Ian Ball jumps into the void, lands at Abitibi Royalties

When McEwen Mining (TSX: MUX; NYSE-MUX) announced in May that its president Ian Ball was resigning after nine years with the company, the news caught many people in Toronto’s tightly knit mining circles by surprise.

After all, Ball had joined Rob McEwen at Goldcorp in 2004 at the age of 22 and was a founding member of management at McEwen Mining and its predecessor company, US Gold Corp.

Rob McEwen mentored Ball as the young Ryerson commerce graduate helped build the company’s El Gallo 1 gold mine in Mexico and discover the El Gallo 2 deposit, which could become one of the 15 largest silver mines in the world.

“I was nervous of upsetting Rob,” Ball says in an interview of his decision to leave. “Here was somebody who just helped me tremendously for ten and a half years, and never has he taken someone on and done that before.”

The decision to leave took shape early in the year while Ball was writing four speeches he was to deliver to students and alumni at Ryerson University and Durham College. While collecting his thoughts and making notes, he reviewed the six goals he had set for himself when he left school.

He had met the first four in rapid succession: graduating first in his class at university; becoming the youngest vice-president of a company listed on the TSX (well almost, he was actually second because a colleague at McEwen Mining who was a year younger was appointed vice-president at the same time); becoming a millionaire by 25; and running a gold company.

But at 32, he was four years behind schedule on his fifth goal: to create the best gold company in the world. (Spoiler alert: his sixth goal is to become prime minister of Canada, and he says he is already working on his French.)

Though Ball says he felt he had learned 85% of what he could at McEwen Mining, the decision to leave was nevertheless difficult.

“Even to the last minute I was wavering,” he says. “I had my resignation letter all typed up and I remember thinking: ‘OK, I’ve got to go and talk to him,’ but I thought: ‘I can’t do this.’

“So I went downstairs and I actually called my mother and she said: ‘No, you have to do it … she said I could do it on my own, and if I really wanted to become as successful as Rob I can’t be working for Rob, and if Rob were me he probably would have left a long time ago.”

When Ball handed in his resignation later that day, he had nothing planned.

“It was pretty much going into the abyss,” he recalls.

But it didn’t take long before something interesting came along.

On Aug. 5, Ball became president of Abitibi Royalties (TSXV: RZZ; US-OTC: ATBYF), a junior whose share price over the last year has climbed from a low of 30¢ on Nov. 27, 2013, to a high of $4.44 on Aug. 7, 2014. The company is trading at $3.85 per share and has 11 million shares outstanding. Glenn J. Mullan remains Abitibi’s chairman and CEO.

Abitibi Royalties holds a 2% net smelter return royalty on portions of Agnico Eagle Mines’ (TSX: AEM; NYSE: AEM) and Yamana Gold’s (TSX: YRI; NYSE: AUY) Canadian Malartic gold mine in Malartic, Que., specifically the Gouldie deposit and the Charlie zone.

The Gouldie deposit is 300 metres south of the main Canadian Malartic mine, the largest producing gold mine in Canada, and the Charlie zone is 100 metres northeast of Gouldie. Proven and probable reserves at Gouldie consist of 1.1 million tonnes grading 1.01 grams gold for 37,000 oz. gold and measured and indicated resources of 6.2 million tonnes at 0.93 gram gold for 187,000 oz. gold.

Abitibi holds a 30% free-carried interest on the CHL joint venture, which is made up of a suite of deposits and prospective zones east of the Canadian Malartic mine. The major asset at CHL is the Barnat deposit, 3 km from the Malartic mill. Barnat contains 2.1 million tonnes in proven and probable reserves at 0.97 gram gold per tonne for 66,450 oz. gold and measured and indicated resources of 1.9 million tonnes at 0.79 gram gold for 48,000 oz. gold.

The CHL joint-venture includes the Jeffrey zone, which has proven and probable reserves of 4.7 million tonnes at 0.68 gram gold for 103,260 oz., and a measured and indicated resource of 4.7 million tonnes at 0.61 gram gold for 94,500 oz.

Abitibi’s 30% free-carried interest means that it will only have to pay for its 30% share of operating costs once ore is fed into the mill.

Ball was familiar with the company’s assets, which had been spun out in 2010 from Golden Valley Mines (TSXV: GZZ; US-OTC: GLVMF), a company in which Rob McEwen had invested some money in 2006. And Ball had joined its board earlier this year, along with Toronto lawyer Joseph Groia, on the same day in June.

One appeal for Ball about taking on a management role at Abitibi is that it isn’t a traditional bricks-and-mortar mining company.

“When I looked at the royalty model [as an alternative] I knew it would be difficult to compete with a Franco-Nevada or a Sandstorm Gold, or a Royal Gold,” he says.

“But when I looked at Abitibi it was a hybrid — it had a small royalty and it also had this free-carried interest on the joint venture. I got interested in the story seriously when they made the Odyssey discovery, which then changed the dynamics more so.”

Odyssey is part of the CHL joint-venture ground and is made up of the Odyssey South and Odyssey North zones. On April 23, Abitibi’s stock shot up 50% to $1.50 after the company released drill results from the Odyssey North target. The most exciting hole, drilled 700 metres east of the Jeffrey zone and 4.5 km from the Canadian Malartic mill, returned 110 metres grading 2.85 grams gold at a depth of 1,150 metres.

Rob McEwen himself was so taken with the Odyssey results that he upped his stake in Abitibi through a private placement on July 8, investing $2 million for 800,000 shares at $2.50 per share. That investment brought his ownership in the company up to 9.28%, making him the second-largest shareholder after Golden Valley Mines.

Ball says Abitibi is an interesting company not only because it has a small share float for a mining company and won’t have the need to issue more shares, but it also has the light-footed business model of an Airbnb (a website where ordinary people can rent out lodging) or an Uber (a start-up that makes mobile apps that connect passengers with drivers of vehicles for hire and ridesharing).

“The assumption in the hotel industry was that you had to build hotels,” Ball says. “Airbnb just walks in and destroys the model, and Uber has done the same thing for limos. They don’t buy the cars, they don’t do the maintenance, they don’t pay the drivers … and I thought, well, how can you get the equivalent in mining?

“Rob always said you have to question the fundamental assumption of a business. The assumption in mining is that you have to put up a lot of capital, you have to drill, you have to dilute shareholders … I thought I needed a different model than what I was doing previously, or from what everyone else was doing.”

And in a similar vein to McEwen, who doesn’t take a salary, Ball wanted to modify his own compensation structure at Abitibi by taking his salary all in shares, rather than in cash.

But Ball says that “the
TSX wouldn’t allow that,” explaining that there are limitations on debt for services and that it can only be done if a company is deemed to be in financial hardship.

Instead, he says, he told his board that he will, on a best-efforts basis, take his paycheque and buy shares in the company.

“Rob obviously had a different model where he bought a large stake at the beginning and then kept investing,” Ball says. “But I saw how that registered with investors when you went and spoke to them. You’re basically not ripping off the company — you see it as your company, and every dollar counts.”

Ball is the first to admit that his decade-long apprenticeship with McEwen was the best education he ever could have hoped for.

“Clearly all the skills that I have developed were developed from him — just one person,” he says. “So for that I’m forever grateful, and hopefully I won’t have to ask him for a job back at some point in the future.”

Ball laughs. But he isn’t joking, really.

“I never would want to go down that route and it’s that sort of fear that drives you to succeed, because I would never want to backtrack.”