May 25, 2020

Warren Buffett bought 3,500 tons of silver in 1997. The purchase helped make Thomas Kaplan a billionaire.


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Warren Buffett’s purchase of almost 3,500 tons of silver in 1997 helped turn Thomas Kaplan into a billionaire.
After the silver bubble burst in early 1980, the precious metal plunged in price from $50 an ounce to below $10, and it was widely dismissed as a bad investment.
“What really put and end to it was when Warren Buffett bought [those] ounces of silver,” Kaplan, the chairman of NovaGold Resources, told shareholders this month.
“It became public that he had done this the week when I was taking my silver company public,” Kaplan said. “That changed everything.”
Kaplan told Business Insider he personally thanked Buffett at a dinner years later.
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Warren Buffett made an unusual move in 1997 when he bought 111 million ounces, or nearly 3,500 tons, of silver. The famed investor’s purchase helped make Thomas Kaplan a billionaire.

“That changed everything”

Kaplan was in his early 30s, with a doctorate in history from Oxford University but zero industry experience, when he founded a mining company named Apex Silver Mines in 1993. Despite his lack of credentials, he received a $10 million investment from billionaire investor George Soros in 1994.

At the time, the global silver market was still recovering from oil tycoon Nelson Bunker Hunt and his brothers almost cornering it in 1979. The silver bubble had burst in early 1980, slashing the price of the precious metal from $50 an ounce to less than $10, and making it a toxic asset for many investors.

“What really put and end to it was when Warren Buffett bought [those] ounces of silver,” Kaplan, now the chairman of NovaGold Resources, said during the miner’s virtual shareholder meeting this month, according to a transcript on Sentieo, a financial-research site.

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“I remember it vividly because there but for the grace of God, it became public that he had done this the week when I was taking my silver company public,” Kaplan continued, referring to Apex.

“And otherwise, not a very good time to be in the market, but that changed everything.”

Read more: These 11 stocks loved by hedge funds have beaten the market during both the coronavirus collapse and its subsequent recovery, RBC says

Berkshire’s wager

Buffett and his partner Charlie Munger’s silver investment didn’t just benefit Kaplan. It also generated a pre-tax return of more than $97 million for their Berkshire Hathaway conglomerate, Buffett said in his 1997 letter to shareholders.

The Berkshire CEO described the wager as a “return to the past” as he bought silver in the 1960s in anticipation of its demonetization by the US government. In 1997, he bet on the metal again as he predicted shrinking stockpiles would push up the silver price.

“In recent years, bullion inventories have fallen materially, and Charlie and I concluded that a higher price would be needed to establish equilibrium between supply and demand,” Buffett said in the letter.

Bill Gates, the Microsoft cofounder and Buffett’s close friend, must have come to the same conclusion. He took a stake in a miner, Pan American Silver, in …read more

Source:: Business Insider

      

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