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Betting on Gold

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Russell Starr.

Commodity investing is nothing new to Calgary investors. Situated in one of the most resource-rich provinces in Canada, Calgarians have long sought to put their money into the raw materials extracted from the ground: oil and gas, coal, precious and base metals, wheat, limestone and sandstone are some well-known Alberta-based examples.

However achieved – through the purchase of physical commodities, company stock, or investment in futures contracts or Exchange-Traded Funds (ETFs) – the underlying investment strategy is always to benefit from the increase in demand for the commodity and hence its value. While this result doesn’t always materialize, commodity investments fulfil an important role in many investors’ portfolios, particularly when major indices drop.

Russell Starr, president and CEO of Trillium Gold, is betting on this reality. His gold company, headquartered in Vancouver and having the second largest land holdings (second only to Evolution Mining) in Ontario’s red hot Red Lake mining district, is positioning itself to be a winner in the commodity investment space. And it’s all about the staging and set-up.

“We’re effectively entering into a hyper-inflationary environment where all commodities are going up,” Starr, a born and raised Calgarian, says. “Every single commodity except gold is at a new decade high right now. The only reason gold isn’t also [at a record high] is because the U.S. is doing everything to protect the status of the almighty dollar as the reserve currency. But a wicked sell-off in the stock market is closer than many think.”

He likens it to the tech crash of 2000, when investors lost massive amounts of capital – everything in a matter of minutes. A similar tech-focused bubble is currently in the making he says, with companies like Twitter, Uber and Google attracting a frenzy of buying like never before. These companies, he cautions, produce nothing physically tangible; rather they’re made up predominantly of computer code and user data, with users being the product. When the bubble eventually bursts, their investors will be left with virtually nothing.

“In my opinion one of the worst places to be right now is tech and high tech,” Starr advises, “and guess where everybody’s money is? They will be absolutely decimated and the only safe havens will be real estate and commodities which are relatively uncorrelated. If you’re long a nickel company, you’ll be fine. If you own a copper company, you’ll be fine. If you’re long a gold company, you’ll be fine.”

His gold company, Trillium (TGM:TSXV), was formed in early 2020, and Starr took over as CEO in July. Since then it has been strategically increasing its foothold in one of Canada’s most prolific mining areas, the Red Lake mining district, and is now the second largest landholder in the district, following the recently announced acquisition of Battle North Gold Corp. by Evolution Mining, the large Australian company that bought the Red Lake complex from Newmont Goldcorp in late 2019.

“My view is, if you’re in a world-class jurisdiction, with gold found in great abundance, better to own as much land as you can,” he explains. “It’s like buying a row of houses on the poshest street in Calgary. Imagine if, 100 years ago, you had bought the land under the five largest lots, what would they be worth now? That’s the analogy and why we’re one of the largest landholders in Red Lake.”

The Red Lake district earned its reputation in the mid-1920s, after gold was first discovered on the shores of Red Lake. Within 15 years, 12 producing mines sprang up, including the Campbell and Red Lake mines. Campbell, which opened in 1949, produced more than 11 million ounces of gold in the span of 50 years. In the 1990s, Goldcorp (the new owner of Campbell) discovered a new high-grade deposit and by 2002 the mine had produced more than a half million ounces, making Goldcorp one of the most valuable gold companies in the world.

In the last few years a renaissance of sorts – aka a gold rush – has been underway at Red Lake, with Australia’s Evolution Mining and others investing hundreds of millions of dollars to drill, modernize and expand operations.

Trillium is a major player on the scene. “Over the last year we’ve worked aggressively to grow from one flagship asset – the Newman Todd – to become a dominant landholder of highly prospective properties on trend with the prominent gold bearing deposits today,” Starr says. “We’ve grown our market cap from $20 million to $70 million and we’re still considerably undervalued when you look at proximity to the abundance of surrounding infrastructure.”

For example, the Newman Todd property is within 20 kilometres from the Red Lake mill and the Gold Centre property is just 350 metres from the high grade underground development of the Campbell/Red Lake mine. “With a highly skilled local workforce, including many ex-Goldcorp personnel experienced in Red Lake exploration, and strong community partnerships, we are on our way to making a significant mark,” he offers.

The company currently has a 40,000-metre drilling program underway. “Historic drilling at Newman Todd in 2013 revealed numerous untested gold exploration targets, with almost all drilling conducted to depths of less than 400 metres,” Star continues. “If the Red Lake district is known for anything, it’s that high-grade gold mineralization is found at depths of a few thousand metres.”

Trillium’s Gold Centre property lies just one kilometre from Evolution’s Red Lake mine, which to date has produced 25.6 million ounces at 16.6 grams per ton. “Literally one of the biggest, richest mines in the world,” Starr says frankly. “And we think that Gold Centre may be the continuation of this geological structure at depth.” He also notes that Evolution is exploring and mining for gold just 350 metres from the Gold Centre property boundary.

So how did a guy from Calgary get into gold mining in Ontario? The route, like most folks’, wasn’t linear.

“I grew up in Elbow Park,” Starr says, “and went to Western Canada High School. I was a jock and an academic, a big nerd. I did very well in school, and played on all the teams. But I really had no idea what I wanted to do with my life.”

He went to Queen’s University, following in the footsteps of both his parents, and settled on an economics degree. “But I absolutely hated it,” he reveals. “When I graduated in 1990 nobody was hiring. I ended up in the hospitality industry.”

Realizing he’d need a Master’s Degree to get out of the hospitality industry, he pursued a degree at the University of Victoria and loved it. “I had always been a really good math student and I loved econometrics, it was my best course,” he says. While struggling to find a job on Bay Street after graduating, Starr began his PhD at McGill, and through a series of circuitous events ended up with a series of interviews at RBC Capital Markets for the exclusive dealer training program.

“I went through this program at RBC called Super Saturday,” he recalls. “Eight hours of interviews with groups of two interviewees who were all Managing Directors of the trading floors. In the end they hired me.” Starr started a rotational program across all of the different areas of trading at RBC before getting a job in foreign exchange.

“But I just loved equities,” he says. “So I eventually moved on and started a career in institutional sales and trading for numerous Bay Street banks and independent dealers.”

With time, Starr wanted to strike out on his own, and eventually started his own firm, Euro Pacific Canada, with two partners. It grew quickly and eventually bought Dundee Wealth Management, and is now known as Echelon Wealth Partners. “The third or fourth largest independent broker dealer in Canada,” Starr says proudly. “And I still own a piece of it.”

A self-described serial entrepreneur, Starr, then an investment banker with clients in the gold mining industry, became interested in building a mining company. He joined Cayden Resources, one of his banking clients, and helped grow it from $25 million to its ultimate sale in 2014 for $205 million to Agnico Eagle.

Starr then joined his Cayden partners at Auryn which recently spun out into three companies, including a silver company, but the opportunity with Trillium fell into his lap. “I looked at it and I was blown away,” he says. “It had an extraordinary history of successful drilling, and there was high grade, even visual gold everywhere. Red Lake is becoming one of the hottest gold regions in the world so I had to be a part of it. I bought a large position in the company.”

He’s positioning the company for a home run, and loosely equates it to another Red Lake gold company, Great Bear Resources – whose Dixie discovery (which some analysts estimate contains as much as 20 million ounces of gold) is one of the largest discoveries in decades – as an example of what’s possible: Great Bear’s stock price has risen to almost $15 this year, being under $1 just two years ago.

Gold mines in Canada, like all other natural resources here, warrant a premium for being in a safe jurisdiction and for the country’s established mining legislation: “All things being equal, would you rather own a gold company in the Democratic Republic of Congo or in Red Lake, Ontario? Canadians know they can have confidence in natural resources and the annual percentage of GDP it contributes to Canada’s economy. Gold is a finite resource, there’s not a lot of it. We won’t be mining it forever. Why would you ever invest in a country where they can take your license away without any warning?”

Starr describes having raised millions of dollars for gold company Crystallex in Venezuela which, despite having fulfilled all mine permit requirements, saw President Hugo Chavez revoke the license and give it to the state: “And as easily as that, foreign investors lost everything.”

Canada’s extractive industry is known worldwide as one of the safest, most mining-friendly jurisdictions in the world.

With 10 employees in Vancouver and another 40 in the field in Red Lake, Starr is eager to lead Trillium to extraordinary heights. “We already have a discovery in Newman Todd and I’m hopeful for a sale within the next four to six years,” he says. “And with the price of gold suppressed and just a fraction of what it will be in a couple of decades, we have good reason to be optimistic.”

A Calgarian to the core, Starr is fond of his hometown, returning as often as he can to visit family and friends – and hit the slopes. “Calgary is a great city,” he smiles. “And for Calgarian investors, diversification is key. Canadian gold should a part of that strategy.”

 

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