How did you view the climate for mining finance in 2020?
Earlier in the year when precious metals began to strengthen and generalist investors came in to the market, a flurry of equity financings got done, funding many early-stage gold and silver companies. In past transitions from bear markets to bull markets, typically this early money poured into larger producers first, and then slowly over time into the smaller producers and later stage development companies, before finally reaching exploration. In 2020 the wave of money flooded all stages and sizes of companies in the precious metals sector, from grassroots to the producers. It was wonderful to see, and allowed those with different risk profiles to participate where they felt comfortable from a risk/reward standpoint. The stock prices moved so quickly that a number of our issuers and others saw their share price double or triple while they were in the market raising money. This resulted in many oversubscribed offerings.
How have investors who insist on boots on the ground due diligence navigated the travel restrictions enforced by the pandemic?
It comes down to trust, and mining is a small industry. You can get very good comfort about the potential of a project from individuals who have already visited projects and did their due diligence (DD) pre-pandemic. For projects closer to home (Canada, the U.S. and Mexico) it is easier to make a visit, or find trusted individuals to make a visit for you. This is where the importance of your network comes into play, and where a company’s management team is invaluable – mining has always been a business which depends on talented, trustworthy people. Our network of 32 years, some good desktop DD and Zoom calls have become commonplace in aiding our efforts this year.
Which of the companies IBK Capital has financed in previous years performed well in 2020?
We financed Minera Alamos when it was forming as a company, before the Osisko team came on board. The deal was done back in the bear market in 2015, and illustrates how things have changed since then. Back then, the company’s strong management team with good assets in a highly prospective mining jurisdiction was trading at a market value of C$650,000. The stock has taken off this year as the company moves through development. It now has a market cap of $280 million and the stock is up eight times from 2019 and much of those gains occurred post Covid lockdown in March 2020. It is a great example of a junior that can add value in a variety of ways, with a lot of exploration potential in addition to a near-term path to production.
How do you suggest exploration companies balance the demands of shareholders to produce results in a hot market with the need to plan thoroughly?
From 2013 until mid-way through 2020 it was really the well-polished mining investor with the stomach for the ups and the downs who funded projects. The Osisko group is an example of one of these investors. This type of investor knows when to give a junior time to do sufficient preparation and work before spending money on the next phase. Now we have the new wave of investors, which is a great thing for the market, but does raise the level of urgency to get drill results. You saw this in 2020. Companies that were drill-ready generally performed better in Q2 and Q3.
While no company is immune to shareholders with short patience, it is important for management to manage expectations and provide clear communication. Drilling just for the sake of drilling is never a good idea and will ultimately waste the money of those who invested. The best projects will attract money and have success, even if it takes a little longer than some people expect.