Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr
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FINDING FUNDING JULY 2017 • E&MJ; 39 www.e-mj.com stage and have good liquidity to attract the lion's share of investment," he said. "What we have been successful doing is identifying and connecting with the right type of investor." The right type of investor is a different animal than previously, due to the credit crunch and subsequent mining bear. "That downturn really did decimate the networks that were in place," Collins said. "The net- works that were out there trying to solicit investment into mining stocks during the good times are totally different when you are not faced with those conditions." Gravitas represents "a new group that is coming into this space out of the down- turn," he said. "Gravitas was interested to partner in CGM for the same reason a lot of the seed investors were attracted to getting involved. They see it as an early stage opportunity for them to gain expo- sure to a new project." Collins said that in the current invest- ing environment, new companies require a special type of investor. "You need a com- pelling story and set of opportunities," he said. Early stage companies, he said, are almost forced to "get really creative." Collins said he remains optimistic that market conditions are improving for new mining juniors. "Certain things have changed in the market, particularly since the new year, that have been encourag- ing," he said. "There are groups out there that are creative and a bit visionary. Ulti- mately, these are probably new groups." That advice is echoed by others in the sector. Seize the Opportunity In mid-February, specialty drilling company Energold announced it had entered a bind- ing term sheet with Extract Advisors LLC for a $20 million loan. Its stock price re- sponded accordingly. Two weeks later, the company announced it had been named to the Toronoto Stock Exchange Venture 50. The loan would accomplish many things. Primarily, it would allow the com- pany, with 150 drill rigs in a handful of sectors in 25 countries, to discharge a $10 million convertible loan from 2010. That original loan had financed the com- pany's pivot from mining into the Cana- dian oil sands and the energy sector in general. In 2014, it rolled over to $13.5 million. Payables accrued. Oil tanked. And then last year, amid signs the min- ing bear was bottoming, the option to convert arose. "That has always been an option that the convertible debt would be converted to shares when the market im- proves," Jerry Huang, director, corporate development and investor relations, said. "Things were looking optimistic." The company could either discharge the debt or roll it over. "We had that cash. We could pay off the $13.5 million from 2014, but if we did that we would have very little buffer if things were to continue sideways," Huang said. "We decided to be more conservative, and that is where the current round of $20 million came into play." Huang said the company courted a number of suiters, contacts both new and old. The company signed with Extract for a 60-month $20 million secured convertible loan. Extract, he said, was "brand new." The conversation was born from pros- pecting, cold calling and then qualifying the natural resources investment manager, Huang said. "I found Extract through pros- pecting similar funds that have interests in unique service situations in the mining sector," Huang said. Extract was interest- ed in mining, but not in specific projects. "It was a good pitch, a well-positioned pitch to a generalist fund that wanted some exposure to mining but maybe not necessarily a mining project," he said. The conversation graduated to an of- fering for a "positing in this unique in- vestment vehicle that wasn't open to the public," Huang said. "It culminated in the deal where they also asked for man- agement and other funds to step in and show a vested interest." Extract would pay $15 million. The balance would be provided by a syndicate of lenders, to include existing deben- ture holders, new investors and compa- ny insiders. Among other terms, the loan could be converted into common shares for $0.85 per share. Energold would also issue more than 4 million warrants. And Extract gets to nominate a member to En- ergold's board of directors. With the announcement of the deal, Energold share prices doubled. "The de- lay and the due diligence to working out the deal in the last five months has really dropped the share price quite a bit be- cause it gave an overhang on the stock," Huang said. The deal, he said, provides working capital and lightens liability. It could also enable the company to grow. "As the sector improves, we're looking at countries that haven't seen activity in years, like Peru." Huang said the deal in general helps the company breathe easier, especially in light of the difficulties in sourcing funds today. The mining bear and the credit crunch "really changed the way financ- ing happens," he said. "The fundamental structure of the financial sector, the bou- tique investment banks and the brokers sector, through additional requirements on compliance, KYC (know your clients), all changed with low fees, robo-advisors, and of course, the original ETFs, which had very low requirements for active in- vestment management." Previously, a junior minor could go through a fund manager to get backing, Above, a hand specimen with visible alloy gold (electrum and tetra-auracupride from Bjorkman Vein. Left, view of Bjorkman Vein looking north.