Talking with the scion of the Lundin family
Lukas on Lundin
Tommy Humphreys | May 2, 2013
“One drill hole changes the game. It’s very hard to decide who gets to make it and who doesn’t. It’s a big gate, and yet very few make it through. But you have to let them try.” — Lukas Lundin
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“Did you know you were getting the better end of that deal with Kinross?” I asked Lukas Lundin in his Vancouver office earlier this week.
“No No No,” he told me, “we thought it was worth more. You always love your own stuff.” Lukas laughed infectiously. Soon I was laughing along with him.
The Lundin organization’s $9.2 billion sale of Red Back Mining to Kinross Gold in 2010 knighted the Sweden-born magnate into the Resource Hall Of Fame. For this was a deal that led to billions in writedowns for Kinross and the early retirement of Kinross CEO Tye Burt. Some say the sale was a sign of the times, perfectly encapsulating the excess that characterized the past decade’s resource bull market.
For the Lundins, it was a demonstration of impeccable timing. For their shareholders, incredible value was created — in all, they saw a 1041% return (total investment minus cash flows vs. final consideration).
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The Lundins control exploration, development and production interests covering virtually every commodity around the world. For over 40 years, they’ve been one of the sharpest organizations in the sector, identifying exceptional resource projects, unlocking their value, and earning tens of billions for investors.
Family patriarch Adolf Lundin, who succumbed to leukemia in 2006, devoted the better part of his life to wildcatting, taking spectacular risks that eventually paid off.
In one of his first forays into the business in 1972, Adolf famously bet a Qatari Sheikh a million dollars it would rain the following day in the deserts of Qatar. The Sheikh accepted the bet and won. Shortly thereafter, Lundin was granted the licenses that led to the discovery of one the world’s largest gas/condensate fields.
With no guts, no glory as their family motto, the Lundins are just as comfortable in the jungles and deserts of Congo and Kurdistan as they are in boardrooms in Vancouver and Geneva. In 1992, with sons Lukas and Ian on board, the family invested $12 million in an Argentinian copper asset, Bajo de la Alumbrera. In 1995, it sold for $500 million. Today, the Lundin Organization controls mining and energy interests worth over $13 billion.
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Success in the resource business takes three things, Lukas told me. “First — risk taking. Second — you have to be a giant optimist. Third — you have to be willing to go out there and do it. It’s easy to sit on a couch and talk about it, but then you have to actually fly to some crazy place and pick up the concessions and develop them.”
Some of Lundin’s views are not as conventional as you might expect of a corporate titan. For example, Lukas argues that demand for commodities is still strong, and the situation in Europe overblown. Most interesting is his forecast for America: “I think the US is on a complete tear. The next 10 years will bring the biggest economic boom you’ll see in your lifetime, because of free energy, a very flexible and productive workforce, and automation. You don’t need to send it to Japan and China anymore — you can do it at home.”
Investors will again see staggering returns in the resource business, Lundin predicted, but without a discovery, it doesn’t work. “Very few oil and gas and mining professionals — only a handful of people in the world — actually find deposits. It’s a mixture of art and geology.”
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The Lundin Group is known for providing its technical people with the leeway necessary for trying out new ideas and making the important mistakes that can foster a mineral or energy discovery.Lundin Petroleum (TSX:LUP) recently tested a new concept in Norway on an area that had previously been drilled without success. Here they discovered an amazing 2 billion barrels of oil on the second go around, which Lukas believes are now worth over $12 billion. The market currently values Lundin Petroleum at $8 billion — not bad for an 11-year-old company.
Another Lundin venture, Africa Oil (TSXV:AOI), made a massive discovery in Kenya in 2012. The find resulted in yet another billion dollar score for investors.
But not all Lundin ventures are a resource investor’s fantasy. ShaMaran Petroleum (TSXV:SNM), the Kurdish oil and gas company, trades at just 31 cents. “That’s the one that’ll get you the biggest bang for your buck in the short term,” Lundin told us. “The Atrush Field we recently discovered looks really good. If we have success with the next well, and when we communicate our production plan, I think the company should be worth at least a buck a share. These are massive wells and the market just doesn’t understand yet.”
Lundin also has Blackpearl Resources (TSX:PXX) focused on heavy oil in Alberta. “The problem with the Canadian oil sector is the price differential due to lack of transportation,” he said. “In Eastern Canada, you sell oil for $90. In Alberta it’s $50. I don’t know why we’re not building a pipeline to the west coast. To rely on the US is crazy. With all the money we’ve invested in our oil sands, it couldn’t get much dumber.”
As for mining finance, Lundin sees things turning around in the fourth quarter of this year, but only for the best projects. “[Resource companies] have something like $50 billion of CapEx postponed around the world. Only the really good deposits will get financed for construction. What happens with majors is they buy everything at the peak and sell it at the bottom. It happens over and over.”
Over the next 18 months, Lundin Mining Corp. (TSX:LUN) is hoping to take advantage of that pattern by buying the copper assets distressed majors are getting rid of. Lundin Mining was after the Pinto Valley asset sold to Capstone last week, but they’ll keep looking. “There aren’t that many buyers left. Capstone is probably out of the picture for a while, Hudbay too, and First Quantum has a lot on their plate, so it’s a very exciting time for us to look for assets.”
Lucara Diamond Corp (TSX:LUC), the African miner, has done such a good job executing that the asset is performing better than Lukas expected. Unfortunately this isn’t the case for its stock price. “If you have a good asset and it’s doing well, it will reflect in the stock price over time. It has to,” Lukas told me. “We need another six months of production to show the market what we’re doing.”
On the Uranium front, Lundin’s Denison Mines (TSX:DML) is focusing on the Athabasca Basin, having just acquired two smaller companies and spun off their US assets. The company is looking at additional acquisitions, and Lundin told me that he’s been very impressed with recent drill results coming out the Western side of the Basin. “I think it’s a very good time for us to grow the company in the Basin. We’re looking for more advanced assets, not drill plays.”
Lundin thinks it’s cheaper to buy development assets today than it is to explore for new deposits. Flat commodities prices mean fewer junior companies, but if there’s any movement in prices at all, more are bound to spring up. “It’s almost like driving through a desert. When it rains, it becomes green in a minute. The junior market is similar. When there’s positive news, suddenly, there are 50 new companies. It’s very receptive, there are a lot of people out there trying to make a buck, and we should encourage them.”
I asked Lukas for his take on the upcoming BC Election. “An NDP win is a certainty,” he said, “But that shouldn’t be too bad for Vancouver’s resource sector. How much worse can it get? It’s like kicking a dead horse!”
Should the resource business be privately financed, I wondered? Lukas believes there’s not enough private money. “Private equity can’t wrap their heads around the risks. Mining’s not like building a TV,” he said.
“One drill hole changes the game,” he continued, “It’s very hard to decide who gets to make it and who doesn’t. It’s a big gate, and yet very few can make it through. But you have to let them try, it’s healthy to have it public, as long as there are some rules, and not all the money goes to restaurant bills.” He went on, “It’s up to the investor to figure out what to do. To invest in the junior market if you’re not part of it, I wouldn’t recommend it. It’s very tough. There’s some good stuff out there but it’s hard, even in this market, to find good assets.”
Lundin also thinks Vancouver is losing a bit of its influence in the global natural resources business. “Have you been to Perth?” he asked. “It’s a town in the middle of nowhere with less than a million people, but internationally you always run into guys from Perth, they’re very entrepreneurial, and take a lot of risks.”
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Of his peers in the business, Lundin complimented 36-year-old Timothy Young, an up and coming prospector. “Tim’s doing a good job. He’s smart because he’s not looking for a giant score, he exits, he’s very disciplined with what he does, and makes good money.”
“Robert Friedland has done a hell of a job. He works hard, has made mistakes. But he single-handedly carried all those land rushes, in Venezuela and Mongolia. It’s really incredible.”
Ross Beaty is another Lundin favorite. “Ross has all these crazy ideas about the world,” Lukas said affectionately, “and I disagree with basically all of them.” You could tell the two men are close.
I called on longtime Lundin lawyer and close business associate Brian Edgar, Chairman of Silver Bull Resources, Inc (TSX:SVB), to comment on what makes Lundin such a force. “Lukas doesn’t have a blackberry nor does he answer emails, his assistants handle that, but he has an amazing ability to grasp what’s important and ignore the minutiae. He is extremely loyal to his people and this loyalty is reciprocated. His powers of observation are as good as anybody I’ve ever met. Lukas can walk through a room in one minute and write down two pages of notes about what’s going on in that room. All of the skills you need for this business, he’s got in spades. His success has not come by accident or simply good luck.”
Veteran BMO Nesbitt Burns institutional equity salesman Colin Gibson, a friend and financier of the Lundins for two decades, added, “Lukas is very reliable, and he’s such a quick thinker. His incisiveness, curiosity and optimism are what sets him apart.”
Lundin doesn’t credit all his success to having guts. “You need luck, but you have to create a reaction to make luck. It also helps to be a great salesman, like Ross Beaty. The trick to being a great salesman is to never stop talking,” he laughed.
Lundin also had a piece of advice for promoters hit hard by the recent venture market meltdown. “If you have something of substance that’s really beaten up, don’t feel bad if your stock price was $5 and now its .50, and nothing has changed. You should go out and talk about it. This is our sector. Don’t hide.”
Lukas’s contagious enthusiasm shined bright throughout our conversation, as it has throughout his career. He’s got a lot to be excited about — his methodical risk-taking has paid off big. So here’s to Lukas’s optimism about the family’s current projects and the resource sector’s future as a whole. No guts, no glory.
For more information, visit the Lundin Group’s Web site and corporate overview.
We seek safe harbor
Lukas on Lundin - MINING.com
Say thanks to a coal miner for the privilege. And don’t forget the hardrock miner. Not to mention the smelter crew and the roughneck yanking pipe on some frigid drill rig.
Oh, and say thanks to the trucker hauling canisters of molybdenum, titanium or tungsten concentrate or the geologist staking gold, silver or rare earths deposits.
Without them and the industries that employ them, you’d be walking, not biking.
Bicycles, unless you ride one you made yourself from bamboo, lashings of hemp and dried banana peels, is entirely manufactured from materials obtained by mining — steel processed by burning metallurgical coal, perhaps lightened by adding specialized metals like titanium; plastic and synthetic rubber obtained from petroleum products.
Petroleum derivatives
Helmet, petroleum derivatives; spiffy quick-dry cycling duds, petroleum derivatives; LED safety lights, metals and rare earths obtained by mining; water bottle, metals or petroleum derivatives. Even the road you’re riding on is a product of mining, engineered to reduce friction so you roll more easily.
The building you work in, even if it’s a wood frame structure, is full of metals and plastics in the form of steel framing and connectors, wiring, lighting, office equipment, insulation, surfacing, window frames, roofing, plumbing fixtures and so on.
Even the ceramic cup from which you drink your coffee while reading this contains the mineral zircon.
And if you get around to sending me a snarky email regarding my insensitivity to the environmental benefits of biking to work by drawing attention to this — pardon the pun — irony, you’ll be using mined minerals to deliver the message.
Computer keyboard, petroleum-derived plastics; circuitry, rare earths and special metals; screws, frames and fasteners, steel, aluminum and other metals; flat screen display, metals and plastics; battery, metals and plastics; case, metals and plastics.
Want a more detailed list?
Your computer, tablet or smartphone contains iron, titanium, aluminum, copper, zinc, nickel, gold, silver, lithium, magnesium, mercury, yttrium, palladium, tin, cadmium, indium, lead, samarium, tantalum and, if you are still running an optical drive, gadolinium and dysprosium. The plastics are heat resistant with melting points above the boiling temperature for water and are comprised of acrylonitrile, butadiene, styrene and carbon.
The total greenhouse gas emissions associated with a MacBook: About 460 kilograms of carbon dioxide.
In fact, there’s even a calculation for the carbon footprint of an email. A long and tiresome one amounts to about 50 grams of C02, which doesn’t seem like much until you total them, and then the Internet turns out to have a carbon footprint of around 300 million tonnes a year. So keep it short.
If you want your criticism of these observations to be truly green, I recommend a stylus and beeswax tablets — they worked for the Roman army — or clay tablets like those on which we are still able to discern the grumpy note a Sumerian teacher sent home to parents complaining of a wayward boy’s lack of attention in class.
Don’t mail them, though. The postal service is heavily reliant on mined metals and petroleum-based plastics.
There is steel in the post boxes, delivery trucks, sorting equipment; petroleum-derived plastics in the postal carrier’s shoe soles, clothes, bags and so on.
Convenience
Mind you, it’s inconvenient to deliver clay tablets by hand over long distances, even if you have a super light titanium bike with minimum rolling resistance tires, which is why metals and petroleum derivatives are so pervasive in the human environment.
And while I’m an advocate of green transportation, bike riding in particular, which lowers the human carbon footprint, I don’t buy into the sanctimonious righteousness that so often accompanies the decision. We’re all in this, not just some of us.
The analysts who crunch these kinds of numbers calculate that manufacturing the average bicycle, using steel, special additives, plastics and rubber, results in the release of about 240 kilograms of greenhouse gases. Every bike manufactured uses about the same amount of energy and metals as a car door.
To recover the initial carbon footprint of your bike, you have to ride it at least 643 kilometres. Analysis comparing the carbon footprints of a family sedan and a bicycle conclude that assuming you cycle 12 kilometres a day for 15 years, the impact of the bike is one-tenth that of the car.
I relied on several sources for these insights, including one by a graduate student at Massachusetts Institute of Technology who is quoted in The Guardian newspaper; Mike Berner-Lee’s fascinating book How Bad are Bananas? The Carbon Footprint of Everything; and The Numbers Game: The Commonsense Guide to Understanding Numbers in the News, in Politics and in Life by Michael Blastland which The Economist cited as a best book in 2007.
So, riding a bike to work instead of driving three tonnes of steel and plastic has enormous merit.
Biking reduces the carbon footprint of your daily commute, it helps eke out increasingly scarce and therefore increasingly expensive resources, it reduces the wear and tear on road surfaces and finally, it’s good for your well-being — which is an especially beneficial considering what would happen to our health care system were it to do without steel for gurneys, beds, operating room mirrors, sterilization units, wheelchairs, X-ray machines, scalpels and syringes, etc.
The truth is that even the highest virtue is dependent upon one of the industries that is increasingly popular for those who don’t think too deeply to dismiss in knee-jerk reaction as dirty and unnecessary.
To make this observation is not to absolve the mining industry of its abysmal record of poor environmental stewardship or its historically cavalier response to those with the temerity to think it could and should do a lot better. Nor is it to belittle the goal of shrinking carbon footprints through conservation, recycling, repurposing or otherwise making our use of energy and materials cleaner and more efficient.
It is to say, get real folks. If you don’t understand the importance of mining and mineral extraction to the way you live, it’s going to be difficult to rationally effect the changes we can and must make to maximize benefits while minimizing consequences.
The fact is that without the metallurgical coal that’s shipped from B.C. ports to distant steel mills; without the petroleum products derived from crude oil and natural gas; without the metals mined and refined here and elsewhere, the world we inhabit would be a much less pleasant place.
Virtually every second of every day you rely on minerals that are obtained only two ways — through some form of mining or extraction and subsequent processing that relies on other minerals or through the recycling of materials initially manufactured from the former.
Metals, petroleum derivatives and carbon-based energy sources are all so embedded in our global manufacturing, construction, transportation, monetary, communications and systems of distribution for food, health care, education, art and entertainment that effecting positive environmental change is complicated.
Let’s consider entertainment. How about a DVD? Aluminum, gold, dyos, silver, nickel, polycarbonate petroleum derivatives and acrylic lacquer go into each disc, of which more than five million are discarded each year. Yet recycled, their components can be used again in auto parts, insulation, electronics, plastics, office equipment and even to make jewel cases for the next generation of discs.
Clearly, simply shutting down mines wherever there is an esthetic, social or environmental conflict is no more intelligent a response than simply permitting the industry to do whatever it deems necessary wherever it likes without reference to esthetic, social or environmental values.
Yet without mining, you could kiss your iPod goodbye. And forget your smartphone. No laptops, desktops, netbooks, tablets or the communications networks upon which they rely. Energy efficient lighting, solar panels, wind turbines, hydro-electricity turbines, pipelines that bring clean drinking water to vast cities — in themselves more energy and resources efficient because of their density — and pipelines that carry away human wastes for treatment and disposal, all rely on mining.
Transportation
Without minerals and metals, air travel is no more. Maritime shipping is restricted to sailing ships which must navigate around Cape Horn — with all the perils that entails — as they did 150 years ago. Why Cape Horn? Because the Panama Canal requires mined materials to maintain its locks. Train travel is done, so to get from Vancouver to Toronto by land you are riding a horse (which means walking more than you ride) or travelling by birch bark canoe.
The implications of returning to a metals-free transportation system are mind-boggling. Should the United States revert to horses for transportation and food production, for example, you’d need at least the same ratio of animals to humans that existed in 1900.
So the equine population must increase from the present nine million horses or so to more than 100 million.
If the average weight of a horse is about 500 kilograms and a working horse requires three per cent of its body weight in feed, horses would consume 1.5 million tonnes of feed a day, or about 550 million tonnes a year, all of which would have to be diverted from the human food supply.
And the human food supply would be simultaneously diminished because production capacity decreases precipitously with the absence of farm machinery and fertilizers. Mind you, you probably wouldn’t need the bike to commute to work anymore because most of us would be working the land to produce the food to feed ourselves and the horses.
Agriculture
Just 200 years ago, 90 per cent of the North American workforce was employed in agriculture to feed a population of 7 million. Now it’s less than one per cent of the workforce and it feeds almost 340 million.
A South Dakota wheat farmer in 1900 produced about 6.5 bushels of wheat an acre. Last year, the average winter wheat yield per acre there was 50 bushels. Those increases in yield are due to the mechanization of production, a direct impact of metals fabrication and petroleum-based energy and fertilizer inputs.
Today, Canada’s agri-food sector contributes more than $140 billion to the national GDP. Were it to return to the agrarian practices of a century ago, based on human and animal labour, the consequences for most of us would be unimaginably catastrophic.
Does this mean we should abandon striving for more efficient, benign and sensitive approaches to agriculture, consuming foods closer to the source of production, for example, or defending arable land from destruction or removal from the food production inventory?
No.
It does mean that when we consider industries like mining, we should put aside both the romanticizing of mining enthusiasts and the cynicism of their critics and apply some sober second thought to just how much we rely on the minerals hewn from the earth and what we can reasonably due to mitigate the consequences of our own appetites.
shume@islandnet.com
