I have read many articles discussing the potential funding options for junior explorers. The basis of these articles has been that junior explorers are finding it difficult to stay viable; that there are various options available to them to survive and the authors make commentary on recent IPO’s or M&A activity. It is my belief that businesses know that their possible funding options, depending on their stage of life, include:
1. Pre-IPO and IPO
2. Sale of non-core assets
3. Strategic alliances with a major
4. M&A activity with other explorers
5. Placements
6. Royalty financing
7. Convertible bonds.
The need to rationalise costs and seek any available government incentives would also be second nature to the junior explorers that I have met.
The need to bring the topic to the forefront of debate is valid, considering the tight capital markets that we have seen in recent years. However, the proportion of listed explorers, against the number of businesses in the sector, proves the traditional funding method is listed equity. With this avenue particularly difficult, at the present time, advisers are pondering alternatives.
We know there is no silver bullet. It is a daily struggle to rein in costs, meet with potential investors, and assess other projects that may complement yours, or even better, provide cash flow sooner. The question is, however, do you continue to use resources to pursue various options or put your head down and work as hard as you can for the listing.
My advice is to sit down now with your adviser and get to the nuts and bolts of what is required for a broker to be happy to distribute your capital raising. Once you commit to the tried and proven method of listing, you can seek clarity from your capital markets advisers on the hurdles they want jumped before they sign you up. You may then focus your full attention in this direction.
Look for relationships
Entities and people looking to help the organisation should also be assessed on their ability to bring relationships to your business. Whether it is potential investors, brokers to sound out a listing, other like-minded business that could potentially merge or become alliances, it is their relationships that are crucial to their ability to help.
Be prepared
Ensuring that a comprehensive financial model exists, so that discussions and negotiations can be had early with one set of forecasts. Time and adviser dollars can be wasted with various sets of numbers being used to highlight the potential of the business not to mention the less than professional image presented to investors or partners. Having an orderly set of financials, one forecast, key documents to the business, and a summary of the business are essential.
Be flexible
It is the determined nature of junior explorers and their dogged vision for the potential of their project that can also see them pass up viable alternatives to keeping the business moving forward. A group may have confidence in their resource and are not prepared to compromise either value or strategy in order to help ensure its viability.
Valuation expertise
Due to the early stage of the venture, the valuation of the assets becomes subjective. It is important to have a very good grasp on the valuation of the assets and how variables change the outcome. This is important to be able to negotiate and quickly assess financial outcomes during your listing conversations.