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How to Avoid Mistakes with Mining Inventories (Part 5: Funding Force)

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Only a few companies meet the listing requirements of global stock exchanges, but the listing effort may be worth it.

In 2019, Newmont produced 6.3 million ounces of gold and had a net profit of $ 2.9 billion and returned $ 1.4 billion to shareholders in the form of dividends.

This infographic by Corvus Gold examines the requirements and stages that a mining company might face along their journey from prospecting to a global mining company.

Chances of discovery

There are 510 million km2 (196,900,000 square miles) on the surface of the Earth and the crust is on average 40 kilometers thick (24 miles). Somewhere in there are the next deposits of gold.

Mining exploration companies use drills with a diameter of between 76 and 320 millimeters to explore underground. The deepest borehole is Kola Superdeep drilling who measured 12.2 kilometers (7.6 miles). However, most mining exploration companies rarely drill more than a kilometer.

Finding an even less economical gold deposit is like using a hair to find a needle in the proverbial haystack. To mitigate this, a typical small mining company improves its odds by building a portfolio of properties that have potential through showings of gold and other minerals revealed by surface sampling, aerial magnetic surveys, and historical data. .

Then, to dig even deeper, a company can raise private capital for properties that have potential. Assessments of these mineral properties are largely subjective and difficult to establish. But if the company wants to raise additional capital for more expensive exploration, it can tap into the stock exchanges.

The Canadas Toronto Stock Exchanges (TSX) and Venture Stock Exchange (TSXV) are at the heart of global mining finance. Over the past five years, companies listed on the TSX and TSXV have completed 53% of all global mining finance, i.e. 44 billion dollars by 6500 transactions.

Even a fool can make a big discovery and take a stock from three hundred to three dollars, and these guys wouldn’t be privately funded. It must be public.
Ross Beaty, Founder, President of Equinox Gold

Venture Capital: TSX-V Listing Requirements

In 2020, there was 606 companies listed on the TSXV that own a gold property or a property that has shown the potential to host a gold deposit. These companies met a minimum set of requirements to access government procurement for additional funding.

At this point, a listed mining company will deploy capital to perform geological sampling and drilling to produce technical studies that can improve confidence in the presence of a mineable gold deposit.

If this round of work results in a better understanding of a gold property, a company can move from Level 2 to Level 1 on the TSXV, allowing it to raise additional capital to expand the scope of technical and economic studies.

TSX Venture Listing Requirements:

TSXV level 1TSXV level 2
Property requirements
  • Material interest in a level 1 property *
  • Significant interest in qualifying property or the right to earn significant interest in qualifying property
  • Proof of $ 100,000 of exploration expenses on the property over the past three years
Recommended work program
Working capital
  • Business plan or work program
  • $ 200,000 in unallocated funds
  • Sufficient working capital to carry out the work program or execute the business plan for 12 months after enrollment
  • $ 100,000 in unallocated funds
Net tangible assets
The capital structure
  • Public float of 1,000,000 shares
  • 250 public shareholders representing 20% ​​of issued and outstanding shares
  • Public float of 500,000 shares
  • 200 public shareholders each holding a set of boards of directors and having no resale restrictions on their shares
  • 20% of issued and outstanding shares in the hands of public shareholders
Management and advice
  • Management and advice with technical and adequate experience in mining
Sponsorship
  • Sponsor may not be required
Other criteria
  • A geological report recommending a work program

Source: TMX. Figures are in CDN. * The property has a current inferred mineral resource, NI 43-101 compliant

At this point, a business should have a good understanding of the costs and methods to produce a profitable operation or the value of a resource. However, the first investors take their profits and new ones are needed to turn a mining property into mining.

A borehole changes the game. It is very difficult to decide who will succeed and who will not. It is a great door, and yet very few make it. But you have to let them try.
Lukas Lundin, President, Lundin Group

Financing Growth: TSX Listing Requirements

To develop and build a mine, mining companies need larger amounts for development and construction, which requires a different category of investor and more stringent requirements.

In 2020, there was 133 Gold companies listed on the Toronto Stock Exchange, whose primary metal production is gold and / or own gold property. These companies meet or exceed a set of listing requirements set by the exchange.

TSX has three listing categories for mining issuers: TSX exempt issuers, TSX non-exempt producers, and the TSX non-exempt exploration and development stage. These requirements of these categories reflect the stage of development of the issuer at the time of listing. Exempt issuers are more advanced and therefore subject to less stringent reporting obligations.

TSX Listing Requirements:

TSX non-exempt (exploration and development)TSX non-exempt (producer)TSX exemption
Property requirements
  • Advanced property detailed in the technical report
  • Minimum 50% ownership
  • 3 years of proven and probable reserves without a production decision taken
  • 3 years of proven and probable reserves
Recommended work program
  • Put the mine into production
  • Mining operations at the commercial level
Working capital and financial resources
  • Sufficient funds to bring the mine into commercial production
  • Adequate working capital for all budgeted expenses
  • Adequate working capital to continue the business
Net tangible assets
  • 4,000,000 USD
  • Evidence indicating profitability
  • $ 7,500,000 in net tangible assets; pre-tax profitability of operations in progress during the last financial year
  • Pre-tax cash flow of $ 700,000 last year and average pre-tax cash flow of $ 500,000 for the last two years
Management and advice
  • Management, including the board of directors with adequate experience and technical expertise for mining projects as well as adequate experience of public companies
  • At least two independent directors, a CEO, a CFO who is not also the CEO and a corporate secretary
Distribution, market capitalization and public free float
  • Minimum 1,000,000 freely tradable shares with a market value of 4,000,000 USD
  • At least 300 public holders, each with one set of planks or more
Sponsorship
Other criteria
  • 18-month projection prepared by management of sources and uses of funds detailing all expenses and signed by the CFO
  • Complete and up-to-date technical report prepared by an independent qualified person

Source: TMX. Figures are in CDN.

At this stage, bankers and lawyers set up the financing of a project based on geological and economic studies. Good financing conditions can increase the potential value of a mineral deposit and attract investors.

But sometimes that list alone is not enough to allow a business or project to reach its full potential.

Expanding Shareholders: NASDAQ and NYSE Listing Requirements

Companies that need more capital or comply with corporate governance rules in the countries in which they work can request a listing on additional stock markets outside of their home country. Additional ads have several advantages:

  1. Gain visibility and access more capital
  2. Help to improve the corporate governance structure of a company
  3. Attract more and better talent
  4. Improves a company’s reputation

NASDAQ and the New York Stock Exchange (NYSE) can improve access to the US market. There is only 76 gold mining companies listed on the NASDAQ and NYSE stock exchanges.

NASDAQNYSE
Income before tax$ 0 to $ 750,000$ 2,000,000
Market capitalization$ 0 to $ 75,000,000$ 2,000,000
Total assets and income$ 0 to $ 75,000,000n / A
Market value of the public float$ 3,000,000 to $ 20,000,000$ 100,000,000 or $ 40,000,000 (if IPO)
Equity4,000,000 USDNot more than $ 60,000,000
Minimum share price$ 2 to $ 3$ 4
Operating history0 to 2 yearsn / A

Source: NASDAQ, NYSE. Figures are in USD

Increased commerce, world-class investors and a well-run operation can give a mining company a lot of prestige and generate significant returns.

Ultimately, the continued success of the company will depend on its ability to maintain production and continue to deliver gold to the market. It all comes down to a company’s ability to find, develop and mine new gold deposits.

I just want to remind you that the real wealth in the mining industry is generated by FINDING something.
Robert Friedland, Executive Chairman, Ivanhoe Mines

Building mineral wealth to last

The project development schedule and the mine life cycle are very long. The transition from discovery to production can take decades. Each step requires different amounts of capital and investors.

The odds of building a mine are compared to those of a small mining company, but for the few who grow up on the demands of the registration process, they may become the next big investment.

A mineral discovery is rare, but a successful gold mining company is even rarer.

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