So ya wanna get rich - part 1
Creating the financial vehicle
After recording in the ethereal kingdom of The Pixels, my almost-certainly-wrong prognostications about economics and geopolitics, I am going to change things up. This essay is part 1 of a three part series describing a semi-seminal period in my life from almost twenty years ago which has been hinted at in previous posts. Part 1 describes the efforts to create a public company. Part 2 describes the darker side of mineral development and Part 3 defines why becoming rich is neither easy nor for the faint of heart.
With increasing age and declining memory, a relatively true rendition of the story needs to go on the record before it becomes a phantasmagorical and highly inaccurate recollection of a boring geezer. Recording it now will establish a baseline for future embellishments. My grandchildren are the intended audience, but many aspects of the story are quite funny, so I hope it lightens your day.
The premise of this substack is that life under the sun is more understandable when weirdnesses are evaluated through the lens of operative worldviews. I have a good Peruvian friend with whom I spent many hours drinking coffee and solving world problems. His Catholicism of the Jesuit persuasion was met by my Protestantism of the Calvinist persuasion, and one might have thought that our worldview differences would prevent us having as many laughs as we did. In fact, we got along as well as I imagine John Calvin and Ignatius Loyola might have in the coffee shops of the University of Paris.
We were both employed in the local mining industry, me as an owner and he as a social development consultant. On one occasion (speaking of worldview) he mentioned that when he entered a remote Peruvian village, he could determine the dominant spiritual leaning of the residents within five minutes of entering. And how was this possible?
“If, at ten in the morning, the Plaza de Armas is full of men sleeping on benches and obviously overcoming inebriation, the community is dominantly Catholic. If the Plaza is well swept, painted, and vacant at ten in the morning, the village is dominantly Protestant. As you say, it is a worldview thing.”
What follows is most decidedly a worldview thing…
I started my PhD dissertation (“Worldview and Resource Development Conflict”) as follows,
On September 10, 2006 [I] was awakened at 6 am by a telephone call informing [me] that communication with the exploration camp had been cut off and it was feared that the 6 person geological team had been kidnapped. The date is well remembered because it was [my] birthday and it had started out very poorly.
In many respects, this dissertation is a result of that early morning telephone call because the events of that day and the weeks and months to follow were a journey into a maelstrom of corporate social responsibility that is rarely discussed and never taught. For 12 hours, the geologists and one policeman were whipped and marched down the mountain to the village which the 300 armed kidnapper-peasants called home. During this 12 hour period, [I] had to convince the local police and army general that they really ought to recover the kidnapped professionals irrespective of the fact that the exploration company would not provide the new flat screen television and carpeting that their offices so desperately called for. It was, in short, a sometimes surreal walk through a police system that was non-operative in any Western sense. In the coming months it was to be revealed that the justice system was in perhaps worse shape. In fact, [I] was told that there was no point in pursuing justice because, as the geologists and policeman were only gone for 12 hours, it was not a “real kidnapping”.
What was the exploration company’s crime that called for such drastic measures? The company was accused of polluting a local stream, the water of which was used to irrigate an illegal coca leaf operation further down the mountain. The issue is not the legality of the coca leaf production, but rather that the exploration company was only doing mapping and sampling and therefore there was no impact on the environment and certainly not on the water course. This did little to dissuade the local church-run radio station which, for weeks leading up to the kidnapping, had broadcast news that the exploration company was involved in “dirty gold” and must be stopped.
By luck or management, the… board of directors and specialist consultants, had previously identified the threats that might impact the exploration program and put in place an emergency response which was able to reach the highest levels of the government within 2 hours of the kidnapping. In fact, it was a timely phone call from the Minister of the Interior which finally moved the Police General to recover the kidnap victims rather than to continue to press his claim for a flat screen TV.
When the kidnap event was over, it was necessary to identify the perpetrators, seek justice and prevent a re-occurrence. It was finally determined (and proven) that a neighbouring mining company had “hired out” the kidnapping to frighten [us] off the property so that they could take it over and develop whatever mineral resources were to be found. It is nice to be envied - but not at the working end of a pistol.
The point of quoting this is that it is a pretty good synopsis of the larger story, and it was this bit of prose that allowed me to squeak through my dissertation defense as was recounted in an earlier substack. My external examiner was put off enough by my sarcasm that he came close to failing my defense. At his instruction I included references to his suggested researchers and edited out my funny (to me at least) polemics.
Here is the complete story as remembered almost twenty years after the fact.
In 2003, the commodity super cycle which began in the mid-1990s moved off its plateau and activity in the mining industry began to increase. The business climate change came in the nick of time for me as I was self-employed, which is a euphemism for unemployed, and flying close to the foam economically. I began to find work doing mineral property evaluations in Latin America and for the next six years lived a good deal of time in Lima, Peru. In 2004, I convinced a couple of friends that we should accumulate options on mining properties with a view to creating a public company for mineral exploration. And that is what we did.
Our search for optionable properties led us to conversations with a number of property owners who typically thought their property was worth millions of dollars on the strength of… nothing really. Very few property owners had the financial capacity to do more than dig a few trenches and take a few rock samples. On one occasion we left our small hotel and traveled by cab to the office of a prospective optionor. As we were walking through the gate in the walled compound, I was aware of some activity behind me and, looking back, saw that he was pulling his computer bag from the grasp of an unknown assailant who was determined to steal it. I also noticed that a third person was making his way over to the struggle with the obvious intent of assisting in the heist. Based on a long conversation I had had years before with an RCMP bodyguard, I had honed my skills in situational awareness and had given prior thought to what I might do in the event of a robbery. Without stopping to think, I ran to block the third guy and pushed him back out into the street. He pulled a pistol from his jacket, and I thought what a horrible place to die. I also remember thinking that I would not give him the opportunity of shooting me in the back so stopped running forward and backpedaled towards the gate I had just left.
This is when the event became Keystone Coppish. My friend had wrested the bag from his assailant and was also backing into the gate. We hit the opening at the same moment and were momentarily stuck in the doorway jamb. With some effort we finally popped loose, did a pratfall into the courtyard, and then slammed the gate shut. Not wanting to be hit by a bullet coming through the light wooden gate, I crouched down as I pulled on the door latch to keep the gate closed. My friend also began to hold the latch, and I admonished him to crouch down as well. So, there we were, crouched down and pulling on a gate that was propped open by a rock (and not the assailant’s foot) that had wedged into the frame.
What seemed to occupy minutes was over within seconds and it is entirely likely that our assailants were as determined as we were to make a fast get-away. Certainly, when we looked out the gate there was no sign of our robbers. That is when the giggles set in as we realized how stupid we must have looked getting wedged into the door frame. As it turned out, the whole event had played out before an audience of geologists watching from the second-floor windows. We spent the rest of the day enduring their jibes about our newly demonstrated superhero status.
Our premier property option was on a grossly underexplored gold property that had been mined intermittently at a small scale. The property was originally explored in the late 19th century by an itinerant Russian immigrant who named the property after his son, Igor. Our due diligence visits convinced us that it was a property of merit and our consulting geologist is on tape (see photo above) declaring the property to be a “mountain of gold”. Even when sober he had good things to say about it.
The property was optioned by a former submarine captain and his friend, a destroyer commandant from the Peruvian navy and negotiations took a satisfying turn whenever they could be coaxed into talking about their careers. Our registered deal required us to pay the two navy officers and other minority shareholders a negotiated price and they would simultaneously exercise their option on the property and sign it over to us. The underlying owner, Mr. Guia, was an older man from the region of the mine who had a very complicated marital “situation” which provided more than a few laughs when he received his significant option payment and was surrounded by several heretofore unknown “wives” with their hands out.
As an aside, about a year after we completed the deal and registered our ownership, a woman from Lima stepped forward and announced that she was owner of sixty percent of the property having lent money to the now deceased Mr. Guia in return for a majority shareholding. She had not registered her title or the transaction which led to her ownership and so we were not obligated to pay her anything. Her dispute was with the heirs of Mr. Guia, and I wished her good luck. She responded by suing us for the money. Our lawyer assured us that we were on solid legal ground and had nothing to fear. Six months later he sheepishly came to me and announced that the judge had read the documents and then proclaimed,
“Tell the gringos that I can make this mess disappear when they give me $1000.”
He was very apologetic and did not offer an opinion as to what I should do. Which was just as well because the penalty for a Canadian bribing a Peruvian judge could easily be jail time in Canada. I instructed the lawyer using a few graphic, if somewhat vulgar, metaphors to tell the judge that we would rely on her to do her job ethically and without the added grease of a bribe. It was not the issue of a bribe that surprised me but that the judge was willing to sell her “support” so cheaply. We won our case and did not hear from the aggrieved owner again.
In doing our due diligence on the property we determined that the area around the concession had been a “red region” during the wars with the Sendero Luminoso and the principal of the local high school was “communist adjacent” in the language of one of our consultants. Additionally, the concession was over-staked by a mining family who were also the largest drug dealers in Peru. The small community below our property grew coca leaf and there was evidence that they transported the leaf over our property on a journey to cocaine preparation laboratories in the Peruvian jungle. Recognizing that the property “had some hair on it”, the company Board organized a multi-day seminar to evaluate the risks and potential responses to those risks. This turned out to be a fortuitous event but not for the reasons we anticipated.
In the mining industry there has recently been introduced a rather silly notion called obtaining “social license”. Who gives such a license? Once it has been obtained can it be unilaterally revoked? If yes, in which court can the mining company sue for redress? Social license is one of many meaningless concepts designed to permit resource developers to be blackmailed. This, however, is not to say that local landowners are not due compensation for activities on their property. The operating premise of our small company was that until we bought land, we needed to trade on the good graces of our neighbours by practicing due care and offering reasonable compensation when we entered their property. We also offered significant (for us) assistance to the local schools and medical facilities. We viewed this as an infrastructure investment that was a corollary to what the local and federal governments provided – or should have provided but usually didn’t.
We started our work in the area during an election year and it quickly became evident that a good way to be elected to local office was to be “anti-mining”. Given that we were the only employer within a 150-mile radius this seemed a rather limiting political position, but politics is rarely about what is rational. We had hired a Peruvian not-for-profit to undertake an economic survey of the neighbouring community and develop preliminary assessments of ten potential employment projects. In early consultations, prior to the election call, the local mayor enthusiastically accepted our offer of funding for two projects of the community’s choice. When the feasibility study was completed, and the options were identified we hosted a luncheon to officially pass the report on to the mayor and his councilors. After enjoying our food, the mayor gave a blistering speech excoriating the mining industry in general and our company in particular. We were told that in the annals of human history there were none worse than us. And no, the community would have nothing to do with our report or our offer of support. Before the mayor had to run for office, our offer was generous to a fault, and he was all in. Now that he was running for office, we were the Dalits of central Peru.
When I commented to our social development consultant that this had not gone very well, he remonstrated and said,
“To the contrary! We have him right where we want him!”
I think I laughed enough to justify the hassle and expense of the effort we had invested.
Next time, Part 2 - Informality and the high cost of envy