11 Things Mining Companies Should Focus on to Increase Their Chances of Attracting Investment

It’s no secret that the past twelve months have presented a challenging capital raising environment for the mining industry. Traditional debt and equity markets declined amidst a risk-averse investor sentiment and while new sources of capital emerged to fill the gaps, it remained a competitive time for mining companies seeking investment.

Last week Sean Rothsey from The Merkin Group attended  Mines and Money Hong Kong where 320 mining companies outlined their investment case to over 1,000 investors from the world’s largest mining equity funds, leading mining-focused PE firms and most active project finance lenders. Investors met with senior executives to compare investment options and discuss current industry trends. The event was an opportunity to network with 3,000 delegates from across the global mining investment community.

BHP BIlliton Pilbara Mines and MoneySource Mines and Money

Many investors however recognised that current valuations can produce enormous potential, provided the miner’s  investment mantra involves being selective. Lawrence Roulston from Resource Opportunities said recently that if investors identify the right mix of criteria, then “the upside potential on those select companies is outstanding”, going on to state that now is “the best buying opportunity he has ever seen“.

So what mix of criteria will win investor attention over other companies? And importantly, what should miners be focusing on to increase the chances of attracting investment?

Mines and Money Hong Kong asked four investment experts and analysts to outline what they think miners should be focusing on in the current capital raising environment. Below are answers from Grant Williams from Vulpes Investment Management, Alex Cowie from Diggers and Drillers, Blake Olafson from Whiterock Capital and Juerg Kiener from Swiss Asia Capital. In addition, there are contributions from Lee Downham from Ernst & Young. The results were :

11 Things Mining Companies Should Focus on to Increase Their Chances of Attracting Investment

  1. Develop clear business plans with a clear focus on creating investor returns – Juerg Kiener
  2. Management should commit to owning a big share of the company – Juerg Kiener
  3. Pay the investor some yield! Apply a better payout ratio to the profits to generate a meaningful yield, rather than using cash to buy bad assets – Alex Cowie
  4. Get control of the all-in cost of extracting an ounce of gold – Grant Williams
  5. Return profits to shareholders – Grant Williams
  6. Provide better communication to the market – Grant Williams
  7. Keep burn rate low via a change in compensation to be more share/option driven – Blake Olafson
  8. Enlist strong board members to support your management team – Blake Olafson
  9. Accept the reality of low valuations today in order to move the company forward – Blake Olafson
  10. Appoint quality management that has a track record of taking projects through to production – Lee Downham
  11. Focus on flexibility and optionality around your project – Lee Downham

Grant, Alex, Blake and Juerg all  presented and took  part in discussions at Mines and Money Hong Kong. Joining them on the presentation stage were Robert Friedland, Eric Sprott, Charles A Jeannes from Goldcorp, Greg Robinson from Newcrest, Tony Jensen from Royal Gold and Nev Power from Fortescue.

The 11 things identified are consistent with our own principles and the failure for  many miners to attract capital are evident of their reluctance to embrace them. They are no different ( with a few non material amendments) in other sectors. Conversely many of  those that have embraced these principles are raising capital in the face of a difficult environment .

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