Exploring the world of mining reports, drilling estimates and rumour-mongering messageboards
It comes as no shock that investors are often looking for the next quickest way to make a good return. Though commodity prices have plummeted over the past year, a projected recovery is buoying the market for natural resources and many investors are still tempted to back pioneering mining and drilling enterprises. Fresh discoveries, however, are rarely made by established resource firms – those that maintain pipelines, have steady supplies and offer predictable results to investors.
In Canada, new opportunities are the realm of junior resource companies, so called for their small size and market cap, and reflective of the fact that they are either developing or seeking to develop a natural resource deposit. Often backed by high-net-worth (HNW) investors and individuals, such firms are adept at finding new mines and, in the face of increased commodity scarcity, are often top targets for a growing volume of M&A activity.
Depending on how far into its life cycle a company is (see Color fields, below), the role of IR changes focus. But these one or two-people IR teams are ensured a varied and exciting career, where one day they might be dispelling rumors on online industry message boards and, on another, blagging their way into an invitation-only investor event in Monaco.
Different Strokes
Junior resource companies are generally more flexible in their approach to the function of IR. ‘I’ve found that juniors tend to experiment with different IR solutions – agencies, internal IR, in-house consultants, and so on,’ says Helen Bilhete, an IR consultant who has worked with Colt Resources, Linear Gold and Andina Minerals, to name a few.
‘Some companies have a formal plan in place to work from; some want you to set one up from scratch. Some CEOs and CFOs value investor relations and are hands-off, allowing you to structure the IR role and plan; others have a much more active team participating in all aspects.’ She adds, however, that cash-strapped juniors are increasingly relying on their C-suite to reach out to investors, rather than incurring the expense of a dedicated IRO or consultant.
Often this can mean IR serves to translate complicated geological report into an understandable format, says Suzette Ramcharan, head of IR at KL Gold. This is particularly true when enterprises are headed by a scientist or geologist, which is often the case at exploration companies. ‘Generally they speak a different language or just aren’t the best presenters,’ she explains.
Color Fields Junior miners and other resource companies are defined by the stage they have reached in their life cycle. Greenfield firms are also known as explorers: firms that may have discovered a resource and are waiting for results from drill assay reports to determine the identity, quantity and quality of their potential project. Brownfield stage companies, or developers, are a less risky prospect for investors: they know what they have and are expected to then provide several resource estimates and assessments to prove it, including preliminary economic assessments and feasibility studies. A final – or bankable – feasibility study provides budget figures for the project and will be the basis for raising capital to build a mine. Once such a company is up and running and harvesting resources, it is known as a producer. |
Whatever the solution, IR is usually done by a team of one, so requires a significant time commitment. ‘Also, having the stomach for hearing ‘no, thank you’ from analysts and investors alike is important,’ Ramcharan continues. ‘As in any industry, you have to understand the market – how your company plays into the larger picture and which piece of the pie you represent.’
Individuals are important shareholders to target. ‘HNW relationships are fragile and built on trust,’ Bilhete notes. Ramcharan agrees: ‘They usually require more of your time, and they want to feel like they’re valued. They may own only 500 shares, and will understand that institutions take up more of your time, but they want to feel valued and you have to do everything in your power to make them feel they are.’
As a rule, retail inquiries take longer to deal with than those from institutional shareholders, which have dedicated researchers and analysts who ask short and specific questions. ‘After the recent boom in the commodities market, though, there are a lot more people investing in the industry who have a higher level of comprehension,’ Ramcharan says. ‘The more you understand about the industry or its driving factors, the more you understand the impact of other things, like changes in the price of gold or labor.’
Specialist Tools
Some aspects of the IR toolkit become all the more indispensable in such situations, suggests Bilhete. Foremost among them is the need for a solid database, through which she can track her own IR activity. ‘I use existing relationships to network from within, get referrals and learn where to uncover events to meet prospective HNW investors,’ she says. Several of these are ‘invitation-only’, family office affairs, where attendance requires knowing the right people.
‘On a macro level, relationship management is important: it’s not just about being able to work with the C-suite, but also with the wider investment community,’ says Ramcharan. ‘It’s also crucial to check who covers your peers. Analysts usually come with investment banks, and tools like Thomson or Ipreo or any of those systems that allow you to search through a database are great for finding them. Otherwise, you just kind of have to know who the players in the space are and reach out when you can.’
One thing to watch out for, she adds, are the infamous message boards: online forums full of rumors and tips concerning new resource enterprises. IROs seeking to stay on the right side of disclosure laws should treat them with caution. ‘If you’re having a one-on-one conversation in person it’s very different from sending an email and it being cropped and blasted on a message board,’ she warns. ‘A lot of times I see information about deals we are supposedly doing, and I have to ask management, Are we doing this deal? It’s a big rumor mill and, as an IRO, you don’t want to get caught up in dealing with rumors.’
Other outreach efforts can be made to work more efficiently for junior firms. Bilhete notes that marketing directly to investors can be useful, as can scaling back costly trade show appearances and being more selective and specific when it comes to roadshows. For Bilhete, the most crucial factor for IROs in this space is to have ‘the innovation and out-of-the-box thinking that juniors need in order to gain a competitive advantage over their peers.’
Relocation, Relocation Helen Bilhete, who works as an IR consultant for small Canadian resource companies, recalls a particular instance where a firm she was advising not only looked overseas for investment, but also relocated some of its senior management team to become a firmer prospect for investors. ‘Three months after I started, I got myself invited to a very high-profile event in Monaco with the goal of meeting new high-net-worth (HNW) investors to introduce my new client to,’ she explains. ‘After seeing some success with investors I had met at this event, the company started focusing on European shareholders.’ Following a trade show in Munich and continued success in raising money from the European market, the company continued to reach out to investors abroad, with some surprising results. ‘A year later, I organized regular investor tours to our properties in Portugal, inviting small groups of 25 HNW investors,’ Bilhete continues. ‘With the frequency of travel to these markets, it made sense for the CEO and COO to relocate to Portugal.’ From then on, she adds, it was easy to expand IR outreach into other new territories. ‘We started exploring other investor groups in China and the Middle East using the same principles of building strong shareholder relationships with regular investor property tours, meetings and communications,’ Bilhete says. ‘Of course, the Portuguese location helped in being a big draw.’ |