Episode 35: Thomas Kaplan - Chairman and CIO of The Electrum Group

0:00This week on Generating Alpha, I'm joined by none other than Dr. Thomas Kaplan, one of the most successful commodities investors investors of our time. As the founder and chairman of the Electrum Group, Thomas has built one of the largest privately held portfolios of gold and silver assets in the world, earning reputation as a visionary in precious metals and natural resources. But his impact goes far beyond investing. He's the largest private collector of Rembrandt Works in the world and the founder of Pantera, the global nonprofit dedicated to conserving the world's wildcats. Few figures move as seamlessly between the worlds of finance, art, and philanthropy, and even fewer with the same level of success.

0:39In this episode, we'll explore Thomas' approach to commodities investing, why he believes gold and silver remain timeless stores of value, and how he channels his resources into conservation efforts with a lasting global impact. If you enjoy this episode, please follow the podcast and rate it 5 stars on Spotify, subscribe to the YouTube channel, and share it to anyone who you think might find it valuable. Thank you, and I hope you enjoy this conversation. Thank you, Thomas, for coming on. I really appreciate it. The pleasure is all mine, Amir. Well done for creating an initiative and implementing it that I think is going to serve you and your audience very, very well over the years.

1:26I really appreciate it. It means a lot coming from you. But I want to start where I always begin. starting off with kind of your childhood and education. And you've described yourself as a passionate person. And in this interview, I kind of want to focus on your passions and how they've evolved because they've kind of carried themselves through your career and through your life. I'd love for you to focus on kind of your earliest passions, history, art, and Wildcats. Can you just kind of tell me about how those passions began and how they evolved through your childhood and education? Well, first, let me say that for many years, I did not describe myself as a passionate person.

1:59I just had a personality and I presume that everyone has a passion. It was my late partner in creating Panthera, Dr. Alan Rabinowitz, who pointed out to me when I said, well, everybody's got passions. He said, no, no, no, no, no, no. Don't make that assumption. Very few people have a really great passion. Some, many can't even summon passion for their children, you're just unusual in having multiple passions and indulging them all simultaneously. So the irony is that the passions for which I'm best known today are really things that all came together from about the age of six to ten. And it was that time when I developed a very, very keen interest in military history.

3:05I was always at the library after school as a kid, reading books on World War I, World War II, which was relatively contemporary in those days. my bedroom in New York was festooned with posters of big cats and my mother started taking me to the Metropolitan Museum when I was six and I immediately was touched by the impact of Rembrandt so when looking at you know what defines me now These passions for art, for cultural heritage, history, and wildlife conservation all really germinated at that time. I just never lost them over time. So I was born in New York, moved to Florida at the age of eight.

4:08My interest in art developed, as I mentioned, in New York. So to history, but the latter to history and wildlife really deepened as a result of some sliding doors effects, as we'll probably discuss. And I then went to Switzerland in order to fulfill my ambition to go study history at Oxford as an undergraduate, which at that time was very, very difficult from the United States. I switched to the British system of doing what are called O and A level, ordinary and advanced level Oxford entrance exams. And I did get into Oxford, Edinburgh College. And I pursued my interest in history through gaining a DPhil.

5:11and so essentially it was an ambition to really be able to take a an all-in approach to history short of becoming a professor which I did think it might be my ultimate ambition but La Fortuna had other plans for it. It did it did and and we'll get to that but I'm super interested in kind of your time at Oxford. And I'm pretty sure during, you got your bachelor's at Oxford and you also were working on, you got your PhD at Oxford in modern history. But I'm interested during your time working on your thesis, you took a very pivotal trip to Israel. And I think that's where you met your wife. I think it was supposed to be six days and it became six weeks.

5:57And you just tell me about that trip and how that kind of trip led into your, the start of your career in commodities. my uh uh my trip to israel which i took uh while i was doing my doctorate um really really really uh exemplified what i call the sliding doors effect uh in the first instance I went there for business the night before I left I was having dinner with a very very dear friend of mine who became pivotal in introducing me to my pursuing my interest in art to another level name is Lorne Thiessen and we were having dinner and he said so where are you off to and I said I'm going to Israel he said well do you know anyone and I said a couple of business people I'm supposed to be there for six days.

6:55He said, well, look, I'm going to give you the name of a girl. He said, I didn't meet her, but I saw her. You don't have a chance with her. And who knows? She went to the same school that we did in Switzerland, but being younger.

7:16Well, the consequences of that trip is, first of all, it was expanded from six days, which as we know in the Middle East can be very meaningful to six weeks and the reason was I met this girl Daphne and fell in love with her and so the first sliding doors was having dinner with a friend because I would not have known who she was or have taken the initiative to try to see her. But I did. So on that trip, I found my lover and my partner in all things. And that's 37 years later. And, you know, I'm very happily married. She's not, but I am. No, that's just an old joke. But in any event, while she was doing her military service, I was finishing my defill and I occupied my time by both reading books about investing and at the same time developing a thesis which I called Saddam's Southern Strategy, which in 1989 was a prediction that Saddam Hussein would invade Kuwait and why.

8:41well over a year, more than a year before it happened. As to the reading books on investing, I started by reading a really, really excellent classic called The Money Masters by John Train. I would recommend it to anyone. He then wrote a sequel called The New Money Masters. And basically he gave all of these brilliant luminaries, you know, from Ben Graham and John Templeton to Soros and Buffett and Paul Tudor Jones, et cetera, et cetera, and told about their investing styles. I looked at it as a buffet from which I could select an investing style that was best suited to my personality. By the way, in some respects, this podcast harkens back to that time, because essentially what you're trying to do is to give your viewers a suite of chapters.

9:48And people may find from those things tidbits, morsels from which they can adapt their own lives. I found that the paradigm that best suited my temperament with my natural understanding and feel for cyclical turns was John Templeton's maxim by during periods of maximum pessimism. That suited me just fine. I, by nature, was not afraid, but at the same time appreciated deep value. And I thought this is a very, very good place to start. The final sliding doors of that trip was that that thesis, Saddam's Southern Strategy, was another one of those sliding door moments. I was having lunch with someone who was the former director general of the defense ministry, Yossi Chekhanover, one of the great wise men of Israel.

10:53And I relayed my thoughts to him. He asked whether he could pass this along to the Mossad, who completely rejected it, told him he sounds like a nice Jewish boy. Maybe he's really even a good boyfriend to your friend's daughter. But he's delusional, literally like that. so when Saddam fulfilled his destiny as I wrote it or felt it was going to unwind I was offered a job and that fellow who offered it to me was an Israeli businessman named Avi Tiamkin who was an advisor at that time to two of the great luminaries of the 1980s and 90s in New York, Jack Nash of Odyssey Partners and Michael Steinhardt.

11:52And he gave me a job because he knew of this prediction. He knew of its rejection. And he said, you have the ability to see around corners. As I start my hedge fund, I'd like you to be there with me as my junior partner, and you'll give me a relative advantage by seeing things that others don't, allowing me to position myself. And that's what happened. And he became my first mentor. Really taught me just wonderful examples of human psychology and ethics. And so I was, as the French would say, bien élevé, well brought up by Avi. and so that trip to Israel ended up being a series of accidents that really charted the course of my career.

12:52And I'm interested in how from there you got your start in commodities because I've heard the story about kind of the Soros brothers backing you and you're taking a very contrarian bet. Can you kind of explain your first big bang commodities and the story behind it? So the work that I was doing with Avi was primarily focused on macroeconomics and the vehicles that best express that. So currencies, bonds, on occasion, stock indices, but very, very macro. but it so happened that part of Avi's process was to look at other what he called anecdotal indicators that if they were flashing for some reason might be telling us something about the bigger thesis when we were focusing let's say on the Deutschmark at that time or the yen And one of those indicators, well, two of those indicators were gold and silver.

14:02If he hadn't actually looked at those indicators, I really have no idea what would have happened next to me. However, at that time, the price of silver was down from$50, which was the peak during the bunker hunt years, to$3.5. And the general conventional wisdom was that it was going to go down to$2 because digital would supplant silver halide film, which accounted for, let's say, a third of silver demand. And I thought this was really interesting. I mean, it was down well over 90%. I sort of had a bullish take on gold, but it was not yet fully fleshed out. And I figured it's just literally no way that a silver mining company can make money at three and a half dollars.

14:55There's got to be a reversion to the mean. I want to take a look at that. And so I looked at silver and I concluded, although I'm not particularly quantitative in my aptitudes, but I concluded that the conventional wisdom that silver was going to go from three and a half to two was wrong. and that silver had a better chance of going back to$50 based on fundamentals and a misunderstanding of the supply-demand equation, which was that digital would not supplant silver halide film in a vacuum. The second largest source of silver supply at that time, after mine supply, was the recycling of silver film.

15:42So instead of it being a third of demand, At that point, let's say 90 % of silver in film was recycled. So it'd be 10 % of 33 % at a time when there was a systemic deficit between supply and demand of 20 to 25%. Therefore, my attitude was the entire conventional wisdom thesis was wrong.

16:09um well it turned out that i was right but along the way i took whatever savings i had and i put them into the longest dated uh comex silver options i could find which were over a year in duration and silver prices within a month bottomed at three dollars and forty cents and surged to five and a half dollars so i made quite a bit of money on my silver options and i sold them at five and a half because that was my identification of the break even price for the silver mining companies in Idaho to be able to reopen mines or to consider that. Price went back down to$4. And I was waiting for it to go back and make a double bottom at $3.50.

17:06And I was having dinner with Jack Nash. And he said, how's your silver thing going? And I told him. And he said, where's silver now? And I said,$4. He goes, when are you going to buy it back? I said, I'm waiting for$3.50. And he said, Tom, don't be too cute. $4 is good. And I went back and I called our brokers, Lehman Brothers. And I said, could you tell me what Silver's doing tonight in Tokyo? And he said, incredibly quiet market. It's, you know, 410, all bid, no ask. The obid no ask. Really? Yeah. Okay. So the next day I called my broker at Merrill, Ron Rothenberg, who became a dear, dear friend, and bought back all the silver options.

18:01And silver went back up to$5.50. And I sold again, this time more white knuckle, because of course I think it's going to go to$50. as it happened for the next 10 years it stayed between four and six dollars you literally could have watched paint dry however i had come to the conclusion i did not like to stay up late i like to get a good night's sleep i did not want to wake up to see what silver was doing in tokyo or frankfurt this was so i took my winnings off the table and i said i'm going to buy an option on a silver property somewhere. And when silver goes up, that will give me all the leverage to the theme.

18:47And I found a property to buy in Idaho in the very famous Coeur d 'Alene district, right across from the mine that I always wanted to buy and ultimately did buy. It was called the Sunshine Mine. It was the most prolific silver mine in US history. Anyway, it was right across from that. and I optioned that property. In the end, I dropped that option. That's a long story for another time, perhaps. But I started to look at different properties in the United States and then other silver producers, Peru, Bolivia, Mexico. And ultimately, I built a company from Mexico to Mongolia and we made a discovery in Bolivia that was the biggest discovery of our generation.

19:43And so, you know, with beginner's luck, because the odds of making a discovery like that were anywhere from 1 ,000 to 10 ,000 to one against me, I found myself in the mining business, for which I had absolutely no natural aptitude. I didn't know anything about geology or engineering or candidly, you know, you have Jews who are Einstein and then you have other Jews, you know, actually quite like Einstein who can't find their way to the kitchen without assistance. I fall into that latter category. but along the way I did learn how frustrating it was to be able to get people to buy into what I thought was a relatively straightforward thesis the conventional wisdom was that strong people said I was crazy I you know I had a really fine education I had a very fine personal reputation and a reputation for, you know, being able to predict things.

20:47There literally was nothing flakier than a Jewish financial type armed with a so, so relevant defil in counterinsurgency starting a mining business from scratch. And so I thought, well, I'm not going to go out of my way to tell people what I do. and we'll see whether I gain any traction. If I do, this company will go public. And if I don't, it will die as soundless a death as possible so that I could continue with my career. As it happened, I did manage to convince very, very smart money like Bruce Covner, Paul Tudor Jones, but most particularly Jack Nash, who then introduced me to the Soros ecosystem.

21:47And the man who ran their South American operations, Eduardo Elstein, took a bet on me and introduced me to George. George then passed me to his brother, Paul, who was an absolute genius, rich before George was, and then gave his money to George to manage. A really, really fine story. but it became a very smart money trade. And it really became the first time that I experienced that phenomenon that I've noticed that when I start something that seems even vaguely iconoclastic at the beginning, people tell me, you're crazy. And this has repeated itself several times. So even if I was successful, people would then say, well, you were successful then, but you're crazy now.

22:34And it's so interesting to see how something that sounds crazy is then marked when it happens as being, well, that was inevitable. And the best case of that was actually in the energy company that I created. But we'll go back to that. Yeah. And I'd actually love to hear about kind of your, the end of your silver kind of endeavors. and then your start with with lewar exploration in east texas and your in your in your endeavors in gas because i'm kind of interested like take me i'd love to talk about gold in a second but take me up until kind of just like gold and your kind of endeavors before that and what exactly was the kind of consensus thinking at the time and when did you kind of know you wanted to get in versus exit okay well first the silver story in a macro sense has never really ended i have two silver companies yeah that are going public next year so you know i've always silver's my first love however the story with my first company ended when i decided to retire after having financed the company, raised all the equity that it needed.

23:53And, you know, Source didn't want me to leave. But I said, look, let's make a deal. I said, look, I can't even program a VCR. And you want me to be running a company that's building the biggest mine in silver in South America. It's not right, but I'll stay as long as it takes to get the job done. And then I'm moving on. I'm going to move on into gold exploration because exploration, despite the horrible odds, seem to be working for me. And I don't know how you factor luck into a business plan, but I said, you know, I'm lucky, apparently. And platinum and hydrocarbons. So first was my experiences in platinum.

24:48We had 100x return on the companies that we invested in, in South Africa and Zimbabwe. and then continuing to feel lucky, but also having a sense somewhat akin to what I experienced with silver. I had a belief that at that time in the early 2000s, oil was around$18 a barrel. It'd gone down below 10 bucks. Many people said they thought it was going to go back there. At best, the consensus was that oil was going to trade between$12 and$15. That would be the normative price range. But my analysis said oil is going to$100. So, you know, I've been in this movie before, you know, silver, three and a half to$50.

25:50Oil. And of course, everybody said I was nuts. Well, we named the company Lior. After then we had two children. Now we have three. So Leonardo and Orianne. Went out searching for oil in Texas and Wyoming and made one of the biggest natural gas discoveries in Texas in over 30 years. a monster deposit that a reservoir that started producing the biggest onshore natural gas wells in the United States and

26:34we developed this into the fastest growing privately held natural gas producer and sold it to Encana the largest independent I believe in North America at that time, for$2.55 billion, which was extremely nice. I sold it in November of 2007. I often call that my Allahu Akbar moment, because had I not sold it, knowing now what was coming and indeed knowing what I was afraid was coming, which is why I sold my platinum company in 2007 and my energy company in 2007 to position us away from anything that was economically sensitive to only precious metals. I really felt that the world was a Ponzi scheme at that point and I needed to, you know, find an exit or another metaphor, put my, you know, butt down on a chair before the music stopped.

27:47And so we managed to sell both of those. And of course, a year later, I don't know, maybe Lior would have been worth 10, 20 cents on that dollar. But at the time we got, I think, the highest price paid for reserves or production. But there was this thing as well as the financial atmosphere, which I really did believe was a bubble. There was also the advent of this new thing called shale. And I could no longer quantify whether oil was worth 100 or 120 or 140 as it happened, which is when we sold, or 20. And far less did I imagine that it could go to minus 20 or minus 30 or minus 40 as I was watching CNBC at that time.

28:48But the facts had changed and it was time to leave. and you know I have massive conviction it's you know conviction and passion I presume could be said to be siblings at least and I had massive conviction but there were enough things going on around me and the the stakes at that time had become so big that I realized it was time to ring the cash register and hope that the acquirer doubled or tripled their money and just be grateful to them and be happy for them. As it happened, things started to unravel within months. And at that time, we had nothing but cash conviction in precious metals. And I started to buy large, sometimes controlling stakes in precious metals companies.

29:50when the crisis hit, some as far afield as Congo and Venezuela. But for me, the jewel in the crown was a company called Nova Gold, which was developing with its partner, Barrick, the Donlan Gold Project in Alaska. I've watched that company from afar, seen it go from 50 cents to over$20, never owning a share, but always saying, well, if one day, one day, circumstances are there I'm going to buy the whole company as it happened um the late Igor Leventhal who was president of our mining business um when I did go to try to buy the whole company at the end of 2008 he said just remember Beric tried to buy the whole company at 16 a share you're trying to buy it at two my job is to stand next to you in the chariot and tell you thou art mortal Caesar.

30:52The crowd, they love you. They're throwing rose petals at you. But just think, if you're Barrick, the biggest mining company in the world, and you lost the only hostile takeover you ever undertook, we weren't part of it, so we had no baggage.

31:09If an interloper comes in and tries to buy a two, what you tried to buy at 16, they're just going to walk you up dollar for dollar. Go for the kind of deal that we like. 30, 40 percent. And be happy with that. Better to have that than lose it completely to Barak. You have such conviction about this story. He was absolutely right. And we effectively took control of the company right before it went into bankruptcy as a white knight. and it's a fabulous story. And another white knight emerged earlier this year, John Paulson, to liberate us

31:59from the bear hug of a very

32:10misaligned I've got so far as to say malaligned even if I'm making it up partner and you know I get the credit as Moses for having liberated the company but as I now love to say I'm Moses to John Paulson's God because of the faith that he had that we could do this. And, you know, putting up a billion dollars is personal, is a very special thing. And so I got very, very lucky. I've been very lucky in having great partners. The only bad one I ever had was one that I inherited. And that was Barrick. And now that's gone. And all the headwinds that we had became tailwinds. It's an incredible story.

33:03And talking on the topic of partners. I'm kind of interested. Obviously, you don't go to East Texas and like mine yourself. So I'm interested in how you think of surrounding yourself with like the best people possible, like Igor or John Paulson. How do you like think about human capital and the people you surround yourself with? Well, the most important thing is to understand what you don't know. I mean, know thyself is a very, very important thing. But the first premise is, as I understood when I created a silver company without any background in either mining, silver, or any of the criteria that go into making a successful enterprise in that space.

33:48I surrounded myself with great people, people who'd been there, done that, made the video, built mines, found mines. and the common attribute that I fleshed out with them when I interviewed them is this, I know you're good. I know you're good. I've seen what you've done. They were all older than me by definition. I was 30-ish, 32 maybe when I started the company and then Lior. I was in my early 40s.

34:31I said, here's what I need from you.