Nolan Watson graduated from UBC with a Bachelor of Commerce with Honours in 2001. He began his career at Deloitte as an accountant and scored the highest mark in Western Canada on the Chartered Accountant (CA) exam. At the age of 26, he joined Silver Wheaton Corp and became the youngest CFO of a New York Stock Exchange listed company. He is currently the CEO of Sandstorm Gold Royalties, a company he co-founded in 2008 that has reshaped the mining investment landscape since. In 2004, he founded Nations Cry, a charity dedicated to pursuing education-based initiatives in Sierra Leone. He is also a recipient of the Queens Diamond Jubilee Medal, an EY Entrepreneur of the Year, and is recognized as a Young Global Leader by the World Economic Forum.
NBR: How did Sandstorm come about and how did you get your start in Gold Streaming?
Before Sandstorm, the first gold streaming company in the world was a company called Silver Wheaton, which has now rebranded itself as Wheaton Precious Metals Corp. It grew out of nothing into a multi-billion market cap company very quickly back in 2004 to 2009 and I was the first employee at that company. I was in my early 20’s when I joined, I think I was 24 or 25. They made me the Chief Financial Officer of the company when I was 26. I’d been a qualified CPA and CFA for a whole year when I got that job. It was an amazing job—I technically got the world record for youngest Chief Financial Officer of any multi-billion dollar New York Stock Exchange listed company in the world.
I just sort of fell in love with the uniqueness and the need of the gold streaming model. I very quickly found myself so engaged with my job that I was working 120 hours a week. I slept— sometimes! If I wasn’t sleeping, I was working. I would rent hotel rooms across the street from my office so that I could shower and sleep for four hours before going back to work.
When my wife got pregnant with our second child, she told me I needed to stop this and be a Dad. She was absolutely right and I’m glad she called me out on it. So, one day I went in and I quit my job. It was a hard thing to do; this was 11 years ago and I was in my mid 20’s making a million dollars a year. I decided to put family first but I had no idea what I was going to do. In trying to figure it all out I realized I just really loved the business model, and that it hadn’t been effectively applied in other commodities outside of silver. There were already a number of other entrepreneurs around the world who saw how well it worked with silver and were already starting up versions of it in gold. I decided that I wanted to launch one of the first companies to do so. Plus, when you’re a CEO you have more job flexibility than when you’re a CFO. I decided to build the company so I could continue doing the business model I love and also make it to my kids’ Christmas concerts.
NBR: What’s the difference between Gold Streaming versus Royalty Financing?
A royalty is an easier concept to understand. Usually a royalty is a small number, something like 2 per cent but it can range from 1 per cent to 4 per cent. How it works is you get 2 per cent of the mine’s revenue, forever. A stream is something like that, except with a stream you get the right to purchase a fixed percentage of a mine’s gold production for the life of the mine. Each ounce is purchased at a fixed artificially low number. For example, a stream contract might say that Sandstorm gets to purchase 10% of the mine’s gold production for a payment of U.S. $500 per ounce of gold purchased.
Therefore, if you get to buy 10 per cent of a mine’s production, which means a stream for 10 per cent of its production, it means that every time the mine produces ten ounces you get one of those ounces. You give the mine $500 for that ounce and then take it and sell it on that exact same day for $1600. You just made $1100 on that ounce on that very day. We do that over and over again with more and more mines. The next thing you know we’re getting production to the tune of 70,000 ounces a year to our credit. Right now our average cost is about $180 an ounce so we’re making $1320 an ounce. That’s in U.S. dollars, so that works out to just about $100 million of pre-cash flow per year starting next year.
NBR: What’s unique about the Gold Streaming model?
I fell in love with the streaming model. I loved the industry and I really enjoyed what I did because the streaming model is a much more patient form of capital for mining, which is a very capital-intensive industry. Traditionally, banks lend money to mining companies to go build mines. This is often problematic because banks usually require a term loan that is no longer than four to five years. Sometimes it takes you three years just to build a mine and it’s tough to make enough profit to pay back the bank within that remaining year or two.
Even when you do build a mine, if it doesn’t work for the first couple years and isn’t making copper or gold or whatever it’s supposed to make, you have to go through a period of one or two years fixing everything you built wrong until it starts working. Debt is an enormously bad idea for mining companies. Gold Streaming on the other hand is a form of capital where you get the money upfront to build a mine. We don’t worry about it, and you just have to pay us back over the next thirty years. We end up making a lot of money, and you don’t lose your mine.
NBR: Although Sandstorm doesn’t have direct control of the mining operations since it is a financier, how has it integrated Environmental, Social and Governance (ESG) factors into its business process?
The World Economic Forum organizes an annual conference with all the world and business leaders—this year it was held in Davos, Switzerland. They have a separate program called The Young Global Leaders through which they attempt to identify people who are successful in business and have been involved in humanitarian work, charities, or politics and who want to give back to the world. They try to identify them while they’re young and train them how to view the world and what we can all do to restructure it, make new laws, and create a better future.
The Young Global Leaders program is effectively a six-year world leader training program where they send you to Stanford and Oxford and Canada only gets about one spot a year. Seven years ago I got chosen as Canada’s person so I’ve been inundated and working with the top environmental CEOs of the largest environmental organizations of the world, politicians attempting to do ESG, and Ministers of the Environment for years now. Some of them have become my best friends. In fact, one of the guys who got in years before me from Canada is in charge of developing and maintaining the Sustainable Development Goals for the United Nations. Through that process, he and many other people realized that a whole bunch of the Sustainable Development goals to make the world a better place from a ESG perspective are in areas that regular industries don’t reach. They’re very remote and extractive industries like mining, oil, and gas. So I’ve been working with them for quite a period of time trying to figure out how we can heighten the United Nations Sustainable Development Goals to get mining companies to align their values to them. That way, from an ESG perspective, we can all make the world a better place.
Sandstorm has just joined the UN Global Compact and we are focused on that on a daily basis. What that practically looks like inside our business is that we get to choose which mines we allocate capital to and which ones we do not. Part of our process of making that investment decision is both a social and an environmental assessment. Our technical team of geologists and engineers go through this process. There are some mines that are totally benign environmentally and they won’t cause any long-term damage. There are others that will cause long term damage when you attempt to mine them. They’ve just got certain water and sulphur properties you shouldn’t dig up. We will not invest in a project that we think will cause environmental damage whereas a lot of other forms of capital don’t care about that. Through our existence and our decision-making process, we feel that we are lowering the cost of capital for mines that have good environmental properties and increasing the cost of capital for mines that have poor environmental qualities.
NBR: You’ve mentioned how this industry is very capital intensive. You launched Sandstorm at the end of 2008 and beginning of 2009 which, given the Global Financial Crisis at the time, would have been a difficult time to raise a significant amount of initial capital to start Sandstorm. How did you overcome this?
It was just sheer force of desperation. No one was writing cheques for any financing for any industry in all of Canada, and certainly not a 29-year-old kid from South Surrey. That was just not on the table. Me and another guy, Dave Awram, who helped form Sandstorm with me, literally just got on airplanes and we went to every city in the world that we thought might have capital for us. Obviously we went to places like New York, Chicago, Boston, and Toronto, but we were so desperate for capital we also went to places like Winnipeg. We decided we were not coming home until we had 50 million dollars and sure enough, we found 50 million dollars at the bottom of a great recession. Past reputational success helped; there were people who were willing to take a flyer because they had followed our success at our previous company and who had followed my career. It helped that it was gold because people were worried about the world wide financial crash and gold is a way to protect against it because it maintains its value during times of uncertainty. Our business was the first major launch of a new financing company in all of Canada coming out of the recession.
NBR: What’s your secret to success, if there even is one?
There is no secret. No one thing. Although there is this: I can’t spin this into a cute little one liner quote, but it’s as simple as realizing the main lesson from the children’s book “The Emperor’s New Clothes”. I think as young people—certainly me when I was in University—have this view that the titans of the industry are these great people who have all of these intangible skills that they are born with and that others don’t have. I thought I was just going to try to do what I could to carve out a decent career for myself. I thought those people just had something special that regular people like me and my classmates in Sauder didn’t have. That is absolutely not the case.
I came to this realization after I won a gold medal in accounting. My father was a CPA and I used to hang around all these super smart accountants who made lots of money and were intelligent business people. I thought those people had something that I didn’t. Then when I beat all of them on the CPA exam through just pure hard work, I realized that they weren’t actually all that smart. By the way, I studied so hard because I was just literally terrified of failure. You start talking to a lot of CEOs and you realize that they’re kind of hard-working, but not any more intelligent than the average person. You start realizing that there’s nothing that any of these people have that you don’t. It’s just like in “The Emperor’s New Clothes”. There’s nothing special about them at all. And when you realize that, all of a sudden the possibilities are endless. You can beat any of those people if you think strategically and work harder than they do.
NBR: What are some pieces of advice you have—in life or work—for young people who want to be future business leaders and live a meaningful life?
Spend more time thinking about purpose. In fact, not only more time, but more time than other people. A lot of people ask me what motivates me. The answer is essentially one thing: purpose. I have a charity that I started on the side and the purpose of that is very obvious; I’m helping young, poor girls in Sierra Leone get educated. I’m no more motivated for that than I am in my day job in mining. I know it seems like mining has a lot less purpose than helping young poor girls get educated. But it’s just as important or maybe even more important because if I’m not there doing it, it’s going to get done a different way. If it gets done a different way, then maybe the environment suffers dramatically. Maybe entire communities and cities suffer dramatically and people lose millions or billions of dollars that they wouldn’t have if I just showed up for work that day. Maybe, just maybe, it’s companies like ours driving the economy forward that make taxation possible for all the social programs and health care we have. If you can identify a deep sense of purpose in what you do, you will get motivated to do it.