Engineering & Mining Journal

JUL 2017

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FINDING FUNDING 40 E&MJ • JULY 2017 www.e-mj.com Huang said. "It is harder and harder to see those because more and more clients and customers, at the end of the day, vote with their wallets, and they go with passive investments, which is computer indexing," he said. "There is nobody to pitch to or no PM to convince to buy your share in prior placements." As traditional venture capital chan- nels dried up, new money replaced it via royalties, streaming, debt financing and strategic offtakes, Huang said. "Offtakes, streaming and royalties really only ap- ply to midstage development projects. There's still not very much in between," he said. "You need some venture capital money for that early greenfield project, which has no road, no access, and is in the middle of nowhere." Huang said companies seeking financ- ing have to shop around and take advan- tage of the opportunities presented. "Like any sales process, it is a law of averages," he said. "The more you reach out, you will reap more rewards." He advised using a "wide net casting approach, where you are going through a large number of pros- pects and narrowing them down." If pos- sible, go through the specialized chan- nels available: commodity brokers and trade commissioners, whether national or international, he said. Networking through existing bank- ing relationships could produce leads or referrals, Huang said. "In our case, it was a combination of everything: It was a prospect cold call, trust-building and relationship-building through banks that we all know," he said. "You have to stay optimistic that the market will turn and hard work pays off." Optimism, networking, cold calling, re- lationship-building, and showcasing proj- ect strength are all crucial efforts within a successful financing campaign. And in some cases, in the current climate, suc- cess at those efforts may not be enough. Get Creative Simply put, money no longer flows where it did prior to the crunch and mining bear. Any miner or supplier should build this reality into their procurement strategies, investment bankers and institutional in- vestors say. For example, consider the rise of con- servative investment vehicles, such as ETFs, which now tap funds that previous- ly would have gone to specialized mining funds, according to Kevin Campbell, man- aging director, investment banking, Hay- wood Securities Inc.* The Canadian in- vestment firm's customers include junior and senior miners as well as exploration companies. "The Senior Gold and Junior Gold ETFs have grown from $6.4 billion to $12 billion since 2010," he said. "So there is less capital and less liquidity for smaller non-indexed mining companies." This development has created space for private equity and hedge funds. It has reinforced the need for retail investors, he said. "Companies have had to get creative with joint ventures, streams and royalties, too." Campbell advises companies to align with strong financial partners early. "You need loyalty among key shareholders to weather the storms," he said. "You also need visibility." Young companies, he said, should be prepared to market themselves frequently. "Exploration is the toughest, highest risk segment of the mining market," he said. "No one should be under any illusions that financing such companies is hard work." The project is the most important piece of any investment thesis," Campbell said. However, he said, it is far from the sole piece. "Investors will look for the strength and track record of the management team and the board of directors," he said. Factors like trading liquidity and ana- lyst coverage will also draw investors in, he said. "Some investors choose to zero in on the capital structure of the compa- ny such as insider ownership, previous fi- nancing prices, the existence of debt and the absolute share count." Non-mining qualities of the project also bear consideration, Campbell said. For example, "the project may have strong technical merit, but be in too risky of a political jurisdiction." Promote Strengths Essel Group Middle East (EGME) reported it considered first the project, and then the technical record of Gensource Potash Corp., before launching a joint venture (JV). "We have always believed that qual- ity assets demand value," Punkaj Gup- ta, joint managing director, group CEO, EGME, said. "Coupled with that, if you can achieve operational efficiency, this will ensure lower break-even." Per the terms of the agreement, valued at more than $200 million, the JV company, Vanguard Potash Corp., will finance, devel- op, engineer, construct and operate a mine and processing plant to produce potash from the Vanguard asset near Eyebrow and Tugaske in Saskatchewan. Vanguard will also market and sell the potash product. Gupta advises companies prospect- ing for financing to focus on three things: demonstrate operational efficiency, pro- mote high-quality assets, and ensure pro- duction efficiency. "These three factors are crucial to ensure that companies can face the rough weather of a downtrend and de- liver profit expansion when the tide turns." The credit crunch and mining bear, Gupta said, brought a "sea change" to Joint venture Vanguard Potash will, among other things, construct a processing plant at its site in Saskatchewan. Above, the process plant in its finalized feasibility study configuration. (Photo: EGME) *Editor's Note: The information provided by Campbell, and the following sources, is neither a solicitation nor an offer of securities.

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