How To Kill A Mining Project
Killing a mining project often starts with everyone wanting too much of the cake. Most small mining projects simply do not have enough slices to go around to all of seven finders, six promoters, five bankers, four lawyers, three IR people, two accountants, and the one nice beer-drinking Toyota-driving plaid shirt-wearing geologist who found the bloody ore body.
When putting together a successful project, remember paper is useless unless you can sell it, the project is world class, or your wife is short on toilet paper. For the vast majority of projects, 2% in shares will turn into more cash than 12% in shares. The 2% shareholder can trade the paper without disclosing and is not worried about the impact of selling the remaining value. Psychologically, he can afford to have the project fail.
A 12% shareholder must disclose when selling, tends to be an insider, and rarely gets all paper liquidated. The only real choice is to hold to maturity, but most junior mining projects fail before they lose their baby teeth.
Thus, when you look at the cake, remember you can safely eat a spoonful, and maybe even a Weight Watchers-friendly slice, but if you want the birthday boy’s slice, you might be left with a tummy ache that no amount of Tums or Zantac can cure.
Being a paper millionaire is great, but at the end of the day if you can’t turn the paper into cash, it leaves you broke, bitter, and lacking a sense of humor.
So, figure out where you stand in the food chain. Are you only making a telephone call? Are you doing thousands of hours of leg work? Without you, will the project work or fail? If you’re not actively adding value, be careful how much cake you eat.
The most successful big boys we’ve seen have taken one of two strategies. Hold until maturity and only work on material projects or do lots of base hitting for minority stakes.
Sometimes people spend more time fighting about who gets what and less time in getting deals done. Some excellent projects with good fundamental geology get killed by too many finders, promoters, bankers, lawyers, IR people, and accountants who all need 20% of the project for their 20 minutes of work. Some strategic people are worth it, but most are not, and if you get too many useless middlemen (like us) in major stakes, the project will never fly.
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