Ken Talbot, an Australian billionaire, is sadly confirmed dead after a plane he was travelling on crashed in the Congo. I'm so sad these are some of the last valuable thoughts Ken Talbot shared publicly, in an interview I conducted with him not long before his fatal accident. His thoughts are too valuable and timeless to not stay on The Global Townhall.
Ken was born the son of a truck driver and raised in government housing. Considering his heritage, it is an astounding accomplishment to have accumulated such wealth by only 59 years of age. He generously contributed his wealth to causes that helped his community and world. I am grateful to present his thoughts on doing business in Africa and some of his billion dollar ideas.
Gabrielle Reilly: What is the best advice you could give your children (and our readers) on running a successful business?
Ken Talbot: My advice is as follows:
- Develop your strategy. It will cost you nothing, just thinking time.
- You need good leadership that has the capacity to make it happen.
- You should recognize that you can't build the business yourself and therefore it is important to develop relationships for the longer term.
- Respect people, work with people and let people know where they stand.
- Develop a set of values which is the road map for how you choose to do business and how you want your people to behave in business.
- The final advice is you must work hard, there are no short cuts.
Gabrielle Reilly: When you evaluate a new venture (whether it is a hotel or mine) what are the foremost questions you ask yourself? Or, can you briefly describe the process you go through to make your decision on whether to buy or not?
Ken Talbot: My first check is to assess if the fundamentals are right. For example, is the resource shallow, high recovery, close to existing and underutilized infrastructure and geographically strategically placed to international markets? My simple view is that if the fundamentals are right, then the project will be economical during good times and bad.
My next check is to understand the ultimate potential of the project. I look for elephant projects. If the project has elephant potential, then I will consider applying the resources and reconciling the risk to move it up the value curve.
My next check is the quality of leadership. One of the biggest risks to our investments is the quality of leadership in the junior companies. The success of any development often depends on whether the existing leadership can take the next step, or if the right leadership needs to be engaged. It is important that the people inside junior companies fully understand the requirements of the company and the expectations of shareholders.
My next check is partnerships. What partnerships do we need to support a successful development of a mining project? It is a prerequisite for our participation that the partnerships are in the best interests of the project, or we can introduce the appropriate partners. We look for a combination of partners to provide for the best of the best approach to the business.
The bottom line is that I have a saying - I would rather be roughly right than accurately wrong. I never wish to have ten analysts in the back room doing feasibility studies. By definition, we will no doubt be looking at marginal projects. I do a quick and rough assessment to see if I think the project is robust and not marginal. If it survives this test, then we have a more serious look at it. Importantly, we look for an investment that is simple; the simpler the better.
Gabrielle Reilly: You seem to have a great track record of selling at the right time before market conditions change. Is your decision to sell, a collection of facts combined with gut instinct based on awareness of global markets/politics, populous view etc, or is your decision based purely on the figures you see on paper?
Ken Talbot: It is relatively easy to enter a project while we all look to have the flexibility of an exit option. I think the decision to sell out is always a more difficult decision, particularly if the project or company is successful.
I think it is a real test of leadership. At the end of the day, you must make a valued judgment.
I look at it strictly from a business view point and make my own judgment about where the project is on the value curve. I think it is important not to be greedy and to leave something for the next investor. As a general rule, we might consider asset sales when projects reach 75% of their mature valuation. There are many exceptions. For example, we are considering one project where the partnership is so important that it is probable that we would never sell our position.
A key issue is long term commodity pricing. Analysts are very conservative, particularly with long term pricing forecasts. It requires an act of faith to go against the analysts and to predict a stronger long term price as a basis to justify an investment. At the end of the day we must back our own judgment.
I think it is important to compare your existing investment with new opportunities. In my case, I look for new opportunities where I can add more value by moving the projects up the value curve, so typically I am looking for projects that are from 0% to 30% up the value curve.
It was this thinking when I made the decision to sell Macarthur Coal. The decision was made in February 2008 and the sale was executed in July 2008, fortuitously, ahead of the global financial crisis. It helps to have a bit of luck.
I also consider trends and I am very aware that in many cases, to do nothing is not the right answer. I sold my Hotel group at the end of 2006. My rationale was twofold. Firstly, it was a straight business decision. I had approximately US$100million of equity and I considered that if I kept the Hotels, in five years times they would be worth plus or minus 30% in value. Fortunately, I had a different background to a Hotel family type business and could properly assess alternate resource based opportunities. I therefore considered that if I invested US$100 million in the resources sector, then in five years time the value could be increased by a factor of five. There was no comparison and, as far as I was concerned, it was an easy decision.
We had also discussed the Hotel industry in house and I was very aware that the major supermarket retailers were moving into Queensland. We came to a view that they would pay a premium for Hotels initially in order to establish a distribution network for their liquor product. Once they had achieved critical mass, we judged that the retailers would then acquire Hotels at a discount. We thought that our Hotel sale was close to the time when the retailers would achieve this milestone of critical mass.
Gabrielle Reilly: What do you read/watch every day to keep up with events?
Ken Talbot: In Australia, I like to read newspapers daily such as The Australian, the Financial Review, the Courier Mail in Queensland and I receive daily updates of articles of interest to me from the Sydney Morning Herald in New South Wales, The Age in Melbourne and various regional newspapers.
When I am travelling, I like to read the international press such as the FT Times, the International Herald Tribune and the South China Morning Post, together with the local newspaper in whatever city I am staying.
I also watch TV news extensively.
I read selected magazines such as Forbes Asia, Forbes India, The Economist, the Harvard Business Magazine, the CEO Middle East magazine and the BRW magazine from Australia.
Gabrielle Reilly: Do you have a business book and or a favorite book you would recommend?
Ken Talbot: I like the following books:
For business thinking outside the square, I like the book "Blue Ocean Strategy', by W. Chan Kim & Renee Mauborgne.
For ideas about people and human relationships, I like to read books in the sporting genre and I particularly like Wayne Bennett's books - "Don't Die with the Music in You" & "The Man in the Mirror".
For the purpose of thinking outside Australia, I like the book "The Golden Age of Freedom" by Rupert Murdoch.
Gabrielle Reilly: Where do you foresee the global economy in 2 years, 4 years and 10 years?
Ken Talbot: I see the global economy dominated by China, India and Brazil. Much has been written about China and India. What is important is that both countries are strategically securing raw materials for the future. It is a wonderful time to be buying assets.
I am strongly optimistic about Brazil's future. It has the best iron ore raw materials resource in the world and an opportunity to further develop a world class steel industry. The economics of their steel industry will be very compelling because they can avoid the need to transport iron ore around the world. Brazil also has strong oil and gas potential in the Santos Basin, with many discoveries happening post 2006. It is an early call but the Santos Basin could be the new Middle East. I am also impressed with their political leadership. During the Global Financial Crisis, taxes on the automobile industry were deferred to stimulate the domestic economy. The banking sector and its associated financial industry is also strong.
I think world growth will be restored to a healthy 3% per annum, the only question is when.
In the next ten years, I see another strong boom and I think it will be stronger than the last boom. My rationale is that there is an underâ€?investment in the supply of key global commodities and an underinvestment in infrastructure.
Gabrielle Reilly: How does it actually feel waking up every morning after being raised in such humble beginnings and realizing you have a bazillion dollars now?
Ken Talbot: It gives me the right perspective. Because I am a self made person, I don't take anything for granted. I focus on the day ahead and what I can achieve. A smart man told me that you should acknowledge the past but don't live in the past. Certainly the past gives me satisfaction, but what gives me more satisfaction is the challenge to do something in the future.
My biggest concern is our next generation. Many children I know, including my children, now go to a private school, where I went to a Government school. They do not see hardship as compared to my background where I lived in a Government house and my father was a truck driver.
In the children that I see, I try to inspire them to be hungry, set goals and ambitions, and in so doing have a desire to succeed. It is certainly a contrast to myself where I knew I had to succeed because there was no safety net. It is important that we develop our young people and provide them with opportunities and hope.
Gabrielle Reilly: You are known for your generosity, what are your favorite causes?
Ken Talbot: The opportunity for giving to worthwhile causes and helping our fellow human beings provides me with tremendous satisfaction. For this purpose, we have established the Talbot Family Foundation.
Four areas of Philanthropy are important as follows:
In Australia we have Dr Paula Barrett, who has developed an educational product for children to help them overcome difficult situations or difficult people. She says early across the board intervention, as opposed to selectively targeting only high risk children, is crucial. The intervention comes in the form of simple, fun programs she has developed in which children learn social and emotional skills to deal with difficult or challenging situations in life. Dr Barrett's programs are accredited internationally by ?WHO'. Through the Talbot Family Foundation, we hope to work together with Dr Barrett through her Pathways to Resilience Foundation. The objective is to assist the rolling out of her programs to disadvantaged groups throughout Queensland.
We are also supporting a Choir of disadvantaged people in Queensland called "The Transformers", run by an organization called RecLink. The Transformers are Queensland's version of the popular "Choir of Hard Knocks". It gives these people a reason to get out of bed in the morning. Music is an effective medium to unite people.
We think that the Australian Government underâ€?provides assistance for returned servicemen that help all of us have a better life in Australia. We are supporting a group of SAS veterans who are focusing on rebuilding relationships in Cambodia post the Vietnam War. It is important for these people to focus on a positive cause rather than all of the negative issues as a carry over from a significant conflict. We are helping the local SAS branch participate in the development of an orphanage in Cambodia - The Cambodian Landmine Museum Relief Fund.
The Victorian bushfires in 2009 were very tragic and caused a significant loss of life. We are playing our part in rebuilding the community through contributing to the reconstruction of a community Church, which will also provide a memorial for those people that lost their lives. The Church will be an important symbol to assist the community to come together.
We are proudly contributing to the Australian Ballet who has developed a brand that is acknowledged globally. It is also important that the Australian Ballet is properly funded to further develop their brand name and to provide education for dancers to aspire to one day join the Australian ballet. We have also supported a small classical group of musicians in Queensland called the "Southern Cross Soloists". They not only take their music to all parts of Australia but support their works with educational programs for school children. The Southern Cross Soloists have also taken their music internationally in recent times.
4. Heritage and History.
We think it is also very important to preserve Queensland and Australia's iconic buildings to
capture our history and the spirit of the nation.
We have been a contributor to the completion of the St John's Cathedral project in Brisbane. It is the only gothic building of its type that has been rebuilt in the southern hemisphere.
We have also contributed to the restoration of Old Government House in Queensland. The building was recently reopened and is a feature of the QUT Campus in Brisbane.
We have contributed to the restoration and redevelopment of the Queensland Library, which is well patronized by all age groups across Queensland.
We have also contributed to the General Douglas MacArthur Museum project, which has recaptured the period when General Douglas MacArthur operated from his office in Brisbane during the 1940's. General MacArthur was an inspiring leader who undoubtedly helped stem the invasion of Australia and was responsible for rebuilding Japan constructively to become Australia's most important trading partner today.
Gabrielle Reilly: Considering the new global view of modernized nuclear power now being a clean form of energy, and the substantial increase in the number of Chinese nuclear reactors, do you anticipate a shortage of uranium within the decade?
Ken Talbot: I am very optimistic about the future of uranium. I think the world is substantially under powered and, coupled with a trend to minimize greenhouse gas emissions, there will be an increasing demand for nuclear power. The world currently has 436 nuclear reactors and is proposing a further 278 reactors, including 80 in China over the next 30 years or so.
Interestingly, the current uranium mines production only accounts for 55% of the current global demand for uranium. Further supply is being drawn from military stockpiles which are predicted to be depleted by 2013. Hence there is a very strong interest from nuclear power utilities to secure stable sources of uranium for the future.
Gabrielle Reilly: Former Prime Minister Tony Blair's assessment of aid to Africa concluded that the aid money that had been poured into Africa over the past three decades had done more to harm Africa than to help. The money had been used to prop up corrupt governments and arm militia with little of it making it for its intended purpose... to improve the lives of impoverished Africans. Investment in developing African projects that employs locals and develops the country's resources was the preferred recommendation to help resolve this problem. From an international business owner's perspective with operations in Africa, what advice could you give policy makers/aid workers to make it easier/more stable for companies to do business in Africa? Do you have any theories on win/win scenarios for Africa or do you have any points to add?
Ken Talbot: An investor in Africa firstly looks for stability in Government. I think those Governments that can demonstrate their decision making capacity will attract international investors. The areas of focus for these Governments should be the process for land acquisition which provides certainty for investors and the capacity to secure development approvals in a timely way.
The World Bank is active in Africa and I believe oversees Government agreements to ensure that they are practically commercial for the Government and for investors.
It is important that business is supported not only by an African Government but by foreign Governments. As an example, in Mozambique we see investments made by Japanese, Brazilian, Indian and Australian companies that all have the support of their respective Governments. I think the Government to Government relationship is critical to support business occurring in countries such as Mozambique.
However, for stability we cannot just rely on these Government to Government relationships. It is important that development happens at the grass roots level and people are a priority so they too can benefit from the development of business.
This development can take the form of training at both the mine site and at the community level.
In the case of Australia, training opportunities exist for local people to gain Australian accreditations in the areas of building trade, hospitality, nursing and English language.
These training opportunities are of course on top of the need to provide assistance for basic health requirements in these under developed countries.
It is also important that we develop leaders from these grass roots communities, educate them and then put them back in the system. Our aim should be to inspire others to follow and, in so doing, lift themselves out of poverty.