2012 saw a crash in the Eurozone, a tickdown in the Chinese
economy and insecurity growing around the US economy, leaving
most indications at bearish for the year ahead.
|It aint no trick / to get rich quick / if
ya dig dig dig Heigh Ho, written by Frank Churchill
(music) and Larry More for Snow White
Image: Canada Lithium
However, a panel made up of the
broader finance community at Decembers Mines & Money
conference in London argued that 2012 was the last of the
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.
But if that is the case, what
should junior miners be doing in the coming months and
Junior mining companies have to now
be more creative when looking for funding, the panel
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, told conference delegates.
There are other opportunities
out there; it is a question of being creative and its a
question ofÊfinding the right kind of assets, he
Chris Berry, founder of market
research firm House Mountain Partners, who was speaking during
December at IMs graphite conference in
London, agreed that junior miners have to be creative when
looking for funding, but they must also be prepared to fail,
adding that the present drought in the funding community is
akin to the Sahara desert.
Things look bleak in this
sphere, he said.
Equity finance is not in a
drought, its a Sahara desert [É] But the good
projects will get built, he added.
In todays situation,
the biggest challenge that juniors face is the raising of the
capital required to develop their projects, Brent
Thompson, senior vice-president of mining and minerals at
global consultancy Tetra Tech, told IM.
The traditional equity
sources are not there right now, he added. There is
a lot of money sitting outside the market waiting for a bit of
market stability before they come back in - and so the junior
mining companies are having to access capital from what they
call non-traditional sources.
That could mean direct
investment from Asia - it could be from innovative funds being
established to provide access to capital they could be raising
in areas they havent raised before. But certainly we are
seeing a big trend in the financing of these projects from non-
traditional sources, he said.
New forms of
New ways of finding financing were
discussed at the Mines & Money event, with different
solutions suggested. Most agreed that the days of rocking
up to the conventional fund market were over.
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
Canada-based Sandstorm Gold and Sandstorm Metals & Energy,
have gained popularity because of the alternative way they
offer juniors financing.
Sandstorm [...] provides
mining companies with a form of financing whereby an upfront
cash payment is exchanged for a commodity stream, the
The commodity stream allows
Sandstorm to purchase a specified percentage of a mines
production, at a fixed cash cost, for 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 at
Mines & Money.
This is a trend we are
starting to notice, Thompson told
Im pretty positive
about it in the short term, and certainly if its a way
for junior miners to gain capital in order to bring a project
online, he added.
There are mining companies
that are accessing capital through streaming. We are seeing
that both in Canada and the US, which is interesting. I guess
the question is that, going forward in the market place, can
the market be used to change in its dynamic, will a model like
that still work? he asked.
Another factor discussed at Mines
& Money was the prospect of diluting ownership by issuing
additional common shares on the market. This reduces the
companys debt, but means they have less control.
The big issue for a lot of
companies is dilution, and I think dilution is in the eye of
the beholder, Jamie Strauss, partner at EU consultancy
Strauss Partners, said.
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 - seen increasingly in recent times - were also
discussed at Mines & Money, with Carlesso saying that he
believed this would be source of capital for the short
term, through 2013.
Anthony Desir, principal, Selective
Asset Management Inc (SAMI), agreed, saying he believed that
off-take 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 off-take 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.
Good management is
That good management was absolutely
key for investing in a project was an overriding sentiment at
Mines & Money.
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,
While a good management team was
key, thorough preparation in approaching the financing
community was also crucial, said Harrison.
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.
Raising money is challenging
in todays market, especially for junior exploration-stage
companies, Jay Roberge, associate partner at Zimtu
Capital Group, told IM.
However, cycles happen for a
reason. It takes the market through a consolidation and
cleansing that results in a strong market. In the end, strong
management teams with strong assets will emerge, the weak will
stumble, and there will be less competition for capital. It
fundamentally provides clarity and improves confidence,
Bert Doth, director of Denham
Capital, a private equity firm focused on energy and
commodities, stressed that management teams are key when it
looks to invest in a company.
Its about people for
us; assets do not make money on their own, he said at
Mines & Money.
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 headlines would suggest that
the mining community might not be in as much trouble as it may
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 argued in an article for
Australian academic journal The Conversation.
The three stages are identified as
being the design stage, the development stage
and the operational stage.
As more junior miners turn to the
bond market for financing - employing the more
creative ways to secure funding discussed above - the
debt market has responded by offering more attractive deals for
Theres never a more attractive time to access
the bond market for a mining company, Randall Oliphant,
executive chairman of New Gold Inc., told the newspaper.
From a juniors perspective: Energizer Resources
As a junior miner Energizer Resources is all too aware that it
needs to present its graphite project in Madagascar, Molo, to
the market in a way which will emphasise the potential for
Have a good project
In 2012 the company delivered its
NI 43-101 (see pp56-57) complaint mineral resource
estimate, which it said exceeded expectations.
- Indicated resource 84m
tonnes grading 6.36%C (2% C cut-off)
- Inferred resources 40.34m
tonnes grading 6.29% (2% C cut-off)
- Two high grade zones with
combined indicated resource of 60.17m tonnes grading 8.1% C (4%
C cut off)
The company has targeted the
lithium and the lithium-ion battery market. Li-ion batteries
use at least 11 times more graphite than lithium. The PEA study
is due in February and the BFS is to be completed Q4 2013.
Have a good management
Kirk McKinnon CEO brings over 25 years of senior
management experience to the Company.
Craig Scherba president/COO has been a professional
geologist (P. Geol.) since 2000, and his expertise includes
supervising large Canadian and international exploration.
Peter Liabotis senior vice president/CFO has been with
the company since 2009. Prior to this he worked at a high
level, for EFG Wealth Management (Canada), Ltd, Olympia Capital
(Bermuda) Ltd,Ê PriceWaterhouseCoopers and KPMG.
Be listed on an
Energizer is listed on the Toronto Stock Exchange (TSX)
(see pp 42-45), the OTC Bulletin Board (OTCBB) and the
Frankfurt Stock Exchange (FWB).