How do you find a suitable financial partner to launch your new mining company?

Prior to 2008, there were various sources that would provide financing for mineral properties. If you had a small property, you could often find friends and family who could help you get the whole process started. If you needed millions of dollars, private equity funds would climb fences to throw money at you. All it took was a solid reserves report, a decent management team, and the money was coming in, sometimes faster than it could be properly deployed.

Fast forward to today’s markets, and many properties are sitting idle, even with full booking reports and a capable management team. What has changed? And what can you do if you have one of those situations?

First you have to understand how the landscape has changed. In the past, many private equity funds were flush with cash. They had too much money chasing too few deals. Private equity funds can’t afford to have money in their bank accounts, because it hurts their rate of return. So if they had a total fund size of $5 billion, they would allocate a portion of it to deals that may have been outside of their normal investment scope. Maybe they focused primarily on real estate, but they would put a portion of it into a coal mine in the hopes that it would hit a home run. The deals were structured in such a way that even if 1 out of 2 worked, they made more money than if they had kept the cash in their accounts.

Today, those same funds face redemption from their investors, or have to create a new fund in a cash-strapped environment. The scenario is now too ineffective chasing too many deals. Fund managers have reduced their staff and have gone back to doing only business that requires fewer staff and less effort to do due diligence. They can no longer afford to take a chance on something that doesn’t come together perfectly.

Then what do you do? You are sitting there with a property that you know will have a superior rate of return. You have all the engineering studies to prove it, and yet you have not attracted a single dollar. You don’t know who to call, and when you finally do speak to someone, they never call you back.

The problem is most likely in three areas. First, you are talking to the wrong people. Second, you don’t know how to approach them properly to get their attention. Finally, when it comes to their attention, you don’t have all your documents in the order and structure they want to see. A solid engineering brief won’t get you to open a door, let alone write a check.

You need to make sure that you are talking to the correct funds. Make sure they invest not only in the industry, but also in the deal size you need. When you approach them, make sure the proposed structure fits the way they are negotiating. When they request supporting documentation, make sure you have a cover book, executive summary, and complete corporate due diligence review package ready to submit.

Finally, stay away from companies that offer to help you do a reverse merger into a public shell company. There are plenty of other articles on why that won’t work. Stay away from brokers who promise they can introduce you to hundreds of high net worth investors. At best, you’ll be wasting your money, and at worst, you’ll end up with the SEC with very bad news for yourself. Contact a fund that is a specialist in your industry and can provide guidance. Many new funds also have divisions that work with people in your situation. Take your time, do your research and prepare your package correctly and completely the first time. Otherwise, you’ll be wasting time and money with no hope of seeing that property start generating cash.