Financings – It Helps to Have a Credible Path Forward

Update: This blog was initially written in May 2015, however not much as changed to the end of 2018.

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 struggling to get their piece of the financing pie.   People mention to me that 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 still extremely difficult.  That is unless company management has had past successes or is well connected to the money scene.

I’m told that 43-101 resource estimates alone no longer generate much excitement.  For projects to be “on the radar” they need to be advanced to at least the PEA stage.  It seems that investors want some vision of what the project might eventually look like.

I have be made aware of more junior mining companies that are struggling for cash while others seemed to have no problem in getting at least some funding to continue their operations.  To me, the biggest differences between these two situations are;

• If there is top notch management in place,

• The type of project they had,

• If their path forward and development plan made sense.

You don’t want to always change management

Management is what it is.  Companies attempt to bring on experienced people to the executive level or to the Board level.   Experienced management can hopefully establish if their project will have a high probability of success or if the project is going to be a hard sell.  This will provide guidance on whether to continue spending money on the project or look for a new project.

From my experience in undertaking due diligence, when a company is looking for financing it is important that  management have the capability to present an orderly, practical, and realistic path forward.  It is important to demonstrate where they will spend the money.

I have participated in due diligence meetings listening to management teams explain that they will have a resource estimate this year and be in production in two years.  Those around the table glance at one another, knowing that they will be lucky to have a feasibility study completed by that time and even more lucky to have their environmental permits in place.   This makes investors nervous.

Keep plans realistic and achievable

It does not help the perception of a management team (or the project itself) if the path forward is unrealistic and unattainable.  The exception being if the management team have done it before.   Similarly low-balling cost estimates and presenting great NPV’s will usually fool no one that has experience. It ultimately may do more harm to credibility than good.

The 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 listening to them.

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