Saturday, May 3, 2014

Mining Companies: Where to Get Money? – An Eyeball on Investors


Mining Companies: Where to Get Money? – An Eyeball on Investors

Continuing our previous post, here we look at a very important issue: what is the best way to sell yourself? I.e. how to prepare yourself for interaction with investors? Well, it is true that most of investors are sort of skeptical about proposal that they get. Remember Mark Twain (who himself happened to be a miner): “A Miner is a Liar who owns a hole in the ground. That is why your story needs to be factual and justified. As they say: “You never get a second chance to make a first impression” – and to fully utilize this first chance there is a lot of things to sort out. In personal experience, I met a lot of young entrepreneurs who said: “What? I do not need any rehearsals – I can tell everything about my business” – and they successfully failed their first investor meetings.
“I usually know if I’m interested the moment the entrepreneur walks into the room” — this is a quote from David Hull, Managing Director at Centennial Ventures. Most businesses raise money only a few times in their life. And this is a unique experience for everyone. The level of confidence in presenting to investors and the quality of presentation content are tremendously critical. That has a direct impact on the valuation that you reach and on the chances of success.
Thus, I would suggest that before anything takes place, you should perform the following (as the rule with the help of financing adviser)

Therefore, let us focus on the course of action that is required to actually start talking to investors.
Make a critical self-examination. It is required to analyze your team, find all pros and cons and take appropriate action to show that you have a perfect group of people that have a god experience and high skills. Determine and understand your financing goals and how you plan to spend these raised funds.
Be introduced to profiled investors. It is well-known fact that investors receive a lot of proposals and as some analysts point – only 1-2% of them survive till investment stage. Consequently, to save the time and effort investors like to be introduced to a project by someone they trust, someone that examined it and thinks that it is worth their while. Therefore, this is crucial that your project shall be presented by investment bank/banker.
The approach to present yourself. (A) Make a 3-5-page Executive Summary. This is a vital document to generate initial interest. (B) Prepare and rehearse Investor Presentation. (C) Make a detailed Business Plan. (D) Make sure that all supportive documentation is present (Resumes and references on each member of your management team; Mining development roadmap; Sales strategy;  Industry studies (size, growth, potential, etc.); Direct competition; SWOT analysis; List of customers; Historical financial statements; Financial projections; Capital requirements; Detailed capitalizations table; List of prior financing rounds, if any, and details; Law firm; Accounting firm; Banker; Board of Directors Corporate records; Copies of all material agreements (leases, loans, employment agreements, etc.). As very good idea is to have many of these materials on slides, so, when you are asked – you present them immediately – this substantially raises your credibility.

Detailed summary of interaction with investors provides SJF Advisory Services :
 Source: Presenting to Investors: The Elements of a Compelling Case

Throughout this interaction, every company should be prepared for answers for a lot of questions. In my earlier post, I provided some information regarding the Due Diligence process and what issues are to be expected during such.  The following graph shows some other issues of investors’ interests:

So, what is the investor look on the mining company? This practical issue is in detail described in Miraj Gold Precious Metals: The Benefits of Gold Equities. Although it primarily deals with gold, it summarizes the investor approach. This slide shows the risks that investors are thinking about when working with mining company:

What are the best candidates, according to Miraj?
  • Companies with the best portfolio of projects in the developmental pipeline and who are aggressively trying to grow their reserves through organic growth and M&A activities.
  • Companies that are aggressively seeking to grow.
  • Companies that plan raising production levels through organic growth and increasing their reserves by acquisition of others.
  • Companies with the best portfolio of projects in the developmental pipeline and who are aggressively trying to grow their reserves through organic growth and M&A activities.
When investing these are the major factors being considered:
  • Ore quality of minerals mined by a company
  • Company’s mining, processing and fabricating costs and techniques
  • Quantity of a company’s unmined reserves
  • Quality of management
  • M&A activity
  • Technical expertise
  • Vertical diversification: Exploration, Development, Production
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