investment

Junior miners: be honest about your ore body, realistic about your expectations and make sure that you have ticked all your boxes from a regulatory, social and environmental and point of view.

This is the compendious advice that ROBERT PHILPOT of QINISELE RESOURCES has for any junior miner looking to secure investment. GERARD PETER writes.

After qualifying as an attorney, Philpot soon traded his robe for the world of corporate mining finance, becoming a partner at corporate advisory boutique, Qinisele Resources, in 2007.

When it comes to securing funding for projects, he explains that unfortunately many retail and institutional investors follow short-term commodity cycles.

This article first appeared in Mining Review Africa Issue 7, 2019
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As such, junior miners need to ensure that they establish a relationship with and engage with investors on their project well in advance of the funding being required and must be able to show that they have locked down all components of the value chain prior to commencing with mining.  

“Also, there is a key difference between attracting investment for exploration as opposed to securing funding for a company that is ready to develop a mine,” Philpot adds.  

“As a company with exploration targets you are selling the potential of your project which needs to be backed up by being in the correct jurisdiction and having an experienced team which has a proven track record.

On the other hand, when you are ready to begin operations, you are selling your value chain – you know the capital, the operating costs and profit margins and this is often more appealing to investors as you are able show the ability to generate cash flow and returns."

Red flags for juniors

While it is important for juniors to tick all the right regulatory boxes, there’s also a list of “don’ts” when it comes to managing expectations of would-be investors.

For starters, Philpot advises that juniors should be wary of basing their project ambitions purely on commodity cycles.

“It is very difficult to judge a commodity cycle and you are never going to know what commodity is going to be in vogue once your project reaches production.

"When I started in 2007, platinum juniors were all the rage and today, the talk is all about battery metals.

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“However, because it takes such a long time from exploration to actually becoming a full blown mine you shouldn’t rely solely on ‘price kicks’ to make your project attractive.

"By the time you have completed your studies and start mining, the commodity price could have changed dramatically. As such, you have to ensure the project make sense under all economic circumstances,” he explains.

Philpot cautions junior miners about overpromising and under delivering to investors.

“When it comes exploration you are selling an upside. However, you don’t get many second chances when you are spending other people’s money and if you fail to do things correctly your reputation could be in tatters and reviving the backing of investors can be near impossible.”

Furthermore, he states that juniors need to ensure that they engage early on with communities on environmental and social issues in areas where they wish to operate.

“Communities give you a ‘social licence’ to operate,” he adds.

“We have seen numerous occasions where engagement with the mines stakeholders has been lacking which has led to delays and strife for the company. The exact opposite is true in a positive light where you see miners and communities engaging earlier on for a mutually beneficial relationship.”

Managing expectations

Given recent mergers among major companies, one wonders whether junior miners can compete with these conglomerates. According to Philpot, such mergers bode well for juniors.

“Juniors can now be seen as potential incubators of projects for some of the larger companies. They in turn can also become the custodians of the more marginal mines,” he adds. 

“Majors are often saying they will keep their Tier One assets and will look to sell off the rest. This is where junior miners, with lower overhead costs and a fresh approach can take over these mines and make them profitable.”

In closing, Philpot states that there is nothing wrong with juniors selling big aspirations but they need to temper those with the correct expectations for both investors and stakeholders.

“If you look at a lifecycle of a mine, it could take 20 years between the time you plot your very first drill hole to actually operating a commercially viable mine.

At the end of the day, you are creating a resource that will benefit all stakeholders and reward your investors. So juniors should always be realistic and honest so that expectations are met.”