As with any start up company, we tend to look for certain characteristics that might lend success. For a start up tech company, an investor might consider the company’s potential to disrupt an existing market, like Uber. For a biotech company, an investor would try to determine likelihood that a drug can cure a disease and survive the FDA trial process. For a junior miner, we have to consider the prospects of making a discovery, expanding the known resource, securing permitting and financing to construction, and, eventually, building a mine.
Every sector will face a different set of challenges in its respective markets, but if we look at successful start ups across the spectrum, the vast majority of them have one thing in common:
A quality management team.
The mining industry is no exception to this rule. In fact, it may be even more important when it comes to junior miners.
A venture capital investor at one of the top tier firms once told me, “We fear the entrepreneur who’s had one successful company. He thinks he knows it all. We love the team who’s had one successful company… and one terrific flop. They get it.”
While it is not to say that a first-timer can’t successfully navigate his or her company through to the finish line, it is important to recognize the facts: nine out of ten startup companies in the U.S. fail before their fifth birthday.
For mining companies, this statistic can be even more dire. By some estimates only one in 5,000 mineral anomalies become economic deposits.
When assessing junior mining companies, it is certainly vital to assess the logistics of the business. We want to know the geology of the area, the proximity to infrastructure, the head grade, the bi-products and so on. But first and foremost, we should look at the track record of the team.
Running a company is like any other exercise. It requires practice and experience. It also requires a network of industry experts, and an ability to hold a team together. Building a mine is an exceptionally complicated process, and there is no rulebook for executives to follow.
And in a challenging financing environment (lending to mining companies has decreased 15% from 2013 to 2014; the entire industry raised 30% less capital from 2010 to 2014 as estimated by Ernst and Young), the first-time team fresh out of the gate is less likely to raise development capital than the team that’s already made several discoveries, permitted a few mines, and successfully managed the development process.
As Rick Rule said in a recent interview “One of the beauties of the bear market is you can buy the best people in the industry for the same price as you can buy the worst.”
Best yet, this is probably the easiest due diligence a potential investor can do. All it requires is a little bit of time on Google. It won’t take you too long to find the teams which have truly delivered for their investors. David Strang, Bob Quartermain, Robert Friedland, Owen Hegarty, Donald Lindsay… you get the picture.
So when considering a junior miner, before you start trying to learn the mining laws in British Columbia, before you start trying to calculate the viable mining methods, before you start figuring out the debt structure, do yourself a favor. Check if the team has ever managed a mine. Then, see if they made money.
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