Gold Deal Binge
Issue 138, September 2015
Gold Canyon Resources, PC Gold, Coastal Gold and Sundance Minerals; the list of companies being bought by First Mining Finance is growing.
Led by banker-turned-miner Keith Neumeyer, First Mining is one of a small band of companies ploughing through mining deals at a depressed point in the cycle.
Its corporate strategy has been aggressive, outbidding Sulliden for the Hope Brook project in Newfoundland and announcing a threeway deal on Tuesday over the Springpole and Pickle Crow gold properties in Ontario. In total, the company says it is targeting up to fifty “deeply discounted” gold assets.
President Patrick Donnelly, a former communications executive at Hana Mining and NovaCopper, has accused other small companies of surviving the bear market by operating “a scorched earth policy”, destroying the economics of their properties by mining-out the highest grades, or raising extortionate finance to buy time and maintain control.
Companies are “plucking out the eyes” of their assets, he told The Northern Miner in August. “I’m shocked at some of the desperation moves some of these companies are making... they won't even return your calls.”
Already, First Mining Finance, which describes its strategy as “the building of a mineral bank”, has been criticised for paying lofty premiums and excessively issuing shares, diluting “the merry fark” out of investors, according to Peru-based mining blog, IKN. Its double transaction this week issued 189m shares, lifting its total share count by more than 60 per cent.
Banking sources say the company is buying ounces in the ground. “If Keith's going to run out and do four more of these, then sure, you're going to be diluted down, but these are not grassroots projects, they've had tens of millions of dollars spent on them and they're picking them up for $12, $14 an ounce in the ground.”
That compares to discovery costs north of $25 an ounce, typical market prices of $50 to $60 an ounce and bull market deals up to $150 an ounce. “Keith's got about 8m ounces now. If you go out and try to drill-up 8m ounces, it's going to cost you a lot more in dilution.”
Neumeyer, who co-founded First Quantum in Zambia before launching First Majestic in Mexico, was “instrumental” in pulling this week's deal together, according to banking sources involved, who say he is treading “a fine line.”
“You'd think it'd be pretty straightforward to start merging and amalgamating and taking over these types of companies. They're penny stocks. But you don't want to be criticised for paying too much and you're not going to get it if you pay too little.”
“The last thing Keith wants to do is be idle. He's a pretty aggressive gentleman.”
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