Newmarket Gold CEO Doug Forster reveals roll-up strategy
Doug Forster's Newmarket Gold Inc. (TSXV:NGN) may be a breath of fresh air to Canada’s mining sector. The company has experienced executives touting optimism and looking for acquisitions in a gold mining market where few buyers exist. Then again, it could end up another failed TSX-venture shell, waiting on the shelf for the next dream or bull market. This one all comes down to the execution.
Newmarket Gold just started trading on October 7th. Formerly Raystar Capital, Newmarket is little more than a shell at this point, save for a modest qualifying property, but it has some prominent shareholders. Over 50% of its float is controlled by insiders including Randall Oliphant, the New Gold Executive Chairman, Franco Nevada Director and Chairman of the World Gold Council, and Lukas Lundin, the billionaire Swede and owner of the Lundin Group, one of the world's most successful mining and energy developers.
Newmarket's plan is a "Gold production roll-up strategy," Mr. Forster tells me over lunch yesterday. The company will acquire already cash flowing gold mines, preferably in the Americas, where production costs are the lowest globally; byproduct metals such as silver and copper will be tolerated. Forster wants to do a first deal in the $100 million range using a combination of cash and stock. Following the first transaction, the company will acquire a second producing asset, hoping to get to the 150,000 ounces of gold production per year range, before looking at development stage (read: non producing) opportunities. Gold ounces in the ground are trading at some of the cheapest valuations seen in Mr. Forster's lifetime.
Financial partners for Newmarket, which could include generalist funds and private equity firms from the US, tell Forster they will support his first transaction if the assets are right. “A lot of investors are seeing the value in the gold space but haven’t been able to pull the trigger because they haven’t had the right team to do it with.” Forster thinks his experience, and that of his co-directors, are the right fit for financial institutions seeing potential in this sector. “We will be the operator for their strategy.”
Of his co-director’s contributions, Forster says Mr. Oliphant brought the ‘roll up’ concept to the shell company’s table late this Spring. Oliphant, a veteran gold miner, cited few buyers for gold assets, and very compelling valuations. Mr. Lundin apparently chose the name, Newmarket, and has legitimate operational and financial credibility, should he chose to get his hands dirty. We reached out to Mr. Lundin by phone on Thursday, and he told us to have a wait and see approach with regards to the assets Newmarket ultimately brings forward.
Forster does not himself have production experience, but he’s a quick study. He also reminds me of the extensive operating experience shared by his directors Lundin and Oliphant.
As a 27 year old geologist in 1987, Doug Forster joined Bob Hunter and Bob Dickinson's group, and borrowed a significant amount of his parent's retirement savings to invest in two small Hunter & Dickinson companies, including Continental Gold, which then acquired the Mount Milligan deposit. After riding out the October 1987 crash, confidence in the mining sector quickly recovered. Within two years stock in Continental Forster paid twenty five cents for was acquired by Placer Dome for $20 per share. Forster become a multi-millionaire in his late 20’s, and hasn’t looked back since.
In the 1990’s, Forster partnered up with ex-First Marathon broker Blayne Johnson, investing in early stage companies together. The duo ventured to Seattle during the Dot Com boom and bust of the 1990’s, and Forster says they made “some money.” As the commodity cycle got going in the 2000’s, they returned to mining, forming Featherstone Capital, a financial advisory firm for the junior resource sector.
One of Featherstone’s deals, Terrane Metals, acquired the Mount Milligan deposit from Goldcorp for $.50 per share in 2006 (note Mount Milligan was the source of Forster’s first fortune in 1989). The share price languished between 2006-2009 in the .15 cent range, before Thompson Creek Metals acquired Terrane in 2010 for $650 million or $1.41 per share. Mr. Forster had flipped Mount Milligan for a substantial profit, incredibly, for the second time.
Other Featherstone Capital companies have been less successful. Edgewater Exploration, which is developing the Corcoesto gold project in Spain, has run in to permitting troubles recently. The share price has fallen from over $1 to $0.07 since 2011. Calibre Mining is another Featherstone deal. It has a joint venture with Clive Johnson’s B2Gold in Nicaragua but also now trades below $0.07 per share. Forster is still involved, at the director level, with both companies. “Don’t forget this sector always comes back,” Forster reminds me.
Newmarket’s production roll up strategy won’t be easy to execute. I pressed Mr. Forster on the expectations placed on mining executives today, such as the gruelling travel schedule required. CEOs have to continually tell their story to existing and prospective shareholders, not to mention build highly productive teams. In his mid-50’s, Forster is fit and a likeable guy. He will have to see less of his family if Newmarket is to be successful.
“I will be the full time CEO, beginning when I start each day at 5am… Whatever it takes, we will do to make Newmarket work.”
Forster believes the networks of Newmarket’s respected directors will make the difference for the new company, both in terms of generating deal flow, and raising capital. The company is fielding acquisition ideas from the investment banking community, from established miners, as well as executives from junior producers unable to finance expansion plans on their own in this environment.
Shares in Newmarket Gold (TSXV:NGN) have traded sporadically in the three weeks since the deal started trading, last at $0.405. Forster tells me each of the four founders will have approximately $1.1 million invested in the deal at an average price of $.14, after they exercise their $.30 warrants. The company has approximately $3.8 million in cash currently, and earlier today appointed Canaccord Genuity as financial advisor.
Newmarket’s founders have had good timing in the resource sector before and clearly view now as a great time to be acquiring assets. Now its up to management to deliver on an ambitious business plan. I am taking Mr. Lundin’s advice to wait and see what they come up with.
Disclaimer: I asked Mr. Forster for forward looking statements. Please read Newmarket’s Cautionary Statement. All facts are to be verified by the reader, and all figures are approximate and based on the best information we had at press time. Nothing contained in this article should be construed as professional or investment advice of any kind. Always do your own due diligence. You are responsible for your own actions.