12. Financings – It Helps to Have a Credible Path Forward
Date: May 9, 2015Author: Ken Kuchling
Let me say the obvious; the state of the junior mining market is not great these days. The number of financings is down and it seems there are a lot of companies out there trying to get their piece of the financing pie. People say there actually is a fair bit of private equity funding available but only for the right projects.
I have heard from geologist colleagues that financing grass-roots exploration is extremely difficult to acquire unless company management has had past successes and is well connected to the money scene. I’m told that 43-101 resource estimates alone don’t generate much excitement and for projects to be “on the radar” they need to be advanced to at least the PEA stage. Investors want some vision of what the project will look like.
In the recent past I have become familiar with some junior mining company that were always struggling for cash while others seemed to have no problem in getting at least some funding to continue their efforts. The biggest differences between these two situations were; (a) the top level management in place, (b) the type of project they had, and (c) if their path forward plan made logical sense.
Management is what it is, although companies generally do attempt to bring in experienced people with track records on either the executive level or the Board of Directors level. Experienced management can hopefully establish if their projects will have a high probability of success or if the project is going to be a hard sell. This will determine whether they should continue to spend money on the project.
In my experience, when in the financing mode, it is important that company management have the ability to present an orderly, practical, and realistic path forward for the project to demonstrate what they will do with the money. I have participated in due diligence meetings and listened to a management team tell us they will have a resource estimate this year and be in production in two years. Those around the table look at one another knowing that they will be lucky to have a feasibility study completed by that time and lucky to have their environmental permits in place. It does not help the perception of a management team (or the project itself) if the path forward is unrealistic and unattainable, unless the management team have done it before. Similarly low-balling cost estimates and presenting fantastic NPV’s will fool no one with experience and ultimately may do more harm than good towards credibility.
My bottom line is that in order for a project (and the management team) to get serious attention from potential investors is to make sure there is a realistic view of the project itself and have a realistic path forward. Even a good property can be tarnished by making the technical aspects look over-promotional rather than real. Make sure the right technical people are involved in the entire process and that company management are willing to listen to them. Clearly explain how the money will be spent.