{"id":14904,"date":"2025-02-13T00:53:56","date_gmt":"2025-02-13T00:53:56","guid":{"rendered":"https:\/\/businesstriumphs.com\/index.php\/2025\/02\/13\/is-cash-the-mining-industrys-most-valuable-resource\/"},"modified":"2025-02-13T00:53:56","modified_gmt":"2025-02-13T00:53:56","slug":"is-cash-the-mining-industrys-most-valuable-resource","status":"publish","type":"post","link":"https:\/\/businesstriumphs.com\/index.php\/2025\/02\/13\/is-cash-the-mining-industrys-most-valuable-resource\/","title":{"rendered":"Is Cash the Mining Industry\u2019s Most Valuable Resource?"},"content":{"rendered":"<\/p>\n

At any given time, hundreds of companies in the resource sector are working to develop thousands of projects.<\/strong><\/p>\n

While most experts in the sector view people as the number one element that determines a company\u2019s success, capital is key. It\u2019s also often overlooked despite the fact that nothing can happen without it.<\/p>\n

At this year\u2019s Vancouver Resource Investment Conference (VRIC), CEO Jay Martin sat down with industry experts Rick Rule, Maria Smirnova, Natascha Kiernan and Alexandra Woodyer Sherron to get their thoughts on raising capital in the sector and to answer the question of whether cash is the most valuable resource in the mining industry.<\/p>\n

\n

Is cash the mining industry\u2019s most important resource? <\/h3>\n

The old adage that cash is king is perhaps most true in the resource sector, especially among early stage exploration and development companies. Far from being able to rely on earnings from production, these firms need to raise capital to do more than keep the lights on. Funding is needed for the core elements of the business: geology, discovery, analysis and building. Without adequate funding, a company\u2019s progress can be halted, sometimes for months or years.<\/p>\n

Smirnova, who is senior portfolio manager and chief investment officer at Sprott Asset Management, identified three key elements she evaluates when examining companies in the resource sector.<\/p>\n

\u201cThe first is the people. What\u2019s the team? Have they done this before? What is the knowledge they have? Number two is the asset \u2014 the geology and location \u2014 and number three is the financial situation of the company,\u201d she said.<\/p>\n

Smirnova emphasized that while a company\u2019s personnel and financial position can be altered, geology remains unchangeable. This has prompted her to adopt a more holistic approach when analyzing opportunities in the mining sector. She wants to see key elements utilized efficiently, including the strategic management of cashflow.<\/p>\n

\u201cCash is important because you have to do things as a company. You want to discover the resource, and you want to move it towards production, but people definitely optimize that process,\u201d Smirnova said.<\/p>\n

Woodyer Sherron, who is president and CEO of Empress Royalty (TSXV:EMPR,OTCQX:EMPYF), echoed this point.<\/p>\n

\u201cYou need cash. Without cash, a company is constrained. It\u2019s difficult to move forward, so absolutely I think cash is the most important resource,\u201d she told the audience at VRIC. <\/p>\n

When asked if there is a minimum level of capital that would define a productive raise versus a non-productive raise, Woodyer Sherron suggested this is dependent on the stage of the company.<\/p>\n

\u201cThere are so many different aspects to money, whether it\u2019s exploration, development, production,\u2019 she said. <\/p>\n

\u2018From Empress\u2019 point of view, we invest $5 million to $10 million into companies, but we focus on ones that are producing. They\u2019re going to bring immediate cash,\u2019 added Woodyer Sherron. <\/p>\n

Kiernan, who is founder and principal at Bellevue Strategic Advisory, and Rule, the proprietor of Rule Investment Media, said money is important for mining companies, but not as important as leadership.<\/p>\n

Rule has frequently said that people are the most important part of a company, but has also acknowledged that cash may be the most underrated asset. Drawing from his extensive experience in the resource sector, he noted that retail investors get excited about stories, not cash, and companies worry about the cost of capital inside the industry.<\/p>\n

\u201cThey say the cost of capital is extraordinary. Have you ever considered the cost of not having capital? This is a capital-intensive business. If you don\u2019t have capital, you have no business. So I think cash, it\u2019s not exciting, but if you don\u2019t have cash, you eliminate your ability to cause things to occur,\u201d he said.<\/p>\n<\/div>\n

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4 ways mining companies raise money <\/h3>\n

Mining companies raise capital through four primary methods, each with its own advantages and challenges.<\/p>\n

Equity raises are a common approach in the industry, especially among early stage exploration and development companies. These agreements involve companies raising capital through the selling of shares. <\/p>\n

This approach can be easy for those with compelling projects, good locations or favorable early exploration results. However, it can also dilute overall value for existing shareholders.<\/p>\n

Equity raises can also be sensitive to overall market conditions. With that in mind, Smirnova spoke to the benefits of \u201craising when the ducks are quacking\u2019 \u2014 in other words, raising cash when conditions are favorable. This approach can ensure that funds are available when needed, even if the market enters into a downturn.<\/p>\n

Debt financing is a less common fundraising method in mining. Rule has extensive experience in this area.<\/p>\n

He told the VRIC audience that during his time in the industry he\u2019s overseen many deals. He explained that debt structures have their uses, but aren\u2019t widely used due to their capital-intensive nature. <\/p>\n

Debt structures often involve secured loans that are leveraged against company assets. They can be attractive because companies can raise capital rapidly, but they risk becoming overextended and losing valuable assets.<\/p>\n

For Rule, debt financing is always a win for the issuer, but not always for the company.<\/p>\n

\u201cI can take a lower internal rate of return than I would ask for as an equity holder, because, by the nature of the transaction, it\u2019s a secured loan. At the end of the exercise, whether I want it or not, the assets are mine, not theirs, and my coupon, assuming that I get paid, reduces my risk and allows me to recycle the cash,\u201d he said.<\/p>\n

Royalty and streaming agreements, like those offered by Woodyer Sherron\u2019s company Empress Royalty, are an alternative to traditional equity and debt. In these types of agreements, companies receive upfront cash in exchange for a percentage of future revenue or production, often at a discount.<\/p>\n

\u201cWe\u2019re not buying third-party existing units, and we\u2019re able to provide directly to them the financing they need \u2026 it\u2019s less diluted than equity, it\u2019s less restrictive than debt,\u201d Woodyer Sherron said. <\/p>\n

\u201cWe really want that revenue to come in so that we can reinvest it,\u201d she added, emphasizing that Empress is interested in later-stage assets that are producing cash or close to doing so in order to ensure a steady revenue stream. <\/p>\n

One final method of funding projects in the mining industry is joint ventures. <\/p>\n

Similar to a merger, a joint venture involves two or more companies coming together. The advantage is that larger companies can provide reliable financing and expertise to move a project forward. However, joint ventures can also be highly complex, with differing views on ownership stakes and responsibilities.<\/p>\n

\u201cThey\u2019re very expensive and complex to negotiate, and they\u2019re very expensive and complex to administer; if a joint venture goes bad, you\u2019re in a problem where you have to unwind. You\u2019ve got all kinds of conflicts, maybe with a much larger counterparty,\u201d said Kiernan, who is an independent director for various mining companies, including Empress. <\/p>\n

She also indicated that there are several reasons for joint ventures. Smaller companies get more experienced partners, while larger companies use them to gain access to jurisdictions by partnering with locals.<\/p>\n

\u201cThere are going to be very big wins when they\u2019re done for the right reasons and the proper diligence,\u201d Kiernan added.<\/p>\n<\/div>\n

\n

What should investors look for when it comes to cash? <\/h3>\n

In closing, the panelists offered final advice on evaluating companies based on their cash handling. <\/p>\n

\u201cLook at the ownership that the management team has in their own stock,\u201d Smirnova advised. <\/p>\n

\u201cThat will help you assess whether they\u2019re in it just for a paycheck or for long-term value \u2026 that\u2019s something we look for more and more. Question management teams to make sure that they actually have skin in the game.\u2019<\/p>\n

Rule offered advice that went beyond how companies use cash, suggesting that investors put their cash to work. He noted that with positive interest rates and deteriorating purchasing power, \u201ccash is costing you money.\u201d<\/p>\n

\u2018Cash gives you the ability to take advantage of the illiquidity of others rather than being taken advantage of yourself,\u2019 he said. Rule also noted that investors should get to know companies before they part with cash.<\/p>\n

\u201cI believe that 85 percent of the juniors that are listed on a global basis are valueless. I believe they\u2019re worth nothing, and so I believe the junior sector is perpetually overvalued \u2026 if you learn to separate the 10 percent from the 90 percent, this is actually a hell of a sector. If you don\u2019t, good luck to you,\u201d Rule said.<\/p>\n<\/div>\n

Stay tuned for more event coverage, including video interviews with many of the experts who attended.<\/p>\n

Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.<\/strong><\/p>\n<\/p>\n

This post appeared first on investingnews.com<\/div>\n","protected":false},"excerpt":{"rendered":"

At any given time, hundreds of companies in the resource sector are working to develop thousands of projects. While most experts in the sector view people as the number one element that determines a company\u2019s success, capital is key. It\u2019s also often overlooked despite the fact that nothing can happen without it. At this year\u2019s […]<\/p>\n","protected":false},"author":0,"featured_media":14905,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-14904","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/14904","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=14904"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/14904\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/14905"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=14904"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=14904"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=14904"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}