Investment Banking and Junior Gold Mining
For junior mining companies, the role of financing is just as important as geology and engineering
. That's because the immense capital demands of operations like exploration, land acquisition and site development make gold mining entirely dependent on financial ingenuity, investment organization and capital commitment. Much like you can't dig without a shovel, nor can you mine without funding.
Yet the financial crisis and ongoing Great Recession have eviscerated risk-friendly credit markets making traditional sources of financing, like bank loans and bonds, that much scarcer. Within this emaciated environment, few industries have shown greater ability to overcome liquidity problems than that of junior gold mining. Executives and leadership teams have managed to flourish in a low growth environment by pursuing financial opportunities outside the regular banking system.
Since 2007 and the shrivelling of credit markets, the primary financial conduit for successful junior mining companies has been investment banks and what are called private-equity placements. Under a private-equity placement, a consortium of investment banks buys and underwrites shares of debt from a variety of expanding gold mining companies. The investment banks then restructure the debt into financial instruments which can be sold to individual and institutional investors at a profit. As the investment banks lend credibility and analysis to the junior mining companies in exchange for a reduced price on the debt, investors at the buy end benefit from the opportunity of investing in high-risk, high-return gold mining ventures imbued with the increased security of financial engineering. At the industry level, private-equity placements dramatically increase the liquidity for expanding junior mining companies allowing them to expand development site in both healthy and troubled economies.
In a global economic climate such as this one, a junior mining finance deal through traditional banking routes probably wouldn't even get done, let alone with any degree of speed or efficiency. The global financial crisis has dried up the size of money pools banks are willing to risk, making equity financing look much more attractive for both parties. And investors are clearly hungry, already committing huge amounts of capita this year in return for common shares in gold mines and healthy returns in the coming years.
Investment Banking and Junior Gold Mining
By: Iminesco.com
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