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Gold market rigging sneaks into Bloomberg profile of mining entrepreneur Giustra

Section: Daily Dispatches

Will the reporter and her editor keep their jobs? Will Giustra himself avoid ridicule and ostracism?

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Billion-Dollar Gold Dream Lures Mining Maverick Out of Hiatus

By Natalie Obiko Pearson
Bloomberg News
Wednesday, May 17, 2017

Frank Giustra likes to see big where others think small.

The Canadian mining maverick's latest target is a subterranean patch of red earth in southwestern Mexico. In January his new undertaking, Leagold Mining Corp., bought the Los Filos mine from Goldcorp Inc. for $350 million. It wasn't the open pits churning out 200,000-plus ounces of the precious metal that caught this attention -- it was the untapped deposit stretching for roughly 600 meters below.

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"We just looked at it and thought: This is a jewel," Giustra, 59, said in an interview at his downtown Vancouver office, where a George Rodrigue blue dog painting hangs at the entrance. The plan is to use Los Filos to build "a major gold producer over the next two, three, four years," he says. "Unless the world changes dramatically, I think we'll pull it off."

Giustra has a track record of finding the sparkle in the dirt. He's used what he calls a grow-by-acquisition model to help build Endeavour Mining Corp. as well as a predecessor to Goldcorp, which is now one of the largest gold producers and Leagold's biggest shareholder. In his spare time, he founded Lions Gate Entertainment Corp., which became one of the world's biggest independent studios.

Giustra now spends about 20 percent of his time trying to grow his wealth across a slew of interests ranging from an Italian olive estate whose oils have been voted among the planet's best, to Thunderbird, the film production company behind the upcoming Blade Runner sequel. The bulk of Giustra's time is spent trying to give money away in partnership with Bill Clinton, a close pal, and George Soros.

Vancouver-based Leagold marks a return to the resource sector after a half-decade hiatus while financing for new projects had dried up amid an extended commodities downturn. Since early 2016, Giustra has also acquired stakes in NewCastle Gold Ltd. and Sandspring Resources Ltd., which are developing gold mines in California and Guyana, and Lithium X Energy Corp., an explorer searching in Argentina and Nevada for the metal used in electric car batteries.

"Gold -- of all the money-generating things I do, it's my favorite and the one I understand the best," Giustra says.

Among his business interests, Leagold is the one that's currently got his attention. Its Los Filos deposit in Mexico's Guerrero state is twice the size of assets that launched Endeavour and Goldcorp-precursor Wheaton River Minerals Ltd., he says.

Leagold may be used as a base to kick off a series of deals in Latin America. "The ownership of gold projects and mines is much more fragmented than any other region on Earth," says Giustra, who is Leagold's chairman. "There's much more opportunity there."

Los Filos produced 231,000 ounces of gold in 2016 at an all-in sustaining cost of $878 an ounce, according to the company. Buried below its two open pits is El Bermejal, an underground deposit that has the potential to produce an additional 1.39 million ounces over eight years at about half the cost, $439 per ounce. That's because little more than a ramp has to be built to exploit El Bermejal's reserves -- everything else it needs has already been built for Los Filos. El Bermejal is set to start producing in 2019, according to Giustra.

"It wasn't being looked at in that way by Goldcorp because they were focused on much bigger things," Giustra says. "That's why they sold it to us, and I think we bought it at a great price."

Leagold was unchanged at C$2.55 at 12:14 p.m. in Toronto, giving it a market value of C$350 million ($257 million), while the 48-company MVIS Global Junior Gold Miners index fell 1.7 percent and a Bloomberg Intelligence gauge of senior gold miners dropped 1.5 percent.

Giustra was born in Sudbury, Ontario, into a poor immigrant family and spent his childhood in Italy, Argentina and Texada Island off the British Columbia coast while his father toiled in mines as a driller and blaster. "I didn't like not having money," he says. Starting in grade 6, he says he began finding ways to earn cash by mowing lawns, delivering newspapers, and rounding up drowsy chickens at night -- four to a hand -- and loading them onto a truck, a foul-smelling job for which he pocketed about $2 an hour.

He has a knack for both success and controversy. He founded Lions Gate, which backed films deemed too risky by the Hollywood majors. He plunged into the olive oil business because, as he told a packed hall of hundreds in January, of "a passion for food. It's better than sex -- unless you're vegan."

He assembled stakes in a clutch of Kazakhstan uranium properties in 2005 to form UrAsia Energy Ltd., which two years later was involved in a multi-billion dollar merger. That deal landed him in controversy following media reports that he may have benefited from Clinton's political influence in the Central Asian nation. Giustra has repeatedly denied the allegations.

He also unabashedly admits to his failures, including an investment in a West Coast sablefish farm that went under: "I lost a lot of money -- even for me."

Giustra's return to resources is driven in part by unorthodox convictions about the U.S.-led global financial system, which he sees as undermining both his biggest business focus, gold, and the issue closest to his heart, a more equitable distribution of wealth.

He has referred publicly to U.S. Federal Reserve Chair Janet Yellen and her predecessors as "well-trained circus dogs" who've pumped money into the financial system, bolstering the cash piles of corporations and allowing the wealthy to binge on real estate, stocks and art. He believes Western governments don't want their citizens amassing gold because it signals a loss of confidence, and are aided in "managing" the price by Wall Street banks that don't like the metal because it presents few opportunities to generate fees.

At a 2014 conference in Vancouver, Giustra lambasted Goldman Sachs Group Inc.'s head commodities strategist Jeff Currie for forecasting that gold would plunge to $1,050 an ounce by the end of the year. Giustra said at the time if the analyst was wrong he should be obligated to stand in the middle of downtown Vancouver's Robson Square "in ladies' underwear" and sing Patsy Cline's "So Wrong." Currie's forecast was off by a year, with spot gold only falling below $1,050 at the end of 2015 -- before it sharply climbed again.

"This is why I'm such a gold believer: It's the only real currency that everybody accepts that you can't dilute and you can't print," says Giustra, referring to the multi-trillion dollar global debt pile amassed by governments, households and non-financial firms since 2000. "All of this printing of money made a lot of people rich, it made the banks rich, but it didn't help the mainstream economy."

Gold has climbed 9.4 percent this year amid a weakening dollar and political friction in the U.S. and Europe. The spot price fell 0.4 percent to $1,256 an ounce at 12:22 p.m. Thursday in New York.

Giustra says he holds "a lot more" gold than a traditional financial portfolio, but declines to specify how much. He also doesn't disclose his net worth but disputes a common characterization that he's a billionaire.

"Excess money is an illusion," says Giustra, who has forsworn his two children any inheritance except an education. "I will never be a billionaire because I will give it away faster than I'll get there."

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