cleveland: [00:39:45] Absolutely. How should people approach approach you?
Gordon Keep: [00:39:50] I don’t mind anybody approaching me. That’s part of my role here is to sift through people who have ideas and want to whoe them to Frank. I’ll read them first and say OK this is something that may or may not be in our in our target zone. And I would say ninety five percent of it isn’t. But then I will tell them what… where to go or what, you know who else might look in that space if it’s smaller or it’s the space that we’re not interested in. If I know. But certainly if they say “Hey, I’m working with Mr. X or Miss Y” I’ll let them know if I think there’s a person they should be looking at. But there’s there’s no magic pill. You can go to the Stock Exchange… they will actually give you guidance as much as they can because they obviously can’t say someone who hasn’t been fully disciplined that they’re not actually a very good lawyer or something like that. They can’t make that statement given the position they’re in where they have to be somewhat neutral but they can talk to you in a way in which you’ll get the opinion that maybe you’re not with the strongest team. They won’t tell you or not you’re gonna have to read between the lines.
Gordon Keep: [00:41:02] But if you ask them the right questions they may recommend other names or whatever. It’s not really what their job is but they are a resource. That’s one area to start but it’s more you know if I think about the number of deals especially in the Yorkton days would come in they would sit with me go through everything. And say “I actually like this” and I’d go to Frank and Bob and the guys back at Yorkton and say “OK, here’s the deal I just saw. I like it but the guy’s green. He’s never been here, he’s come from the [United] States, he’s heard about the wonder of our market. I think his asset’s good. I think he’s a really trustworthy guy. I’m not sure he’s a market guy because he doesn’t understand the market”. And they’ll look at me and say “No, we’re too busy. Not Interested” or whatever and then two months later I get called into a meeting and they’re sitting there but they’re sitting with someone who understands the business.
Gordon Keep: [00:41:58] They’ve now met someone who can say I’m holding this guy’s hand I’m going to help him make the market I’m going to help make sure he has an investor base, etc. His asset’s good and boom we’re doing the deal. I found it two months before that. But the guy wasn’t coming with the credibility that says that this is going to be a success.
Cory Cleveland: [00:42:18] Validated by those who were…
Gordon Keep: [00:42:20] Validated by people who’ve been in it and our deal runners or deal facilitators. We can’t run every deal.
Cory Cleveland: [00:42:29] Deal runners is perhaps something you could be taken with a bad connotation. What would you… How would you describe that? Is there detail on that? What is a dealrunner.
Gordon Keep: [00:42:38] Well I was gonna say… Depends how you define dealrunner. There’s groups that do deals like a Clive Johnson with his BMO Gold and his B2 Gold and is VMat and so on. He’ll have four or five deals that he will run. And you know, he’ll have his own engineering team and so on and do some wondering. Guy’s been very very good at it. You take it to the other extreme of the Murray Pezim days which again you’re probably too young to even remember him where he’d have a hundred companies under his management. And half of them were schlock and some of them found the biggest gold mines in Canada.
Gordon Keep: [00:43:14] So you know, you fire enough arrows hopefully you’re gonna win a few. But he could run a deal. He had a team around him to know what the regulatory policies rules were. No one does that as much, you know… Our team, my company, my group of eleven that I manage that run public companies from a regulatory perspective. I think we have about 18 to go once we’re managing and now. If they’re actively just exploring their property. There’s not a lot of work to do.
Gordon Keep: [00:43:45] Just making sure they file their financials and they file their AGM and they got their stock option plan and they’re putting their news releases out right and at the right compensation and the right comp committees and all that sort of stuff.
Gordon Keep: [00:43:59] So it’s not that big a deal for me to manage them and if I was trying to manage an amount that are trying to go public through the RTO process. Well that’s a lot of work because a lot of paper flying and a lot of time and pressure and financing and so on so. I can handle two or three of those on the go at once but that’s because I got a lot of people doing it.
Cory Cleveland: [00:44:18] So, how do you find that guy?
Gordon Keep: [00:44:21] I don’t know… a lot of trial and error. Again. Even if you’re naive you should have some… to have been successful enough to be coming up here with the business assuming you have a real business in some of these other fly by night type of situations that come up. You’ve got some basic knowledge but there’s enough people like myself or others that you can phone and say “Hey I’m talking to Mr. X or Miss Y. What do you think? And… Do you have anybody else I should talk to?” Just by coming up and walking around the industry or between law firms or accounting firms or something.
Gordon Keep: [00:45:05] There is enough basic knowledge there that they’re going… you should be able to bump into enough good guidance and ultimately latch on to someone who really agrees with your business model that you’re trying to do and can help you do it. But it is a risk, you have to be very careful that you haven’t married the wrong people and gotten too far down the line. And I see that a lot… I am great as it is. And we’ve got the shell.. and went “well, that won’t work”. It’s just not going to work. He says “Yeah, but I signed a contract. I can’t get out of it”. Sorry. See you later. I can’t help you. Sometimes they can get out of them. Sometimes I can help them fix it or when the people find out it’s our group and it’s that time when being part of our group is successful, they’ll restructure their thing knowing it’s now got a little more intelligence behind it, a little more experience behind, it is probably better for us.
Gordon Keep: [00:46:00] So it’s like… There’s no yellow pages which says Dealrunner! Go find this guy. He can help you… Because you need, that person needs to introduce you to the Frank Giustra’s, the Peter Brown’s, the Clive Johnson’s, the… you know… the guys in Toronto. There’s a whole bunch of guys. It’s not that big a community but there’s a whole bunch of guys that have helped run deals or finance deals and taking piece of the action as part of it.
Cory Cleveland: [00:46:34] How big is that piece of the action?
Gordon Keep: [00:46:36] From our perspective, as big as I can make it. But, it’s like any negotiation. If it’s not a win win for everybody, it doesn’t work. If you ask for too much, deal’s not going to come. You know, some people will come to us and say “Well, you know… I really want you to do this and put all this effort in and you can have $100 thousand dollars” Yah, but we’re looking for $10 million. That’s what the share price going up and our position we want. We want the upside potential, we’re not just… We’re not paid by the hour. So. It can be reasonably small or it can… Depends on how much effort is there what…
Gordon Keep: [00:47:18] The problem with what I’m about to say is if you end up with the wrong guys you end up giving too much the wrong guys thinking you’re doing the right thing and then you’re screwed. But it’s like when guys go and raise money with a broker and they need $5 or $10 million bucks and they don’t know where to get it themselves or the broker will know where to get it, and he goes “Well, that’s gonna be 7 percent. “Seven percent, that’s a ridiculous amount of money. I’m not paying that”. Someone else told me they can raise it for 3 percent. So you go with the 3 percent and then you sit there three months later and you’re willing to pay three percent but there’s nothing to pay off because there isn’t anything there. They really couldn’t do the deal. So you have to make sure that you can incentivize the people to make your deal work. And it costs money. It’s not cheap. So coming up, if you’re thinking you going do it for $100k and… or something. It’s just not going to happen. There’s a cost of the vehicle which may or may not be your costs. When we go and find a deal that $500 thousand or $750 I talked about earlier.
Gordon Keep: [00:48:20] That’s not a cost to the public company… We pay that. We own that piece. That’s… so, when he’s bringing his assets up. He’s going to vent his asset into our shell so we may, going to your earlier question, what is that? So let’s say our shell is… Of which we own, call it 60 percent of the shell and hopefully more but, call that number. And then we say “OK, we’re going to go public at a market cap of $50 million bucks. We want $10 million of that market cap representing from the shell 40 goes to you and then we’re going to raise 10, 10 goes over here. So that’s 50 million premarket, pre-money. So that’s $60 million go public money with 10 million plus your asset we think of the public co. We’ll finance that.
Gordon Keep: [00:49:08] That’s the negotiation that’s going on. Is that number 80/20, 70/30, 50/50 and then we own that 60 percent of whatever that other number is. And it’s been as low as 10 percent, it’s been as high as 50 percent. Right. Depends what they need you for and what are you bringing to the table.
Gordon Keep: [00:49:30] Are you just bringing how to go public or are you bringing $10 million dollars or you’re bringing also the fact that once we get you public we can then merge you with this other company that’s in a similar business and double your size overnight. Because we know these people and we try to do that a lot. All right. We’ve got two gold companies we think they’re actually complementary. Well let’s put them together. We may create one first get it to a certain price so that we get a proper return for shareholders and both sides.
Gordon Keep: [00:49:59] So it’s… there is no magic formula and different markets are different times and…
Cory Cleveland: [00:50:07] There’s no doubt, this is an art.
Gordon Keep: [00:50:10] I think so. You know. I happen to have some… a lot of the pencils so it makes me easier to be. But to say that but it’s… There is no textbook on how to do this.
Gordon Keep: [00:50:21] There’s no “go and read this” or your MBA class is not going to tell you this is who you meet, this is how it happens, and this is where it’s going to go. It’s an evolving art which involves with the market itself as well as reacting to any new regulatory pressures that are put on them by the governments or like this OTC thing is talking about. That was a push down from the SEC saying you know there’s too many people are saying there’s too much lock on the OTC market. Well the OTC pinks are as foolish luck but QB and QX weren’t but they didn’t want to…. They wanted to make sure that none of that happened so they put in this draconian promotional policy which like any policy it has a pendulums … Way up top and now it’s about a third of the way back down to normal. They’re on their way. I’ve talked to them, I suggested that I might try listing a few companies to see how they react now that it’s not as draconian as it was it’s a lot more balanced in favor of the public company doing the right thing.
Gordon Keep: [00:51:24] And I lost track as to why I went on that …. tangent.
Gordon Keep: [00:51:29] Well I hope so. I’m not trying to be arrogant either but it is. It is a business which takes a lot of well there’s a lot at stake. As you said earlier there’s if you put ten years of your life into a into a business and think is ready to take it public and you marry the wrong guys and a year later you’re lost your asset.. Kind of sucks! So you need to take the time and effort not not be too rushed but you also need to make sure that you understand what you’re getting into how you manage that process who you surround yourself around as advisors and then grow from there. A lot of a lot of huge successful companies have done this. But it’s a risky market. Its a Venture market. There are more failures then there are successes.
Gordon Keep: [00:52:19] Out of the 250, that I’ve done. Some of them Petro Rubialis was one of the larger Pacific Rubialis as it ultimately became known went from little oil and gas company in Colombia to the largest independent in South America. And went from 25 cents to 30 some odd dollars and huge market caps, borrowed a billion dollars to build the pipeline and then they oil price changed. They don’t exist anymore. So. Is that a success or failure.
Gordon Keep: [00:52:53] Everybody tells me how much money they made on that deal by following our lead. And that was again one of those ones where we ended up with two or three different public companies which we merged into one. They all had their own oil and gas assets and all got to a certain size and made it bigger. And then it got critical mass and and again was the right time and the right place great decision. It was a very successful company until it got into the debt side of the equation.
Cory Cleveland: [00:53:19] Timing is huge.
Gordon Keep: [00:53:20] It is. And if oil stayed over 100 bucks they would still be pumping out a ton of a ton of dollars but they took risk to take the debt to get more oil through the pipeline and the pipeline owns them rather than the other way around.
Cory Cleveland: [00:53:35] With some of these questions you took note you wanted to speak to I think a couple of points that what I had was what stories and most memorable and tense negotiations, strokes of luck, laughable moments or unbelievable deals or who were some legendary characters which I think you touched on. I mean I think you’re one of the unsung ones but what wins and losses led to a life changing career lessons…
Gordon Keep: [00:54:01] Life lessons I got, if you want to call it lucky. One of the first deals I did when I got into the this side of the business from the regulatory side of the business I left the exchange and joined Yorkton was an incredible scam. And I was a guy making 30 grand a year and the guys that were getting scammed which were my bosses in they were million dollar a year kind of guys. I’m going well they must know what’s going on. This doesn’t seem right to me but they’re in love with the guy and you know I I used my knowledge or my spider senses but I didn’t speak up enough so I learned that I should have probably said it but they all these guys could see is is how exciting this guy was and how much money they’re going to make. So they were blinded and they lost. And that was 1987 and was a million bucks. And I simply tried to go and get the money back from the scoundrel. He actually took a meeting with me… Surprised the hell out of me and then he said yeah hi Gord. Thanks for the million bucks. I’m on the plane today to my sailboat in the Caribbean and tell your guys you’re never seeing your money. And then he left.
Cory Cleveland: [00:55:14] And can you share the name?
Gordon Keep: [00:55:15] Ahhh Randall Steep… There is another one I don’t need to go into the depth of that but because I’ve been through the first one I recognized the second one immediately and it was a situation where two of my partners hadn’t run anything past me. They did it on their own. And when I came in on Monday morning I was trying to undo something they had done on the weekend. And again small world type scam stuff.
Gordon Keep: [00:55:41] So that’s why I bite by seeing that I could recognize the scoundrel type of side of the picture. And that really helped me and the way I looked at things and the way I treated people and if it sounded too good it probably was too good. And that sort of stuff…
Gordon Keep: [00:55:58] The other lessons that I learned is this business is about sharing. First of all you want to and I give Frank a ton of credit for this because he’s done it a couple of times which is to go out and build a team and hire good people.
Gordon Keep: [00:56:19] And it’s enough to hire good people but then you gotta let the good people actually do their job. Because I’ve worked the people that hire good people but they wouldn’t listen to the good people’s advice and Frank’s been very good with that. And I’ve been part of some phenomenal teams where we can say no, engineer can say no, Oil and gas guy can say no. Even though it looks like we’re going to make money and it’s all structured right from that side, the asset doesn’t stand up. And Frank will walk away from the deal. So the important thing is hire people that know what they’re doing looking at it and can tell you when you’re not wearing any clothes and then listen to them. Don’t just override them because there’s an extra buck in it because if you want to be here for 35 years you can’t make that extra buck because then you won’t have the second book to do it. No one will want to work with you.
Gordon Keep: [00:57:07] The other thing is when you deal with those people is reward them. It’s there was one person I worked with after which I won’t name but it was when the market was turning down and he hadn’t made enough money. So the pie that used to be spread around a bunch of people went 90 percent to him and 10 percent everybody else. And that’s not a winning formula. So if you make sure everybody that wants to work for you. You make sure they have an option package if possible. They get bonuses whenever bonuses are given and then you’ll find people work 70 hours a week if you need it. And then when they don’t need it make sure they go home at two o’clock and go skiing or whatever.
Gordon Keep: [00:57:47] You’ve got to it’s got to be a balance. And you’ve got to appreciate the people you’re around and you’ve got to realize it’s not all yours. It’s got to be spread out to people to make it happen. There’s always problems. Again I try and surround myself with the right people to solve them. I’ve had the same lawyer for 35 years 30 years and I think so. And Jay’s been my main lawyer and we’ve grown up together we’ve understood the business. We’ve learned the business. We catch each other and Frank and I we’ve been partners for 31 years. And we understand each other and we have completely different roles. And that’s I guess as a learning lesson.
Gordon Keep: [00:58:30] Never mind the right people make sure you understand what you’re good at and what you’re not good at.
Gordon Keep: [00:58:34] I’m a horrible company promoter or or that kind of thing but I’m think I’m really good at administrating and governance and putting things together and avoiding problems. Thinking about problems before they happen to make sure they don’t happen.
Gordon Keep: [00:58:53] And Frank would hate to do my job and I can’t do his job as a team we’re great because I don’t want to do his job and he doesn’t…
Cory Cleveland: [00:59:00] Does it ever bother you not getting the notoriety.
Gordon Keep: [00:59:03] Not a lot. I mean you’re right.
Gordon Keep: [00:59:06] No one knows who I am and I’m pretty happy with that because I don’t have all the press and stuff that Frank has to deal with. No I’m not. I’m not out for that I’m just out to be respected and appreciated for the efforts I’m putting in. And I think I am. So I’m quite happy with where I am and what works. I have been a bit of a lone wolf which is a problem Frank and others have. When I choose to retire and now that I’m 62 almost I don’t really have a replacement.
Gordon Keep: [00:59:41] He’s also 62. So our game right now is when ever you’re retiring, well I’m retiring when he retires and he’s retiring when I retire. So I don’t know who’s retiring…
Cory Cleveland: [00:59:53] A little bit of a standoff.
Gordon Keep: [00:59:54] I don’t think either of us can wait to hook to the business. It’s such an exciting business. Real passionate. It’s well I enjoy going to work.
Cory Cleveland: [01:00:02] Incredible, incredible history.
Gordon Keep: [01:00:05] We’ve been lucky and we’ve been good and you’ve got to be good to be lucky and we’ve made mistakes. It’s not all been a piece of cake. There’s been a lot of challenges. Well luckily for us there’s been virtually no real law suits. There’s been nuisance stuff but nothing, nothing serious and no significant regulatory problems at all. And I take a lot of pride in that. Yes there’s 30 some odd years within a regulatory blemish. The only one I have is we were late in filing financials and that was because it was a Venezuelan asset and they had just been expropriated and it took us six months to do them instead of three. So we’re late.
Cory Cleveland: [01:00:45] You were saying that you need you have a lot of the pencils it makes it easier being an artist and there’s no, there’s no education you can go find about this but I think that’s one of the greatest reasons why you know you taking the time and sharing your experience here is helping put the outline on the canvas.
Gordon Keep: [01:01:03] Those are really my life lessons on it.
Cory Cleveland: [01:01:06] I’ll take them. What do you say we you know I think we’ve got so much good stuff here… Looking at time you’ve got a call coming up here.
Gordon Keep: [01:01:12] If we were to wrap up with the closing statement, for CEOs out there regardless of industry from your experience. Any final thoughts for them and in managing the public markets?
Gordon Keep: [01:01:29] That’s a big question. OK. CEOs that are fresh to this business have to be very very careful they don’t forget about why they what is the asset?
Gordon Keep: [01:01:46] One of the big downfalls that I see which happens to wake people is the CEO goes public. You’ve now got a whole new community that loves you and hates you being shareholders and they are hungry. They want to be fed information they want to talk to you all the time. And if you start going on roadshows which is necessary and keep paying attention to your share price but forget to run the asset, it falls apart. And now you get nothing to run. And then you those with it. So they’ve got to be very careful. A that they’re prepared to deal with the public or make sure that whatever group they’re joining has that capability within it to help them manage that such that they don’t get bogged down just being a public company manager versus the asset manager that they’re supposed to be the beneficiary of. So that’s…
Cory Cleveland: [01:02:43] Is that a route for a good IR person.
Gordon Keep: [01:02:45] It’s more than IR. It’s… You’re always even when you’re not raising money you’re raising money. You always have to be on you always have to be updating your institution. You know it’s got to be talking to them. You’ve got to keep people informed and not just coming into the blue saying “Hey, I need money!”. You’ve got to be prepared to ask for it and know by those conversations whether it’s even available. Some of them will come to you. If you’re doing really well, people may just offer it. Throw money at you. That happens often when you’re stock successful. It’s going up in the liquidity. That happened in Hive. People were phoning us up and saying alright, bought deal, fifty million. No, we’ll take a seventy five one and said it was money was flying because people want to invest in space and institution were prepared to put that kind of money at a very high high risk to them of doing a bought deal.
Gordon Keep: [01:03:36] So you need an IR person but you also need someone that is qualified enough to be able to deal with the institutions and other segment of other market. So it’s not a cakewalk. It’s a lot of work that person sometimes the CFO sometimes it’s the V.P. development and the CEO only just do the occasional trip… Not the day to day. And then, yes you have your IR department can be, again depending on big asset… You can’t have 10 or 15 people on a small asset. Overhead it to death. So it’s it’s that’s the other problem with the public company is you’ve got a very small management team that has to do a lot of different things. So in my case a lot of people hired my particular company because I’m a governance guy that helps manage the regulatory process in filings with the exchange and stock option plans all the stuff that is somewhat foreign were it is not foreign to all.
Gordon Keep: [01:04:34] We just take that off the CEO’s hands and say you go run your company and we’ll do all the regulatory worry. I’ll just ask you questions you answer them and we’ll file with you. So you need that kind of support. Not saying you have to hire my company, but you need that kind of support where… And the lawyer is not that person. There are a great resource. But they’ve got a whole bunch of clients and they’re simply giving legal advice. They’re not running a company.
Gordon Keep: [01:04:57] That’s another big mistake a lot of CEOs do. They just hand everything over to a lawyer and a lawyer doesn’t always… They’re not proactive, necessarily. They are answering and sending you this big long legal letter with big bill attached saying here, give me these answers. You’re too busy. Don’t give me answers and they don’t follow up because they’re waiting for you. Now three weeks months gone by and something didn’t happen that was happening as you do. You weren’t paying attention. You need to identify someone in your company that’s going to manage your accountants, going to manage your shareholders and manage your lawyers too. Whether that’s an outside source or someone a bunch of groups so or you bring the person in house, it is well worth it.
Gordon Keep: [01:05:42] When there’s great money there’s more multiple. You can raise a lot of money if you hit the market at the right time. If it’s not the right time. Back off, wait, come back. Even if you spent 50 to 100 grand getting that far. It’s not money wasted it’s just money delayed. Be careful you don’t do it just because you feel you have to. That’s not likely (inaudible).
Cory Cleveland: [01:06:07] Excellent. It’s it’s been really informative. I’ve enjoyed hearing the perspectives especially contrary to some of the perhaps the false beliefs that are out there. But then also the experience there. I know this is going to be hugely valuable for the audience. So thank you very much.
Cory Cleveland: [01:06:27] Thanks for listening to this episode of The Insider’s Guide to Finance. If you enjoyed what you heard please share this with your friends and colleagues so they can benefit as well. You can also subscribe and leave a view on iTunes or the Play Store. You support there is really appreciated. For future episodes if there’s a question topic or specific person you’d like me to interview, feel free to reach out. You can connect with me on LinkedIn or through my website at Creativeeturn.ca.