How To Finance Mineral Prospects

INTRODUCTION It is sometimes said that "mines are made, and not found." I rather doubt that the exploration geologist would be overly sympathetic to that statement, and, of course, like most one-liners it is only partly true. Access to different financial markets are important at the mineral prospect stage. The modern mine financier has a much more complex, and interesting, job than the financiers of an earlier era, for example, the Canadian financiers of the 40's and 50's who had one simple set of options; i.e. float a company, promote it, and sell an equity stock issue, and then promote it some more. QUALITIES OF A FINANCIER Because technical people are seldom taught financing in their basic training, and because they are usually not involved in it until at quite a senior level in their careers, the whole field often acquires a certain mystique. The engineering professions have too often believed financing is the province of the accountant or financial executive and just as we in the technical world are often too quick to bristle if the latter try to tread on our domain, the opposite can just as easily be true. Unfortunately, this is another example of a compartmentalized individual, and that is one thing the successful financier cannot be. However, to be a successful financier one does not need extensive training or experience in accounting or finance. In fact it can sometimes be a disadvantage to get too buried in working only from the standpoint of discounted cash-flow analyses, ROI's, etc. It must be stressed, however, that one had better know how these analyses are made, and be knowledgeable in understanding a balance sheet, and have a good understanding of financial terminology. The difference between a simple project-type debt financing with a commercial bank and a more inventive and creative financial package comes from an intuition and an experience relating to risk-reward factors. The most important element is "common-sense", based on knowledge and experience. The goal is structure a financial package that fits the project, and in so doing it is important to recognize that it must fit within the limitations of the group supplying the money. I find insensitivity to recognize these constraints the most common mistake made in the field. Put yourself in the other person's place and understand his sources of funds and financing limitations. The engineer has an advantage in financing, as he or she has (or should have) a better idea than anyone of the value of the product, be it the mine, prospect, or company i.e. the intangible or potential worth which cannot be put on a pro-forma. He also knows, or should know, the risks involved. Two projects might look the same on paper, but a good financier must have a sense of when to take whatever deal he can get, and when to hold out based on his evaluation of future developments. It is essential to have a good sense of commodity values and trends, trends affecting the general economy (money supply, interest rates, effects of energy costs, etc.), and political considerations. He must also have a good understanding of the science and art of taxation as deals can often be financed using the government as a silent and unwitting partner by proper use of the tax laws. WHEN TO SEEK FINANCE The first critical decision to make in financing a mineral prospect is "when". At the exploration level, when it is only a dream in the geologist's eye, the alternatives are more limited than when it is a fully-engineered project. The "when" decision depends on how much in internal funds the company has to play with, and how desirable it is to invite financial participation to spread the risk. Assuming that decision is not taken out of lack of money, no one can categorically say when to do it. There is