Business in Vancouver's “How I Did It” feature asks business leaders to explain in their own words how they achieved a business goal in the face of significant entrepreneurial challenges. In this week's issue, Matthew Hornor – a protege of B.C. mining mogul Robert Friedland – talks about how he parlayed his knowledge of Japanese language, law and business culture to convince the trading house giant Itochu Corp. to invest in Kaizen Discovery Inc. (TSX-V:KZD), which acquires distressed mining assets at bargain prices.
“My involvement with the Ivanhoe Group started almost 10 years ago. I was the vice-president at Ivanhoe Mines Ltd. (TSX:IVN) and my first station was in Beijing.
“Kaizen came about because we identified an opportunity in the marketplace now where you have a bear market – many distressed mining assets.
“You have a market where nobody is putting money to work exploring. You have sellers everywhere, very few buyers. Prices are depressed. For a company like this, it's an ideal time. We're at the bottom of the cycle, and we can lean on our friends in Japan to go shopping when everything's on sale.
“I had studied at Tokyo University and worked as a lawyer in their community. I speak Japanese. And I go there maybe 10 times a year, and I spend a week each time keeping up relations.
“I had a conversation with the powers that be within my organization and said, ‘It would make a lot of sense if we had a public vehicle that we could use to acquire junior mining stocks that have been beaten up and then give our trading house friends in Japan access to the projects at the project level.'
“They [trading houses] are the buyers of all the commodities for the Japanese industrial complex. They are undermanned and cannot sort through all the available projects that are held by the junior mining space and the mining space generally. We'll go after and acquire early-stage projects.
“We're not just acquiring them and sitting on them. We're acquiring them and, with the assistance of the Japanese strategic partners, moving the projects forward. So we'll be adding value to the projects, even in these bear markets.
“Kaizen was a result of HPX [High Power Exploration] acquiring, through reverse takeover, 85% of Concordia Resources. Soon thereafter, Itochu came in.
“When the dust settled and the smoke cleared in December of last year, HPX had contributed $5 million to Kaizen. Concordia Resources shareholders left $5 million behind. HPX provided a line of credit that we can tap into any time we want for another $5 million. And then Itochu came in for another $5 million. So we're sitting on $13.5 million in cash with access to another $5 million.
“The deal we just announced with West Cirque Resources Ltd. (TSX-V:WCQ) is the typical deal structure that we'll be pursuing. We will acquire a junior mining company and build in one of these trading houses from Day 1 to finance the project.
“If we were to imagine we are two years from now, you can imagine having acquired maybe five to 10 companies that have projects where you have Japanese trading offices built into each.
“Then as the mining industry generally turns around and picks back up again, you have something that looks like the Ross Beaty model of acquiring many projects that have other people paying for the project's development without diluting your shareholder base.” •
