In 2003, Ian Watson believed that the prices of gold and other minerals would rise sharply due to increasing demand from China and the developing world. Although China’s growth was picking up at a breathtaking pace, it was not easy for foreigners to invest. Ian had the idea that the best way to take commercial advantage of China’s growth would be to invest in the things that China wanted – gold, copper, molybdenum and uranium were some of the obvious targets.
Ian and Jim Slater then formed Shambhala (soon to become Galahad Gold). Two other members of the Centennial team – Morris Beattie and Brian Mountford joined the company to help with its development. During the next two years, the Galahad team invested in two quoted mining companies and two mining projects:-
- Northern Dynasty Minerals (NDM) which was quoted in Canada and owned the giant Pebble Deposit in Alaska. Ian and Jim Slater had analysed over 150 listed companies in Canada searching for those that offered the largest gold equivalent value in relation to the share price. NDM with its massive, gold, copper and molybdenum deposits was in the top three and by a happy coincidence a friend of Ian’s knew the management of Hunter Dickinson, who owned about 20% of the company and were managing it. Ian negotiated with Hunter Dickinson to buy a substantial stake while Jim Slater arranged the finance in London. A $C5m deal was struck at 72 cents a share with a one-for-one warrant at 90 cents for a further $C6.25m. Ian joined the board of NDM and during the four years that followed Galahad invested in further rounds of finance at increasing levels. In February 2007, Galahad sold half of its 20% holding in NDM to Rio Tinto and the balance was placed with institutions. NDM shares were sold at an average price of $C10.70 per share. Overall Galahad made a cash profit of £70.2m.
- Skaaergard In the early days Galahad invested in a 100% interest in Skaaergard which had a large but very marginal gold, platinum and palladium deposit in Greenland. It was hoped that the secondary metals such as vanadium and titanium in the deposit would make it an economic proposition. However, the prices of these metals dropped sharply so Galahad decided to relinquish its rights to the Greenlandic Government. Galahad lost £6.1m in cash terms but was able to claim significantly more as a capital gains tax set-off as the original purchase was made for Galahad shares which were flying very high at the time.
- Uramin was the third Galahad investment and the most spectacular of all. Ian had kept in touch with a business associate, Stephen Dattels, who had founded a uranium mining company which was later named Uramin. In June 2005, Galahad bought 26% making it Uramin’s largest shareholder. This was later diluted to 11.6%. Ian joined the board of Uramin and Galahad made offices available to the company, helped with its administration and supplied its own financial director, Neil Herbert. In addition, Ian worked with headhunters to search for a chief executive which led to the appointment of Ian Stalker, who filled the role exceptionally well. Uramin had some uranium deposits in South Africa and other major deposits in Namibia. It also later invested in a major deposit in the Central African Republic. Over the next two years Uramin continued to add to its uranium resources. During this period, Stephen Dattels arranged several large financial placings of Uramin stock which helped to transform the company into a major player in the industry. In June 2007, at the height of the uranium boom when uranium was $US135 a pound, Stephen Dattels had the idea of selling the company to Areva. He negotiated the sale brilliantly for $2.5bn cash, which yielded a £76.7m profit for Galahad.
- International Molybdenum plc was the fourth investment. The Malmjberg deposit was licensed to Galahad by the Greenlandic Government. The company was formed by Galahad with its sole asset being a major deposit of molybdenum at Malmjberg. During the next year the company was floated on AIM and spent about £2m developing the deposit. Galahad retained 78% of the company. Near the height of the molybdenum boom when the price had risen from $US5 a pound in 2003 to about $US25 a pound, International Molybdenum was sold by Galahad for shares in Quadra, a successful mining company listed on the TSX. This transaction yielded a substantial profit which was almost doubled by the subsequent rise in Quadra shares before they were sold. Overall on a total outlay of £2m Galahad made a profit of £22.2m.
Once Galahad’s four investments had been sold it was decided that it would be both right and proper to return the cash proceeds to shareholders through a voluntary liquidation. This was arranged in February 2008. Over the four years of Galahad’s life the overall result was an average IRR of 66% per annum.
Click on the link below to see Galahad’s track record from 1st July 2003 to 19th September 2007: