As the commodities rout makes it increasingly difficult for mining companies to tap capital markets, equity crowdfunding is emerging as an alternate financing mechanism.
Equity crowdfunding: the future of capital raising?
Prinesha Naidoo | 17 December 2015 10:54
JOHANNESBURG – As the commodities rout makes it increasingly difficult for mining companies to tap capital markets, equity crowdfunding is emerging as an alternate financing mechanism.
Traditionally considered the domain of technology startups, equity crowdfunding appears to be changing the way in which companies, irrespective of the sectors in which they operate, are raising funds. According to Oscar A. Jofre, President, CEO and Founder of KoreConX, $30bn dollars was raised via global equity crowdfunding platforms in the first quarter of the year.
Equity crowdfunding for companies in the mining sector, a relatively new concept whereby investors receive a stake in the companies in which they invest, appears to be gaining momentum. “There are more mining companies that would like to crowdfund through our platform than we can deal with at the moment,” said Cameron McLean, Managing Director of Mineral Intelligence, an Australian platform in which investors with as little as AU$500 can buy stakes in mining projects.
For Jofre, the relative success of equity crowdfunding, lies in the “democratisation of capital” and exposure to a wider investment pool. “Until now there has been no precedent for non-professional investors to invest in innovative ideas and potentially receive great returns,” he said. Speaking to Mineweb from Toronto, he added that only about 1% of potential investors have been able to participate in private placements over the past 10 years.
For companies, other benefits of crowdfunding include a faster process, free listing (on Mineral Intelligence) and less administrative rigour around listing rules, McLean said from Perth. Mineral Intelligence doesn’t list all the projects it receives for crowdfunding on its website but takes five to six to conduct independent assessments of companies that wish to raise funds via its platform as well as their projects before listing only the most promising ones, he said. As per the terms and conditions on its website, the company does not accept any liability which may arise from the use or reliance on any part of the site or its content.
“Equity portals are required to conduct full due diligence and if they fail that process not only can they be sued by investors but [they] also face regulatory enforcement,” Jofre said, noting that portals are required to be registered, bonded and carry insurance. “Securities commissions are charged by the local government to implement laws providing detailed regulations, monitor and provide oversight and intervene when necessary with fines, penalties and sanctions,” he said.
Like public companies, those raising funds via equity crowdfunding are also required to disclose material information to shareholders on a regular basis albeit at a lower cost. “The difference in equity crowdfunding globally [is] we do things voluntarily because it is good for everyone and we adopt technology to make us more efficient,” Jofre said.
According to McLean, equity crowdfunding is replacing the seed capital stage thereby allowing a broad range of shareholders to realise greater value. During the seed capital stage, only people who were very close to a company had chance to invest, usually at very low prices due to the high risk associated with stage of funding, he said. “Equity crowdfunding presents an opportunity to increase shareholder value between buying shares, without brokers or middlemen, when the company is unlisted and when the company is either listed or acquired by someone else,” he said.
Should investors wish to sell or buy additional shares prior to a company going public, Jofre said they can do so via secondary markets. He anticipates that there will be more secondary markets in the world than stock exchanges by 2017.
Depending on the country and jurisdiction of the crowdfunding platform, Jofre said companies typically have 30 to 90 days in which to raise funds. “If the minimum amount is not reached within the listing period, the funding round has not succeeded. In this case, nothing will happen, all funds in escrow are returned to investors,” he writes. Jofre added that the “golden rule” of crowding funding that companies should secure 30% of the amount they intend raising before going to the crowd as it proves the credibility of their offering. At the fundraising stage, companies are able to determine the rules around their offerings such as the minimum price at which equity investors can buy a stake, whether investors will gain voting rights and the percentage of dividends to which investors will be entitled.
Thus far, the most successful mining related crowdfunding campaign appears to be that of asteroid mining company Planetary Resources. Through a 33 day Kickstarter campaign in 2013, it raised more than $1.5m from over 17000 backers to fund the world’s first public space telescope.
Jofre maintains that equity crowdfunding is “the most disruptive thing to happen to the finance sector this century” and anticipates both its popularity and investor appetite to grow. “It is a multi-billion dollar sector that is just waiting to be tapped,” he said.
Shareholders are being asked to carry the can for others’ failures.
Warren Dick | 17 November 2015 23:05
Someone needs to put an end to this whole sorry state of affairs. Tomorrow. At the company’s general meeting in London that has been called to approve the transaction. We have written extensively on the reasons for Lonmin’s precarious position. Here I lay out five reasons for why the rights offer should be voted down.
1. The management team of Lonmin is on record stating that if the rights issue does not go ahead the company will have to close its doors. I personally don’t buy that for one second. If the rights issue doesn’t go ahead, it will force everyone back to the table to make the hard, tough concessions that will return the company to a sustainable path of profitability which should have been done years ago.
2. The loss of its empowerment status: Lonmin lent $304m to Cyril Ramaphosa’s Shanduka Resources in 2010 to fund the purchase of a 50.03% interest in Incwala, the company’s designated BEE vehicle (which owns stakes in Lonmin subsidiaries). The idea was that Shanduka would repay the loan with dividends received from its stake in Incwala.
Obviously the poor performance of the company meant that dividends were not forthcoming, so by the end of September 2014 (the company’s financial year-end), the loan amount owed by Shanduka vis-à-vis Incwala had increased to $399m. Lonmin then took the decision to impair the loan, writing off $297m to leave an outstanding amount of $102m as at the end of September 2015.
Shanduka has effectively decided to walk away from the obligations of the loan due to the implications of the rights issue. Incwala was still receiving R228m by way of advance dividends in the 2015 financial year alone. So it appears Lonmin was literally throwing money at its empowerment partner when shareholders hadn’t been paid a dividend, and then when the going got tough, Shanduka simply elected to walk away.
The company’s other empowerment partner are the Bapo ba Mogale tribe which represent an ownership stake of 2.4% in Lonmin and who have indicated they do not have the financial resources to follow their rights. So the company will be forced to issue 617.5m shares to them at a greatly reduced price of 0.000001 cents per share (for a total consideration of R617) to prevent the dilution of their ownership stake. Had there been clarity on the ‘once empowered, always empowered’ principle from the DMR, this might not be such an issue. But since this has not been forthcoming (the issue is headed to the courts) one must assume that the company needs to remain empowered to ensure it can retain the mining licences it requires to operate.
3. The rights issue is really being done at the behest of the banks – to mitigate their risk. Of the $407m in gross proceeds raised, only $369m will actually be for the use of the company. So Shareholders will pay half a billion rand ($38m) for the pleasure of the bankers being able to parlay their risk. That’s extortionate in my mind. Of the $369m the company will actually receive, $135m will go towards paying down debt facilities, leaving the company $234m it can actually apply to things like operating and capital expenses. Based on some analysts’ estimates, this is barely enough to sustain one-year’s worth of capital expenditure, even on the revised production profile of the company which has been reduced for each of the three financial years to 2018. On a side note: Has anyone wondered how we got to the point where Lonmin’s short-term revolving credit and long-term loan facilities matured within one month of each other (in May and June 2016)?
4. Protect the PIC from itself. How the Public Investment Corporation (PIC) got talked into being prepared to not only take up its rights, but extend its risk to underwrite another 18% of the proposed offer (taking its potential total exposure to 25%) is quite stunning. The only plausible non-commercial reason for its involvement is that it is doing this to protect jobs. But the PIC’s biggest client is the gigantic Government Employees Pension Fund (GEPF) whose average member earns less than R15 000 a month.
Lonmin’s assets are marginal at best. So while the PIC’s offer is charitable, should they really be gambling public servants’ pensions on a company whose future – even should the rights offer proceed – is uncertain, and almost entirely tied to the fortunes of the rand/platinum price? So the GEPF, and by implication the PIC, needs to make up their mind as to whether they are an instrument of Luthuli House or the guardian of the financial well-being of the country’s public servants. You can’t be both.
5. The appalling lack of respect implied in the rights offer. Can you really look shareholders in the eye and demand more money in the way that the rights offer has been framed? Let’s try for a moment and get into the mind of a Lonmin shareholder. Barely three years ago the company came cap in hand to shareholders for $767m. In those “heady” days the share price was north of R30/share. The price subsequently fell to R3.84/share just prior to the details of the rights offer being announced. By effectively telling shareholders to invest another R9.84/share or have their investment written down to zero smacked of sheer arrogance. The share price performance has inflicted capital losses of monumental proportions on shareholders and now they must go triple or quits?
So in summary then: The BEE shareholders are unable or unwilling to assist. This makes the rights issue risky from an empowerment status point of view partly because the state has not been prepared to clarify the ‘once empowered, always empowered principle’.
The banks – JP Morgan, HSBC and Standard Bank – hold all the cards, but are demanding compensation that is excessive. The unions are completely unprepared to budge, even to the detriment of 6 000 of their members. Instead of retrenching 20% of the workforce, why doesn’t everyone agree to a 20% salary reduction – from the Chairman down?
No-one from the executive team has been fired or asked to leave. And the one stakeholder that is prepared to help – the PIC – shouldn’t really be carrying the exposure. So why should shareholders put up with this? The expectation that shareholders should cough up for the failing and intransigence of everyone else is appalling.
So tell them to think again. Vote against allowing the rights offer to proceed.
The author does not own, nor has ever owned, shares in Lonmin.
How a BlackRock Bet on African Gold Lost Its Luster
Justin Scheck in Luhwindja, Congo, and Scott Patterson in London
Evy Hambro came to the 2013 Mining Jamboree hunting for more gold.
At the conference, featuring lingerie models strutting before a South African sunset, the BlackRock Inc. BLK 0.53 %
fund manager scouted for a mining company needing financing. His
search led him to double down on an earlier bet—a gold miner named Banro Corp. BAA 0.00 %
he knew had troubled operations in a troubled African country.
Mr. Hambro is discovering just how troubled.
Falling gold prices have battered Banro,
as have operational setbacks. It has faced sometimes-violent unrest
around its mines in the Democratic Republic of Congo and questions about
payments it made to entities controlled by a government official. Local
residents blame it for several deaths.
Mr. Hambro’s 2013 deal was
part of a largely overlooked facet of the commodities boom-turned-bust.
Eager for exposure to rising prices, conservative investors who once
shied away from large bets on small miners in volatile places piled in.
Those wagers sometimes came with risks that exacerbated the pain of falling markets.
Banro’s
biggest investor was BlackRock, through funds that London-based Mr.
Hambro managed. In exchange for a cash investment, the Canada-based
miner in 2013 agreed to pay a dividend to a BlackRock trust—separate
from the funds—which he co-managed and whose investors include Yale
University and the Ohio Public Employees Retirement System.
Two
weeks after Banro announced the deal, it ousted its chief executive, who
had raised corporate-governance concerns and suggested investigating
Banro’s finances, including payments Banro made to entities controlled
by a Congolese official, say people familiar with the episode.
Banro’s current CEO, John Clarke,
a board member now and at the time, wrote in a September email that
Banro can’t disclose why his predecessor left and that it is “complete
nonsense” that there were internal corporate-governance concerns. He
said Banro didn’t make any improper payments and wasn’t involved in the
deaths locals allege.
By early 2014, Banro was near insolvency,
said Richard Brissenden, who became its chairman last year, in a June
interview. “When I arrived I didn’t realize how bad the situation is,”
he said. “It was scary.”
BlackRock’s Mr. Hambro knew in 2013 Banro
routinely missed production forecasts because of operational missteps.
But he didn’t know, people familiar with BlackRock say, of deadly
accidents around its mines, of concerns over payments or of the extent
of local unrest.
BlackRock says it “has a rigorous investment
process and a strict set of criteria that is adhered to before any
investment is made,” adding: “These allegations, if found to be true,
would be entirely contrary to BlackRock’s values.”
Banro’s shares
fell 22% after its prior CEO left and are down about 90% since the 2013
deal, valuing BlackRock’s holdings at about $4.6 million, down from
$66.4 million at the end of 2011 when it owned fewer shares, according
to FactSet.
Political and operational risks have long been part of
investing in small mining companies. Until recently, those risks were
too great for many big fund managers. But as commodities boomed, small
miners became attractive.
“During the boom days, they were quite
aware of political risks, and had greater appetites to swallow them,”
says Daniel Litvin, managing director of Critical Resource, a London
firm researching on-the-ground risk for companies and investors. “Quite
often they made substantial mistakes.”
an oil company whose investors have included Vanguard Group and
Janus Capital Management LLC, according to FactSet, disclosed in 2013
that the U.S. Justice Department was investigating it on bribery
allegations in Angola dating back several years. Cobalt denies
wrongdoing, says it is cooperating with the investigation, and that the
U.S. Securities and Exchange Commission dropped a parallel
investigation. Vanguard, Janus, the SEC and the Justice Department
declined to comment.
The Kyrgyz government and several NGOs alleged over the past four years that Centerra Gold Inc., CAGDF -4.02 %
whose backers according to FactSet have included Franklin Templeton
Investments and USAA Investment Management Co., engaged in corrupt
dealings and polluted an area around a Kyrgyzstan glacier. Centerra says
the allegations “are unfounded and without merit.” USAA declined to
comment. Franklin fund managers didn’t respond to inquiries.
Warming to risk
Banro’s Congo operations show the kinds of risks investors can face in developing-world mining.
For
years, BlackRock avoided volatile stock investments. A 2006 deal with
Merrill Lynch & Co. brought risk-taking fund managers like Mr.
Hambro. He is a banking-family scion and son of an investor in Russian
gold mines.
Mr. Hambro, 43 years old, turned BlackRock into a
mining-investment powerhouse, becoming well-known for the publicly
listed BlackRock World Mining Trust. It did well during the commodities
boom but lost 61% in net asset value in the three years ended Sept. 30,
compared with the Euromoney Global Mining Index’s 54% loss. The trust,
while receiving dividends from Banro, doesn’t hold stock in the miner;
several BlackRock funds do, making the firm Banro’s largest investor.
BlackRock’s
Banro foray began 10 years after Banro entered Congo, then called
Zaire. Banro, under founder Arnie Kondrat, in 1996 acquired rights to
mine gold near the Rwanda border, a region that erupted into war soon
after. In 2006, Banro deployed exploration teams to the mountainous
Twangiza region, where violence continued even after the war ended in
2003. Mr. Kondrat didn’t respond to inquiries.
Banro had listed on
the Toronto Stock Exchange, and one of Mr. Hambro’s BlackRock funds
bought about $10 million of its stock, a 3% stake. Banro soon disclosed
big estimated reserves at Twangiza, and BlackRock’s stake gained about
50% in value over the next months.
Mr. Hambro was a commodities
evangelist. Chinese demand meant a sustained boom, he was cited as
saying in a 2007 interview, describing his due diligence: “I physically
go into mines and get my hands dirty.”
Tensions mounted around
Banro’s Congo operations. In 2006, an exploration team drilling near the
village of Katombwe dislodged a rock that killed a local pastor’s
mother, say the pastor and other local leaders.
Starting in 2010,
after the government approved Banro’s plan to mine near Katombwe, about
1,000 people were relocated from a fertile hillside where Banro would
build its mine to Cinjira, a barren mountaintop. Cinjira residents say
crops won’t grow well there.
Banro built homes, a market and a
water system for the displaced. It provided some with cash compensation.
Banro’s Mr. Clarke wrote that the relocation “was voluntary,” that
Banro didn’t choose the relocation spot and that “the Cinjira site was
chosen by the community.”
Cinjira residents say police came to
their homes and said they must leave. The local government leader,
Esperance Barahanyi, says an official from Congo’s capital made the site
decision. Attempts to reach Congo’s mining ministry weren’t successful.
Banro
says it follows “conflict-free gold standards” from the World Gold
Council trade group. Banro’s Mr. Clarke said in a July interview its
charitable foundation has spent millions of dollars helping communities
near its mines. The foundation this year reported spending more than $5
million on education, health care and other programs from 2004 through
2014. Last month, Banro won a Congo mining-industry award for social
investment.
A greater stake
In 2010, BlackRock increased its Banro stake to 7%.
In
2012, Mr. Hambro sent a deputy, say people familiar with the trip, who
met Banro officials including then-CEO Simon Village and helicoptered
in to inspect the mine site. That year, a bulldozer working on a Banro
waste pile dislodged a rock that struck 16-year-old Bukuze Kabalabala,
who died hours later, say locals. Villagers stormed Banro’s gate. “It
created an enormous animosity,” says Crispin Mutwedu, a Banro employee
in Congo who handles community relations. He says he offered Ms.
Kabalabala’s father two cows’ value and that they settled on $16,000,
about eight cows’ value.
In his email, Mr. Clarke wrote that “at
no time has Banro been directly or indirectly involved” in the deaths.
“Notwithstanding the mystery surrounding the death of the 16-year-old
girl, and indeed the lack of any connection to Banro,” he wrote, the
company “completely out of good faith, and most importantly, out of
sympathy for the family’s loss, agreed to compensate the family.”
Production
slowed during the rainy season when ore became too wet. An ore-crushing
mill broke. Banro told investors the rains were “unseasonably heavy.”
In the July interview, Mr. Clarke said Banro could have “implemented”
its equipment better. “They’re not excuses,” he said, “they’re just
embarrassing facts.”
A new Banro mine, in Namoya, was on a jungle
road that militia leader William Yakutumba says he controlled. Last
year, a United Nations committee reported, his militia attacked villages
and boats, stealing money and raping women. A Banro contractor agreed
to pay Mr. Yakutumba’s men to let their drivers pass, say people
involved in the convoys.
Mr. Clarke wrote: “At no time did Banro
ever pay money, or pay tolls, or provide any favour to ANY armed rebel,
to gain some sort of road access.”
Mr. Yakutumba says his group
helped Banro workers travel the route but “never taxed Banro.” He denies
the U.N. allegations, saying “we respect women and human rights.”
Banro
made payments to a company controlled by Ms. Barahanyi, the traditional
chief near the Twangiza mine, that provides services such as labor, and
made payments to her nonprofit company, Banro and Ms. Barahanyi say.
She goes by the title Mwamikazi.
“Traditional community
chiefs such as the Mwamikazi are recognized under DRC law but not,” Mr.
Clarke wrote in his email, “as some sort of elected government official
or civil servant appointed by Kinshasa or some sort of representative of
the central government, but rather as protectors of cultural identity
and traditional values.”
A Congolese-government
information-ministry official, asked about Ms. Barahanyi, says: “The
Mwamikazi is the local chief recognized by Kinshasa” and “takes orders
from Kinshasa” on governing the local area and is in charge of the local
apparatus of the Kinshasa-based government.
At the February 2013 Mining Jamboree, the mood was tense among
Banro
executives attending, say people familiar with the group. Operational
delays and gold’s falling price had crimped revenue; Banro needed cash.
Mr.
Hambro was looking to offer cash for a slice of a miner’s production. A
BlackRock analyst met Banro’s Mr. Village at the jamboree. Over the
next weeks, they discussed Banro’s potential and its operational
problems, say people familiar with the talks, and Mr. Village promised
stronger management.
On Feb. 21, 2013, Banro announced the
BlackRock trust would pay it $40 million for a dividend based on
production and gold price. The investment was later reduced to $30
million.
Mr. Village sent documents to Banro’s board outlining
corporate-governance concerns and actions to address them, say people
familiar with the matter. He suggested sidelining the founder, Mr.
Kondrat, who was still involved in management, and changing the board,
say people familiar with the documents. The documents raised concerns
about financial issues, including payments involving Ms. Barahanyi.
Mr. Village proposed an outside audit. Instead, Banro directors ousted him.
Mr.
Clarke in July said he wasn’t aware of the audit proposal. In his
September email, he wrote it is “complete nonsense” that “there were
internal conflicts about corporate governance at Banro in early 2013”
and it is “incorrect” that documents Mr. Village submitted to the board
raised corporate-governance concerns and outlined measures for improving
governance.
“Banro does NOT make, and never did make, any illegal or improper payments” to Ms. Barahanyi, Mr. Clarke wrote.
After
Mr. Village’s departure, members of Mr. Hambro’s team held a call with
Mr. Clarke, who succeeded Mr. Village as CEO, demanding to know what
happened. Mr. Clarke in July said he explained that Banro “closed out
the contract” of Mr. Village and that “we weren’t going to bad-mouth”
Mr. Village. Mr. Clarke said “it was a necessary time for change.”
In
Twangiza, tensions continued. On May 29, Ishara Chasinga, then 18, left
home and saw protesters blocking Banro’s gate. Villagers say a Banro
truck and mine police pulled up.
“They just got off the car and started shooting,” said Mr. Chasinga five days later at the hospital.
A
bullet pierced his leg, he said, showing his bandaged thigh. Protests
continued for two days. Mr. Clarke in July said the shot was a warning
and hit Mr. Chasinga accidentally, but was “inexcusable.”
In
August, Banro reported gold production was up but that it lost $48.7
million in the quarter ended June 30, versus a $3 million year-earlier
loss. In September, the New York Stock Exchange warned that, barring a
sustained increase in Banro’s share price, it would delist it from its
small-cap exchange. Mr. Clarke declined to comment on the NYSE notice.
The
BlackRock trust, which Mr. Hambro still co-manages—he also still
manages funds with Banro stakes—has written down its $30 million Banro
investment by 30% amid falling gold prices.
‘Walking dead’ on the TSX Venture Exchange: How are ‘zombie’ companies surviving?
BEN NELMS for National Post Tony Simon, co-founder of the Venture Capital Markets Association is pictured in their offices in Vancouver.
Management at the TSX Venture Exchange would probably appreciate it if Tony Simon just shut his mouth for a while.
As the co-founder of the Venture Capital Markets Association, Mr. Simon is an unlikely torchbearer for the theory that Canada’s market for junior resource stocks is broken and the Venture Exchange is part of the problem. But he has assumed that role with gusto in the past few weeks as his thoughts have reached an increasing number of ears. It is hard to imagine that anyone else is causing more headaches for the Venture Exchange these days.
Mr. Simon, for his part, thinks he is just stating the obvious.
“This is not something that’s an unknown problem,” the Vancouver-based entrepreneur said.
The Venture management team has fired back, completely denying his claims that they are not doing their jobs properly.
However one feels about the debate, all would agree that Mr. Simon’s research paints a frightening portrait of Canada’s junior exploration sector. It raises questions about how hundreds of tiny resource companies can continue to exist. Sources said that auditors are offering these companies cut-rate fees to maintain their viability.
The controversy started in February, when Mr. Simon published research suggesting there are about 600 “zombie” resource companies on the TSX Venture Exchange that are not meeting listing requirements and should be de-listed. His report has spread around, even getting picked up by Zero Hedge, the influential U.S. financial blog.
The big numbers are grim: by Mr. Simon’s calculation, these “zombies” have combined negative working capital of greater than $2 billion. Raising money has become impossible for many of these junior firms as market conditions have deteriorated over the past few years. Now they are just “walking dead” companies with no serious prospects that pose a threat to investors looking at the sector, he said.
So why are they still around? Mr. Simon noted that TMX Group Inc. is a profitable corporation that relies on listing fees for revenue. He believes the exchange is failing to enforce its own rules, and also blames auditors and securities regulators for not doing enough to crack down on these companies and protect investors.
There are plenty of others who believe the Venture should purge these weaker firms.
“It tarnishes the viability of the [stronger] companies there, and it turns the exchange into a laughingstock where very few people will go to invest,” said Bill Sheriff, the opinionated chief executive of Till Capital Ltd.
Mr. Simon’s research points out numerous companies that are in appalling financial positions. For example, Bluenose Gold Corp.’s latest statements show the company had $3,491 of cash and receivables at the end of December, compared to $2.6 million of accounts payable and accrued liabilities. Xiana Mining Inc. had $6,954 of current assets as of Oct. 31, compared to $1.7 million of current liabilities.
In some cases, the accounts payable in these tiny companies are owed largely to insiders, which shows they are putting their own money in to keep the firms going.
There is a legitimate debate to be had on whether it is in the interests of investors to have companies such as these on the public markets. But in the Venture Exchange’s view, there is no debate that it is upholding its standards. In an interview, Venture president John McCoach defended his company’s practices and accused Mr. Simon of selectively choosing data for his study.
“The one thing that jumped out at me is his allegation that we were intentionally turning a blind eye [to non-compliant companies] or changing our practices. Which is totally without any basis, and in fact it’s absurd,” he said.
“Our continuing listing standards have been applied the same way as long as anybody here can remember in at least 10 years.”
For example, on the issue of negative working capital, Mr. McCoach noted the rules give the exchange some discretion to keep companies listed if their capital position is weak because of seasonal or temporary conditions. And he said working capital is not necessarily the best tool to judge these companies, since the nature of mineral exploration is that you spend your money on drilling and then go raise more of it (if you can).
Mr. McCoach said 27 of Mr. Simon’s 600 companies were previously bounced to the NEX board, which is for Venture companies with little-to-no corporate activity (Bluenose Gold is one of those). The Venture Exchange then took a sample of 135 of the other weakest companies on Mr. Simon’s list, and determined that 30 may not be meeting listing requirements. “Extrapolating that out, we would end up with a number far less [than Mr. Simon],” Mr. McCoach said.
For the past few years, numerous experts have predicted there will be a purging of these companies. They are seen by some as a relic of the mining bull market from last decade that no longer have a reason to exist. But despite their struggles to raise capital, they have shown an ability to hang in, and Mr. McCoach thinks the vast majority of them will continue to do so.
THE CANADIAN PRESS/Aaron Vincent ElkaimThe Toronto Stock Exchange Broadcast Centre is pictured in Toronto.
The question becomes: How are they doing that? Auditing fees alone can cost upwards of $25,000 a year for a small junior mining company, experts said, while listing fees are a minimum of $5,000 to $6,000. And that does not even account for legal fees and transfer agent fees.
By law, an auditor cannot start a new audit for a company until it has been paid for the prior one. Companies with minimal cash and negative working capital should not be able to pay that money. Company insiders won’t foot the bills forever.
But sources said some auditors are offering very low rates to keep these companies from folding — in some cases less than $10,000. One source said he knew of a case in which an auditor settled up with a company at a lower-than-expected-rate, just to ensure it got paid quickly.
“A lot of the auditors have given them a lot of slack,” said Mr. Sheriff.
The miners themselves are always trying to find ways to ease the burden. Tony Drescher, an entrepreneur involved in many small mining companies (including Xiana), said he does as much of the administrative work as possible in-house to control fees. “It would be very difficult if we had to contract this stuff out,” he said, adding companies are always finding creative ways to lighten their fee load.
But insiders wonder how long the survival can last. Junior exploration companies have, for the most part, been in a bear market since 2007. They have managed to defy the doubters and keep the lights on year after year as they hope and pray for better market conditions. It is not a scenario that can go on indefinitely. However one feels about the listing debate, at some point it may make more sense for a lot of companies to just die than to be part of Tony Simon’s Walking Dead.
$CNR.L Whittle optimisation study works wonders at Condor Gold’s La India project
Within the trade, the benefits of the employing Whittle Consulting to enhance the economics of a planned mine have long been recognised.
Jeff Whittle founded his first mine optimisation business way back in 1984, sold it, and then developed another one along similar lines.
It’s all about using the proprietary Whittle optimisation software to enhance the economics of a mine by modelling pit design, scheduling and a host of other features.
But because the main customers tend to be the major mining companies, it’s not often that the full impact of a Whittle study can see the light of day.
Condor Gold (LON:CNR) is one recent exception, and Condor’s chief executive Mark Child is in no doubts about the improvements Whittle optimisation have made to Condor’s plans for the La India gold project in Nicaragua.
“The results have stunned us,” he says. “They are far better than we thought they would be.”
And on many levels too.
Condor’s original pre-feasibility and preliminary economic studies were prepared by SRK Consulting back in December 2014.
These studies outlined three potential development scenarios: a mining project solely focussed on an open pit at La India, a mining project centred on La India but incorporating satellite pits too, and a project incorporating both open pit and underground mines.
Whittle went to work on all of these scenarios, and the results are startling.
The basic open pit, which was originally modelled around 674,000 contained indicated ounces has now been upgraded to 866,000 ounces. Under the Whittle optimisation it will now produce an average of 91,000 ounces over the first five years of production, instead of the 76,000 ounces that was originally modelled.
That’s a production improvement of 20% per annum. over the first five years on a theoretical reserve basis. If a a small amount of inferred material and production is included it rises to 101,000 ounces from a single pit
But there’s more.
The production improvement for the combined open pit plus satellite operations adds up to an even better 25%, as contained ounces jump from 827,000 ounces to 1.06mln ounces, and average annual gold production over the first five years jumps from 94,000 ounces to 118,000 ounces.
For the open pit and underground combined operation the improvement is back at 20%, based on an increase in contained ounces from 1.3mln to 1.55mln and an increase in production over the first five years from an originally projected 138,000 ounces to a newly modelled 165,000 ounces per annum.
How has this all been achieved?
Ah, that would be telling, and the precise workings of Whittle’s software remains a closely guarded secret. They utilise 10 techniques across the mining value chain.
But the modelling is clear enough, the data is held by Condor, and the improvements are there to be made.
Whittle, explains Child, has simply taken ten existing studies and re-worked them with an unremitting focus on the economics.
Thus, under the Whittle modelling although recoveries may not be at their maximum potential, from a cost point of view varying the ratio of recoveries to grinding costs can make a lot of sense.
In the case of Condor’s project, there are several such examples.
“Whittle do their own pit planning and pit phasing,” says Child. “The pit shells have gone deeper. They’re now 30% bigger. Why? – because we’ve got an average 3 gram open pit material that increase in grade at depth. What was previously deemed high grade underground is now open pittable.”
But he emphasises that in spite of the increases in size and mooted output, several other key metrics remain the same.
“The capex is the same,” he says. “The opex is the same. The all-in sustaining cash cost is the same at under US$700 per ounce. An incremental 20% to 25% more gold production per annum goes straight through to the bottom line. The life of mine extends because there is 30% more contained gold. It’s all optimised to money and NPV.”
It is fairly obvious there have been material increases in the NPVs and IRRs, although Child doesn’t quote numbers.
All of which sets Condor up nicely for the ongoing sales process, which the company has initiated and is likely to take 4 to 6 months.
It’s not a given that the company will be sold, but Child has always emphasised that he and his team are not developers.
And having sent out teaser documents soliciting declarations of interest, the Takeover Panel has declared the company to be in an Offer Period.
So be it.
Child doesn’t deny that the company’s for sale.
Indeed, at this point in time a sale is the outright preference compared to some of the other potential scenarios under which La India might get built such as a joint venture or a potentially dilutive equity raise.
“Our focus is on selling the company,” he says. “But there are a number of potential outcomes. We always said we’d probably sell, but we’re not desperate to sell.”
Indeed, there’s money in the bank, and a renewed confidence in the quality of the asset following the Whittle study.
That speaks of a certain strength in depth, especially considering that a number of confidentiality agreements are already in place and a major shareholder has recently topped up its stake.
What happens over the course of the next few months is likely to be very interesting indeed.
T·The stunning return of the Liberal Party of Canada to majority status in the federal election held October 19 surprised most people in Canada who had expected, at best, a surge to minority government from third place behind the ruling Conservative Party of Canada and the New Democratic Party of Canada.
Instead, Canadians woke up to a new political landscape, with voters having taken the middle ground by rebuking the worn-out, pro-big-business Tories, but not wanting to roll the dice on the more left-leaning, inexperienced NDP.
Shown the door were the two most recent ministers of natural resources -- Conservative Greg Rickford lost his seat in Kenora, Ont., to Liberal Bob Nault, who had a close race with the former provincial NDP leader Howard Hampton; and previous Minister of Natural Resources and current Finance Minister Joe Oliver lost his seat in Toronto. Nault was quick to give some credit for his victory to First Nations communities in the the Kenora region, who mobilized to support him.
Indeed, one theme of the election was the growing political strength shown by aboriginal communities in Canada, with a record 10 indigenous people elected as members of Parliament, up three from 2011, and with a shift to Liberal from Conservative and NDP.
What should miners expect from a Liberal government?
With regard to corporate taxes, the Liberals have pledged to keep them at current levels andretain the 15 per cent flow-through creditfor mineral explorers. Most of the taxation changes will comeat the personal level. For example, Canadians with taxable income between $44,700 and $89,400 will see their federal income tax rate fall to 20.5 per cent from 22 per cent, while those making more than $200,000 will see it rise to 33 per cent from 29 per cent.
Perhaps the biggest change that mine developers will see with the new government is the Liberals' determination to reverse the Conservatives' streamlining of environmental approvals by skipping the federal approval process, if the project had already met environmental approvals at the provincial level.
The Conservatives saw the two-stage approval process as an expensive and time-consuming duplication of effort, while the Liberals and NDP saw it as necessary oversight, with the federal government not being subject to the more parochial political pressures sometimes applied to provincial regulators.
Another change miners might see is an improved relationship between the federal government and aboriginal communities in Canada, who need to be on-side for many resource development projects to proceed in remote parts of Canada. But it's hard to generalize on the topic, as relationships can vary from community to community across the country.
The new Liberal government has pledged to allow members of the federal civil service to speak out and attend conferences, in contrast to the much-resented muzzling of federal scientists and related bureaucrats under the Conservative regime. (Here at the Miner, in the early years of the Harper government, we'd repeatedly get federal scientists eagerly offering to write op-ed pieces or serve as expert interviewees, only to have them come back months later frustrated and embarrassed upon learning they were not permitted to talk to us. As the years passed, the emails and phone calls from federal scientists stopped completely.)
It's hard to say if the Liberals' pledge for a new round of massive spending on infrastructure will benefit miners (beyond aggregate miners), as most of the plan relates to public transit, social housing and green infrastructure.
Another development we might see is the retabling in a new form of the private member's bill by then-opposition Liberal MP John McKay (who was just re-elected) to strengthen federal government oversight of the corporate social responsibility activities of Canadian mining companies operating overseas.
In naming a cabinet, we strongly recommend that newly elected Liberal MP Maryann Mihychuk in Winnipeg be considered for Minister of Natural Resources. Mihychuk is a professional geoscientist and businesswoman who served with distinction as Manitoba's Mines Minister and Minister of Intergovernmental Affairs in the early 2000s. More recently she has been director of regulatory affairs for the Prospectors & Developers Association of Canada, as well as a consultant to mining firms such as Hudbay Minerals and Carlisle Goldfields, among her many mining endeavours.
From Km. 88 in Venezuela to Oyu Tolgoi in Mongolia, passing through Canada's Voisey's Bay, Ed was present at every major mineral find in the last 20+ years. His recent debilitating illness took nothing away from his great humor and the distinguished person that he was. He was taken away from us all too soon. He will be dearly missed. Our sincere condolences go out to his family.
Gold: Off to the Races, or Just Another False Start? (Chart)
Gold: Off to the Races, or Just Another False Start?
The Visual Capitalist
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Commodity traders know that gold is highly cyclical, and that it takes significant changes in the fundamentals and sentiment to change the long-term price trend. That said, the latest news on gold is cautiously optimistic for those waiting for a rebound in the precious metal. Over the last few days, gold has broken through its 200-day moving average to reach its highest price in three months at just short of $1,200 per oz.
This type of technical breakthrough is rare: over the last six years, gold has touched its 200-day moving average on the upswing six different times. Each time gold emerged from these technical circumstances, the downward momentum of the gold price would remain unaffected.
The most recent breakthrough was in early 2015, but gold subsequently fell back through its moving average to finish off -14% lower than it started six months earlier. In 2012 and 2014, similar technical breakthroughs also occurred, ending in similar bearish fates.
The subsequent trading was particularly nasty in 2012. After the technical event happened that year, the gold price continued to fall over the course of 16 months by a whopping -28%.
That said, crossing the 200-day moving average is still regarded as an important technical event to traders. If you need proof, look back to gold's largest run in recent memory, which occurred in the aftermath of the Financial Crisis. Gold crossed its 200-day moving average while it was worth a measly $860/oz and soared 124% in value over the next 32 months. It would reach roughly $1,900 per oz, its highest price (in absolute terms) of all time.
So will crossing the 200-day moving average mean anything this time around? It's impossible to say, but there is certainly no shortage of other indicators that may suggest that it is time for investors to pile back into gold stocks.
Freeport
McMoRan has been mining copper, silver and gold at Grasberg in remote
Indonesia since the 1970s. In terms of reserves, Grasberg is still the
richest deposit on the planet
Investors pile into Freeport on restructure hopes | MINING.com
Frik Els | October 6, 2015
Copper and
gold giant Freeport-McMoRan (NYSE:FCX) was trading higher as much as
6.7% on Tuesday with already more than 28 million shares in the owner of
the iconic Grasberg exchanging hands by midday.
At the time of the oil and gas acquisitions in December 2012 Freeport was worth more than $30 billion
The Phoenix-based company announced on Tuesday that it's trimming its board and is reviewing its oil and gas business in a return to its roots as a copper-focused miner.
The announcement of "alternative courses" for the oil division which
could include an outright sale comes less than three years after Freeport acquired Plains Exploration Production for $6.9bn and bought back for $3.4bn in cash McMoRan Exploration, a deep sea drilling company, which it spun off 18 years ago.
The
news comes not longer after it was revealed that activist investor Carl
Icahn has taken up a substantial stake in the business.
Last
month Freeport, which vies with Chile's state-owned Codelco as the world
number copper miner in terms of output, became the first major copper
miner to announce its slashing capex and production to cope with the
depressed copper price.
That led to a huge surge in the stock
which after today's rally is worth $13.2 billion, but year to date
Freeport has been decimated with shares down by half.
At the time of the oil and gas investment in December 2012 Freeport was worth more than $30 billion.
HALIFAX – This, UBS analysts ask in a recent note, answering as you’d no doubt guess: “Yes.” In making their argument, they raise some interesting questions. In particular: Are the bears over-playing the yield card?
UBS sets the scene of gold’s decline, noting “The prospect of Fed normalising policy has been the main driver for gold’s correction over the past few years.” But UBS takes the position that the market has gone too far, punishing gold ahead of presumed (and now delayed) rate hikes. In this, UBS sees a new – and lower – world order of interest rates coming to bear less than might be expected, which could be seen as good for gold.
“But the possibility that the market may be overestimating the terminal rate suggests that current weak sentiment and price expectations may also be overdone,” UBS analysts write. To UBS this suggests an opening to buy.
“Positioning has declined considerably over the past couple of years and has now become very light. There may be an opportunity, especially for long-term oriented participants looking to diversify portfolios, to rebuild positions at more attractive levels.”
Meantime, UBS points out, as others, to what has so far been solid demand for gold, especially in Asia, it’s primary consumers. Summarizing what seems fairly clear from World Gold Council data from recent years, UBS notes that the easy cuts to demand have been made, driven by investment buyers (coins, bars).
“In contrast, demand which is more linked to cultural/religious traditions seems to have been more stable and we would expect this to continue,” UBS writes.
Indeed, India has long been a mainstay of the market, and in the past decade China, in particular its general consumer, but also the government, has emerged as buyers of more or less equal importance.
UBS turns to a chart of the seasonal buying in India and China (long noted by analysts and observers of the sector) showing that imports of gold typically peter out mid year, as they have this year, but then usually tend to pick as the end of year approaches.
Will this once again prove true with gold prices lower now than at the beginning of the year, spurring a bit of bargain hunting? Maybe not directly related, but it is intriguing that leading precious metal sellers like the Perth Mint have already noted a substantial pick up in coin and bar buying.
So UBS cozies up to gold, seeing a lot of the pain in both the price and equities behind. “Any further downside is likely to be contained, and we expect the market to ultimately find stability, which should provide the foundations for a moderate recovery over the coming years.”
Among miners it names AngloGold, Acacia and Randgold as buys. It also reckons AngloGold Ashanti, Fresnillo, and Hochschild debt is worth a look.
South Africa is a tough place to do business as a miner. Labor uprisings and tense relations between unions and mining companies are threatening mines' long-term survival.
Mines may close or become mechanized in the years ahead, and production could drop substantially during this rough transition.
The "old way" of mining in South Africa will probably disappear, says Andy Jackson, an exploration geologist at Sprott Global Resource Investments Ltd.
He believes that many mines will shut down if they can't replace workers with machines.
Around 8% of South Africa's economy depends on mining.1 South Africa is the 6th largest gold-mining country in the world, producing around 165 tons in 2014.2 It is also the world's largest platinum producer, accounting for 78% of the world's platinum production in 2013.3
Andy, originally from Zimbabwe, foresees for South Africa "an irregular and bitter downward spiral of both the mining industry and the country's economy."
Andy explains why he sees this decline in gold and platinum mining, and who may benefit:
The precious metals mining industry in South Africa is going from bad to worse. Political changes, low metals prices, and mines that are getting deeper and tougher to mine are slowly killing the gold sector.
The South African labor unions, in particular the dominant National Union of Mineworkers (NUM), have always demanded outrageous wage increases (30-120%, in a 5-6% inflation environment) during annual negotiations. Employers, acting through the Chamber of Mines, would counter with an increase of around the inflation rate.
After a bunch of posturing from both sides, they would agree to increase wages to be even with inflation, plus a few percentage points.
But this annual pantomime has been totally disrupted by the arrival of the Association of Mineworkers and Construction Union (AMCU).
AMCU says that its established rival NUM has been getting too cozy with the government and with mining companies. This smaller union is saying that the average mineworker in South Africa has seen no significant improvement to his lot in life since the end of apartheid. Of course, they're largely correct on that front.
And the AMCU is preaching a much more radical approach, which has been rapidly luring workers away from the more established NUM. Julius Malema, the leader of radical populist party the Economic Freedom Fighters, has thrown his support behind AMCU.
Last year, we saw the conflict between AMCU and NUM come to a head in the platinum sector.
The Rustenburg platinum mines suffered a 5-month strike over wages.
AMCU had demanded even more outrageous increases than NUM in order to outdo its rival. It then refused to play the usual charade of reaching a compromise. The result was many months of minimal production, and violence between AMCU and NUM. NUM lost a bunch more members to AMCU.
Those who wanted to keep working bore the brunt of the violence and the mining companies eventually crumbled (probably hoping to use the situation to allow them to close some loss-making shafts).
Anglo American Platinum, which owned the mines, reported that it had lost a third of annual production because of the strike. It even announced plans to sell mines after the strike ended,4 a decision that it has now followed through with. Around a week ago, it sold several South African mines to Sibanye Goldfor $330 million in cash and stock. 5
But the damage won't end there.
Now AMCU is turning its attention to the gold sector. NUM can't afford another face-losing confrontation, so it has upped its ante, demanding larger increases and negotiating more strenuously. Neither union has much regard for how low commodity prices reduce the overall profitability of these mines.
There was a great quote in an interview with a NUM official last month. He said something along the lines of: "We know the mining companies can't afford a big increase, but I am mandated by my members to get a big increase. So we must strike."
The main mining companies have increased their offers and NUM has accepted the improved terms. The Solidarity Union (mainly made up of skilled and semi-skilled workers) has also accepted, but the Chamber of Mines says it has to be accepted by all the unions before it can be implemented. AMCU has rejected the offer and so is again controlling the game.
AMCU is also appealing a Labor Court decision last year that any strike at AngloGold Ashanti, Harmony, and Sibanye's gold operations would be considered 'unprotected.' They were bound by an earlier collective bargaining agreement that they were party to. That appeal is still in court.
Gold mining companies are warning that the wage increases, coupled with a low gold price, will result in layoffs. AMCU views possible layoffs as a threat targeted towards its members. It has recently vowed to oppose downsizing in both gold and platinum industries. They have threatened to take action if layoffs occur.
The South African government is trying to please both sides. Mines produce revenue but the votes come from labor.
So we're seeing a 4-way struggle between the mining companies, NUM, AMCU and the South African government.
It appears that in the long term there's no escaping the problems that ail these mines. Work conditions are increasingly harsh as the mines become deeper and hotter, but they are too unprofitable to pay workers high salaries.
Unless some new technological innovation occurs that allows mechanized mining in economically-stretched gold and narrow-reef platinum mines, they will go the way of 19th-century whalers.
And if mechanization and automation do save the mining industry, it will be a rocky changeover, with unions lashing out against escalating layoffs.
Over the next few years, expect more discontent and unrest as mines continue to pay low wages, shut down, or move towards automation.
Is there an upside?
New mines that are developed using automation, employing a low number of skilled and highly-paid workers from the outset, might avoid the turmoil that will affect older gold and platinum mines in South Africa. New mechanized platinum mines, which employ fewer people and offer better pay and superior working conditions, might stand to benefit.
The world is dependent on new platinum supply for industrial uses, and the price of platinum could rise as production at older mines decreases.
This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.
Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and nowadays also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.
![Gold: Off to the Races, or Just Another False Start? [Chart]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_sYlNRMgRJVB_Zx3S9JJEgFNgoK6Tw2m1ni1fQFfSM2_bSOzpkACZeORXkMaNouowfP03J_CA4wBtez-d5hWRc2pgn-vAyFgepYcP69Frx291yC3jsrX0pYf7dlO6f0OJUEBfXkSRgvGxFHlj5DojMzndxHtlQPrBKAdL0i_cMe-Lb-lMeBxfQJH60r261K5Bof0NMyJacD8RHzmA=s0-d)
