Leading Through Change | David Elliott on the changing exploration finance landscape
When it comes to raising capital for mineral exploration, David Elliott, Vice President and Director, Haywood Securities, has seen it all. As a preeminent resource financier, Elliott has secured funding for over 400 exploration and development companies in his career. We asked Elliott how financing options for explorers have been impacted in recent years and where new capital may come from.
Slow, Steady Recovery Continues
During the downturn that dominated much of the 2010s, Elliott saw exploration companies struggle to access capital and move projects forward. Major companies had reduced exploration budgets and were less willing to partner with junior explorers. Many juniors were forced to raise equity at low valuations or raise capital by selling NSR royalties on their projects, or convertible debt notes.
“In a lot of cases, they were really selling control of their companies at very low valuations,” says Elliott.
But, in summer 2019, conditions improved. Gold and silver started to increase in value, and capital trickled back in. Retail investors switched from other sectors to gain some exposure to mining along with hedge funds. Compared with the same time in 2019, financing activity on the TSX was up in 2020.
“We need some new capital coming in,” says Elliott, “I think the next wave of money coming into the sector will be general funds giving money to the resource funds. They’ve got a huge pool of capital; even a small percentage of their capital would be meaningful to the sector.”
Although Elliott is confident that the sector is on an upward trajectory heading into 2021, it will take time for the industry to recover from the impacts of the downturn and COVID-19.
“Where COVID has had a big impact is on M&A [mergers and acquisitions] activity,” says Elliott, “It is difficult for companies to do their due diligence on acquisitions because of COVID and travel bans, not being able to go and access projects and data.”
In addition, the growing status of social and environmental performance in investment decisions is “shrinking down where investors want to put their money” and making mine-building more difficult. It will also take more time, but the “good operators” who are proactive about environmental performance, sound science, and relationship building – and patient with permitting – will triumph.
Elliott suspects that 8-10 years of subdued exploration activity during the downturn with few significant discoveries will lead to higher metal prices and the exploration sector will eventually benefit.
“We are seeing the start of that now,” says Elliott, “You see an increase in the value of gold, silver, nickel, copper, zinc, iron ore, and it’s making the big cap companies more profitable, so they’re starting to get more active in the junior companies. They have bigger exploration budgets on a global basis, so it’s good for the sector and good for the junior companies and a good time to access partners if they’re looking for partners on better terms.”
David Elliott will delve deeper into exploration finance during his AME Finance Keynote at Roundup Wednesday, Jan 20, from 12:00 pm – 1:00 pm PST. To listen, register for Remote Roundup at https://roundup.amebc.ca/
By Kylie Williams