3 points - bullish in the long-runWhy Are So Many Junior Gold Miners Raising Capital Through Equity?
by: The Gold Stock Strategist April 09, 2009 |
Kinross? IAMGOLD? Why are they raising capital?
In a nutshell, there are three takeaway points from this list.
(1) Bank lending has dried up due to the global financial crisis. Even if you are a top notch risk and banks want to loan you money, it will take months because of the higher due diligence standards and regulatory requirements needed to close the loan deal. Equity financing can be completed more quickly and miners believe time is of the essence.
(2) The gold mining sector believes this is a once in a lifetime opportunity to advance projects forward more quickly than earlier planned and they feel an urgency to maximize production within the next 12-24 months. The extraordinary monetary and fiscal policy measures taken by the largest and most productive industrialized nations in the world point to much higher inflation once the credit markets bottom out. More fiat currency chasing a stable amount of goods is a classic recipe for inflation and the price of gold as a store of value has historically risen in price during times of inflation.
(3) Quality projects are finding equity financing very easily.
I believe all these points, but especially the third point, is bullish in the long-run for companies that have raised capital through secondaries and private placements over the past 4 months.
As a final note, creative equity financing (including mergers like New Gold and Western Goldfields and Vista Gold selling Allied Nevada shares) are other non-debt approaches to finance development and are likely to increase in the emerging junior gold producer sector.