Property Podcast
Geology Rocks, But Adam McKinnon Moonlights as a Property Investor
March 12, 2023
Adam McKinnon is a geologist by day and property investor by night. As a manager of a public junior ASX company, he’s worked his way up and loves the view from where he is. After dedicating years of his life to the study of Earth sciences, he plans to keep digging for gold both literally and figuratively, searching for copper in the ground and golden property nuggets above it.
In this episode we dig into his background to unearth just how geology and property aren’t so dissimilar after all. He shares his thoughts on the green revolution and the part he plays in it, the fascinating facts behind mining for minerals, and how his foray into property was the natural step for him to take at this point in his life.

Timestamps:
01:41 | Geology Rocks
02:27 | A Day in the Life
05:30 | Digging Deeper
10:18 | Mining and Minerals
16:01 | Rough but Tough
17:35 | An Involved Process
27:21 | Property Journey
30:37 | This Calls For a Spreadsheet

Resources and Links:

Transcript:

Adam McKinnon:
[00:32:52] And when I ran it through my spreadsheet, it made a lot of sense. And it was quite an eye opening experience. Because like a lot of people I think, 'You've got to go negative geared', but I didn't even really consider positive gearing. But since then, how things have changed.

**INTRO MUSIC** 

Tyrone Shum:
This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.
 
I’m Tyrone Shum and in this episode we’re speaking with Dr. Adam McKinnon, a geologist with a passion for Earth sciences. His journey has been a whirlwind of dust and dirt with the occasional golden discovery, but it doesn’t start and end with his career. After years of dealing with shares, he saw capital appreciation in property on the horizon.

**END INTRO MUSIC**

**START BACKGROUND MUSIC**

Geology Rocks

Tyrone Shum:   
Dr. Adam McKinnon is a chemist by training, after dedicating his high school and university years to inorganic chemistry. As a manager of a public junior ASX company, he spends his days looking for copper and gold, trying to find Australia’s next big copper deposit.

Adam McKinnon:     
[00:01:41] I went to uni. I was very good at chemistry in high school. And in university, in second year, actually, I took a course in what was called chemical mineralogy, which is the chemistry of rocks, and I absolutely loved it. 
  
[00:01:58] And that's what got me, it was almost a gateway drug into geology. And I ended up getting a scholarship to do a PhD in geochemistry, and also in geology, Earth sciences, which I've been doing ever since for the last few decades.

Tyrone Shum:   
His day begins early, and he greets the sun while running, riding, or walking into it as it rises.

A Day in the Life

Adam McKinnon:   
[00:02:27] Typically, I get up between 5:00 and 5:30.
  
[00:02:37] And then as an MD of a junior exploration company, I can be doing any one of a number of things. It can range from inspecting our latest drill core to going out to site to visit our guys doing logging out on site. Meeting investors, talking to brokers, writing ASX announcements is a big part of my job. And I also get to travel throughout both Australia and occasionally overseas as well, pretty regularly.

Tyrone Shum:   
For those of us unfamiliar with ASX companies and the differences between the junior and giant leagues, he gives a quick overview.

Adam McKinnon:   
[00:03:20] Our company has a market cap of around $30 million, which is sort of the high end of the junior space. But the ASX has 1,000 to 2,000 companies that have a market cap anywhere between $2 million and $50 million, which is what we call the junior end of the market. 
  
[00:03:40] Resource companies are the biggest number of companies on the ASX. And what we're all basically trying to do is find Australia's next big deposit of any one of a number of commodities— copper, gold, lithium, cobalt, all those things people are talking about at the moment that are required to make batteries, for example.

Tyrone Shum:   
There’s a large demand for the resources he seeks out, whether they be used for batteries or something else entirely. With the rise of the Tesla, this demand is only increasing.

Adam McKinnon:   
[00:04:53] Mining will drive the green revolution. It needs to. There's a lot of copper and rare Earths and lithium and all sorts of other elements that are required to actually build these batteries, wind turbines, and all the other things associated with the green revolution. And I'm glad that I'm a small part of trying to meet that demand.

Digging Deeper

Tyrone Shum:   
We dig a little deeper into his background, starting in the forest-filled valleys where he grew up.

Adam McKinnon:   
[00:05:30] I mostly grew up in the Blue Mountains, which is in the far west of Sydney. I did also spend a fair bit of time with my dad in country New South Wales, in a town called Bombala, which is in southern New South Wales. But yeah, I've been a Western Sydney boy for most of my life.
  
[00:06:11] One of my earliest memories is actually... 
  
[00:06:15] When I was born, I grew up at the town of Warragamba, people may know that from the Warragamba Dam, which supplies about 80% of Sydney's water. My dad worked for the Water board there. 
  
[00:06:31] One of my earliest memories was going fishing with him in the Nepean River. And it's an area I've loved all of my life. And I've loved fishing ever since I was young, and I love it. To this day. I don't get to do it enough now, but it's something that I picked up from a very young age. So that is actually my earliest memory that I can remember, going fishing at Warragamba with my dad.

Tyrone Shum:   
[00:07:01] That's awesome. I actually haven't been out to Warragamba Dam for a while or out that way and the Nepean River, but is that spot quite fishable? Because I think so much has changed over the years. And I'm not sure if that's the case.

Adam McKinnon:   
[00:07:16] The Nepean River is, yeah, there's still plenty of fish around. It tends to be a little bit inaccessible. Because it's surrounded by National Park. So it can be difficult to get in there. But these days, there's plenty of areas you can go and catch a fish if you want to.

Tyrone Shum:   
McKinnon is an explorer through and through, and he started early.

Adam McKinnon:   
[00:08:42] My parents were separated. So I still went to school in the Blue Mountains. But I spent most of my school holidays down in southern New South Wales with my dad. I went to the local public school in Blaxland, which is a suburb of the lower Blue Mountains, all the way through from year seven to year 12.
 
[00:09:29] I really loved science when I was in school, and I knew I wanted to do something related to science. I was very good at chemistry, obviously. And I chose to go and do a Bachelor of Science at the University of Western Sydney. 
 
[00:09:44] But I never really knew anything about Earth science at the time. It was only serendipity, really, that there was a course offered that allowed me to actually get out and see some old mines. And I was just hooked from then. But I continued on with the chemistry degree and just included the Earth science component of that as well.

Mining and Minerals

Tyrone Shum:   
Painting a picture of what these mines looked like, he begins with their history.

Adam McKinnon:   
[00:10:18] It was out in the Oberon or Bathurst area of New South Wales. It used to be, one area in particular, used to be one of the biggest in the 1800s, one of the biggest copper mines in the Commonwealth. It's completely derelict and abandoned now. And it's just a lot of old dumps, and a lot of old workings, if you will, an old smelter in a chimney stack. And what we were specifically looking at is just what minerals we could see on the surface.
  
[00:11:06] This particular mine basically hasn't operated in over a century now. So but back in the day, that all would have been mined from underground in pretty terrible conditions, mind you, back then. And then a lot of the ore actually got sent all the way back to London for treatment.
 
[00:11:44] Most metals and gold mines process their own material in Australia. Although having said that, a lot of the iron ore mines, for example, they send all of their material— or most of their material— over to one of the Asian countries for treatment. Typically, most of our iron ore products go to China, for example.

Tyrone Shum:   
One question he gets asked often is: What exactly is Earth science?

Adam McKinnon:   
[00:12:33] When you look at rocks, rocks are just inorganic chemicals. So that's where that natural link between chemistry and geology comes in. There is a lot more to geology as well, obviously, landforms and geophysics and things like that. That's separate. But the particular area that I was very interested in was the chemistry of rocks, effectively.

Tyrone Shum:   
[00:13:00] And that's where you stumbled into over that time, because that's when you went to that mine. And you said, 'Wow, this is what I wanted to do'. So I guess I'm curious, like, over the many years, how long did that degree take to complete?

Adam McKinnon:   
[00:13:13] It took a total of seven years to complete, actually, to complete my PhD.

Tyrone Shum:   
[00:13:20] So it's almost as long as a medical degree, or law degree.

Adam McKinnon:   
[00:13:26] Absolutely.

Tyrone Shum:   
When he finally completed his studying, there was no rest for the wicked.

Adam McKinnon:   
[00:13:38] The person who adjudicated on my PhD thesis offered me a job with a company that he was working for. And I pretty much straight away got chucked into the deep end into the mining industry. And within about the first six months of working, I had been on a plane to Broken Hill. And then also working in the Cobar region of New South Wales, which is about 400 kilometres west of Sydney.
  
[00:14:13] Surprisingly, when I first went out to Broken Hill, it was freezing cold, and it was the middle of winter. People don't often associate that part of the world with being cold. But [I] very quickly realised that swings in summer, it's obviously normally plus 40 degrees and then in winter, it can be very, very cold as well. 
  
[00:14:34] I've basically spent most of my career now working in Central Western New South Wales, and it's an area of Australia that I really, really love.

Tyrone Shum:   
With populations of just several thousand people, most of the towns he’s come across have been small but mighty.

Adam McKinnon:   
[00:15:00] Obviously, it's rural or semi rural in most of these towns. A lot of these towns actually only exist because of mining. Cobar is a good example of that. There's no river that passes by to attract anyone. Broken Hill was formed as a mining town. So mining is in the blood of these towns. 
  
[00:15:21] Nowadays, a lot of them have diversified into agriculture. And in the case of Broken Hill, they've even diversified into the arts, actually, there's a big art scene in Broken Hill, for example.

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Tyrone Shum:
Coming up after the break, McKinnon delves into the highs and lows of his career…

Adam McKinnon:
[00:16:01] The company that I started working for straight out of uni, very quickly, it's an interesting story. 

Tyrone Shum:
The massive size of the deposits he mines for, and just how long it takes…

Adam McKinnon:   
[00:22:55] We are only at the exploration phase at the moment. If we were to define a[n] economic deposit, then you could expect it to take quite a while to actually get a mine up and running. 

Tyrone Shum:
He explains how property came into the picture.

Adam McKinnon:   
[00:31:45] So from there, I actually called up one of my mates from high school who was a property valuer in the area. I said, 'Do you know any good buyer's agents? I guess I want to get into a property and I've got no idea where to start'. 

Tyrone Shum:
And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

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Rough but Tough

Tyrone Shum:   
Being thrown in the deep end of the mines— not literally— turned out to be a double edged sword for McKinnon.

Adam McKinnon:   
[00:16:01] The company that I started working for straight out of uni, very quickly, it's an interesting story. Within a year and a half, I was made redundant. This was right in the middle of the GFC. And a lot of companies were struggling. 
  
[00:16:19] I managed after that to go to work as the only non board employee of sort of a startup company. And during that time, we had a fair bit of success and discovered a small gold deposit. And that's really what kicked off my career. 
  
[00:16:37] I worked for that company for around six years, and then moved to another nearby company and [started] looking for copper and gold, and also lead and zinc. And over the years, I've had a fair bit of success at finding deposits with that company as well. And to the point where I rose through the ranks of that company up into the senior management, and then on to the executive team.

An Involved Process

Tyrone Shum:   
While many of us probably panned for gold during school excursions when we were younger, the modern process looks a little bit different to what we experienced.

Adam McKinnon:   
[00:17:35] Obviously, it's fairly involved. But the short answer is we use a whole number of different techniques. We can use things ranging from just simple mapping and going out and looking at the rocks and saying, 'These look like the right rocks'. 
  
[00:17:48] We can use something called geophysics, which uses satellites and other techniques, airborne flights to investigate the nature of the rocks. 
  
[00:17:59] And then the other main technique we use is geochemistry, where we go and sample the soil and sample the rocks and see if there's any signatures of the metals we might like to find. 
 
[00:18:10] When we find an area of interest, then the very next thing we normally do is we put a drill hole down into the ground. Drilling is very expensive. So that's usually the last thing we do. But that's the definitive test to tell you whether there is actually something there.
  
[00:18:49] It's actually more than you might realise. There's actually a whole suite of techniques that allow us to see deep into the earth. And some of them rely on magnetics, some rely on gravity, some rely on putting a current into the ground, and seeing what the response is that comes back. And there's a whole number of other techniques as well, that can be used. 
  
[00:19:15] And some of these techniques, one in particular called seismic can see all the way down through the Earth's crust. So we can see a long way into the Earth using these techniques.

Tyrone Shum:   
[00:19:26] That's amazing. So is it because those techniques also cost a lot more to utilise? And hence the reason why those technologies aren't constantly used? Or is it available for every type of mining company that can use it?

Adam McKinnon:   
[00:19:41] It's not that they cost a lot more, it's more that they can't directly detect whether or not there's gold there. They can tell you a lot about the rocks and they can tell you a lot about the faults and folds and things like that in the ground. But they can't necessarily directly tell you that there's definitely going to be gold or there's definitely going to be copper in that particular area.

Tyrone Shum:   
He’s climbed the ranks in the company he works for in the year he’s been there. In that short time, he’s worked his way up to achieve an upper senior management position.

Adam McKinnon:   
[00:20:45] They were looking for a managing director. And I had had a lot of success defining some of these deposits, and they wanted someone who could find these copper and gold deposits for them. So they invited me to come across as the manager, as the managing director. And we've since had quite a bit of success in the Narromine region of New South Wales.

Tyrone Shum:   
[00:21:14] How did you actually find that area to start off with? Was there some kind of specific area that you were just focusing [on] or this company that you were working with focused on? Or was it just going, 'Okay, we need to find a particular resource. And this is where we're just going to spread our wings and go for it'?

Adam McKinnon:   
[00:21:32] We knew it was in the right rocks, because there'd been some drilling there before that had shown indications of copper and gold mineralisation. And what we did is we followed up some of this earlier work. And really, we drilled into some really quite nice copper and gold mineralisation. And we've pretty much been drilling at this spot for the last seven or eight months now.
  
[00:22:12] The type of deposit that we're looking at is one of the main sources of copper worldwide. It's called a Porphyry deposit. And it accounts for about 60% of all of the copper production in the world. 
  
[00:22:25] These deposits are typically very large, and can be massive, they are the biggest deposits in the world. And generally, they range from around 100 million tonnes all the way up to several billion tonnes of ore.

Tyrone Shum:   
With at least 100 million tonnes of ore on the line, it’s far from a quick process.

Adam McKinnon:   
[00:22:55] We are only at the exploration phase at the moment. If we were to define a[n] economic deposit, then you could expect it to take quite a while to actually get a mine up and running. In Australia, it takes anywhere between three to 10 years to get a mine operating. And then these types of mines can be operating for decades. They have very long life minds.
 
[00:23:37] There's a huge risk to committing to drilling out these deposits. But the rewards are potentially massive. And that's what investors and gold prospectors have done for time immemorial. They spend a lot of effort in the hopes that they will hit that bonanza, so to speak.

Tyrone Shum:   
He’s incredibly grateful for all he’s been able to achieve in his line of work, and gives credit to several factors.

Adam McKinnon:   
[00:24:17] I've pretty much worked for four companies in a two decade career now. And look, I've been very, very lucky to have had some success actually finding some of these deposits. Some geologists— not through any fault of their own— will go their whole careers without ever discovering a deposit. 
  
[00:24:38] So there is a little bit of luck involved. It's somewhat hard work, and somewhat lucky in that sense, but I've been lucky enough to discover or been a part of discovery of a couple of those deposits now. And it is quite exciting. It's a very dynamic and exciting industry to be in.

Tyrone Shum:   
He explains how discovering deposits impacts the company he works for and share prices.

Adam McKinnon:   
[00:25:34] At our end of the ASX company scale, that's exactly what we're hoping for. As you would be aware, as a company that's not actually producing anything, we're just looking for new deposits, we don't have any income. 
  
[00:25:51] So if I put it into property terminology, what we're after is a capital gain. We have no income, we have no cash flow, so to speak. Our cash, it comes from the investors who are investing in our company, hoping that we will give them a big capital gain once we make a discovery.

Tyrone Shum:   
[00:26:10] And that's what you found recently, isn't it, that you mentioned that there was a discovery there?

Adam McKinnon:   
[00:26:17] We're still in the process of investigating what we've got. We obviously had a pretty big share price rise, more than doubling on the discovery. But as I mentioned before, it's very dynamic, and lots of moving parts about why a share price might go up and down, including things like the global markets, and also metals prices, general sentiment, risk appetite, all that kind of thing.

Property Journey

Tyrone Shum:   
After digging into the depths of his career, we switch tracks to discuss his dive into property.

Adam McKinnon:   
[00:27:21] Our first property, like most people, was actually the property we bought as our home, my wife and I, that was in 2010. At the time, we were quite extended when we bought the house. And we had a loose plan— or I had a loose plan— that I wanted to pay it off within seven years. And the way I was going to do that was by dumping all our spare money into the offset associated with a mortgage. 
  
[00:27:51] Now, in that time, our two girls came along. So that plan blew out a little bit. But we did actually manage to pay it off in 2020. 
  
[00:28:05] And I guess that's what precipitated my property journey. Even though it's not been a particularly long journey to this date, I got to a point where I went, 'Well, I'm not going to leave my money in the bank, it's effectively losing money in real terms if I just leave it in the bank. I'm not putting it on the offset anymore. And I'm used to saving all this money each month with each pay. I need to invest it'.
 
[00:28:35] Over the years we've had some experience investing in shares, particularly in some of the companies that I've worked for. And even for companies that I worked for, I couldn't predict which direction the share price is going. 
  
[00:28:51] I'd been impressed with the capital appreciation in our house. And I thought, 'Look, we probably need to get into property. It's going to be the best long term and safest stable investment for us looking towards our retirement in 15 [to] 20 years' time'.

Tyrone Shum:   
[00:29:12] That's excellent. And I guess, maybe, just paint a picture. What kind of house did you buy back in 2010 for your family home?

Adam McKinnon:   
[00:29:20] We bought a four and a half bedroom, brick house built in the 1960s in the suburb of Blaxland, where I went to high school in the Blue Mountains. I think at the time we paid about $460,000 for it back in 2010. Obviously we've seen very significant capital growth on it since then. 
  
[00:29:45] We also did a fair bit of work on it at the time, we spent about $70,000 or $80,000 renovating it, rendering, changing out kitchens, all that kind of stuff. So it's now fully renovated and it's a really nice place to live. It's a really nice area to live.

This Calls For a Spreadsheet

Tyrone Shum:   
The way he started echoed a familiar sentiment: ‘I'd love to invest, but I don't know where to start or where to go'. However, his unique approach sorted him out quickly.

Adam McKinnon:   
[00:30:37] I do what I normally do when I have a problem like this, I build a spreadsheet. So I'm one who likes to model everything. And that just comes from probably my scientific training, but also my business training with the companies I've worked for. 
  
[00:30:54] So I built a spreadsheet. And I pushed it out for 15 years, I built it so that it would evaluate costs, cash flow, capital gains, depreciation, and in particular, the tax implications for both my wife and myself. So it was thorough. 
  
[00:31:12] The first thing we looked at, I thought, 'Well, if I enter a property investment...' and I looked at a Sydney property, around $1 million Sydney property, negatively geared, we can afford that. But I had exactly the same problem. [I was] talking to my wife and we agreed, 'Yeah, this is something we should do. But we've got absolutely no idea what suburb to look for [or] even what type of property to look for'. 
  
[00:31:45] So from there, I actually called up one of my mates from high school who was a property valuer in the area. I said, 'Do you know any good buyer's agents? I guess I want to get into a property and I've got no idea where to start'. 
  
[00:32:00] He said, 'I don't know any buyer's agents per se, but I do know someone who does positively geared investments. Aiden Collier, over at the Linder group'. So I said, 'Okay, I'll go and meet with them'. I ended up going and meeting with Aiden and Kimberly Linder. And I was very impressed actually with Kimberly's story. I think you may have even had her on the podcast previously.
  
[00:32:31] So she ran me through her personal story and some of her clients' success using basically dual income builds and then piggybacking a number of these purchases together. 
  
[00:32:52] And when I ran it through my spreadsheet, it made a lot of sense. And it was quite an eye opening experience. Because like a lot of people I think, 'You've got to go negative geared', but I didn't even really consider positive gearing. But since then, how things have changed.

**OUTRO**

Tyrone Shum:
Adam McKinnon’s story continues in the next episode of Property Investory. We dive deeper into how his property journey began…
 
Adam McKinnon:
[00:03:16] We settled on our first block in North Richmond, actually, in December 2020.
 
Tyrone Shum:
The trials and tribulations that came along with it…
 
Adam McKinnon:
[00:04:47] Some of the blocks weren't even registered. So that's another story.

Tyrone Shum:
He shares the numbers we’ve all been waiting for.

Adam McKinnon:
[00:09:40] And a lot of that is due to capital appreciation.
 
Tyrone Shum:
And that’s next time on Property Investory.

**END OUTRO**