Atna's Hesketh Champions Offbeat Mining Finance

Issue 29, February 2013

Mining juniors fail to fully consider the financing options open to them, according to Atna Resources’ president James Hesketh, plumping too readily for equity dilution even when cheaper alternatives are available.

 “A broker will always offer to sell your company’s equity,” Hesketh tells Global Mining Observer. “There are appropriate times when equity raising is accretive to shareholders, but most of the time, you’re better off seeking other forms of finance.”

Atna Resources, which specialises in gold mining retreads in Nevada, has in the past traded assets and sold gold forward, rather than dilute investors. Having entered production in 2009 at its Briggs mine in California, it has also taken out conventional debt.

“Equity is easy,” he says. “I think there is a lack of experience in debt and debt instruments.” As a mining engineer, Hesketh spent five years in mining finance advising NM Rothschild on its lending to the industry.

As an overlooked example of funding, Atna, he says, is “constantly tapping” equipment suppliers for credit, which he describes as “absolutely the lowest cost financing available. Equipment is removable, so it's a low risk lending situation.”

The mining industry is increasingly being forced to turn to unconventional funding models, in the face of weak equity prices across the junior mining sector, making issuance difficult and heavily dilutive. But if dilution, like inflation, is the quiet thief of capital, then inflated capital budgets are its footprints in the gravel: “Historically, the mining industry started projects small and continuously expanded, so that capital increments are based on payback. The current model is to build the entire project upfront.”

Hesketh believes the strategy risks over-expenditure, lengthening payback periods and explaining the prevalence of write-downs at the top of the sector. “It may look great from a business school standpoint,” he adds, “but it's a poorly engineered approach.”

Upscaled expenditure he believes has been driven by an obsession with corporate profile: “The biggest producer commands the biggest profile and it's what the analysts have wanted,” he says. “Mining engineering is a financial discipline and many people forget that.”

“Historically, the mining industry started projects small.”
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