Mining and exploration companies are now paying increasing attention to individual investors. With the constrained credit markets of the last two years, increasing focus is placed on investors who are buying new equity issues. Projects, especially gold projects, are now being financed increasingly by equity instead of debt. A good example is Osisko Mining’s Malarctic project budgeted originally at $930 million. Normally a low cost, long-life, large-scale gold project in a stable mining-friendly area like Val d’Or, Quebec would have been an ideal candidate for project finance. Osisko raised $942 million since 2007 of which $642 million was in equity and the remaining $300 million in credit from CPP Investment Board ($150 million), SGF($75 million), CAT Financial ($55 million) and Fonds de Solidarité ($20 million).
A project finance group will have one-time loan negotiation with a group of financial institutions when a bankable feasibility study and permitting is completed. This normally requires a small group of financial and technical specialists to do a thorough review of technical reports combined with mine project visits.
Contrast this with raising money from the equity market. Generally, a mine developer cannot raise the full amount of equity to finance a project in a one-shot equity deal. The mine developer must have an ongoing marketing profile with “the market” consisting of analyst, fund managers, financial advisors and even high net-worth investors. This way the mine developer will be in constant contact with investment dealers to mutually decide when the best timing will be to issue new equity financing. Normally several different issues of stock at different periods with different prices will be required to complete equity financing of the mine project.
Mine tours and field visits are a good way to show the merits of a project; but it is expensive to arrange on-going regular project visits, especially with larger groups of analysts, fund managers, advisors and even investors.
According to Dmitry Kushnir, Manager, Investor Relations of Agnico-Eagle Mines Limited, their mine tours are important and justify the cost from $50,000 to as much as $300,000. Kushnir states their mine tours provide “a first-hand understanding of the quality of operations, management, work force and culture; the all-important qualitative aspects” of their operations. There is an additional cost of production disruption as well.
Many mining developers also participate in investor shows such as the Prospectors and Developers Association (PDAC) annual meeting in Toronto, the Cambridge House investment conferences, International Investment Conference (IIC) and the Denver Forum. These conferences offer exposure to investors, financial advisors, analysts and fund managers.
Investors who do not participate in conferences, nor visit mining projects, really have to rely on the company website for information. The website will be used to post financial reports, news releases, corporate presentations, webcasts of conference calls, corporate videos, or IR calendar of upcoming events as well as operations updates. Many companies also encourage individuals to sign up for email news releases. The information can be exported, sorted and graphed to make user access as easy as possible.
The cost of a company website is generally a small cost of the investor relations budget. According to David E. Whittle, Chief Financial Officer of Alexco Resource Corp.(silver mine producer in Yukon’s Keno Hill district), “The cost of our website is less than 1.5% of our investor relations budget. The largest part of this cost is actually management time.” From this, it’s apparent that companies can, for a relatively small additional cost, reach out through the web to attract new prospects and investors.
The first step in going the web route is obvious: make sure it’s well designed and easy to navigate. Keep it simple and clean. It’s so easy for company managers to put too much information on their website. A “busy look” will make it unattractive and turn people off.
The second step is to optimize the website search engine optimization (SEO) so that new web visitors can find your site. It is important to monitor both the traffic into a company website and how visitors navigate through the site using a service such as Google Analytics, which is free. According to Stéphane Hamel, eBusiness Strategist & Web Analytics teacher at Laval and UBC, it may be worthwhile to engage an online marketing professional to consult on writing, use of keyword terms and even site content architecture to improve SEO. Also, having a small budget for online marketing campaigns such as Google AdWords can increase web traffic and help find out what terms and keywords are effective both at their website and that of their competitors.
The third step is to develop a strategy for reaching out to new investors and new markets by the use of social media or what is termed Web 2.0, which is becoming more important for internet users. The more commonly known websites such as Facebook, LinkedIn, MySpace, Twitter and YouTube are relevant to many more people than just the teenaged, and young adult. Facebook is turning out to be the 800 pound gorilla of the internet. According to Inside Network, an internet research firm, Facebook is now the most visited website in the world. Facebook has about 500 million users worldwide. About 41% of Americans and 47.9% of Canadians use Facebook.
Social networks also give power to individual consumers. In the past, customers who felt they were not treated fairly would grumble to their friends, family and neighbours, or an estimated 250 people. Not any more. Frustrated clients can and do take on major corporations in the social media.
One good example is about Dave Carroll, a Halifax-based musician who recently complained about an airline and his broken guitar. None of us saw the airline break his instrument, but about 11 million people saw his YouTube video. The media coverage of his YouTube video, combined with an interview, resulted in over 100 million people knowing that the airline supposedly broke Dave Carroll’s guitar. Dave Carroll and his career are heading up thanks to his creative response and the power of social media. The airline never had a chance against Dave. It is better for mining companies to understand social media now rather than wait until it is used against them.
It is important to develop policies on the usage for social media sites and blogs in order not to run afoul of securities legislation. The question of using social media was addressed to the BC Securities Commission. It did not see anything wrong with using Facebook or other social media sites, providing no material information was disclosed prior to a regular news release. According to Martin Eady, Director, Corporate Finance, BCSC. “The principle on social media websites is for the general public to understand what is posted by the company and what is written by others.” The point here is that, “The principle of disclosure is the same for every medium: the general public should understand what is posted by the company. What is written by others is outside the company’s control. Companies need to understand this particular risk in relation to any involvement they have with social media sites.”
Eady states, “There is no responsibility to a company for what others say about your company. That does not mean you have to ignore false or irresponsible statements. If such a statement is posted on a company social media website, which allows contributions from individuals, the company may not have the ability to remove that specific statement. In that instance, the company could insert a warning or try to block or disable the individual who made the statement from further website postings.”
Eady refers to National Policy 51-201 Section 6.12, on the BCSC website, which suggests, “D
o not participate in, host, or link to chat rooms or bulletin boards. Your disclosure policy should prohibit your employees from discussing corporate matters in these forums.” This will help to protect your company from the liability that could arise from the well-intentioned, but sporadic, efforts of employees to correct rumours or defend the company.