Financings

Financing in the Mining Sector

1. Mining exploration companies use large amounts of capital in:

Finding Discoveries → Defining a Resource → Moving to Production

2. Mining Exploration companies periodically go to the market for new capital for their projects:

Toronto Stock Exchange (TSX) & Venture Exchange (TSX-V)

3. Mining companies issue new share to sell to investors in a PRIVATE PLACEMENT:

  • Prospectus: Every distribution of securities requires a prospectus unless an exemption is available. A prospectus is a document, filed and approved by regulators, that outlines in detail the business of a company to investors.
  • Offering Memorandum: This is one exemption to the prospectus, that can be used. These are similar in nature, but doe not require the same levels of regulatory approval.
  •  An alternative source can come from investors that are exempt from investing in the securities of a company without a prospectus. These special group of investors include:

i. Accredited Investors – Many criteria can qualify as an accredited investor. In general, it amounts to a significantly high net worth.

ii. Institutional Investors – organizations such as hedge funds or insurance companies with enough money and financial literacy to not be subject to protective regulations.

iii. Employees & Associates

4. Companies choose to sell shares in two ways:

  • Non-Brokered: The company can forgo a broker and can sell the securities directly to investors.
  • Brokered: The issuing company can use a broker during the private placement to help sell the securities. A stock broker acts as an agent for the issuing company and sells the securities to a network of investors.

5. Three types of securities typically sold in a private placement:

COMMON SHARES – basic units of company equity. Common shareholders have a vote in the election of the Board of Directors and carry the risk of profit ⁄ loss.

WARRANTS – A warrant gives the holder the right, but not the obligation, to buy a common share at a certain price until a specified expiry date.

FLOW THROUGH SHARES – Flow through shares offer the holder the same ownership rights as a common share, but also offer tax deduction to the investor holding them. Resource companies can flow through the mining exploration tax breaks they receive to these investors.

UNITS - These securities are arranged and sold in units – typically one share is packaged with one warrant, but other combinations exist.

New shares added in a private placement will dilute the share structure for people previously invested, but add new capital for the company.