How do you find a suitable financial partner to launch your new mining company?
Prior to 2008, there were several sources who would provide financing for mining properties. If you had a small property, you could often find friends and family who could help you launch the entire process. If you needed millions of dollars, private equity funds were climbing over fences to throw money at you. All you needed was a solid reserve report, a decent management team, and the money came in, sometimes faster than it could be properly deployed.
Fast forward to today’s markets, and many properties are sitting idle, even with full reserve reports and a capable management team. What has changed? And what can you do if you have one of those situations?
First you have to understand how the landscape has changed. In the past many private equity funds were flush with cash. They had too much money chasing too few deals. Private equity funds can’t afford to have money sitting in their bank accounts, because it hurts their return rate. So, if they had a total fund size of $5 billion, they would allocate a portion of it to deals which may have been outside their normal investment scope. Perhaps they were primarily focused on real estate, but they would put a portion of it into a coal mine with the hopes it would prove to be a home run. The deals were structured in such a way, that even if 1 out of 2 worked, they made more money than if they had sat with the cash in their accounts.
Today those same funds are facing redemption from their investors, or they are having to raise a new fund in an environment where cash is very tight. The scenario is now too little cash chasing too many deals. Fund managers have scaled back their staff, and have moved back into only doing deals which take less staff and less effort to do the due diligence. They can no longer afford to take a risk on something which isn’t presented perfectly.
So what do you do? You are sitting there with a property you know will make a superior rate of return. You have all the engineering studies to prove it, and yet you haven’t attracted a single dollar. You don’t know who to call, and when you do finally talk with someone, you never get a return call.
The problem is most likely in three areas. First, you are talking to the wrong people. Second, you are not aware of how to properly approach them in a way to get their attention. Finally, when you do get their attention you don’t have all your documents in the order and structure they want to see them. A solid engineering report is not going to get a door to open, let alone a check to be written.
You need to make sure you are talking to the correct funds. Make sure they invest not only in the industry, but in the deal size you need. When you do approach them, make sure your proposed structure fits with the way they are doing deals. When they ask for backup documentation, make sure you have a pitch book, an executive summary, and a full corporate due diligence review package ready to send.
Finally, stay away from the companies that offer to help you do a reverse merger into a public shell company. There are plenty of other articles on why that won’t work. Stay away from brokers who promise they can introduce you to hundreds of high net worth investors. At best you are going to waste your money, and at worse you are going to end up with the SEC having some very bad news for you. Contact a fund who is a specialist in your industry and can give you some guidance. Many new funds also have divisions who work with people in your situation. Take your time, do your research, and prepare your package correct and complete the first time. If not, you will waste time and money with no hope of ever seeing that property start to yield cash.