Following the departure of long-time CEO Peter Barnes, Randy Smallwood has embraced the challenge of taking Vancouver’s largest precious metals streamer to the next level
Mission: To continue Silver Wheaton’s aggressive growth trajectory
Assets: 20 years of mining deal-making built on the back of exploration and engineering know-how
Yield: A resumé that explains the growth of Wheaton River Minerals, Goldcorp and Silver Wheaton
Precious metals markets are known for their assortment of bulls and bears, but Randy Smallwood is a true enthusiast.
His metal of choice is silver, the dark horse commodity of the last year.
While per-ounce gold prices climbed a measly 32% to $1,500 during the last year, poor man’s gold shot up a remarkable 158% to $46.63.
That’s good news if you’re in the silver business, which Smallwood jumped into some years ago believing the commodities boom was not a short-term fad.
“I think silver will see $50 [per ounce],” said Smallwood, who recently stepped into a CEO role at Silver Wheaton (TSX:SLW) following the abrupt departure of Peter Barnes.
“People talk about a $50 spike; I don’t think it’s going to see a spike,” he said. “Timing? That’s a bit tough to nail down, but I’m confident silver will see $50.”
Speaking to Business in Vancouver just days after he took over the helm of the world’s largest silver streaming company, Smallwood appeared to have the relaxed confidence of a veteran executive.
Although he’s been in the business for more than two decades, the 46-year-old is still relatively young when compared with other CEOs in the mining business.
But don’t mistake his unshaven manner or easy laugh for inexperience. Smallwood is all business.
When Barnes unexpectedly tendered his resignation last month, Smallwood was handed the keys to one of the most successful Vancouver business stories of the last decade.
He spent the next few days hunkered down with the company’s key investors and major funds, convincing them the leadership change was well planned.
“The change looks very sudden on the outside, but it wasn’t on the inside,” Smallwood said.
Of course, that depends on how you look at it.
Barnes had never discussed or put a date on retirement during recent marketing campaigns.
In fact, he had just finished guiding the company through a record year, helping it rake in $290 million in net earnings and generate $320 million in cash flow.
When Barnes announced his resignation, Silver Wheaton’s stock peeled back 6% to $42.18.
But Smallwood said the stock decline had more to do with jittery investors than management troubles.
He might be right. After all, he was promoted to president of the company more than a year ago.
“That should have been a pretty good signal to the market that things were moving in that direction,” he said.
Now, his job is to continue Silver Wheaton’s aggressive growth.
Since its inception in 2004, Silver Wheaton has become one of the world’s largest silver companies.And, ironically, it doesn’t operate a single mine.
The business model is simple: buy silver from mining companies that could care less about the oft-neglected precious metal.
In what are called “streaming” deals, Silver Wheaton offers up-front cash payments to buy the silver production from mines.
The business model provides Silver Wheaton’s partners with the capital they need to bring their projects online, but saves Silver Wheaton the financial stress of owning and operating mines.
Last year, the company pulled in some 24 million ounces of silver from 16 operating mines.
Yet it has a grand total of 24 employees.
In just six years, Silver Wheaton has transformed itself into a $14.2 billion company that’s signed contracts with the likes of Goldcorp (TSX:G), Barrick Gold (TSX:ABX) and Glencore, one of the world’s leading commodity suppliers.
How was the company able to grow so quickly?
“Seventy per cent of [the world’s] silver is produced as a byproduct,” Smallwood explained.
“That means 70% of that silver is produced by companies that aren’t interested in that silver; they’re more interested in the copper, lead and zinc and gold.”
As long as those commodities do well, Silver Wheaton can strike deals to buy silver.
Despite the recession, much of the last decade has been marked by an upswing in commodity prices, allowing the company to secure several favourable deals.
And deal-making, it turns out, is in Smallwood’s blood.
The Alberta native moved to East Vancouver with his family in the late 1960s.
His father took over one of the oldest auctioneering houses in the city, where a young Smallwood got a crash course in mergers and acquisitions (M&As).
“It was a great place to grow up if you wanted to learn about M&A transactions and deals,” he said.
After high school, Smallwood took a job staking claims in B.C.’s hinterland.
He quickly fell in love with searching for hard-rock riches and decided to join the British Columbia Institute of Technology for mine training.
That led to a mining engineering degree at the University of British Columbia.
In 1993, he joined Wheaton River Minerals, a Vancouver gold producer led by Ian Telfer, now chairman of Goldcorp.
Smallwood’s job was to seek out assets the company should invest in, a role that would later transfer to Goldcorp when it merged with Wheaton River.
Around that time, Telfer came up with the idea for Silver Wheaton.
At first, it was a part-time gig, a weekend hobby for a bunch of miners who were curious about silver streaming.
When the company took off, Smallwood jumped aboard full time.
Silver Wheaton chairman Doug Holtby, who’s known Smallwood since his time at Wheaton River, described him as a magnanimous individual who’s helped build the company from its inception.
“He’s been the architect of all the deals we’ve done,” Holtby said. “He’s the guy we look to to sign off on all of our streaming deals.”
Despite all the good news surrounding the company, a new challenge has emerged for Silver Wheaton amid high metal prices.
“The biggest hurdle we have right now is the volatility in silver prices, and the fact that silver has gained $10 an ounce in the past two, three months,” Smallwood said.
“That volatility makes it very tough for people to … make a decision to sell silver to us.”
Still, things aren’t all that bad.
Silver Wheaton buys its metal for approximately $4 per ounce, meaning that anything over and above that is gravy.
By 2015, the company expects to rake in between 43 and 44 million ounces of silver per year.
That’s a value that’s hard to overlook, Smallwood said.
“Our company is very simple to understand.”