Lets talk about one of my favorite subjects, mineral exploration financing!
The other day I was speaking with a colleague of ours, a consulting geologist, over dinner. We were both in Nevada wrapping up an underground sampling program and having a candid conversation about the current state of financing for mineral exploration and mining projects. He said something that really rang true to me, he said right now everybody is expecting ‘money on Monday’. For those of you who are currently involved in discussions with investors, financing groups, and other money people, you will understand this phrase immediately. For others who have been lucky enough to secure financing in this difficult market, the phrase is a keen reference to the fact that many of these brokers and investors are consistently promising week after week that money is right around the corner. The money of course, seems to never come! First they say the money is coming on Friday, when you call Friday, they say its coming Monday, when you call Monday, the money will be here Friday. It’s a vicious cycle that seems to be widespread throughout the industry. Many of our clients are currently in this boat. A simple glance at the popular mining news site Mining.com fills the average mining investor and project owner alike with fear of the implications of the current bear nature of the market. What can be done?
My advice on dealing with this situation is two-fold. First I will address the investors, brokers, and financiers, secondly, I will be addressing the project owners and funding seekers.
There is a market-wide fire sale on for those willing to provide mineral exploration financing.
As an investor, this is the time to BUY BUY BUY! It is common sense to buy low and sell high, but we have seen over and over again that most investors don’t follow this common sense when it comes to commodities. They get involved in mineral exploration projects when the market is at its peak. Investors flock like flies to any project that has the gilded appeal of high commodity prices. They pay dearly for the projects they acquire and are subsequently forced to mothball or abandon them when the markets inevitably shift. They hesitate to invest when the markets are down, but this is the time when you can get the best value. Not only are many projects willing to give up large percentages of equity for less money, there is also much less competition in the field jockeying to line up new mineral exploration projects. For example, one project that I am involved in as a consultant was offering 50% equity to a joint venture partner for a $50M investment last summer. This same project, due to shifting market conditions, is now willing to offer the same position for less than $2M as they need the funding to keep the lights on until the market rebounds. This is a very unfortunate situation for the principals, but it offers a tremendous opportunity for an investor, an opportunity that would surely never have been presented at the market peak.
If you are on the fence about investing in a project, don’t leave the principals hanging. Give them honest feedback. Give them a reason why you aren’t investing right now. Do you need more information to complete your due diligence? Schedule a site visit and get the facts for yourself. If you aren’t ready to invest, but like the project, tell them to keep you in mind and move on with seeking funding.
For those waiting in the wings, hang in there.
You are certainly in a difficult position right now as a project principal who is waiting for much needed mineral exploration financing or funding for ongoing mining operations. Even some staunch bulls are starting to come to the realization that we are at the tail end of the commodities super-cycle. This is bad news, but it doesn’t mean that you have to give up just yet. Opportunities abound for the grassroots explorationists to acquire and expand projects with minimal mineral exploration financing. The ones who takeaway the most from the downturn will be those who are able to hang in there and maintain their projects or expand them if possible. This may involve coming to terms with the state of the market and reducing your holdings until conditions improve. You may have to let some claims go so that you can keep core assets and keep up mineral exploration financing on the most promising projects.
If you have investors who are considering mineral exploration financing for your project, you should understand that you may have to give up more equity now than you would have had to at the market peak. This is a tough situation, but you need to consider the risks of potentially loosing the project altogether if you are not able to keep up with basic expenses. If your investors are perpetually dragging you along with the ‘money on Monday’ routine, give them an ultimatum. Tell them to fish or get off the boat. There are other willing investors out there, but you will have to look harder for them right now. It is certainly a strong buyers market right now, but that will change over time. The amount of time this will take will vary depending on your commodity, but you should reasonably expect that it’s going to take a while.
Sit down and draw out a timeline of when you expect the market to rebound and how much money it is going to take you to get to that point. What are you willing to give up to get there? This is certainly a big storm, but it is a storm that can be weathered with prudent planning and sacrifice. Hang in there, you aren’t alone.
-Stuart Burgess
Are you looking for mineral exploration or mining projects to invest in? Seeking mineral exploration financing? Burgex Inc. has experience connecting investors with project principals and providing due diligence for those considering mineral exploration financing. Contact us today for more information.