How do you find a suitable financial partner to launch your new mining company?
Before 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 get the whole process started. If you needed millions of dollars, private equity funds were climbing fences to throw money at you. All he needed was a solid booking report, a decent management team, and the money was coming in, sometimes faster than it could be properly distributed.
Fast forward to today’s markets, and many properties are 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 full of cash. They had too much money chasing too few offers. Private equity funds cannot 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 their normal investment scope. Perhaps they were primarily focused on real estate, but they would put a chunk in a coal mine in the hope that it would prove to be a home run. The deals were structured in such a way that even if 1 in 2 worked, they made more money than if they had sat down with the cash in their accounts.
Today, those same funds are facing redemption from their investors or have to raise a new fund in an environment where cash is very scarce. The scenario now is very ineffective chasing too many deals. Fund managers have downsized their staff and gone back to doing only deals that require less staff and less effort to do due diligence. They can no longer afford to take risks on something that is not presented perfectly.
Then what do you do? You’re sitting there with a property that you know will have a higher 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 do speak 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 you get their attention, you don’t have all of your documents in the order and structure that they want to see. A solid engineering report won’t open a door, much less write a check.
You need to make sure you are speaking to the correct funds. Make sure they invest not only in the industry, but also in the size of the business you need. When approaching them, make sure the proposed structure fits the way they are doing business. When requesting supporting documentation, make sure you have a proposal book, executive summary, and full corporate due diligence review package ready to submit.
Lastly, stay away from companies offering to help you reverse merger into a public shell company. There are many other articles on why that won’t work. Stay away from brokers who promise to introduce you to hundreds of high net worth investors. At best, you’ll waste your money, and at worst, you’ll end up with the SEC having very bad news for you. Contact a fund that is a specialist in your industry and can provide guidance. Many new funds also have divisions that work with people in your situation. Take your time, do your research and prepare your correct package and complete the first time. Otherwise, you will waste time and money with no hope of seeing the property start to generate cash.