“You’ve endured the pain now please stay around for the gain”

By Siobhan Lismore-Scott
Published: Friday, 06 December 2013

Mines & Money 2013: Junior miners offered hope by investors

 
 Source: Mines & Money
There is money to be had if junior miners present the right project, was the message at this year’s Mines & Money in London.

Although junior miners that IM spoke to said they felt the market was “broken” the speakers at the event were a lot more optimistic. Rick Rule, chairman of Sprott US Holdings, said that he believed the market was in the same situation today as it was in 2009.

“You have endured the pain now please stay around for the gain," was the most-quoted (and tweeted) phrase of the conference, but the other observations made were just as impactful.

“I believe we are in a stealth bull market. Charts are flattening and beginning to rise. I believe we are in a period of bifurcation,” Rule said.

Rule made the distinction between a rising middle class in emerging economies and more wealth in the established economies. He said that in 2009 and in emerging economies a person with more wealth would be more likely to upgrade the goods around them, while in established economies people will spend money on “invisible items, apps for your phone”.

“Has any part of the story changed since 2009 – 2010? I would argue that the same set of circumstances that existed in 2009 exist today,” he explained.

David Glennie, managing partner, London, Blakes Cassels & Graydon, agreed that financing had not dried up for junior miners.

“Financing for juniors and mid tier companies has not dried up,” he said, “It is not all doom and gloom but it’s time for creativity and luminance.”

Explaining further, Glennie said that he believed the Sirius Resources financing – which raised $83m — shows that “if there is a good project the money is definitely there”.

What makes a good project?

So what does make a good project? Mark Bristow, CEO of Randgold Resources set out a checklist of questions that his company believes any investor should ask when determining whether to invest in a start-up project or not (see below). This was praised by Toby Bradbury, an independent advisor, as being a good checklist to work from.

“Most people understand what makes a good story. The most important thing is a good management team,” Jason Burkitt, partner, UK Mining, PwC, told delegates – a sentiment that   was echoed by many others.

“It’s people, people and people,” Dr Elena Clarici, managing director – investments, Meridian Equity Partners, told the audience when asked what she looks for when looking for a project to invest in.

Bristow’s checklist for determining value creating from a (gold) project

Does it apply principally to gold?

Have we identified and understood the country risks?

Does it fit our values?

Will we have active management participation

Will it enhance our partnering network

Does it diversify our geographical exposure?

Does it have a reserve potential greater than 3m ounces of gold?

Does it have the potential to be + 250 000 oz per year producer

Can we move it up the value curve?

Does it have the potential to be in the lowest total unit cost quartile?

Can it produce an IRR in excess of 20%?

Does it have a payback of less than 5 years?

Is it accretionary to our share value?

Source: Randgold

 


“What we have seen as investors lately is that you can have a good resource but people can destroy this. People may not have the experience and they can destroy the asset,” she added.

Also important is explaining niche markets – like industrial minerals – to investors, Burkitt said.

“In a niche commodity most investors won’t be able to understand the market and so you need to articulate that,” he explained.

“Risk is not necessarily a bad thing. Some investors are looking for a fair amount of risk,” he added.

Indeed, and as Burkitt showed, the more releases the company puts out to market, the more locations it lists at and the more it engages with the community and the public, the more trading volume a mining company will see.

For Jamie Strauss, founder, Strauss partners, shareholders in place need to be able to understand the process of bringing a resource to market.

This is a sentiment that was explained by Bristow earlier in the week also, and seconded by Bradbury.

“I think it is important to match the shareholders expectations,” he said.

Graeme Hossie, CEO, London Mining, meanwhile said for him three things were important when determining a project’s worth: where the project will add value; the path to production; and also who else is funding the project.

Streaming

Streaming, which is when a funder makes an agreement with a mining company to purchase all or part of their production at a low, fixed, predetermined price to which both parties agree, was also discussed.

Using this model the funder avoids variations in operating costs, reducing downside risk, while providing the upside of significant leverage to the price of the streamed product, Randy Smallwood, CEO of Silver Wheaton, explained

Silver Wheaton Corp. provided options for Vale, Glencore and several other companies last year to the tune of $7.7bn market cap

Smallwood added that streaming now represents $17bn in value.

“These are top tier companies in mining that have recognised the value in streaming,” he said, “We have now even started funding prefeasibility studies, this is a first and is like a deposit almost,” he continued.

“For mining companies there’s no doubt that streaming is becoming more attractive as a new source of capital,” he added.

Conclusions of Mines & Money

So, while Rick Rule and other speakers provided examples of how the market is turning, it remains to be seen whether the idea of a “stealth bull market” will take hold.

Resource nationalism remains an issue, lower mineral and metal demand (and therefore prices) have certainly hit this space over the last year and there is no shortage of projects that have been completed but need the capital impetus to get to the final stage.

But there is hope in the fact that investors are clearly willing to engage with the community and that the tide does appear to be turning – even if it is slowly.