The Panel at
Mines & Money: from right: Anthony Desir; John
Harrison; Mark Reineking; John Carlesso; Jamie
the global mining community descend on London for not one, but
two important mining industry events. Representatives of the
global graphite industry gathered for the 2nd
IM Graphite Conference,
while a broader cross-section of miners came together for the
Mines & Money exhibition and conference.
At Mines & Money, exhibitors and delegates
gathered to hear a panel led by Anthony Desir, principal,
Selective Asset Management Inc (SAMI), entitled Attracting capital to a
mining project: Finding funding in a tightening
Theres some speculation that the
markets are in dire straits, Desir started the
conversation, before quickly adding its not a
perspective we agree with.
In a year which has seen a crash in the Eurozone,
a tickdown in the Chinese economy and insecurity growing around
the US economy, most indications have been bearish for the year
But for the panellists at this discussion
and the ones that preceded it the year ahead appears
We have been through the last of the bad years. There is
clearly money around for good stories and good
management, John Harrison, executive chairman, London,
RFC Ambrian, a specialist resource and energy sector corporate
finance and stockbroking group, said.
Junior mining companies have to now be more
creative when looking for funding, the panel agreed.
For many of the smaller companies in the
field we are talking about the fact that the money is there but
you need to look in different locations. Your traditional or
private broker is not there, John Carlesso, president of
Cervello Capital, a Toronto-based private merchant bank,
There are other opportunities out there; It
is a question of being creative and its a question
of finding the
right kind of assets, he added.
For Chris Berry, founder of market research firm
House Mountain Partners, who was speaking at IMs
graphite conference, junior miners have definitely got to be
creative when looking for funding, but they must also be
prepared to fail. Berry believes that the present drought in
funding community is akin to the Sahara
Things look bleak in this sphere,
Equity finance is not in a drought,
its a Sahara desert... But the good projects will get
built, he added.
forms of financing
New ways of finding financing were discussed at Mines &
Money, with different solutions offered up. Most were in
agreement that the days of rocking up to the conventional
fund market were over.
have to look for new ways to raise capital
There will be periods of volatility and in
that time people will be able to raise capital for their
projects and stay alive and some of them will sustain
themselves that way. In terms of sourcing for funding and in
terms of the alternative sources of funding that weve
seen is the stream financing models, Mark Reineking,
founder and MD, Tempest Funds, a Vancouver-based investment
fund and portfolio manager, said.
Stream financing companies, such as Sandstorm Gold
and Sandstorm Metals & Energy, Canada, have become popular
for the alternative way they offer financing to
Sandstorm (...) provides mining companies
with a form of financing whereby an upfront cash payment is
exchanged for a commodity stream, the company
The commodity stream allows Sandstorm to purchase
a specified percentage of a mines production, at a fixed
cash cost, for the life of the mine. Sandstorm then resells
this on the spot market.
A lot of these companies have really good
assets that are trading at a fraction of their net asset value,
so if youre trading at .4 of your value a stream company,
such as Sandstorm can come in and pay you .8 or .9 of your
asset value, which is created to shareholders. This is one form
of financing I have seen and what that does, typically, is
increase the equity, Reineking said.
Other factors discussed were the prospect of
diluting ownership, by issuing additional common shares on the
market. This reduces the company debt, but means they have less
control of the company.
The big issue for a lot of companies is
dilution and I think dilution is in the eye of the
beholder, Jamie Strauss, partner, EU consultancy Strauss
Do you want to have a mining operation in
two or three years time with a cash flow, or do you still want
to be scrabbling around for money, hoping your stock will go
up? he asked.
Acquisitions and off-take agreements many
of which have been seen in recent times were also
discussed, with Carlesso saying that he believed this would
be source of
capital for the short term, through 2013.
Desir agreed, saying he believed that
offtake strategies are key.
Spin off the assets, put them in a separate
company and at some point you can realise a greater value by
creating an offtake structure and selling that off to another
party. That actually creates more value for your
shareholders, he said.
One thing we have observed with the China
model is that, although China says they are doing a lot of
investment in the African market, in fact it is just an
off-take strategy, he added.
such as Galaxys takeover of Lithium One earlier
this year, will become more commonplace
management is key
For the Mines & Money panel, good management
was absolutely key for investing in a project.
Institutional and hedge fund markets are
closed but mining companies with a track record and an
excellent management team both at the top and throughout
the geological mine building side have an open
opportunity to go to a wide area of non traditional
funding, Strauss said.
I agree theres funding available for
really good assets and management teams, Reineking
For Harrison, a good management team was key, but
also preparation when approaching the financing
Junior companies have to realise that the
conventional fund management community doesnt need to own
their shares, he said.
You dont just rock up to the
conventional fund market and say heres your lucky chance.
You need to come in off a long run. You need to prepare, know
the investment community and present your story at a time when
you dont need money to get ready for the time that you
do. And over and over again people dont seem to want to
do that, he added.
For Bert Doth, director of Denham Capital,
management teams are key when it is looking to invest in a
Denham Capital is a private equity firm focused on
energy and commodities.
Its about people for us; assets do not
make money on their own, he said.
It really depends on the quality of the
people behind the venture and whether they have made it
successfully before, he added.
Australia and Canada eye
Recent news items have also
agreed that the mining community is not in as much trouble as
expected. Jeffrey Wilson, a fellow of the Asia Research Centre
at Murdoch University, Australia, said in a recent report that
much of the rhetoric around the supposed mining bust
rests on dubious analysis.
By looking at the mining sector as a whole and
considering the three distinct stages which mining projects
pass through we can see that the reality of the sector
today is more nuanced than simply being a boom or a bust,
Wilson wrote in an article for Australian academic journal The Conversation.
The three stages are set out as being the design stage, the development stage and
The Australian mining sector, Wilson argues is moving
towards the operational
The resource boom is not turning to bust. Rather, the
investment- and employment-heavy development stage is winding
up. Announcements of new capital expenditure by mining
companies will become less frequent, while cost saving
exercises will become more common. But this is hardly the
alarmist scenario that some in industry and the media have
portrayed, he says.
In Canada, the Financial Post has
said that 2012 will go down as the year the Canadian
mining industry fully embraced the high-yield debt
As more junior miners turn to the bond market for financing
thus exercising the more creative ways to
find funding discussed earlier the debt market has
responded by offering more attractive deals for development
Theres never a more attractive time to access
the bond market for a mining company, Randall Oliphant,
chairman of New Gold Inc., told the newspaper.