How do you find a suitable financial partner to launch your new mining company?
Prior to 2008, there were several sources that would provide financing for mining properties. If you had a small property, you could often find friends and family who could help you start the whole process. If you needed millions of dollars, private equity funds climbed over fences to throw money at you. All it took was a solid booking report, a decent management team, and the money was coming in, sometimes faster than it could be properly deployed.
Fast forward to today’s markets, and many properties are sitting idle, even with full booking 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 in their bank accounts, because it hurts their rate of return. So if they had a total fund size of $5 billion, they would allocate a portion of it to deals that may have been outside of their normal investment scope. Perhaps they were primarily focused on real estate, but would put a portion of it into a coal mine in the hope that it would hit a home run. The offers were structured in such a way that even if 1 of 2 worked, they made more money than if they had kept the cash in their accounts.
Today, those same funds face redemption from their investors, or have to create a new fund in an environment where cash is very tight. The stage is now very ineffective chasing too many deals. Fund managers have reduced their staff and gone back to only doing business that requires less staff and less effort to do due diligence. They no longer have the luxury of taking a chance on something that doesn’t present itself perfectly.
Then what do you do? You are sitting there with a property that you know will have 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 finally talk to someone, they never call you back.
The problem is most likely in three areas. First, you are talking to the wrong people. Second, you don’t know how to approach them properly to get their attention. Finally, when it comes to their attention, you don’t have all your documents in the order and structure they want to see. A solid engineering report won’t open a door, let alone write a check.
You need to make sure you are talking to the correct backgrounds. Make sure they invest not only in the industry, but also in the size of the deal you need. When you approach them, make sure the proposed structure fits the way they are negotiating. When requesting supporting documentation, be sure to have a cover book, executive summary, and full corporate due diligence review package ready to submit.
Lastly, stay away from companies that offer to help you reverse merge into a public shell company. There are plenty of other articles on why that won’t work. Stay away from brokers that promise they can introduce you to hundreds of high net worth investors. At best, you’ll be wasting your money, and at worst, you’ll end up with the SEC with some very bad news for you. Contact a fund that is a specialist in your industry and can provide guidance. Many new funds also have chapters that work with people in your situation. Take your time, do your research, and prepare your package correctly and completely the first time. Otherwise, you’ll be wasting time and money with no hope of seeing that property start generating cash.