The expansive windows in Silver Wheaton Corp.'s (TSX:SLW) downtown Vancouver office loom high over the city.
Commuters scamper from bus to SkyTrain to bus, taxis negotiate each opening in traffic. It's a distinctly, albeit spectacular, urban scene. From his seat at the head of Silver Wheaton's large boardroom table, it's a picture Randy Smallwood, Silver Wheaton president and chief executive officer, knows well. When staff is in the office early, they'll gather in front of the windows to watch the sun come up, he says.
Although Smallwood has become accustomed to the expansive city view, he's just as comfortable in rural surroundings, exploring the bush or a deposit for minerals. At heart, Smallwood is a treasure hunter.
Smallwood grew up on a hobby farm in Cloverdale. He spent his days, when he could, outside – camping, hiking, roaming the backcountry. But, thanks to his father, Smallwood also had a knack for computers.
After graduating from Lord Tweedsmuir high school, he enrolled at Kwantlen Polytechnic University (then Kwantlen College) to study computer science.
It didn't go well.
"I didn't even finish my first semester," he said. "I was probably way ahead of the curve in terms of being able to program, but I just wasn't interested in it. I just couldn't have a job that was creating virtual worlds in front of screens."
Smallwood bounced from job to job until he got an offer to stake a gold claim.
It was enticing: Smallwood loved the wilderness and the job paid him to be outside. A win-win.
"After my first day, I turned to the guy I was working with and said 'you get paid for this?'" said Smallwood, with a smile.
Thus began Smallwood's mining career. He started small, offering exploration services such as claim staking, soil sampling and trenching for exploration geologists and junior companies. He launched his first company, Alpine West, in the mid-'80s, capitalizing on a boom in flow-through share revenue. At Alpine's peak, Smallwood had 10 people working for him.
But then economic realities rekindled his academic ambitions.
"One of the geologists I was providing work for took me by the ear and said, 'Randy, you're too smart to run this business. The next downturn is going to kill you. You have to go to university and get your degree so you can actually go somewhere.'"
Smallwood listened – sort of. He didn't want to commit to a full four-year program so he opted for the British Columbia Institute of Technology's two-year mine engineering program.
Unlike Smallwood's first act in academia, he enjoyed himself. He finished the BCIT program and transferred to the University of British Columbia, where he finished a degree in geological engineering.
When he could, he took claim-staking jobs with firms such as Westmin Resources, a company eventually taken over by Barrick Gold (TSX:ABX), Teck Resources (prior to the company's merger with Cominco) and Homestake Mining.
His experience at Homestake was formidable. Smallwood worked at the Golden Bear mine, a small, high-grade operation in northern B.C. In 1992, Homestake sold the mine to a small Toronto-based junior: Wheaton River Minerals. It was Wheaton River's first mine acquisition, and the company had no operating team. At the recommendation of Homestake's head geologist, Wheaton River hired Smallwood as a project geologist in December 1993.
The company embarked on an aggressive exploration program at the mine to explore two gold deposits in the area. It was a success, and production started in 1996.
By 2000, the company was producing 80,000 ounces of gold per year, had $50 million in the bank and a market cap of about $30 million. Buyers took notice.
A group led by Gene McBurney of GMP Capital and Frank Guistra acquired the Wheaton River, and the company underwent "a dramatic change."
Instead of being a lean, profitable and efficient gold producer, Wheaton River began to grow. Ian Telfer, having just suffered through the well-publicized failure of his Itemus technology company, was brought in to lead the charge.
But Smallwood wanted out.
"When they took over the company, I could sense the change in direction. A lot of the technical guys, the mining guys that worked for Wheaton River, were looking to move on. Including myself. We thought those guys were promoters, not actual mining guys."
Smallwood was right. The group needed help evaluating assets and determining which mines to acquire.
"Ian [Telfer] came into my office after I had gotten an offer from another company. I was giving serious consideration to it," said Smallwood.
"So Ian closed the door and said, 'Randy, I know you've been given an offer by this other company. And if that's what you want, by all means I give you my blessing. But before you make your decision, I want you to know what our objective is with Wheaton River. We plan on building the best gold company in the world. The challenge is, I know nothing about mining. I need you stay with the company.'"
Smallwood bit. He stayed and the company – Wheaton River would eventually become known as Goldcorp Inc. (TSX:G) – and began snapping up assets: the Luismin mines in Mexico, the Peak mine in Australia.
The mandate was always gold, but the company soon realized it had significant silver production from some of its assets. The Luismin properties, for instance, produced about 50% gold and 50% silver.
That unexpected production was the genesis for Silver Wheaton.
The concept for the company, known as streaming, was simple: buy the silver produced at gold, copper or lead-zinc mines for an upfront payment. That payment gives Silver Wheaton the rights to a certain amount of metal, which the company then turns around and sells in the market.
The model has been a success. Silver Wheaton placed 16th on Business in Vancouver's list of top performing B.C.-based mining stocks in 2013 (BIV issue 1259, December 10-16, 2013).
The company made a handful of large investments last year, including a $135 million deal with Hudbay Minerals (TSX:HBM) to buy the gold production at Hudbay's Constancia project in Peru. Silver Wheaton already owns 100% of the silver production at Constancia.
Silver Wheaton, because it doesn't build mines itself, has been labelled a financial house by industry watchers. But Smallwood bristles at the idea.
"We are a technical operation. We only invest in good mines, and how do you know it's a good mine unless you have the technical expertise?"
Nolan Watson, the former chief financial officer at Silver Wheaton and now president and chief executive officer of metals streaming company Sandstorm Gold (TSX:SSL), also stressed Smallwood's technical acumen.
"One of Randy's great strengths is that there are few people who ever get truly good at learning the technical side of the business and understand the corporate side. Randy does both," said Watson.
"One of Randy's favourite sayings is 'it starts from the ground up' which means the technical foundation and quality of any asset is the most important aspect. All of your economic implications come from that."
