Marcel De Groot (CPA, CA) is Co-Founder and President of Pathway Capital Ltd (Pathway). Pathway partners with, and invests in, successful mining entrepreneurs to create new ventures within the metals and mining space.
Marcel has 20 years of experience in providing strategic support to both public and private companies in mining. He has been involved in a number of mergers and acquisitions, financings, and re-organizations, including the formation of Equinox Gold. Other examples where Marcel and Pathway have been or continue to be directly involved include Peru Copper (acquired by Chinalco in 2007 for CAD 840 million), Sandstorm Gold Royalties, Sun Peak Metals, Pucara Resources, and Eclipse Gold Mining.
Marcel is currently a director at Galiano Gold (formerly Asanko Gold) and a chairman at Eclipse Gold Mining.
Marcel, great to have you with us. To kick things off, can you tell us how you got started in the mining industry?
I started investing in mining companies in the mid-1990s while studying at the University of British Columbia (UBC). I had several friends who were geologists and I saw enormous potential in the sector. After completing my Chartered Accountant certification in 1999, I left public practice to work with a group that included Dave De Witt. Dave had had a successful career as a corporate and securities lawyer within the metals and mining sector and had only recently switched to venture capital. In 2004, after working together for a number of years, Dave and I formed Pathway Capital Ltd. I have been fortunate to have Dave as a partner and mentor ever since. In 2018, Hayley De Witt launched Pathway Ventures in the UK. Hayley, a geologist with a background in private equity, has significantly expanded our network and access to capital.
Last year, I spoke to Dave about the investment approach of Pathway Capital and the attributes he looks for in junior companies. What are you looking for when considering investment?
People are key. It is critical that a company is led by a team that possesses the skillsets required for success. This includes a clear strategy with a path to creating value, access to capital, technical knowledge, marketing savviness, and a strong sense of teamwork and camaraderie. In short, top-quality people find top-quality assets and steward them in a way that ultimately creates value for everyone involved. That is what we look for above all else when considering an investment.
Can you talk about a specific case where a company checked all the boxes?
Equinox Gold (TSX: EQX) and its creation comes to mind. In October 2016, we worked with Marin Katusa and Greg Smith to establish a company called JDL Gold Ltd (named after the late, great J. David Lowell, a close friend and colleague) via the merger of three junior mining companies.
We then completed an equity raise of CAD 60 million, and Greg Smith became CEO. This led to the acquisition of Luna Gold, which provided us with a prospective development asset in Brazil as well as a highly skilled management team led by Christian Milau (CEO of Equinox Gold). The result was Trek Mining.
In December 2017, Trek Mining, headed by Christian as CEO and Greg as President, acquired both New Castle and Anfield Resources, providing the company with a large, long-life asset in the Castle Mountain Project and renowned mining entrepreneur Ross Beaty as Chairman. The rest is history.
Christian, who had been introduced to us by Nolan Watson, CEO and President of Sandstorm Gold Royalties (TSX: SSL), has proven to be the scalable CEO we thought he was.
Two acquisitions later, Equinox Gold has a market capitalization of CAD $ 3.1 billion and is nearing one million ounces of production, all the while generating considerable value for its shareholders.
Can you tell us about Sandstorm Gold and how it became the company it is today?
In 2006, Dave De Witt and I met Nolan Watson and David Awram, who were both working at Silver Wheaton Corp (now Wheaton Precious Metals). Dave and I saw tremendous potential in Nolan and David, and in 2008 they left Silver Wheaton and took over Sandstorm Resources, a TSX-V-listed shell company that Dave and I had started a year or so earlier. With a desire to align themselves with shareholders, Nolan (CEO and President) and David (Senior Executive Vice President) did not accept a salary until the company achieved a CAD $ 100 million market capitalization. Sandstorm Resources, named after one of Dave’s daughters’ horses, has since evolved into Sandstorm Gold Royalties, a leading streaming and royalty company with 200 streams/royalties, including 23 producing assets, a projected 2023 cashflow of approximately CAD $ 140 million, and a market capitalization in excess of CAD $2 billion.
Is it fair to say that you prefer to work with companies that focus on precious metals?
Obviously, gold is currently in favor and, as a consequence, we are focusing on it at both Eclipse Gold Mining (TSX-V: EGLD) and Pucara Resources (TSX-V: MML.P). Eclipse, led by successful Nevada-focused explorer Mike Allen, has consolidated a large gold district one hour south of Reno, Nevada. Our commodity focus at Pathway has, however, always included precious metals and copper.
We have been quite bullish on copper in the longer term, and we spent a significant amount of time working with J. David Lowell to build the copper portfolio held in what is now known as Solaris Resources, of which I was previously Chairman. Another Pathway company, Sun Peak Metals, is exploring for high-grade gold and copper in Ethiopia, which provides us with the best of both worlds in regard to precious and base metals exposure.
“At this point in time, there are more funds available than products to invest in. Juniors need to focus on separating themselves from the pack by articulating why they have the best risk-reward equation.”
What are your thoughts on the TSX/TSX-V as a listing platform for juniors?
The TSX/TSX-V is a great platform for both companies and investors. It attracts a global audience and creates a critical stage for junior companies upon which to access capital.
What are your thoughts on COVID-19 and the mining industry? Do you think there’ll be structural changes or long-term demand and supply issues going forward as a result of the pandemic?
Protocols have clearly been adjusted for the foreseeable future to navigate COVID’s impact on operations within the sector. I believe the biggest impact relates to the fiscal and monetary policies adopted in reaction to the virus, the level of which we have never seen before. As a result, gold is a clear winner at this time. Of course, there will be changes as people learn to work from home and navigate business with less travel but, in general, I think supply for commodities, including copper and others, will pick up again.
What should juniors be doing during this time to continue to look attractive to investors?
At this point in time, there are more funds available than products to invest in. Juniors need to focus on separating themselves from the pack by articulating why they have the best risk-reward equation. Investors need to conduct thorough due diligence to ensure they are investing in top teams at the best valuation possible.