Ravi Sood: Marginal Gold Producers to Far Outperform the Sector – 8/3/2014
This week we have CEO of Galane Gold, Ravi Sood as our guest. Ravi is a serial entrepreneur and financier who has founded many successes in the financial and business world such as: Buchanan Renewables, Feronia Inc., and Galane Gold. We brought Ravi on the show to get his insights on the junior resource sector. Ravi leads an unhedged and marginal gold producer in Botswana, producing 50,000 ounces of gold per year, with $11M in cash in the bank, and a $12M market cap. That is how undervalued this sector is right now, and Ravi gave us great insights into why investors should get in and stay in.
When asked why he has chosen to stick with the natural resource sector, and a junior gold producer in particular, Ravi explains that he was a money manager through some of the worst financial periods of our time (the bursting of the tech bubble in 2000, and the stock market crash of 2008). Coming out of these periods were some of the best times he has had making money. The junior resource market is in a similar situation right now, and there is great opportunity right now for the right kind of company.
Ravi thinks we’ll be a year plus into the bull market in natural resources before we realize that we’re in a bull market. He thinks that the bull market ahead of us will be slower and more measured, and more rational than the last big bull market in natural resources. This time investors will be more disciplined and as a result more selective.
Speaking on what kind of gains investors can expect to reap when investing in the right junior resource companies. Ravi points out that there are stocks that are down 75% or even 95% from their peak. Further, he believes that the financing in the market isn’t going to come back at the same pace, but the best companies to invest in are the companies that are not as dependent on the markets for financing. The companies who are able to generate their own cash flow and already have leverage to the underlying commodity – these are the small producers that will have the most upside.
Speaking from the point of view of his own company, Galane Gold, Ravi tells us they made an acquisition of one of IAMGOLD’s properties that didn’t get the attention it deserved. And since then, Galane have gotten the costs down on the operation substantially. The opportunity for Galane Gold now is to capitalize on other opportunities in this sector. They are looking to grow from their stable and profitable platform.
Finally, Ravi touches on the topic of marginality in gold producers. If you’re a $500 an ounce producer and the gold price moves from $1300 to $1400, it’s obviously a positive, but it’s a small move from where the company is already at. But for a producer like Galane Gold, that type of move produces huge leverage. Galane Gold is financially stable at $1100 and even at $1200, but as gold goes to $1400 and above, they have tremendous operating leverage. For the company, every $100 in additional gold price, is an extra $5M dollars of cash flow per year, and Galane Gold currently has a $12M dollar market cap!
Ravi Sood is a financier and venture capitalist. Mr. Sood is the founder and former CEO of Navina Asset Management, a Toronto-based investment firm that was acquired by a major financial institution. Mr. Sood has also founded several natural resources based businesses including Feronia Inc., one of Africa’s largest employers, where he serves as Chairman. Mr. Sood is also a director of Elgin Mining Inc. and TrueContext Mobile Solutions Corp. Mr. Sood holds a B.Mathematics(Hons) degree from the University of Waterloo.