So, You Want To Finance Your Exploration Company?

Every week at Resource Insider we get dozens of “pitch” emails and phone calls. These come from CEOs, prospectors, IR guys, and more often than not a guy that knows a guy that’s got a great project.
This is a good thing.

I started the Resource Insider subscription service so that I could get just this kind of “deal flow” and find the best opportunities to bring to our subscribers. However, much of what I see would be impossible for me to invest in.

It lacks the basic infrastructure, information and organization that all but the most reckless speculators would require to make even a semblance of an informed decision.

Many, of the best mining opportunities come from scientists with no background in starting or operating a company. To the uninitiated, securing capital for exploration projects appears to be a dark art with few clear rules. However, there are guidelines would be entrepreneurs can follow to give their project (and shareholders) the best chance of success.

Here is my advice to the geologists out there looking to finance a project:

Pick the Right Horse

It’s not impossible to finance a mediocre property, but that doesn’t mean you should do it. Investors see dozens of average drill targets and area plays every week. Do you have a postage stamp sized claim in Nevada? A few chip samples from the golden triangle?

So does everybody else.

Investors are looking to do deals that get them excited. Something big and unique, that has the potential to make money. Explorers need to spend time on highly prospective projects that have the potential for significant scale; there is a reason that Robert Friedland told geologists to “Stake all of Labrador!” when they hit at Voisey’s Bay.

Projects must be chosen based on sound scientific principles. How does your property fit within the regional geological environment? Are there successful operations in the area? Where do these fit in relation to your project? All questions you should be prepared to answer.

Investors are looking to back teams that know what they’re doing, have original ideas, and the ability to execute on them. If that’s not you, it’s time to go back to the drawing board.

Skin in The Game

What almost never gets funded is an “idea”.

Everybody has one, some people even have good ones, but they are seldom good investments. What investors want to see are management teams that put their money where their mouth is.

Have you set up a company? Have you staked a property? Have your friends and family invested in what you’re doing? Has the process of turning that idea into a marketable opportunity begun? Because that’s the first step.

Investors want to see teams that have begun the process of securing an asset and investing their own capital. There is no bigger red flag than a management team unwilling to invest a meaningful amount of their own money in a project. The definition of “meaningful” will vary for each person. For some it might mean writing a big cheque, for others it’s months of free labour – if you’re unwilling to invest in your idea, it’s unlikely anyone else will either.

Take steps to begin formalizing a company and show potential investors that you’re committed. Make it easy for them to say yes.

The Devil’s in the Details

You need to have a plan demonstrating to investors exactly how you intend to create shareholder value.

  • That means: How much money you need;
  • What you’re going to spend it on; and
  • What results you’re going to deliver.

Be prepared to explain how those results are going to make your company worth more than it was before you spent the money. Investors need a clear and well thought out pathway to value creation. This should be backed up by a detailed budget and work plan based on reliable geological interpretation.

The old “we’re going to sink some holes and hopefully hit gold” is simply not enough in today’s market.

Build your Constituency

Nobody does it alone. Successfully financing an exploration company requires one thing: people who buy into the vision you’re selling.

[clickToTweet tweet=”Successfully financing an exploration company requires one thing: people who buy into the vision you’re selling.” quote=”Successfully financing an exploration company requires one thing: people who buy into the vision you’re selling.”]

This means that you need a constituency of supporters that believe in you and your project and are willing to financially support it. There are several options available to companies hoping to achieve this.


Institutions consist primarily of funds, banks and private equity firms. Different institutions are focused on projects in various stages, jurisdictions and commodities.

Most institutions have an investment mandate dictating the type of projects they are looking for and a set of criteria they must meet. Explorers should take the time to research various institutions and tailor their pitch to those whose mandate best align with their project. This will save everyone a lot of time.


Traditionally Canadian junior mining companies have been financed through a network of brokers from boutique investment banks such as Haywood, Sprott and Canaccord. Brokers manage a “book” of clients interested in the mining and commodities sector.

When they find a deal that they like, they will pitch it to their clients. The good ones typically invest their own capital in the deals that they are selling to clients. Brokers also tend to be very knowledgeable when it comes to taking a company public either via an initial public offering (“IPO”) or a reverse takeover (“a shell”).


In recent years, retail investors have played a far more significant role in financing early stage and startup exploration companies. However, most explorers and CEOs do not have relationships with enough retail investors to raise a meaningful amount of capital.

Letter writers and independent research firms (like Resource Insider) often fill this gap. These individuals typically build a list of followers by providing regular research and commentary on various companies in the sector. This research may be free or part of a paid subscription service. The best letter writers invest their own capital in the companies they “cover” and provide research of a quality that inspires their followers to invest alongside them.

Building a constituency doesn’t happen overnight or in a single meeting. Some investors take years of due diligence and dozens of meeting to get behind a project. The best mining entrepreneurs develop long term relationships with institutions, letter writers and brokers. They bring them good deals and deliver on their commitments. As a result, they can rely on their network of constituents to deliver financing when they need it.

You’re Probably Not the Right Person for the Job

Are you an ingenious exploration geologist with a billion-dollar idea that no one’s heard of? Good, because that’s the most important part.

But, chances are you don’t know how to write financial statements, take a company public, structure a financing, and write a comprehensive non-disclosure agreement.

Financing and operating a public company is a complex task that requires a range of professionals. This is where lawyers, accountants, and investor relations personnel come in. If you haven’t done it before, don’t assume that it’s easy – get the support you need.

If you’ve haven’t run a public company, get a great CFO. If you’ve never marketed a deal, find a good IR person. And, for the love of god, use a lawyer.

In the early stages you probably won’t have the capital to put a team together. But you should be thinking about it, you should know what you will need and start talking to the people that can fill the roles.

There is no better way to destroy the value of a great asset than assuming you know how to do everything. Build the right team for success.

It’s All About Structure

Not all well structured companies are successful, but all successful companies are well structured.
Taking an exploration company public and ensuring it has the longevity to make a discovery is a tricky business, and it all comes down to structure.

When someone says that a company is “well structured” they mean that it was built in a manner that ensures the stock is tightly held and a good share price is maintained.

Startup companies, particularly exploration companies, should expect numerous ups and downs over their lifetime – drill results, metal prices, and permitting delays all impact the value of a company. What you don’t want are shareholders that will sell stock en masse and drive the price down at the first sign of trouble.

When a company is created there will inevitably be multiple rounds of financing. Done correctly, the earlier rounds will be at a lower price than the later rounds. Because of this, entrepreneurs must be very careful who they are selling stock to in the early rounds.

Not everyone will share your commitment to the goal, and the mining industry is rife with people looking to make a quick buck. If the wrong type of investor gets a hold of early “cheap stock”, they’ll sell it at the first opportunity, thereby depressing the share price of a company. If this occurs, subsequent financing becomes more difficult and a company is limited in what it can achieve.

Founders must take pains to structure their company carefully and ensure they build a foundation of committed investors willing to ride out the inevitable highs and lows of the exploration business. (Want to learn more about structure? Listen to my interview with a Master.)

The first time I pitched an exploration play I didn’t get any of these things right. Fortunately a very patient fund manager took the time to explain what they need to see and how I was screwing it up. I took the advice to heart and completely changed the way I was doing things, which in turn drastically altered my results.

The world needs more great projects lead by scientists. Take the right steps and make sure yours gets through the front door.

Jamie Keech

PS: Have a great project you’re looking to finance? Send me an email.


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