This Giant Industry Is Starving For Capital

Following directly on from the discussion last week about capital formation in the resource industry, our in-house mining expert Jamie Keech and I today dig deeper into the current capital starvation in the resource industry and much, much more.

Here are some things we discuss, which we believe are “uber importante” for investors today:

  • One geopolitical setup that only promises increasing supply constraints.
  • How did we end up in an environment where capital formation has changed drastically… and what this means for resource companies and investors going forward.
  • The key elements for investors to focus on in order to reduce risks in the resource sector (initial financing is only one tiny piece and you don’t wanna be funding a company — no matter how good — if they don’t have other pieces in place).
  • The mechanism of bought deals vs. private placements and other means of financing available for resource companies.
  • How are the majors participating in this.
  • And much more.

Listen in here:

And lastly, if you’re an accredited investor interested in taking advantage of private placement opportunities, then I’d encourage you to sign up for our pre-launch list here. We will be offering those on the pre-launch list a special offer.

– Chris

“The reality is, the mechanism we use to get attention to a story and to an equity financing is broken, those people are no longer employed doing that job. That equity is still out there, it’s just a person sitting behind their laptop trading for $6.99 a trade.” — Nolan Watson, CEO of Sandstorm Gold

Podcast Transcription

Chris: Welcome everyone! So today, I am speaking here with Jamie Keech and what we’re going to be discussing are some of the key elements in the regionals market which is his specialty. We’re going to cover off things like private placements and really essentially the structure of that market and why we are so excited about it and why we are placing our own capital into it. So, welcome to Jamie! How’re you doing?

Jamie: Hey Chris! Thanks for having me! I’m good.

Chris: Always good mate! Okay. So, lets, lets dig right in. For starters, can you, maybe it’s best if we explain to listeners those that don’t know and even those that do know, what is a private placement?

Jamie: Yeah. So, I wrote an article about this. It was published on Capitalist Exploits just last week and the idea was to give readers and now, listeners an idea of what a private placement is in, particularly to junior and mid-tier mining companies, in the equity & capital markets. So, private placement is essentially, when a publicly traded company issues new shares, new stock and sells it at an agreed upon price. So, if I’m a, if I’m a junior mining company and the best private placements, they’re done when a company has a goal in mind. So, if I’m a junior mining company and I need to raise a million dollars to do a drill program this summer to help root out my resource, what I’m going to do is I’m gonna say, “I’m gonna issue ‘X’ amount of shares, sell them at ‘Y’ price in order to achieve a million dollars.”

Now, my stock might already be trading on the market at $1. But since I’m gonna want to incentivise investors, I’m gonna give them a deal on this private placement. So, I’m gonna issue this stock in a private placement at 95 cents instead of a dollar. So, people coming in are gonna get a deal. If I want to further incentivise them, I might include a warrant or a half warrant. So, what will happen is an investor will buy a unit and that unit will include a share and if the company chooses to issue one, a warrant. And a warrant’s a thing that can essentially become another share after a given price. So, if my warrant has a scratch price of $2, that means it’s not worth anything until 2 dollars, but as soon as our share price gets to $2.05, that warrant is worth 5 cents. So, it’s kind of a bet on the share price going up and getting another little piece, another stock that will be worth something, or another share rather that’ll be worth something in the future.

So, this company, they’re gonna want to raise a million dollars. Hypothetically, they’ll issue stock at 95 cents with a warrant and investors will come in, they’ll put their money into that. They’ll get their share, they’ll get their warrant and the company will have a million dollars to devote to whatever activity they’re addressing.

Chris: Okay, perfect. So, clearly from an investor’s standpoint, you can get some, you can get a lot of leverage behind your investment that you wouldn’t be able to get in the listed equity and you mentioned something which I think is important, which is that private placement is an investment in a publicly listed equity. And what that means is that the risk of liquidity, which is easily one of the most significant risks in private investing, is largely mitigated.

So, do you wanna just explain like the typical term structure of these so, like, let’s say I put in my for argument’s sake, $20k into a deal, that as a private placement, how long do I have  to wait before I can get liquidity on that and how long do I have to normally wait for liquidity on our warrant?

Jamie: That really depends on the deal and the company. So, certain raises will have, let’s call the legend on them, it’s essentially a hold period. So, the most typical one of that is 4 months. So, if you put $20,000 in and you get your stock, that’s not going to be able to be free-trading for 4 months.

Others are free-trading right away. So, I have participated in both. That really depends on how the company sets it up, and the requirements of the exchange that it’s on. So, it can either be free-trading right away or several months in the future. But either way, at that point, it will be on the market and then investors can buy or sell as they see fit.

Chris: Cool. Okay. Now, you and I have discussed this a bunch and you made a fantastic point in your article on our site last week around the way that this market, the way that the resource market has changed with respect to capital raisings and you named a number of points.

One was the fact that the brokers that are being participating in the space historically are largely going away or have gone away. There is a dearth of them participating. So, there is a supply issue there.

And the second is that the same as the bankers in that space that also largely been moving out of that space as a consequence of movement of capital into the passive space out of the active space.

So, explain what you’re seeing there with respect to how these companies are being financed at the moment and what are the risks to investing in a company that isn’t cognisant of what’s being taking place and continues to take place at an accelerated rate.

Jamie: So, this question has a lot of parts. So, I mean, to start, this is something that’s pretty obvious, I think, to anyone that’s been paying attention, but they haven’t potentially thought about the repercussions or thought down the line on this. So, anyone that used to have a stock broker that they would call up and buy stock, and they are no longer doing that now. Instead, they are sitting at home in their couch and finding on their online account or whatever on the internet.

And they are spending, you know, $2, $3 or $5 per trade instead of paying you a broker commission.

So, all those jobs are going away. So, all these guys that were sitting there, when you used to mandatorily have to have a broker who are doing these trades, those jobs are more or less used to exist. And the only brokers that still remain are the few and far between, the ones that have had huge books, that have excellent relationship with clients and all the requirements that haven’t transitioned to the internet and potentially have very good relationships with certain companies and that they are able to get clients in to these companies that they wouldn’t be able to normally do by themselves.

So, the most part we’ve seen, you know, this has gone away. The result of that is that companies have lost a significant financing arm they have relied on. And so, where a company could previously have gone to a broker that they had a good relationship with or the bank that he worked for and the bankers and said, “Listen, I want to do a bought deal. I want to raise a million dollars.” And the bank would have said, “Alright, great. You know, we’ll do it. We’ll take the risk. We’ll find the people. We’ll take a cut off the top, and don’t worry about your financed.”

That’s not happening anymore. So, those jobs aren’t there. Those people aren’t trading off the banks. It’s just not something that they can easily do.

Companies are forced to find other alternatives.

How does that work? Instead of doing the typical bought deal, which is the bank buys the right to finance the company. So, if the company is raising a million dollars, the bank says, “Here’s the million dollars. Give us the stock and we’ll sell it to our clients”. That’s not happening. Today, it’s the private placement and the company is forced to place that stock by themselves.

So that means they need to be reaching out to people one way or the other to get independent, accredited investors who are interested in buying that stock, purchase directly from them. Now, this can happen a couple of ways. Brokers, sometimes are still used. So, if some broker will have relationships with companies and they will bring their clients in there. Or they are independent brokers that, you know, they are IRA guys, they are promoters, they just know a lot of people. They know companies and they are able to bring people in. Occasionally, they will cut a fee off the top for a couple of percent.

But more and more we’re seeing that companies are really reliant on marketing themselves and it is their responsibility to get their story out there. Their hiring PR firms – they are working with letter writers and independent researchers. They are partnering with many people they can to bring in these bastards, who will then participate in the financing that is run by the company directly.

So, the benefit of this is they are essentially cutting out the middleman, which is good for the investor because when a company is paying less fees on the money they are getting, that means more of that cash is actually going towards that project. It’s going into the ground. It’s actually being put to work for the investor and not being scooped off the top by a middleman.

The downside is these are mining companies. They are not PR guys. They are not necessarily marketers. You know, most mining companies are run by geologists and engineer or an accountant. I mean, you know, none of those careers typically scream “salesman”.

So, they are having to find new ways to attract investors and the companies that are being successful of it are the ones that have outreach programmes, that have strong marketing teams that have built relationships with individual investors asking over many years and who will buy into that story and back that company, and they understand the ups and downs of a mining project and they stick it through and they are able to push that project forward and raise money when they need it so they can get it into production or whatever the next stage is for a liquidity event or a value-add event.

Chris: So, there is something I just want to interject with here because I’ve seen this in the publishing space and I think it’s a risk that is also not well understood at the moment. Let’s say for an argument sake, you’ve got a newsletter writer. Like myself, right? And the company that I get a relationship with needs to do a financing of a million bucks, right, on a drill program, which is risky, like it’s a drill program. We don’t really know if it’s something there or not. So, We can even get a pretty decent deal on it. Subsequent to that drill program, even if that is successful, there is a high probability, I would say, and almost 100% probability that there will be a requirement to raise additional capital.

Jamie: If its real program is successful, then there will be, for sure.

Chris: And it’s going to be a multiple of that, the initial program. So, for argument’s sake, it could be 5 million dollars to put some infrastructure. It could be roads, it could be partial build to the mine, whatever it is. And I’m being probably a bit conservative, but let’s just go with that for argument’s sake, 5 million bucks.

Now, I, as a newsletter writer, I might be able to attract a million dollars, but I can’t necessarily attract 5 million dollars and this is an important concept because the success of any deal is multiple things. It’s not just the ability to finance the initial drill programs, but it’s ability to follow up financing and run that company on a financing level through to a successful build and that’s really, really important because that entire structure of that market, as you just pointed out, has being collapsing.

And the companies which are successful are those that understand that massive shift in capital raising that’s being taking place, and then consequently being able to go and change the way that they do business to be able to finance that company all the way through. So…

Jamie: Well, it’s particularly important that they are not going to be… They can’t rely on going to a bank whether it be, you know, BMO or CIBC or any of the big investment banks that have a big management team and say, “You know, our drill program was successful. Now, cut us a 50-million-dollar check for the next stage.” That’s, you know, that doesn’t… You can’t say it doesn’t exist at all, but it doesn’t exist to the degree that it did 5 years ago.

Chris: And the risks behind that are substantially higher than many people understand at the moment because as is normally the case, people look in the rear-view mirror and they extrapolate that into that future, when in fact, you’re like… It’s like looking in the rear-view mirror and you just come up a hill, but you’re actually going down a hill now and anticipating that you’re going to continue going up the hill, when in fact, you are heading back down the mountain.

Jamie: Well, I think the first thing is that the initial raise, it’s really got to be for something that can add value to the company. So, whether it’s a drill program or a construction program or what have you, if you’re going to be participating in a private placement or even just buying a company shares on the market, I mean, you want to know that they are doing something that has the potential at least to add value to that company, to bring it to the next stage and justify going to the next stage and to add value to its share price. So, you know, we’ll continue of the example of a drilling program. You know, this company needs to have targets, they need to have a goal, they need to be wanting to expand the resource or intercept, whatever it maybe, but as an investor, you need to buy in for what they are doing and believe that it’s going to add value if they are successful.

And I mean, you know as well as I do, if a drill program, if they are successful, it’s a big hit, but…

So, that’s the risk you’re taking. But, say they aren’t successful. So, say the… you know, they hit the intercepts they want or they make the discovery they are after or they would just expand the resource, whatever it maybe. The next stage is how they are going to finance the next stage of that, whether that be a more in-depth join program or perhaps going into construction or the feasibility study or any number of things.

And generally, you know, if they are on the right track, whatever the next stage is, it’s probably going to be an order of magnitude more expensive than the last one.

Now, a good example of someone that did this right is the Nobel Resources. So, they did an initial private placement financing and I don’t remember the number. It’s off my head, but it was at a low price and it was for a few million dollars. They did trenching programs, drilling programs. They had massive success. They publicised it really well with youtube videos and marketing and then a few months after that, Kirkland Lake Gold came in, wrote a check for 56. I think it’s 56 million dollars. It’s on that order of magnitude, but don’t quote me on that, but an order of magnitude greater at a much higher evaluation.

So, that’s a company that did it really well. They financed at a low price. They had a plan going forward. They executed on that plan, but they also really did a great job of marketing it and getting excitement around that story, and sort of building that value so that they could do the next financing that could use to continue and take the project forward.

If a company doesn’t have that, the danger is that they become stranded. So, they do their program, get the results, maybe they are even good, but nobody cares. You know, no one is buying a stock…

Chris: Yeah, you are throwing a party and nobody comes.

Jamie: A mistake you see a lot of people do is they do a private placement and they take all the money, and they push it and they squeeze every drop out of it. And you know, this is kind of a novice move, and this is why private placements in good companies are exclusive.

It’s hard to get in to good private placements. The smart companies, they don’t take all the money on the table. If they could raise 20 million dollars, they only take 10 or 15, because they want a certain amount of aftermarket, right? They want people to be saying, you know, “Shit. I didn’t get in there. I better go buy it on the market before it goes up.”

Chris: Well, they need that secondary financing…

Jamie: Exactly. And you are seeing the smarter companies, the ones that can afford to be choosy when they do placement, because they know what they are doing. They know they need to have people buying their stock. And they know they are already thinking about the next step and whether you are going to have to do it.

Chris: I think it’s a really good point. I mean, it’s one of the things we’ve looked at, Jamie. Like, we’ll not finance a great resource, a great asset if the company doesn’t understand that change in the capital structure and how it’s financed into the next decade, it can be the best resource. It can… This thing could be a massive homerun, but we’ll not touch it because the risks are actually far greater than anybody anticipates, because that whole financing structure is changed and is just changing literally daily, and if you don’t get that, you are going to risk losing money and risk is the first thing you got to address in any particular investment and I think that’s really important for people to understand. You’re going to have companies that are kind of… we’ll call them ho-hum in terms of their resource, but they fully understand that capital structure and they run it efficiently and properly and they will succeed.

And then, on the other hand, you can have a company that’s got the best resource under the sun, but they don’t understand that and they have a much, much higher probability of not succeeding, and in fact, what could happen is that the ho-hum company will end up acquiring the assets for cents on the dollar when they cannot finance and they run out of capital.

Jamie: Or a major will come and buy it out for nothing. You asked me about the difference or the effect of the shift from the active to passive investment on the industry over the last few years, and you know, the first person that really got me thinking about this was Nolan Watson from Sandstorm. I mentioned him and I linked to a video he did in the last article that I wrote for you. I believe he was at the ‘Mines and Money’ conference in London last year. And he talked about Sandstorm’s own personal, stock and they are held, and don’t quote me on this, but I believe 30% of their institutional investors are passive investors. By passive investors, we mean ETFs or index funds or you know often people that are buying a basket of gold companies or a basket of streaming or royalty companies or what have you.

And they are not active investors. They are not the hedge fund that goes on and says, “Give me, you know, the first 2 million dollars of your next financing.” And I don’t know, I mean, Chris, you’ve raised money for projects. I have raised money for projects. I mean, raising money is only hard until you get the first person to buy into it. Right? And a lot of mining companies for a lot of years have been relying on these active institutions to go and write the check for the first whatever it maybe, half a million, a million dollars, and then they get a lot of other people piling in. Then, you know, brokers can say, “Oh, look. XYZ fund already put in a million dollars.” to their clients… and their clients are going to say, “Oh, good. Must be good.” And then, they want to invest too.

But, that money is, you know, that money is shifting. So, these funds are not existing in the same degree if they wanted to, they used to rather, and they are not participating in the same way that they are used to. That slack has been picked up by passive investors, you know, ETFs again, index funds that cannot write that check. That’s not their mandate. So, they are… Their money is in a different pool. They can’t behave in the same way.

Chris: And there is this window of financing within the entire capital structure and, you know, I guess a lifetime of a resource company where there is just this gaping hole and it’s made me think about something, which you know, I am not a 100% sure about it. It seems logical to me, but I thought I would throw it out and see what your thoughts are, which is supply and the constriction on supply….

Surely, where you have got this, there is a constriction in financing, right, as we’ve just discussed, is that not being potentially translated into a constriction in supply of resources. It would make logical sense to me, but I’ve not investigated the numbers behind it.

Jamie: Let’s think about this. So, a lot of this, the area that they are having these challenges in the early stage in the exploration or what is called the junior markets. So, that’s where you’re feeling the most. You are not seeing these little companies get financed the way they used to or at least getting financed to a means with which they are able to operate effectively.

Instead, you are seeing often senior companies, you know, the big boys like BHP or Barrick or what have you, investing in these smaller companies. In projects they like, as they are going forward and taking a big chunk of that, but it’s a much smaller pool than it used to be.

And you know, in some ways, in some ways, that’s a good thing because I think if anyone was around for the last mining boom, they were probably well aware of that. A lot of those companies probably didn’t deserve to exist in the first place. So, we’ve seen a big culling of what is commonly referred to as the lifestyle company, where perhaps you know, management doesn’t actually know anything about mining or geology. They are just a promoter or a marketer in some way and they have come and they have raised money on the back of an idea that never had any business being financed and they have sat on that money for years and kind of dribbled it out to themselves.

So, I think a lot of those have been cut out, but I mean, it is harder for these companies to get financed and there are a lot less than there used to be. It will be interesting to see what happens over the next couple of years, as you know, the actual miners start getting to the bottom of the barrel of their resources and they need to go out and start acquiring assets again and you know, the small little investments they have made are not going to cut it and there is not that plethora of options to choose from.

Chris: Yeah, I mean, that’s what I was thinking because you’ve got that typical cycle which is… It’s just so beautiful in the resource markets because it’s so obvious. But, it’s almost like, there is a little bit of steroids that seem like being added to that because of the way that financings have been done in the past and the way that they are currently being done.

And so, there is this dearth of capital. We know that. Like it’s obvious as mud to us, but they now look at it and think, “Well, Surely, that’s translating into a dearth of really resources that are coming to the market.”

Jamie: Yeah, but I think it’s just part of the natural cycle. I think we’ve seen this before, you know, if not for some time. You know, we came off this so called super cycle in the end of 2012, which had been kind of going for, I don’t know, what when you say that better 7 to 10 years before that. And, you know, so I came out of University in 2007 at the peak of this thing. And there was all this talk that, you know, the cyclical nature of the resource initially is over. You know, gold is going up forever. China is growing at an alarming pace and they are going to need more copper and what have you, forever. And the cycle’s over.

People were able to believe that because it was so big and you know, so aggressive, but also so long compared to a typical cycle. And I think, instead of the cycle being over, it’s just been stretched.

So, we had a long, long up and we’ve had a really long down, you know. Since 2012, things have been slower in the industry until probably the last 2 years, I would say, you’re starting to see it come up again. And I think it’s just going to… There was so much capital, you know, that got locked up in these little juniors that there is a clung to life for a better part of a decade. And, you know, they are finally starting to filter out and now, we’re going to start to see this crunch again.

So, I think it’s part of the same thing that has always happened. It’s just a matter of a stretched timeline than what people are used to.

Chris: So, maybe if we explain briefly what we’re looking for in a company when we go and finance them and you know, obviously, this is something that we’re going to be bringing to reader’s attention via the service that we’ll be launching shortly, but maybe, if we kind of give a rundown or as to, you know, what is it that we’re looking for in a company, both in terms of like, you know, you talked about management and all of those sorts of things.

So, not so much about that, but that entire idea of capital structure and what is it that you need to be. Because whether a subscriber buys this thing or not, doesn’t matter. They need to understand how that’s changed and what to look for, because like I said, I’ve been looking at this space for some time and the fact that you and I are working together on this is because I needed, you know, someone of your skillset to help to be able to build this stuff out.

But, like I said, there has been a bunch of stuff that I look at, I am like, these deals look kind of interesting, but there is no follow-up capital, and there is like this, all these risks that I don’t think people will fully understand. So, maybe, just try and run through what is it that, you know, just take it for the stuff that we need to look for.

Jamie: I mentioned this in my article book ‘Management’ and I assumed the project is good. You know, assume it had the potential you’re looking for, whether it’s a mining deal, an exploration project, or a streaming or royalty company. Assume that that checks all the boxes and now assume the management is competent. You know, it’s run by technical or capable people that have done this sort of project before. They have discovered projects. They have built mines, whatever the job maybe.

Something I mentioned is you need to have people that can afford to make mistakes. People that can sort of have a second shot and what I really meant by that and I think it pertains to what we are talking on now is… whether it goes right or whether it goes wrong early on, there is going to be hiccups. Whether it’s a good product and a good management team, they are going to need more money than they think they are going to need.

You know, mines are hard to build, you know, it’s an expensive process. Everything takes longer and costs more than you would generally expect. So, you’d need this team that has… The best way to say it is that they have a constituency. You know, it’s like a partition. They have a group of people that believe in them and will back them. So, it’s not, a couple of investors or a couple of funds or whatever it is that are in there to make a quick buck. You know, the stock goes up, they are out and the stock goes down a little bit and they abandon it.

Chris: I guess Jamie, it’s longevity of capital. And that longevity of capital is a consequence of longevity of relationships, which is itself as a consequence of experience and expertise.

Jamie: Yes, it’s capital that believes in the management team and believes in the project and we’ll stick it out. So, yeah. Based on the relationships, based on the understanding, they are committed to seeing it go forward to achieve the goal.

Chris: Right. Very good.

Jamie: But, I think you said it well. I mean, you see these groups that have built these long-term relationships to financiers and they have called on that for multiple projects, for multiple assets. There are teams that have built company after company, or mine after mine and the same people back them every time because they believe in what they do. Those are the guys you really want to find because it’s smart money. You know, the big funds or the very experienced investors that have thrown their money behind them and they are not going to bork at the first sign of trouble.

Chris: And you know what? This is interesting because it’s actually Soros’ theory of reflexivity because you can have a company that’s got that longevity of capital and it will succeed as a consequence of that. So, it’s like there is a feedback loop. Right?

And you kind of have a side company that looks exactly the same and has the same resource, that has equally competent management, but it doesn’t have that longevity of capital and it will fail. And it will fail because there is an inability to continue to raise capital, to bring it to fruition.

And so, that inability of raising capital actually exacerbates and brings about its risk of demise, whereas your company which has got the longevity of capital, there is a feedback loop that it’s increasingly more likely to survive because of the ability for it to go back and raise the required capital.

Jamie: Probably the best example of that in mining might be Robert Friedman. So, you see him start a project or a company, and often, the way that company ends or the project in it is not the same one as it began with. The most famous example Voisey’s Bay, a huge nickel project in Eastern Canada, was owned by Diamond Fields, which started off as a Namibian project.

A Namibian underwater diamond project.

So, you cannot get two more different things, but it’s because the people backing him had faith in what he was doing. He was continually able to raise that capital despite, assets that didn’t work out the way they were supposed to and shifting projects and then in the end, he delivered. And that’s been, you know, the catalyst for his success going forward too because people believe that he will pull it off no matter what it is. When you get these teens that financiers believe in, you know, they get a lot of swings.

Chris: And it’s not just like, because increasingly, you know, they do. They do succeed and you know, you could say, “Well, are they succeeding as a consequence of their ability to raise capital?” Yes, but their ability to raise capital is also as a consequence of their ability to execute and utilising that capital efficiently.

Jamie: It’s a positive feedback loop.

Chris: Exactly. And as you mentioned, you know, financing in companies that are in that space is very much relationship driven, but we’re at the stage where that financing has changed and even some of those companies are realising that they got to change the way they go about raising capital and they are. Like we’ve seen it. Right? So, it’s kind of a unique time. I find it really interesting. I am not sure how it’s all going to play out.

One of the thoughts that I had and I was curious to get your thoughts on this was: In an environment where you can’t raise capital as efficiently or as easily shall we say as would have been the past brokers and bankers and the likes, would it not be a situation where your majors because remember, most of the majors eventually get to the point where they are depleting the resources and they realise they got to stock up the shelves, right, in the pantry, and so then they often all go out and they will buy out these companies that had been testing and drilling and finding resources and everything else. But like, when there is a dearth of those as that kind of are as a consequence of this change in the capital structure, you as a large corporate mining house, need to probably start addressing that issue.

And I wonder if you start maybe spending more money on R&D yourselves and building other division that actually does that, because way back, that was kind of what companies used to do. And I just sort of wonder, do you think there is a possibility that we move back into this realm where the majors land up financing exploration and maybe they do it via, you know, some…

Jamie: I think they do it via outsourcing, sort of. When a major puts money into a junior, it’s generally called a strategic investor, and I think you probably… as majors become more desperate to stock that pipeline of projects, I think you start to see them get more aggressive than that and investing in and financing companies at earlier stages.

You know, a lot of majors now have a lot of cash in the bank. You know, they kind of learnt that lesson in the last down turn and they have been stockpiling capital the best they can, and the day will come when they will need to deploy that. And, if those companies aren’t there, they are going to have to start helping them exist. I don’t think it moves in house again. Exploration gets harder and harder every year. For every mine that gets found, there is one less out there to find, and it’s generally not considered the most efficient way for a major to deploy the capital by doing exploration themselves. You know, they let those early stage groups take them as risky stage and then they enter.

And I think we are going to be seeing more of that. And as that happens, it’s going to incentivise more of these juniors to exist and they are going to get financed more often and then we’ll be off to the races again.

Chris: Yeah, I think you’re probably right. Either way, there is that kind of gap in the market there that looks really, really…

Jamie: Yeah. What you are seeing is more of a non-traditional financing. I mean, this comes back again to the private placement. It’s the accredited retail investor that has a lot more power now than they ever did before. And you’re seeing a lot of, you know, be they letter writers or independent research analyst offering services or even, you know, certain promoters with a lot of relationships.

They are often the one putting people into these projects. So, they are doing the leg work. They are doing the analysis. They are building the relationships with these companies. And then, they are bringing in their readers, their colleagues or what have you. And the companies that are going to make the transition and survive this are the ones that sort of see and appreciate this shift and they really shift themselves to reaching out to investors and to building that relationships with their actual investors as opposed to with their banker and broker.

A lot of mining companies got financed because one CEO used to work at a bank, suddenly wanted to start a mining company. Called up his buddies or met them over beer and they said, “Yeah. Don’t worry about it. We’ll raise you 25 million dollars and off they went. You know, that sounds… We’re not seeing that anymore.

Chris: Yeah, which I think is a good thing. It lands up bringing the relationship between capital and the execution of the capital once they are closer to the same thing.

Jamie: And it makes companies accountable to their investors. Right? Like, if your only important relationship is your banker, and he is going to make money no matter what, right. He is going to get his cut up the top, his pound of flesh. So, he is happy to see whatever happens. But, when you actually need to make money for people that come in and back be early, and you need to convince them to stick with you when things aren’t necessarily going away… You know you said they would or you hope they would… That’s going to really shift, I think, the kind of people that’s succeed this industry to a better management team, a trustworthy management team and it’s going to really highlight better projects too because now, it actually has to be a good project. It has to succeed for people to be happy.

Chris: Well, I agree with you. I am curious, Jamie, in your profession, are you seeing because here’s another thing. Like, there is the idea of playing out and becoming a mining engineer for example, I mean, I congratulated you all doing it, but to a certain extent, I would say, “Well, Jamie, why on earth would you have done that, right, because you and I both know that mining engineers don’t make a whole lot of money, right. And it’s technically sort of competent type of industry. It’s not like… It’s not an easy thing to do. It takes a certain intellect, right? So, these are not dumb people and yet they haven’t been compensated. And even in like in the boom, they were… But now, when you look at it today, I can’t imagine that there is a whole heap of graduates coming out of school going, “Oh. Jesus, I already want to become a mining engineer or a geologist or anything of that nature.” And so, those that are in the industry, where are they going?

Jamie: So, I mean, I can talk from my perspective on that. I decided to become a mining engineer when I was 17. And I had asked guidance counsellor at high school, you know, “What can I do where I get a work outside and make a lot of money?” And he had a good friend that was a geologist and I kind of looked into it there and decided engineering was probably a better fit for me. And I’ll tell you what, you know, I worked in exploration in the mountains in Albania. I worked in Mexico, in Nevada, doing exploration. And then, you know, after University, I ended up in Mongolia. And I can tell you, after spending 8 months in a shipping container on a mine site in the Gobi Desert, the novelty of working outside kind of had worn off for me.

And you know, I had seen some of my friends and colleagues had gone into the banking side. And so, I really paralleled this. So, I had buddies, who from University, became bankers or analysts and you know, they were making as much or more than I was and they weren’t living in a steel box in the desert and I also saw the guys who were above me. So, you know, it gets two types of people really working in these frontier locations. You get the young… Three types – I call it three.

So, there was me. The young guys that were really like early 20s and looking for an adventure. Then, you got the guys who are around their early 30s who had been working somewhere else, but they got offered a big promotion. And you know, they went from being some middle level guy to being… to getting a big job at a young age. A big pay check and the idea for them was they now do that for 2-5 years. Then, they are back in Australia or Canada or wherever and you know, they are a senior management at a company.

And then, you got the guys that were like generally in the 50s and something had gone wrong. And you know, they were divorced 3 or 4 times. They are chronic alcoholics. They are living in these challenging places and they were stuck because they were making more money than they could anywhere else and they are probably paying alimony to 2 or 3 wives, their kids don’t talk to them and I figured out pretty early on I didn’t want to be part of that.

Chris: You didn’t want to be that guy…

Jamie: You know, I set a path and I was like, “Jesus. I have got to make some changes here.” So, I ended up coming back to Canada. I worked in consulting for several years, and then again, exactly what you’re saying. I was working, you know, 12 hours a day, in a damn suburb, in a box, you know, crunching numbers all day and I was not making anywhere near as much as my colleagues in the finance side and I shifted towards that. And I got into the market side.

I started, you know, learning it, putting deals together. I have started learning about building companies and I made a shift there.

And I think you are seeing… I think you will see a lot of people and I speak for the guys that I’ve been friends with and people that I went to University with. Most of them, probably two-thirds of them figure that out at some point in their career and then, they shift over that way.

The other group tries or does become senior management. In a mining company, you can make a lot of money and have a relatively easy life doing that. You know, it’s not as high pressure, but you’re making a couple of hundred thousand dollars a year. You got a nice pension. You got a nice house and it’s not so bad. Right? So, I don’t know. Would that answer your question or did I go off on a tangent there?

Chris: No, that was actually really interesting to kind of… It’s funny that you say that because it’s like I have met all of those guys, but I have never sort of sat down and sort of said, “Oh, yeah. That’s it.” You know what I mean?

Jamie: It’s the guy that goes for the short term success over the long term success because it’s pretty awesome being 25 and making a couple of hundred thousand dollars a year, flying all over the world and feeling like a hotshot, but that like… that novelty really wears off by the time you’re 45 and you’re divorced and you’re a 100 pounds overweight and you know, can’t go half-hour without a drink.

Chris: I know, it’s just I laugh because it’s like, I know those guys. I’ve met them.

Jamie: Anyone who has ever been to a frontier market, there is always some like Irish drunk old white guys that are like, “Something has gone wrong.”

Chris: So, yeah, I mean, I guess that sort of answered the question to a certain extent, certainly. But, I think that’s probably consistent across the industry almost irrespective of time. I guess my question was a little bit more around, like as the market structure is today, like you know, there is this few brokers that are… and this isn’t just resources. I mean, it’s because there is a move to passive investment has been insistent across sectors, but you know, you’re in the heart of the financing resource industry there in Vancouver.

And so, the guys that are getting into being brokers and things of that nature, the window of opportunities aren’t really there for them anymore to the extent that they were in the past. And so, I just sort of wonder. I had my first broker was a gentlemen by the name of Paul van Eeden and listeners might even remember his name. And he worked for Global Resources and he was a fantastic guy. And he has kind of drifted off and he is doing his own thing now to the best of my knowledge.

Jamie: Yeah. So, I actually know Paul pretty well. I mean, he became a letter writer for some time and then he sold his letter and now he essentially does his own deals now. I mean, he is the chairman, I believe, of Evrim, which is a company I’m going to be talking about for the next couple of weeks. And yeah, a few other things. He did really well for himself… He did get out of the broker game for sure.

Chris: But, he wasn’t a finance guy to start with anyways. So, like, and don’t quote me on what his original qualification was, but it was something similar to yours, whether he was a geo or a mining engineer or… he was a… shall we call it a technically competent individual as opposed to just a finance guy.

Jamie: I do believe he came from some sort of a science background.

Chris: Yeah, yeah, and because he came from Pretoria originally. Anyways, and he was fantastic. I loved the guy and I made a lot of money with him because he was just a trusted individual that I could jump on the fine and run through stuff with and it was a bit of a pain in the arse when he left the finance industry because I kind of lost that connection, but… And he was very, you know, he understood cycles and he understood that there were times when we were going to make money and there was times you just shouldn’t be involved. And that’s going to happen. For guys like that, I mean, even yourself Jamie, like, there is no… You wouldn’t necessarily go out now and try and get a broker position because…

Jamie: No. So, it’s a different game. So, I see, you know, younger mining engineers or geologists or sometimes the accountants that are interested in mining. They are not becoming brokers anymore. They are often going into private equity. So, a good example is where they go on and become analysts of private equity firms. And they also go and work for some of the big banks. So, a lot of people will go to the BMOs or the Scotias or the TDs and they will be an analyst and maybe they will work their way into being a banker. But, not… I mean, not so much the brokers. The young brokers that I know here in Vancouver almost to a man, every one of the younger guys, their father was the broker and they came in and they have inherited the book.

Chris: Yeah. So, it’s not a growing industry.

Jamie: No. It’s a… I mean, I had a broker that I used, but I only used them so I can be involved in private placements. Almost no one… I don’t know anyone my age not really heavily involved in the mining industry that has a broker anymore. They do all the trading online.

And I mean, thinking from my own perspective, that’s why I wanted to get involved with you in what you’re doing. I saw the potential to participate in these private placements. Now, I’ve made very good returns myself on ones that I have partaken in. And, you know, the people that are able to do that, it’s basically the people that have relationships with companies. It’s people that know the management teams and are able to choose the good from the bad or rather separate the good from the bad and then have the relationships with the good to participate because I mean, anyone can get into a private placement. Or rather, I should say, any accredited investor can get into a private placement, but the good ones are competitive. I mean, it’s not easy.

Chris: Absolutely. Very good. Hey, well, Jamie, we’re knocking up against an hour here so I don’t want to keep everybody going for too long, but this has been a great conversation. I really enjoyed it.

Jamie: Yeah, me too. Thanks for inviting me on again.

Chris: Yeah, absolutely. I mean, hopefully, listeners got some great value out of it or no, I did. And, you know, we’re both excited about the stuff we’re doing together and that we’re going to be showcasing to readers.

So, for anyone that is an accredited investor and… I know in certain countries, that’s not a requirement. So, you have to look up your own jurisdiction and what the rules and regulations around there are, but…

Jamie: I believe for most TX act or TSX companies, Canadian listed companies, the accredited investor rules tend to apply to Canadians and Americans. I mean, don’t quote me on that and anyone should do their own due diligence, but in my experience, that’s what I’ve mostly seen.

Chris: Yeah. I know there are different regulations pertaining to each domicile you happen to be in and some of them don’t have any regulation and so on and so forth, but you can’t just cover the entire world and give any advice around that, but if you fall into that bracket and have an interest in, you might want to be taking a look at what we’re doing.

Jamie: And we should define that a credit investor is anybody that makes over $200,000 a year or has a million dollars in assets, not including their primary residence.

Chris: Yeah, which given what the central banks have done isn’t typically that hard when you think about the inflation of assets what they’ve managed to conjure up, it’s been pretty phenomenal. So, and actually, just the last thing and I know this is really sort of going off tangent, but yeah, it was something that popped into my head when you were talking about and I forgot to mention it, because I’m kind of more focussed on that global macro landscape and all of the various pieces.

You mentioned that the resource industry started picking up, sort of, mid-2016. And I don’t believe it’s a coincidence that that was when the bond market topped, right, back in 2016, sort of July we had about about 13 trillion dollars trading negative.

And if you look at LIBOR and you look at all cross-currency rates and… interest rates have crossed the globe and you can pick pretty much any bond market that you wish you can see that trend in motion and it was literally at the same… I mean, it was almost like tick for tick when you look at how resources have moved relative to the bond market.

That’s just one reason that we’ve been focussed in Insider and resources and it’s obviously why we’re talking together and we’re working together. I think that the entire confluence of factors which are phenomenal. I mean, the amount of capital that’s been poured into bond markets post the GFC is nothing short of extraordinary. And then, we’ve got all of these other fund things taking place that we just discussed today. I’m just quite excited. I’m excited and concerned. I think if you weren’t concerned about where things are going in the world today, you are a little bit naive.

Jamie: I mean, you still need to position yourself to take advantage of the changes.

Chris: You got the cards played and you got to play the cards you’re dealt and we’re not here to… We can pontificate around what we think we’d like to have take place in the world, but really, that’s just intellectual masturbation.

It’s fun to do, but it doesn’t mean anything and no one’s going to give a shit.

So, it is what it is. I wish it wasn’t the case, but anyways, that has been great chatting, Jamie.

We’ll catch up again and we’ll have some more of these sorts of conversations for listeners. So… first any comments around your thoughts. We look forward to more of the same. So, thanks a lot and we’ll chat next time.

Jamie: Yeah, my pleasure. Cheers, Chris.


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