February 2013

The art of the deal

Juniors and financiers lay out their strategies for PDAC 2013

By Eavan Moore

Klondike Gold Corp.’s president and CEO, Erich Rauguth, will focus on individual private investors at PDAC to fund exploration at the company’s properties in Yukon (drill cores seen above) and British Columbia | Courtesy of Klondike Gold Corp.

Deep cuts in mining stock prices in 2012 will provide the backdrop for dealmaking at the March 2013 convention of the Prospectors and Developers Association of Canada (PDAC). But a poor market makes the convention all the more critical, according to PDAC executive director Ross Gallinger. “The networking and educational opportunities the PDAC convention offers gain importance as industry heads into a challenging period,” he said, pointing out sessions like “Financing in a Volatile Market” and “Risk and Reward in Mining Exploration and Development” on this year’s program.

Junior companies, especially those with earlier stage projects, will likely spend their convention time hunting multiple sources for scarce financing. Marc-Antoine Audet, president and CEO of explorer Sama Resources, said he will meet with shareholders at the convention but anticipates the more fruitful meetings to be with other mining groups seeking to arrange private placements. “Individual shareholders are not the target at the moment,” he said. “They don’t have money.”

Others are taking a slightly different approach. Natalia Sokolova, vice-­president of investor relations at Colt Resources Inc., said her company intends to demonstrate its strong positioning by introducing investors and companies to a key partner, the Government of Portugal, which will share a booth with Colt. Erich Rauguth, president and CEO of Klondike Gold Corp., hopes to develop more personal relationships, focusing on individual private investors. He noted, however, that any offer would be considered carefully.

With financing tight, juniors need to be flexible in their approach. “We’re ­pursuing as many avenues as we can right now,” said Brad Leonard, ­exploration manager at Castle Resources Inc., which will appear at PDAC with a completed preliminary economic ­assessment for its brownfield copper site in British Columbia.

Leonard asks that risk-averse in­vestors take the time to differentiate between good risks and bad ones. “If investors became educated in what they’re looking at, that would eliminate a lot of the bad apples,” he said. “Monies could be funnelled into properties that actually deserve a chance to become something.” He believes both fund managers and their clients should be able to take a more active role in picking stocks.

But that is easier said than done, according to Mike White, president of IBK Capital. “It’s becoming more and more difficult for your average retail investor in Canada to purchase one of these stocks or have access to these stocks through their broker,” he pointed out. “Today it’s all managed money.”

Resource-focused Windermere Capital builds its portfolios on the basis of mining expertise, and it will be taking advantage of undervalued stocks to ­bargain hunt at this year’s PDAC. “I’ve been doing this a long time,” said Brian Ostroff, the investment management group’s managing director. “Typically, with­in the first few questions, you can get a sense if a company’s got what we’re looking for: rocks, management, ability to properly finance or have access to financing, and the ability to tell the story. Most companies don’t have all those four pieces. What we like to see is a management team that is open to ideas to really incorporate all these ­components.”

The storytelling component is critical, observed Denver Harris, vice-­president of capital markets at streaming company Sandstorm Gold Ltd. “What you often see at these conferences is hundreds of mining companies with very similar messaging,” he said. “In order to attract investment, it is important to identify how to separate yourself from the herd.”

One way to appear different, as a junior or a major, is through transparency, according to White. He has witnessed intense frustration from European institutional investors. One fund manager, White reported, planned to turn his attention from overhead-heavy Canadian juniors to the Australian market. “Perhaps, at PDAC, these fund managers will be sharpening their pencils and asking more direct questions of some of these companies, in terms of where all the money’s going,” he remarked.

Companies that reduce their overhead could also survive longer – and survival is in question for a large chunk of juniors. “The mood at PDAC is going to be very interesting,” Ostroff commented. “I think that there are a lot of companies that just aren’t going to show up. They don’t have the budget anymore.”

“The outlook is very bleak,” Rauguth added. But, he pointed out, miners are optimistic by nature, and he believes the feeling at the PDAC convention will follow suit.

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