On the difficulty of raising financing for juniors In the halls of the Prospectors and Developers Association of Canada (PDAC) conference in Toronto this week, junior companies are busy comparing notes about how they’ll raise the next tranche of cash, and when they’re going to need it.
Despite strong commodity prices, investors have lost interest in speculative exploration firms (which dominate the PDAC conference) because of the broader market volatility.
That makes it extremely difficult for these firms to raise any money in the debt or equity markets. For juniors, it’s very tough right now,” said Tom Whelan, leader of Ernst & Young’s national mining practice. “The key for them is to look at as many alternatives for financing as possible. A lot of people are working the floor trying to find them.”
Some of the financing options tossed around by experts include partnerships with major producers, royalty or streaming arrangements, investments from state-owned enterprises, private equity, and even listings on other stock exchanges that may be closer to their projects.
Raising cash for exploration is not as insurmountable a task today as it was for many companies in 2008 and 2009, when there was a giant culling in the junior mining sector. However, it still often requires some creativity and forward thinking.
One example came on Monday, when Toronto-based Allana Potash Corp. said it received expressions of interest for a whopping US$600-million debt financing package for its Ethiopia-based potash project. It is one of the most promising financing arrangements the junior sector has seen in months
.Chief executive Farhad Abasov said the key to raising this money is that Allana brought in a couple of key investors early in its development: the International Finance Corp. (a division of the World Bank) and Liberty Metals and Mining, a private equity investor. They gave the market greater confidence in Allana’s project.
“You have to think long term,” Mr. Abasov said. “Having those investors in early makes it much easier for others to do their due diligence. It would have been much harder without them.”
He added that the company has targeted development banks and other Africa-focused investors, which would not be available to companies in other parts of the world.
Another notable junior financing was last week, when commodities giant Glencore International PLC acquired a 7.8% stake in Trevali Resources Corp. for US$18-million. The deal, which closed Monday, gives the company funds to bring the past-producing Santander mine in Peru back into production.
Similar to Allana, Trevali sealed this deal thanks to a existing relationship; it has been working with Glencore since 2008. In addition to the funding, the partnership gave Trevali access to Glencore’s skilled work force, which is often a problem for juniors.
“When one of the world’s largest miners takes a position, it makes a difference,” chief executive Mark Cruise said.
For juniors that don’t have a good story or a competitive advantage to raise cash, experts warned that the financing road could remain tough for a very long time.
“If you’ve got six months of cash left or less, you’ve got to be thinking about a lot of alternatives,” Mr. Whelan said. “Every junior should be looking at a dozen different options.”