Gold's Next Big Bull Run and Thoughts on Conservation (w/ Dan Tapiero & Dr. Thomas Kaplan)
DAN TAPIERO: Hi, everybody. I'm Dan Tapiero, co-founder of Gold Bullion International and founder of DTAP Capital. Today, I'm here with an old friend, I think a very special guest for Real Vision, Tom Kaplan. Tom is the chairman of the Electrum Group. He's also chairman of NOVAGOLD. I would say that of any person that I know, Tom really is the living embodiment of the Renaissance man. Tom has distinguished himself in many different areas and one of the most interesting and one of the I would like to start with is his passion for conservation and the conservation of the big cats. Tom, I'd like you to start to talk about Panthera. THOMAS KAPLAN: Panthera was created in 2006 by my wife Daphne and myself and the late Alan Rabinowitz, who I would say was the brother that I never had. In fact, I think it's fair to say that we both felt that way about each other. In many ways, we came to fulfill each other's lives and passion in an unusual way. When I was a boy, I wanted to become what essentially Alan Rabinowitz became; a big cat, biologist and wildlife conservationist. Around the age of eight or nine, I discovered a genuine aptitude for history. It was that which I pursued all the way through my education. If anything, the application of history has been the greatest relative advantage that I've had in my business and in my philanthropy. Because I understood the nature of cycles, I was able to make a very good living in the mining industry and in the energy sector. That allowed me to go back to my first love. I'd always said that if I had the good fortune to make a fortune, I would go back and retrace my steps and support those who really did have a genuine aptitude for science and for being able to apply science in the interests of environmental preservation. When I met Alan, I realized that in many ways, my mission was being fulfilled by being able to leverage the wealth that I had created through investing and creating companies and enabling those great conservationists to go out and save the species I loved. That's how Panthera was created and over the course of the next decade, we became the leading NGO, non-government organization, in big cat conservation, getting to the point where National Geographic described us as the most comprehensive effort in big cat conservation ever. The US government said, if Panthera can't save the cats, then nobody can. DAN TAPIERO: When was that? THOMAS KAPLAN: That was several years ago, and we've taken that mission extremely seriously. We're the only organization dedicated to the conservation of all the wildcats from the smallest through to the Amor tiger. It's something which I would say of all my passions that you referenced, this one is the closest to my heart. I genuinely believe that the greatest psychic gratification that someone can have is to prevent the species from blinking out in their lifetimes. I know that we've had that effect. We've been able to move the needle in tigers, jaguars, snow leopards, leopards, lions, and this means everything to me. I want to know that we've made a difference in leaving the planet itself in better condition than the way that we found it, which is extremely rare because after all, the human being is a parasite. We take from our host, we don't give anything back to it. Usually, the most that we can imagine doing is to do as little harm as possible. DAN TAPIERO: What was the specific inspiration for the big cats as opposed to other species that are endangered? THOMAS KAPLAN: No doubt, when I was child, the primary impulse was the appreciation of their beauty, their majesty, their elegance. There's a reason why big cats and small cats, by small, I mean the small wild cats have such an impact on people. They immediately create empathy when someone looks at them, and this is extremely important because we've done studies which have shown that in most countries, certainly in the Western world, of the top 12 terrestrial animals, seven or eight of those that immediately create the most immediate sense of empathy are indeed the cats. What does this allow us to do? Well, if you're an environmentalist, if you're interested in wildlife conservation, it allows you to leverage the iconic nature of the cats to be able to provide a hook on which those who really want to engage in conservation can hang their hats. Not only because of the beauty, not only because that refinement is clearly something that transcends race, class, gender, creed, but also because from a biological standpoint, it's the ideal creature with which to be able to affect landscape wide conservation. We call cats the umbrella species. Almost always within their landscape. The big cats are what you would call the charismatic megafauna, or the umbrella species, or the apex predator. If you think of the ecosystem as a pyramid with the apex predator at the top, and then all the way down to the ground and the landscape itself, then what you find is that the big cats require two essential ingredients in which to thrive, land in which to roam and protein. If an ecosystem, by definition, can support a thriving population of big cats, it's a healthy ecosystem, because it provides an entire food chain. If you want to save critical habitats, critical ecosystems, landscapes, the best way to do is to focus on the cats. From a practical standpoint, from a pragmatic standpoint, the cats have a tremendous function in wildlife conservation. We know that there are vast landscapes around the world that exists today because of the work that we've done to ensure that the cats have an ecosystem that can sustain them. DAN TAPIERO: I know you've worked on the Jaguar Corridor, could you talk a little bit about that? Let people know what you've done there. THOMAS KAPLAN: The Jaguar Corridor was conceived of and implemented by Dr. Alan Rabinowitz, our partner in creating Panthera. It is far and away the most ambitious carnivore conservation program ever undertaken. The mission is almost breathtaking in its scope, in its ambition, it's to create or to identify a genetic corridor all the way through the jaguar's range, from the Sonora in Mexico, all the way down through Central America into South America into Ghana and the north and ultimately, reaching northern Argentina. Something that's extraordinary about the jaguar is that from Mexico to Argentina, it's the same genetics. There are no subspecies along the way, which means that the populations haven't become isolated. That presents us with a tremendous opportunity and the basic principle of the Corridor is that having identified this genetic pathway. We work with governments who sign on to implementing their development plans in a way that's consistent with enabling the jaguar to pass because by definition, there are jaguars crossing the Panama Canal, hence, they're not genetically isolated and creating subspecies. The program itself is a really beautiful example of applied science and applying rigorous science to conservation. DAN TAPIERO: I know that the-- I think I was reading somewhere that the tigers are the ones that right now are the most threatened. What is the thought as to maybe creating a corridor for the tigers? Is that something that Panthera is focusing on? What is being done specifically? THOMAS KAPLAN: The concept of corridors and tiger conservation because those populations have become so isolated is very hard to implement. You can have corridors in relatively small areas. The idea behind the Jaguar Corridor, for example, we could no longer implement in tigers. On a relative basis, tigers are in triage. It's more along the lines of what we would call a stronghold strategy, which is fine those are areas where you have that critical mass of land, of prey density and protect them as strongholds so that within those areas, the tigers are secure. It's this work that Panthera and its partners are affecting throughout the tigers range, but we're not able to play offense with tigers in the same way as we can do that with jaguars. Jaguars still allow us to be in a position to think forward and to be proactive in a way that with tigers, it's just much more difficult. DAN TAPIERO: Is there a specific project that, I don't want to say is your favorite, but is there one that you could tell the audience about that moved you to a certain degree more than the others? THOMAS KAPLAN: I became very keen, obviously, on the Jaguar Corridor, because it meshed with my own temperament, which is a big landscape, take advantage of momentum and be able to apply strategies more akin to blitzkrieg than to trench warfare. DAN TAPIERO: What does that mean, exactly? THOMAS KAPLAN: What it means is that in the case of the jaguar, because we can work with governments to be proactive, and save landscapes that still exist, and are not yet the patchwork quilt that would more characterize the tigers landscape, it allows us to be bold, in a way that with tigers, it's harder. The difference between being able to capture a flag through the Jaguar Corridor and to hold a fortress in tigers forever, for example, it's different mentality, we have to do both. Our attitude has always been whatever it takes, different cats have different challenges. They're very, very, very dissimilar in many respects. One intermediate case, for example, which we began, called Project Leonardo, which Leonardo means the courage of a lion, also happens to be my older boy's first name. Project Leonardo was meant to try to replicate the Jaguar Corridor in Africa. Unfortunately, we found that whereas there are a few places where they could implement that, in fact, it's a hybrid. There are now strongholds for lions in much the same way as is happening for tigers. The only difference is because anyone who goes on a safari, and any photographer who wants to take pictures of a lion can see them. They're gregarious. They allow themselves to be seen. They travel in numbers, you can spot them during the day. Everyone goes and sees lions, or reports back that they've seen lions and they make the assumption that the lion is in good shape, whereas in reality the lion is going the way of the tiger. The lion is going the way of the elephant. I gave an interview over the summer when the live action version of The Lion King came out and we pointed out that lion populations have fallen by 50% since the 1990s when The Lion King, the animated version, originally came out. There, we are applying some of the Corridor techniques, but usually more and more within a landscape so not quite a stronghold, beyond the stronghold, but it's a struggle. It's a struggle with lions. DAN TAPIERO: Would you say that's the biggest hurdle you think you face just within the organization's goals for the future? It's lions, tigers, but is there a bigger hurdle that you feel you face? THOMAS KAPLAN: In some respects, the biggest hurdle that we face, but I do sense that that's beginning to change, is that we've really needed more great scientists like Alan Rabinowitz. DAN TAPIERO: Who passed away recently, yeah. THOMAS KAPLAN: Exactly, but who left behind a cohort of dozens of people who were inspired by him and received training from him or through his tutelage. In terms of the conservationists themselves, the people in the field, they're wonderful. Very early on, we were thinking about the future. I'm a big believer in that old adage, if you're going out in search of Moby Dick, take the tartar sauce. In other words, plan for victory. We created padres of wildlife conservationist on the grounds that if we build it, they will come. It's taken longer to be able to put together the coalition of philanthropists that I would hope to have seen. I felt that soon after we created Panthera, the iconic nature of the cats, as well as seeing someone step up with very large ambitions and very large willingness to give resources would inspire people to our banner very quickly. It's taken more time we have now Indian collaborators, Chinese, we will have more Americans who are joining us. Very importantly, we found that one of the greatest sources of passion for big cat conservation, and it's absolutely sincere, has emerged from the Arab Gulf and beginning with my strategic partner, the Crown Prince of Abu Dhabi, Sheikh Mohammed bin Zayed, and now having been joined by the Kingdom of Saudi Arabia, Prince Badr, the Culture Minister and the governor of Al-Ula, with the blessing of the Crown Prince Mohammed bin Selman, the leopard now has a champion. That funding is going to be used not only to reintroduce one of the subspecies of leopards into Saudi Arabia, Arabian leopard, but also to advance leopard conservation globally. The leopard has the widest range of all the big cats but it's also the most persecuted of the big cats. Ironically, despite the fact that we all know that leopard is one of the most ubiquitous features in the fashion world, people don't know that it's becoming endangered and in certain cases, critically endangered. We embrace the fact that people were leopard. We think that that's a very, very good sign. Nobody wears real leopard and to the extent that we do find, in parts of Africa, for example, where people are wearing real leopard, we created a program, which really is very dear to my heart, called Furs for Life, in which having identified that there was a strong decline in leopard populations in southern Africa and tracing that to the rise of a church. In the tribal context in South Africa, we worked with the tribal leaders to replace or to otherwise preempt their followers wearing leopard capes and replace them with capes that we designed, had made in China and brought in. That program, in and of itself, has saved thousands of leopards arguably. It's saved more big cats than any other big cat conservation program for any species at any time. When you look at things like this, and you talk about the challenges, sure, we know that in many ways, we're behind the eight ball. Then again, as we like to say nature needs wins and when you get down, sometimes when it appears like it's going to be too hard in certain places, then you have a win and you're reminded that you can play offense. You're reminded that you can make an enormous difference. DAN TAPIERO: That's a very creative response. THOMAS KAPLAN: Well, I created our team in South Africa. It's now run by actually the first of the awardees of our educational grant, [indiscernible], who's our leopard expert and who just returned from Saudi Arabia with our CEO, Fred Launay. We are implementing what we hope will be the gold standard in captive breeding and reintroduction. DAN TAPIERO: You have other interests in conservation as well. I know at your alma mater, Oxford, you've funded a project. Could you tell us about that? THOMAS KAPLAN: Again, on the principle that if you're going to go all in, assume that you will have success. The reason I say that is because managing success can often be a lot harder than managing decline, managing growth is harder than managing atrophy. Less depressing, perhaps more exhilarating. DAN TAPIERO: Nothing to do. THOMAS KAPLAN: When you grow, it's like an army. When it breaks through the front, you have to make sure that your logistics are well attended. Otherwise, you become too far ahead of your supplies, which are awkward moments. In that same spirit, believing that we would have an impact on the cats, and believing that one day we would be where we are today, operating in 50 countries with 100 partnerships, we endowed the Wildlife Conservation Research Unit, the Wild CRU at Oxford University in order to be able to create the largest and most comprehensive field focused, university based conservation program. Not soon after, we have seen that it works. Very shortly after we created the program of bringing in conservationists from around the world, from the developing worlds to get training and best practices where they were returned, it's now known as the Sandhurst Wildlife Conservation. It won the Queen's Anniversary prize for innovation and education. On a more somber note, it also became very famous because there was a viral moment in lion conservation, which was created when a dentist from Minnesota shot an iconic lion named Cecil in Hwange National Park in Zimbabwe. We knew Cecil by name because it was that program which caused us to be interested in Oxford in the first place. We took it very personally. More importantly, when Jimmy Kimmel made an impassioned plea for the lion a day or two later, the influx of interest into Wild CRU in Oxford University was so intense that it caused the entire computer system to break down for the first time in its history. We're very proud that we caused that [indiscernible] function. The truth is that this program has been extremely successful. I'm particularly grateful to Julian Robertson. DAN TAPIERO: My old boss, I remember hearing about his involvement. Yeah, Tiger, the tiger fund. Julian's been a big supporter, big supporter. THOMAS KAPLAN: Julian has been a big supporter of Panthera. He's been our largest supporter in tiger conservation. He has very much been my partner in creating the endowment for Wild CRU. It's a beautiful thing when people give back to those creatures that don't have royalties, usage of their image or their name. DAN TAPIERO: They would be huge if they didn't [indiscernible] about it. THOMAS KAPLAN: Disney did give us some funding, but I would call it more a first step along the path to getting the funding we need to save the lion. Julian has been the most generous supporter in tiger conservation in the world, I'm credibly grateful to him and the foundation and the family. DAN TAPIERO: As you said in conservation, it's important to have winners, and you've experienced having many winners in the business world, and specifically, in natural resources. Let's talk a little bit about your early forays into the natural resources investment world. THOMAS KAPLAN: Like many of the best experiences that I've had, my engagement in investing in natural resources and starting companies happen purely by chance. Well, I have no background in geology or in engineering. Nonetheless, I found myself in a situation where I was advising a hedge fund manager name, [indiscernible], who was interned advising Michael Steinhardt and the late Jack Nash, Odyssey Partners. Having had success in being able to translate an understanding of geopolitics and how that could be superimposed on to commodities and having also as my doctorate studied the interrelationship between commodities and strategic planning, I had a natural affinity for natural resources. Around 1993, purely by chance, because we would look at the price of gold and silver as anecdotal indicators for bigger macro things, I started to look at silver, which was then trading $3.50 an ounce. My analysis suggested that whereas the Zeitgeist was that silver would fall to a more normalized $2 because digital would supplant silver halide film, and taking a third of demand, ostensibly, from any commodity should cripple it. My view was that people didn't understand the true economics of what was going on in silver, and that it had a better chance of returning to the bunker hunt days of $50 than it going down to two. DAN TAPIERO: Yeah, but what, it was just an asymmetric bet? What was the main driver there? THOMAS KAPLAN: Nephology is a wonderful thing, and it's been one of my great privileges to have debunked a few myths along the way in the last 25 years. The myth about silver film was that it represented a third of demand, whereas in reality on a net basis, it represented maybe 3% or 4% of demand. Why do I say that? By the mid-90s, technology was such that 90% of the silver that was in silver film was recycled and returned onto the market as the second largest source of silver supply. The real loss of demand, even if it were to go away immediately, wouldn't be a third, but about 10% to 15% of a third whereas there was already a systemic supply demand disequilibrium between 10% and 20% in silver, and inventories which had peaked over a billion ounces in the early 1980s were plunging by 100 to 200 million ounces a year. At some point, we'd reach an inflection. Silver would stabilize and return to an uptrend. On that basis, I created my first company. I used money that I'd made on silver options. Having made a decision that I didn't want to watch the price of silver on any given day or to see where it was trading in Frankfurt, or Tokyo, I thought, why don't I buy a silver mine that's closed down, and I'll use my proceeds that way and that way, I have a long dated option? When I researched the subject, I found that there were a lot of shutdown silver mines. Almost 90% of the underground mines in Mexico have been shut down, almost all of them in Peru, Bolivia, the Coeur d'Alene District in Idaho. I thought there's an interesting play here. My initial assumption was that silver had to return to at least $5.50, because that was the breakeven price for silver in the Coeur d'Alene District, and it did. It went to $5.50. I have options and I made some money. DAN TAPIERO: Right, but as actually having been involved in silver and gold at that time as well, it's one thing to make a great bet on the market. It's another to actually strike silver in a mine and I understand 90% were closed but you picked the right one. Was there a specific light bulb that went off? What was the-- I could have picked the wrong one. THOMAS KAPLAN: It's one of the virtues of ignorance that if you put your ego aside, bear markets not only yield interesting asset acquisition opportunities, but they also yield some of the most experienced practitioners. Not only were assets available, so were some of the greatest geologists in the world. I was very blessed that early in my career, after a year, I was joined by one of the greatest and most renowned exploration geologists, Dr. Larry Buchanan, and he joined me as my chief geologist, and he has been with me since 1994. DAN TAPIERO: Understood, that makes it very clear. THOMAS KAPLAN: Well the important thing is hiring people whose job is to tell you the emperor has no clothes. I was the first to admit, I don't understand geology. I don't understand engineering. Candidly, I don't have a particular intellectual interest in it. What I do love are geologists and engineers, and they fascinate me and they're very down to earth literally and figuratively and I love that and for some reason, I have a better than average ability to listen to a story and determine which ones might work. In the case of the silver, I created three companies. One focused on Mexico and Central America, another focused on Bolivia and Peru, and another focused on Central Asia. Eventually, we amalgamated them into one company but on one property in Bolivia, not far from the great Potosi silver mines, Larry made a discovery on a place called San Cristobal, which was and remains one of the greatest silver discoveries in history and certainly, of the last several hundred years. To be able to go out into the mining industry where the odds of being able to find something like that have been variously estimated at between 1000 to one and 10,000 to one. That luck begets more luck. Have no doubt, I do believe and the geologists that I know who've made great careers like Ross Beatty or Bob Quartermain will all acknowledge that luck. La Fortuna is the one thing that we've always been able to count on. Never take it for granted. DAN TAPIERO: What inspired the exit then, because we all know you can be long and have something go up, but if you don't get out at the right time, it's pointless. What was the inspiration for the exit of Apex? Apex Silver. THOMAS KAPLAN: Well, two things. First of all, I had taken it from a million dollar valuation. When the Soros family, and Jack Nash joined me in the investment that had a valuation of 13 million, within a decade, we were valued at over a billion. The company was larger than its four or five nearest comparables combined. Because of the nature of the assets, taught me a very good lesson, it's all about the assets. It had gotten to the point where it came time to build the mine. Now, for years, I had tried to retire but Quantum always said, please, please stay until after it's financed. I did, and we finance the mine. By that time, I was already exploring for platinum in southern Africa and had this weird idea to go into the energy business without ever having any background in energy. DAN TAPIERO: Let's skip to that, then, let's skip to the energy. What was the inspiration for that movement? It's very rare, it's very rare to move from mining and precious to energy. Almost, I don't know, whether it was over a few months or whether it was a year so there must have been some inspiration that made you believe there was an opportunity in the energy. THOMAS KAPLAN: My modus operandi is or has been, I begin with an intuition. Then I see whether that intuition can be fleshed out into a thesis. Then I scrub the thesis to see whether it was baseless and if I can reality check it and come to the conclusion that I'm on the right track, then I tend to go all in. DAN TAPIERO: You maintain your roots to history analysis and all the study of history. It's the same process that one uses to make an analysis of historical period. It's the same thing. THOMAS KAPLAN: That's why I said at the outset, that's my relative advantage. I've never taken a finance course, economics course or business course. I think that that'd probably bore me to tears. History may not repeat itself, but it often rhymes. I felt that there was some rhyming going on in the oil space. I remember oil was around $17-$18 a barrel. The consensus was that oil would go back down to a more normative $12 to $15 maybe even under $10 again, and my analysis was that oil was going to $100. I named an energy company after my kids, Leor Energy, and went out in search of Moby Dick again, and again, got very lucky. In East Texas, certainly an area in which oil was or natural gas was unknown, a couple of very intrepid experienced geologists who were retired, led by a man named John Amoruso came to me with an idea. DAN TAPIERO: Oh, really? It's that idea that in deep bear markets, the talent also is available, everything is available. That was the feeling, the similar feeling, too, that everything was available, like you have any silver, like a deep bear market-- THOMAS KAPLAN: It wasn't repeating itself, it was rhyming. The audacity of their belief that in East Texas, if one drill deeper, you would encounter what's called a torbernite fan. Effectively, an offshored raft gas field rolled on shore, was extremely tempting to me and I was feeling lucky. I thought I'm young enough to lose some serious money after having made some serious money and put up the money to acquire all of the land for this play, which had been rejected by most of the majors as being really thought it was fanciful and drilled it without having an outside partner and we hit and the thesis was proven both by our drilling and drilling done by a neighboring company called Burlington, which was then acquired by a larger oil and gas company. When we proved that the theory was right, we were pretty approached by a Canadian independent in EnCana. EnCana had done a lot of evaluation of all of the land in the area. They said they thought ours was the best and they put up the equivalent in terms of commitments of about $150 million to earn a 30% stake in the company. After paying another couple hundred million dollars more to go to 50%, in 2007, they paid 2.55 billion to buy out our 50%. That was in November of 2007. At the beginning of 2007, I had made a determination that things were too good in the world and I would take the opportunity to exit anything that we had which was economically sensitive. If something was gold or silver, fine, platinum, not fine. Energy, definitely not fine. That was certainly not the conventional wisdom in early 2007. DAN TAPIERO: What, you had other interests outside of the oil and gas? THOMAS KAPLAN: I did and I effectively controlled a platinum company in South Africa called African Platinum. DAN TAPIERO: Oh, still. I see. THOMAS KAPLAN: We sold that in the spring of 2007 to Impala Platinum, and the energy company in November. At that point, gold was around 600-ish, 650. Energy had reached $120 a barrel and being somewhat disciplined. I knew that it was time to go. Also in the August of that year, I became convinced that the financial system was a game of musical chairs you may recall, there was a moment when the system seized up and everything went from all bid, no ask to all ask, no bid, and that to me, from an anecdotal standpoint, told me it was a game of musical chairs and I'd better be gold. We decided we're going to sell the energy company. Fortunately, Ben Bernanke obliged, lowered interest rates, stock market went to an all-time high and we sold to EnCana. They needed the asset because their plan was to spin off or split their company into oil sands, and an EMP company with this as their flagship. We had the biggest onshore wells in the United States. Willing buyer, willing seller. I believed in gold, and I wanted to be out of everything else. DAN TAPIERO: How did that happen exactly? The silver for A was early, not the gold for A. Understood that you're keen observer of the macro but the move into gold, was it a macro light bulb? Was it something you saw in the mining industry? What was the motivator, the driver? Because again, and I don't know if this was '07, or was it on '08 that you-- it wasn't a very long period of time before you became very focused on gold, meaning the silver to the energy and then the energy back to the gold was not a very long period of time. THOMAS KAPLAN: Not really. Was like they were for different reasons. There was an overall thesis that monetary metals are a good thing and I knew how hard it was to find it. DAN TAPIERO: This is '07-'08? THOMAS KAPLAN: This really went back into the '90s. You are right. I started a silver company, because I was ambivalent on gold. My attitude was because of the fact that silver has 1000 industrial applications, it's the most conductive of all metals, reflective, malleable, antibacterial, not to mention the fact that it is and has been throughout history, as Milton Friedman put it, the major monetary metal. For all of those reasons, I thought any reason to own gold when multiplied for silver, so I wouldn't bother with gold because I had all the attributes of the monetary metal with industrial applications that would always provide me with even more demand. By the time the financial crisis rolled around, and we were in a position to pivot to a monetary metal, the first one was gold, because I thought of gold as being the stock with silver as the warrant. It was gold and silver, which is why the company that we created was called Electrum, which is in fact, a naturally occurring alloy of gold and silver. In fact, it is what composed the first coinage which was invented, Lydia. I thought the name was cool. Creating Electrum, the idea was will focus on gold and silver. The passage of time taught me that so many of the fundamentals of gold were being underpinned by micro fundamentals. The precariousness of the industry itself, that I became more and more and more bullish on gold and silver, and our most important operations, certainly our flagships in the mining industry are in gold and silver. DAN TAPIERO: What was the first step, though? I'm thinking in that '07-'08, it was an acquisition of a of a mine? I don't know, whether you ever take positions in the underlying or in the futures? I know you tend not to at all. When you had that moment that okay, gold is going to be the next thing that I focus on, what was the first step you took? What did you acquire? THOMAS KAPLAN: The first step in gold was actually slightly earlier. In the early 2000s, gold had reached about $250 an ounce. When gold was in the 300s, 400s, I started the exploration company called Electrum Ltd. DAN TAPIERO: It was started earlier? THOMAS KAPLAN: Yes, with Larry Buchanan and the focus was on gold exploration primarily in the developing world, primarily in Africa. There was a point where I became the largest holder of mineral rights in the entire Islamic world, which, for a nice Jewish boy named Kaplan, was an unusual moment and a very good one for me because it sparked an interest to have a partner who might be able to give us some backup in all of the countries that we were in from Mauritania through to Pakistan. DAN TAPIERO: Did you visit all those places? THOMAS KAPLAN: Just out of interest. DAN TAPIERO: Oh, yeah. Mauritania. How many countries do you think you've been to? Because I know for-- I think the number was, you had property in 70 countries. Was that what it was? You had rights and at one point, I can't remember. THOMAS KAPLAN: That sounds a little high. I myself visited or have been to-- DAN TAPIERO: If it's just out of interest, it seems like-- THOMAS KAPLAN: About 110 countries. DAN TAPIERO: Oh, yeah, that's incredible. THOMAS KAPLAN: Makes for an interesting life. It's one of the virtues of being in this industry but even then, without it, I tried to inculcate in my children that the best way to understand what it means to be human is to actually go out and see the world. DAN TAPIERO: Also, gold is really a world asset. Even more so than the dollar or any of the other assets. It's something, I think if you go into the smallest village, anywhere, and you say gold, they know what that is. It, I don't want to say it unites everybody, but it definitely is the most global macro of all the assets on global macro. When we fast forward a little bit to today, because we had that wonderful run into 2011- '12. We had a consolidation for let's call it six years within a $200 range, and certainly in that period, I can remember having a few different coffees and lunches with you and we were in the trenches there. Me with my gold company, you in a much larger scale with yours. Where are we today do you think? We've broken out of the six-month range? The price is now 1450, been 1500? Is this the beginning do you think of a real bull run now back to the old highs or higher? How are you thinking about it? THOMAS KAPLAN: The short answer is yes, but let me elaborate a little bit more. I always allow for a substantial pullback during the course of a bull market, and there are aspects of the chart formation which are unbelievably powerful, and you're probably raising your eyebrows. DAN TAPIERO: Yeah, I just did. THOMAS KAPLAN: Because you're wondering what I talk about what a story in this thing. DAN TAPIERO: Well, history charts are a history. THOMAS KAPLAN: Bingo. Anyone who doesn't understand charts or dismisses them, I think they're missing understanding human brainwaves. DAN TAPIERO: Well, you should know that Julian, who we referenced before, was strongly anti-chart. I'm just-- okay, you put it out there. Understood. THOMAS KAPLAN: I don't tell other people how to run their business. I don't think anyone could teach me how to do things differently because at this point in my life, whatever I'm doing, it's enough. I'm fine with it. The most important thing is to remain consistent. DAN TAPIERO: I'm with you. I love the charts. Well, I think they tell a lot of story. THOMAS KAPLAN: I remember sitting with you and watching you wince when I was describing that gold was experiencing a declining wedge formation, what I call the correction. You burst into laughter, because it seems so incongruous coming from someone who's so clearly fundamentally and data driven, or even anecdotally-- DAN TAPIERO: And deep in the mine. THOMAS KAPLAN: Yeah. We had this wonderful 12 years in which gold ended every year higher than when it started. During that period, you had inflation fears, deflation fears, strong dollar, weak dollar, strong oil, weak oil, political instability, political stability, and gold ended up higher. That showed that so many of the mythologies that people were assuming were not only not true, but because they weren't true, they would give far more underlying support to people buying gold when they realized they weren't true. I'd seen that in silver. I'd seen that in oil. In fact, one of the reasons I got out of oil was because I could no longer understand what this newfangled thing called shale was. When I could no longer quantify it, I didn't know whether oil was worth $100 or worth $20. I still don't, which is why I never returned to it even though it was my biggest score. In the case of gold, it was very obvious to me we'd had a 12-year bull run. That to me, was leg one, from 250 to 1900. Leg two was this correction that we've been experiencing, which, to my eyes, not everyone's was forming this declining wedge. I do this now because it's so funny to watch. I remember telling you this, now, I said when it breaks out, it can come back one more time to test it. Now, the beautiful part about it is that it formed this and then the subsequent pattern has turned into a saucer. Do you need to take time? I think Dan just had to [indiscernible]. Can we-- DAN TAPIERO: There are technicians who only do this and their views are completely pointless but I need to hear you talk about it. I understand exactly what you're saying. I think you're right. Let me tell you something. THOMAS KAPLAN: You're still a young man. DAN TAPIERO: Cup and handle? You remember cup and handle? THOMAS KAPLAN: I do. You're still a young man. One of the things that corroborated my fundamental view on silver in the '90s was that it had formed a perfect saucer, which I didn't know what a saucer bottom was. Marc Faber, in his boom and doom and gloom reference, this saucer bottom for silver and referred to it as a lifetime opportunity. At that time, he was the only the individual who I could find who was validating my thesis, but he gave another reason for it. That's when I started to decide I need to learn more about this technical analysis and God knows, it went from three and a half ultimately back to 50. It worked. Taking that into account, you can have these fluctuations along the way, but my contention is even notwithstanding head fakes, silver is now poised for that third leg-- excuse me, gold, gold, but silver is basically gold on steroids so same thing, just more volatile. It seems to me that gold is embarking on a essentially a third wave, I'm not speaking about it in Elliott Wave terms. Essentially, we have a decade, 12 years up, and eight, nine years down. The next one is likely to be 10, 15 years and I believe purely based on how difficult the gold mining industry has become that we will see an equilibrium range of between three and $5,000, extrinsic of the macros and the black swans. DAN TAPIERO: Okay, before we get into the mining, just a little bit on the macro backdrop, obviously negative interest rates, we could not never have thought of that 10, 15 years ago. THOMAS KAPLAN: You mean that gold is a high yielding currency? DAN TAPIERO: Exactly, exactly. Interestingly, gold against a basket of currencies has already broken out, especially some of the emerging of course, and so it has proved to have been a hedge against the debasement of fiat, certainly in non-G 10 or emerging countries. What are some of the other macro things that you think are supportive here for the gold price break? THOMAS KAPLAN: I think gold is the perfect asset now. I'll come to it from the mining industry standpoint in a moment, but the reason why I focused on that it's because it's that which tells me gold has nowhere else to go but up. The macros are what will ultimately determine whether gold stays within a $3,000 to $5,000 range or potentially multiplies from there. Yes, there are negative interest rates, but the most important aspect about gold is that-- and I think John Hathaway obviously made the same reference. It is the only asset class that isn't someone else's liability. The proof of this is that central banks are buyers. DAN TAPIERO: The largest since 1967. Last year. THOMAS KAPLAN: Well, they stopped being buyers after Nixon went off the gold standard. Because the thesis was it's just been demonetized and the dollar was able for a long time to sustain itself because the dollar was considered as good as gold because initially, the dollar was as good as gold because it was backed by gold. I view central banks has been the ultimate insider buyers. They know as sure as the treasurer of Enron knew that they are engaged in at best, a confidence game, and at worst, a Ponzi scheme. They know that so much of their own treasuries is filled with duplicable rubbish. DAN TAPIERO: You mean treasure bills. All the debt. THOMAS KAPLAN: Currencies. They want to debase their currencies. Everyone wants to debase their currencies. They want to, whether they say it explicitly or not. When everyone wants to debase their currencies, and the assets are based on currencies, ultimately, and the assets can be printed, and they know that everyone else wants to be able to find new and exotic ways of doing that, to be able to have an asset that when you own it, you actually own it, it isn't somebody else's liability to repay you is attractive. At the very least, you see that central banks, who used to be sellers will not sell because they know that their populations have a very vocal interest in gold or the family, silver, not being sold. You've seen just yesterday, Poland announced that they'd repatriated 100 tons of gold and they are very proud of the fact that they've now become the largest holder of gold amongst the Eastern European countries. They're not alone. Russia has been buying gold, China has been buying gold, Kazakhstan has been buying gold. They know that to be beholden to things that can be duplicated by fiat means to give away your independence. The problem with gold is that there's not enough of it. DAN TAPIERO: Before we move one step into that, it strikes me that it's the move away from the unipolar world that it used to be just the United States. If you think back in 1990, or even 2000, before the rise of China, it was really just the US as the main economic entity, but then as everyone else grows in wealth, they start to allocate even little bits to different assets. It's this very gold shows you that there is this slow shift, moving, spreading out to the world that there's more of a balance even 10 years from now that we'll see the US will be a country in the world, as opposed to just the only country in the world. I think you see that now via gold flows. It's tied, I think, into a larger historical vision of where we're going. THOMAS KAPLAN: Now, you're singing sweet music to me. DAN TAPIERO: No, but I would think you're correct. THOMAS KAPLAN: See it from a macro standpoint, if we superimpose history onto the geopolitics of gold, then there's no question that gold is going to assume more and more of an influence in the emerging countries which are eating away at America's financial preeminence. DAN TAPIERO: Very slowly. It's a very slow thing. It's so very obvious. There aren't people in the gold space who ever talk about it because everyone is either a minor or a trader. THOMAS KAPLAN: That's changing. I should get it to that. I should get to that point, because I think it does, it is a shift that maybe has occurred faster than I expected. From a historical standpoint, so much of America's wealth is predicated on the fact that we have the world's reserve currency. It allows us to be profligate and irresponsible in a way that we otherwise couldn't accomplish. The underpinning of that preeminence, the underpinning of that prestige is a whole group of factors that is being eroded, if not discarded. While you talk about it being slow, and I would agree, but it's only the size of the gold market that makes it so but that could change with higher prices, the fact is that those elements that America needs in order to maintain the luxury of having a currency so disproportionately owned relative to its trading power are being destroyed. DAN TAPIERO: You're talking about trust? THOMAS KAPLAN: It's trust and consistency. What makes America different? Well, we have the ability to project power in a unique way right now. We do have the reserve currency, which underpins that we were until recently, the firmest supporter of multilateral trading organizations and the principle of free trade. We were the leading exponent of universal values. There were a lot of soft power aspects that went into making us leaders and unique in terms of the combination of those attributes. When you strip away all of that, you're left with a country that has a lot of deficiencies, and arguably no longer merits the luxury of having the world's reserve currency. It has to be maintained. It has to be currency. DAN TAPIERO: You're almost saying that it's moral, that this is an issue of character. THOMAS KAPLAN: I believe everything is an issue of character ultimately. DAN TAPIERO: In a way, do you think that the US has abdicated its moral responsibility as the upholder of universal values, truth, etc., and that's-- THOMAS KAPLAN: As Syrian curd. DAN TAPIERO: Exactly. Well, that's another issue we probably shouldn't-- THOMAS KAPLAN: That pretty much epitomizes it. I was writing a piece on that subject, which was published in The Washington Post called the American Munich, because I literally couldn't find another less cliché example of betrayal. If I were an ally of the United States, whether in Western Europe and the Middle East or in Asia, I'd be rethinking it. Look at the currencies. DAN TAPIERO: You think that in a way also, historically, that's what's underpinned the dollar, but also now that there isn't a clear leader that a lot of the countries around the world feel like they need to have more gold is that I'm linking it back to the increase in central bank buying all these various countries. Do you think there's a connection there? Can we connect the historical with the moral to the economic? THOMAS KAPLAN: You can but I think let's connect it first to the philosophy. Our corporate motto is intelligence is a commodity, character is a currency. The origin of that expression was a conversation that I was having with a fund manager, who was telling me that he didn't need exposure to gold because he had exposure to oil and they were the same thing, essentially, commodities. I told him, "Well, that's not true." I said, "Oil is a commodity. I know energy very well. It is like intelligence. You can buy it, you can sell it." Universities churn out millions of intelligent people every year. There are other intelligent people who don't go to universities, but the point is that you can buy the most highly rated investment banker or lawyer or accountant, brilliant people but you can't buy character. That, to me is the difference between oil and gold. Intelligence is plentiful. Gold is truly rare. That's why they have to be viewed as very, very different items. Remember, when we go back to discussions of myths, I remember dollar/euro was 147 when we got a wire transfer from our partner in Canada buying out Leor Energy, 147. Gold was at 650. Gold is more than doubled despite the fact that the dollar has strengthened. Oil was over 100. I don't have to tell you where oil is versus where gold is. Once again, the mythology that you need a weak dollar or you need strong commodities for gold to prosper, they're wrong. When people truly understand that, they will understand that the supply/demand dynamic of gold is one that will take it inexorably higher. DAN TAPIERO: Before we get into that, there's one last question I want to ask you about. You said the fund manager. The institutional allocation to gold is de minimis. The fund manager who said oil is like gold, gold they have a commodity index. When, if ever, will the institutions move into gold, I think even a 1% to 2% move would double the gold price, if you talk about global institutions, family offices, pensions, etc. THOMAS KAPLAN: 1% would do it. DAN TAPIERO: 1% would do it, so what's the hesitation? THOMAS KAPLAN: Gold is the asset that people love to hate and hate to love. It goes back to a misreading of John Maynard Keynes' comment the gold is a barbarous relic. Even he said, it may be a barbarous relic, but it is a reference point for a lot of people, and therefore, it needs to be part of a basket that has to do with financial assets. DAN TAPIERO: But it's not in that basket today. THOMAS KAPLAN: No, it's not. Not in any meaningful quantity. That's what makes what's happened over the last six months so exciting for me. A year ago, if a fund manager were to be constructive on the price of gold on CNBC, they would have been ridiculed as troglodyte, cave dweller, maybe a tree dweller, but they certainly would not have had a good reception. That's changing. Not that the reception is warm, but it's no longer viewed as being something that gets you tagged as an insect or a gold bug. What's changed-- and this is a very pleasant surprise for me-- is that a number of very serious boldface names have come out in favor of gold. Ray Dalio has been there for several years now but he's made a hyper rational case for gold that I would recommend that anyone look into. Relatively recently, in the summer, you had Paul Tudor Jones, who admittedly is a trader but sees gold as being the best trade of the year. Jeff Gundlach, who has rightly been bullish on gold, described it is a coiling snake which may now be unfurling. Mark Mobius, whose expertise is the emerging markets, apropos the fact that the east is buying gold, something that was recommended by a Harvard professor named Ken Rogoff. What I'm saying is you're now starting to get people talk about gold in a way that they would have been derided before now, maybe not because they're both face names, but I've noticed more and more, a fund manager is able to say he's looking at gold. I did not expect that to happen until gold surpassed the old highs. The fact that we're now starting to see a revalidation of gold as being something that a prudent man can invest in is important. Now remember, the whole prudent man rule was initially created in order to be able to weight the relative risk of assets against what was ultimately considered the safest asset, gold. We went then so far away from that that it became imprudent to own gold. Now, we're starting to see that pendulum swing back. Now, you could say, well, you're starting to see a more of a concentration of bullishness but remember who's being bullish. This is still the most uncrowded trade in the financial world. The fact that people can look at it now in a different way, without fear that if they go to their IC, they'll be immediately ejected out the window, maybe out the door, but not out the window is a very good sign for those who believe that gold will gather momentum. DAN TAPIERO: Let me add one caveat to that because I had been thinking about this but Mobius is emerging markets, Gundlach is bonds, Dalio is an asset allocator who's basically long equity, Tudor is pure macro and trader. It's where they're coming from, not just who they are. I think that that is something new. That's something new from all perspectives, very rare to have a bond guy come out so strongly for gold, but that's obviously because the rates are so low and bonds are, in a way do rating a bit as an asset class. Anything else? I think that's important. THOMAS KAPLAN: That shouldn't be a surprise to you. It's for that reason that I said that from a macro standpoint, I think that gold is the perfect financial asset. A great deal of that has to do with the reality that you can have investors with very different points of view, very different rationales for why they want an allocation to gold. Nonetheless, it's almost as if all roads lead to some gold ownership. A 1% allocation would probably take gold into that 3000 to 5000 range. A gold bull should be extremely encouraged that it provides such a safe haven not just physically but such a safe haven intellectually for smart money to find their own reason. Now, interestingly enough, Sam Zell said that for the first time, he bought gold. DAN TAPIERO: I missed that, real estate. Now, real estate, so that's another-- THOMAS KAPLAN: Now, Sam's dealing with real estate with something underneath it. The reasons that he cited were the supply and demand. DAN TAPIERO: Okay, now. THOMAS KAPLAN: Now, can I thank Sam and move to-- DAN TAPIERO: The nuts and bolts the, yes, the supply/demand and hopefully, touch on something that I actually have called the Kaplan doctrine. I've come up with that to describe something, which-- I'll come back to that. It's the jurisdictional issue, which I call the Kaplan doctrine, but we can address that a little bit. THOMAS KAPLAN: I'll take that one. I'll take that one. DAN TAPIERO: I think that's yours. THOMAS KAPLAN: Primarily because-- I'll take it because I became one of those evangelicals who saw the light, after having been in many ways, the poster boy for an American investing in intrepid places like Bolivia, Zimbabwe, South Africa, Congo, and now going to 95% North America and Australia. That is a very important subject. DAN TAPIERO: Yeah, I think it may be even the most important, after Panthera of course, but the most important subject of the day. Do you want to tell people how you've shifted your portfolio and why? It's been pretty, pretty dramatic and unique. THOMAS KAPLAN: After having made my bones, as they say in the mafia, in the developing world. About seven, eight years ago, I came to the conclusion that the era that characterized the period from the time that Newmont Mining went to Peru and partnered with Buenaventura on the Yanacocha Mine in the early '90s was over. Up until that time, US assets were valued using zero percent discount rates because they were arbitrage against the other countries which were viewed as jurisdictionally risky in the gold space; South Africa, Australia, and Canada. When the industry started to see the success which Newmont had in Yanacocha and in Peru, it began a go-where-the-gold-is mantra that took people all throughout South America, all throughout Africa, Indonesia, you name it, go where the gold is. In fact, it became so inverse that the view became a premium should be paid for assets in those risky jurisdictions because it was easier to permit the mines. You had less environmental regulations. You still had to be at the very highest standard but nobody was going to sue you. US assets, Canadian assets were neglected in favor of the more plentiful gold assets in jurisdictions where they took the attitude, capital is welcome. We've now gone full circle, in my opinion. I've had this argument with others in the industry, but at least they can't say I'm simply talking my own book. It's true. I've gone to the last chapter of my book because I wrote that book. I know it's not pretty. As Woody Allen once said, I'm not afraid of death. I just don't want to be there when it happens. A while ago, I realized that I was incredibly exposed to the vicissitudes of the emerging markets, places where the rule of law was a novelty. Places where I came to understand that when I went to sleep at night, I might not own what I thought I own when I woke up in the morning. DAN TAPIERO: You went for the gold. You followed the gold. THOMAS KAPLAN: I did. I was the poster boy. I was the largest holder of mineral rights in Pakistan when the Department of Defense came to me to become the American champion for mining exploration in Afghanistan. Now, I knew well enough to know that I told them, I know how this movie ends, it ends with playing taps, it ends with you guys leaving, and it ends up with me if I'm lucky enough to have found anything with a big hole in the ground, relying on the generosity of the Taliban. No, thank you. The fact was, I was the largest holder of mineral rights in Pakistan as a matter of degree. I came to understand that the likelihood was that I would take these assets up the value chain, if I was lucky enough to find them or take control of interesting assets and they would effectively be nationalized, either de facto or de jure, maybe the salami strategy. There are many, many different ways to do this. I just wanted no part of it. More than that, when I toured the horizon, the [indiscernible] hall of the mining industry, I came to think, well, if I'm thinking this way, I'm probably ahead of the curve by a number of years. What it means is one day, the market will come back to placing the premium valuation on the US assets, again, let's say US, Canadian, and Mexican, NAFTA, and Australia. I went from being 50% North America, 50% other to 90%, 95% North America, which is what I am today, and I have no doubt that the market has come around to my point of view. It's very obvious to me that when a broker is calling up a fundamental these days and saying, I've got a really interesting management team with a world class asset, the fund manager is very often saying that sounds wonderful. I'm happy to see them. Just one question. Where in the world are they? Because if they're in a place where I have to take a career risk when I go to my IC, or I have to go explained to them that we've lost the mine to political disruption or nationalization or any of a number of factors, they're going to say, why did you invest someplace where you wouldn't be willing to go visit or take your children? Seen through that prison, which may sound simplistic, but I think it's going to come down to something akin to that, you want to be in places like Nevada, where depending on your proclivities, you want to go gambling with your wife, or your girlfriend or your boyfriend or whatever. You want to go to Alaska and whale watching or salmon fishing. You want to go swimming in the Great Barrier Reef. It makes sense. I don't believe that the first place that fund managers are going to go to look for their exposure to gold are in places where, as I said, the rule of law is a novelty. DAN TAPIERO: Did you think it's also connected to the US is pulling back as we discussed before, as a world leader that some of these places have become more unstable in the last 10-15 years? THOMAS KAPLAN: No, I don't believe there's [indiscernible]. No, no, no, I'll blame us for where I think we should shoulder responsibility but I think it's probably a fair statement that whether it's in the west or the developing world, we're dealing with political disequilibrium, that is off the charts. DAN TAPIERO: I have one caveat to the Kaplan doctrine and I think we talked about this even a few weeks ago, and that is that when the price does eventually get to 2500, or 3000, that those governments in those places will be confiscating those mines and so it's not so much. There's risk, perhaps today, maybe at 1450, but at 2500, there's a whole chunk of the world supply that essentially is not going to be there. In my worldview, that's how I've adapted not being a minor, how I've adapted that view and in that scenario, it certainly is possible that we could see shortages because we know that governments and especially, emerging market governments will not know how to run these mines. It's more of a forward looking view that at that price, the supply that we think we have won't be there. THOMAS KAPLAN: I salute your foresight. I try not to go there because the implications for my brethren within the industry is not a very good one, but the implications for investors becomes a very interesting one. From a macro standpoint, as you say, the inevitable mismanagement of those assets certainly, the absence of reinvestment in those assets means that from a macro standpoint, from a supply demand standpoint, it's likely to exacerbate what I already see as being a disequilibrium just simply from production falling off naturally. The other aspect that has to be considered is this. You're a bull on gold and you make that decision to express that bullishness by buying gold equities, gold related assets, how sad would it be if gold goes to 3000 and in your scenario, the Tapiero corollary to Kaplan doctrine. No, I want you to get blamed for this. DAN TAPIERO: I'm not in the industry. THOMAS KAPLAN: Exactly. That makes it even more easy to pillar you, but here's what happens in that scenario, gold goes to 3000 and the guy who actually got it right on the macro, at least from the standpoint of knowing that gold was going up, although he didn't think it through to what you're talking about, gets the asset taken away from him. That's the worst possible outcome, which is why my mantra as I developed in my career was always go for the great assets that give you tremendous underlying leverage to your theme, whether it's silver, platinum, hydrocarbons, or gold. Then I adopted a twist to that which is go for those assets that will give you the leverage, but only in jurisdictions that will allow you to keep the fruits of the leverage when it comes time to ring the cash register. The reason I can talk about all these wonderful things with you, is not simply because of things that I bought were found, it's that there does come a time when I say it's time to leave and I believe that being able to sell well is a lot harder than buying well, because of the psychology of the moment. If you are immune to people's fear and you're buying when the blood is running in the streets, as Rothschild said, then it's actually not very difficult. However, it's extremely difficult to resist the euphoria when people believe that you're right, and are now giving you stock tips. DAN TAPIERO: Okay, but this is the cart before the horse because you're selling. Let's talk a little bit about how you've expressed your view on gold. THOMAS KAPLAN: Historically, I've expressed my view on natural resources through natural resources assets, through what we like to call category killers. I've been blessed to be able to have found or taken control of some of the best assets in different spheres of the resources sector. As great as they were, it was one asset that I always coveted. It's an interesting story and that's the story of our engagement with NOVAGOLD, which is our flagship in the gold space and for me, the very best way to express my view and by the way, if I didn't feel it, I'd sell it, I'll put the company into play, or I would sell our steak and move on to something that was better. There isn't any better story in the gold development space in the world, not even in Russia, and yet it is located in the second largest gold producing state, in the safest jurisdiction in the world. In the United States, in Alaska. I started to watch NOVAGOLD in the early 2000s when it was a 50-cent dollar stock. As a consequence of discoveries at Donlin Creek, the stock multiplied many fold. I didn't own it but I just watched it. I was fascinated by how this was unfolding, but not yet obsessive about US assets, still I wasn't in that phase yet. Barrick in 2006, after absorbing or taking over Placer Dome made a hostile bid for NOVAGOLD, $14, $15, $16, the shareholders of which I wasn't one, rejected it and the stock went into the 20s which is definitely where I have no doubt, it's going back, probably significantly higher. In any event, I was watching this and I saw that the company was making a number of mistakes, the self-inflicted wounds that caused the stock to collapse from the 20s all the way back down in a round trip to a buck, even below. DAN TAPIERO: What year we're talking now? THOMAS KAPLAN: 2007-2008. Towards the end of 2008, I made the decision to go for it. I was sitting with a lot of cash, only conviction about gold and I had come to believe, for a variety of reasons by that time that this was the greatest gold asset in the space, 50% owned by NOVAGOLD, 50% owned by Barrick. On December 31st , 2008, which was a time when to the extent that anybody in this business was celebrating, it was a difficult time for the world in general. DAN TAPIERO: The global macro fund managers. THOMAS KAPLAN: Exactly, we made a move on NOVAGOLD, and effectively didn't take under. I bought as much as I could. I had the ability to write an $80 million check to save the company from bankruptcy and to buy shares in the open market. Eventually, we had to stop because we were allowed to do the take under but the Ontario Securities Exchange make a takeover attempt. If you want to go further, we'd save the company from bankruptcy so there were exigent circumstances. The reason I didn't buy the whole thing was because wiser voices prevailed in my office and believing very strongly that even in triumph, the Caesar has to be told thou art mortal and the President of the Electrum Group, Igor Levental, was whispering into my ear, remember, you are mortal. If you go after this and try to buy the whole company $2, even though Barrick is asleep, they will walk you up dollar for dollar until a certain point, even you will throw in the towel. Better to own 40% of something wonderful. That's greedy enough. Don't be stupid greedy, and it was great advice. DAN TAPIERO: Expertise, too. Having a partner of that caliber certainly is helpful at some point. THOMAS KAPLAN: Well, they were going to be a partner, but the point that he was making was that having already tried to buy NOVAGOLD when the stock was on teens, the chance that they would let me absorb all of it were a lot lower than allowing me to be a white knight just because of the exigencies at the time. Had it been different, Barrick, Newmont, a few others were waiting for the company to go bankrupt because the company at that time was like, from a financial standpoint, a falling knife. They had class action lawsuits. The management was discredited. No balance sheet, environmental issues with the EPA on an asset we subsequently disposed of, bad relations with Barrick, their asset with tech, called Galore, had been a blowout. Nobody institutionally was willing to touch it but to us, it looked like a great opportunity. We love the Donlin story. I sent my chief geologist out after we did the deal, I gave my team 48 hours to do the due diligence and they said it's impossible to do due diligence in 48 hours. I said, let me give you the parable of the runners and the bear. Two hikers are in the woods, they come across a bear. One [indiscernible] and the other one leans over, and very casually exchanges his hiking boots for sneakers. The one who's running says, "What are you doing?" He said, "You have to understand, I don't have to outrun the bear. I just have to outrun you." I said, I don't have to believe what NOVAGOLD says about the asset, I just have to believe that Barrick won't lie in their disclosures. That's all I need to know, and of course, they didn't. Barrick's Barrick. DAN TAPIERO: So far, you haven't mentioned that. The Donlin mine is the largest single gold deposit in the world, is that correct? THOMAS KAPLAN: The attributes of Donlan now in the aggregate make it unique. First of all, there's never been a gold mine, which began with 40 million ounces. That 40 million ounces is drawn from only three kilometers of an eight kilometer mineralized belt. The likelihood of significant expansion is more than 5 million ounces in the immediate pit that a few more drill holes would put into the same higher category is very high. Moreover, that eight kilometers is only on less than 5% of the total land package. Donlin has the attributes of size and scale and exploration potential. More than that, in the last 10 years that we've owned our share in Donlin, the grade of the average gold mine has been plunged by upwards of half. The cost of a gold mine is very much a function of grade, carros parados, if all the other operating costs are the same, if you have a grade of two grams and someone else's grade is a gram, your cost of production per ounce is half of theirs. The fact that we're dealing with an average grade of greater than two grams to two and a half grams, perhaps higher, we'll see, is enormous as a relative advantage. It has size, it has quantity, and it has quality which also means the operating costs will be amongst the lowest in the business. What this will be is in one or two phases, the largest single pure gold producing mine in the world, I say pure gold because I believe Freeport's Rosberg mine which is gold and copper may produce some more gold but in terms of pure gold, without any of the base metals, which is very important to us, because it gives us that economic autonomy. It's unique in the world. Most importantly, it's not located in difficult parts of the world. It's located in a place where private property is sacred. We have wonderful partners on the ground. For me, when I look at all of these attributes, I believe that Donlin, unlike other assets that we've had which have been great, is actually unique. It is far in a way for us the best way to play the gold space. My guess is and if you look at our shareholder base, you'll see it's unusually strong, Fidelity and John Paulson and [indiscernible], etc. When you look at the money that is in the story, they understand that what they're dealing with is the greatest unexpiring option on gold in the world. This is very good for us because it makes us a pure play on essentially the next Nevada and it's great for Barrick. DAN TAPIERO: Are you saying that you think this is a higher quality bet investment than your previous three or four big hits? THOMAS KAPLAN: Yes. This is-- DAN TAPIERO: Really? I hadn't known that. THOMAS KAPLAN: Yeah. This is a Rembrandt, a Vermeer, a da Vinci. Because it's unique. It's the perfect asset in the perfect place. There's no fund manager who ultimately wouldn't want a piece of this, either by buying us as a pure play, or if they want production and diversified portfolio, Barrick. Barrick is now run by Mark Bristow, who I call the white swan. Because for the first time, Barrick has a CEO in the 11 years that I've been dealing with the company and there have been times when our relations have been excellent. We've always been a very loyal partner to Barrick, which has undergone a lot of stresses and strains but the advent of the Randgold acquisition, either by or of Barrick is a very, very good piece of news for us, because our belief is that they see the value in the story and whether they sold it to someone who wants to adopt our narrative or they want to develop it when gold prices are higher, we're not in a rush, I believe like Jesse Livermore says or said, you make more money by sitting than by doing. We've taken things up the value chain, we now have what would be the biggest gold mine in the world in the safest jurisdiction with federal permits, and with the support of the Alaska government and the native corporations who are our partners. All we have to do is not do anything stupid, and we haven't done anything stupid in the last 11 years, and we've kept all our promises. So long as we keep doing that, I genuinely believe that we will multiply just by virtue of the fact that when people start to look for gold assets, you're going to see a disproportionate share channel itself into those very few high quality North American and Australian assets. It'll be like getting Hoover Dam through a garden hose. In fact, you may end up seeing a bubble in those things. DAN TAPIERO: In the sitting, what timeframe-- and I know you've been, as you said, invested 11 years, are we talking another 10 years? Five to 10? Clearly, there's no reason to make-- have a view that it's one or two years, that's pointless. Is it 20 years or five, in terms of when you see a realization? Yeah. THOMAS KAPLAN: Well, tell me what the gold price will be. If I had to tame is out, we are now in the last phase of the bottoming process of gold's correction within the secular bull market. As gold takes off, there will definitely be more interest in the gold space. My guess is that the assets which are the safest, and where the management has shown itself to be qualified, will be amongst the go-to stocks in the space. They really aren't that safe. DAN TAPIERO: Can I say five years, 10 years? THOMAS KAPLAN: Could be six months, could be five years. Tell me what the gold price is. I don't think it's in Barrick's interest to do anything other than do what we're doing together, which is taking it up the value chain, doing all the studies that we need. I think their mantra is the same as ours. It's the best option on the gold price. That works for me, because I've always had an aversion to building things at prices, which I think are too low in order to subsidize Indian and Chinese consumption. I just think it's a very bad business model. I don't think it makes sense. People think that production is the way you make money. It's not, it's selling something at a high price. That's how you make money. In the case, of Donlin, the leverage that we have at $1900 gold, Donlin has an NPV of $20 billion, split two ways, that puts us in the 30s and that adds dollars per share to Barrick. This is a good thing. If you think that 1900 is barely a border between where we're really going, then the most important thing is to husband the asset, treat it well, don't do anything silly, and then take it into production when prices are high enough to give the shareholders a killing. Now, obviously, the share price we did our last offering at $9.50 in 2012, when Greg Lang, the CEO of NOVAGOLD, came on board from Barrick, where he was the President of Barrick Gold, North America. He'd been there for eight years. He'd been with Barrick and its predecessor companies for 30 years. He said, you come on board as chairman, I'm coming on board as CEO. I said, you come aboard as CEO, I'll come on board as chairman and it's been a love fest ever since. One of the first things that happened is we went on what was meant to be an information roadshow and it wasn't a good time for mining equities but $500 million in demand emerged, and our bankers JP Morgan, and RBC called us up and said are you willing to do a deal, and we raised $330 million at $9.50 a share. Now, if you look back on my track record in public companies, I don't do down rounds. Anyone looking at this can know that we're not going to be doing around lower than that and the likelihood is gold will go up. We'll go through the 9.50 back to the 15 where we were in 2010 and then my guess is we go into the 20s, which was the all-time high of the company. That's my scenario. At that point, we can decide whether we want to raise equity for building the mine. We'll see where we are in terms of how we see it as being one or two phases. Now, the reason why it can be so remarkably complacent about this is that we don't need money. We're one of the only companies in the space that is sitting on between cash on hand of $150 million and another $100 million in bankable receivables from Newmont, the sale of Galore. We have almost a quarter of a billion dollars' worth of cash and receivables at a time when we have a permitted mine and the money is just being spent on additional studies to optimize it. From my standpoint, it's the perfect story for the gold space. It's the best option, the safest option, and it's an option on what is likely to be only a fraction of the true asset base because my chief geologist who found San Cristobal believes that there's another Donlin to be found at Donlin. DAN TAPIERO: You've wrote that in your chairman's letter. The next Donlin is at Donlin. Maybe that's a great place to cut it off and let people dream about that.