Saturday, June 18, 2016

The Future - crowdfunding?

The future of a mine is heavily determined by past mining and associated events.
Could crowdfunding come into the picture?

The tried and true are relied on when planning and building a brand new mine. Rules of thumbs, best practice, etc.

What happens when the tried and true fails? What happens when there are alternative options available that were not available in the past? What kind of creativity can a company come up with to make things happen, to progress things?

It is horrifically hard to build in a mine in today's world and sitting back and doing the same old, same old, may not work. Vision is what is needed. A vision of what a mine could be versus someone saying what it should be. Vision can look at all stakeholders involved and really squeeze out as much synergies as possible. That is what it should be all about. Location really sets the tone as to what synergies and vision can actually be accomplished as well. Every single mine is unique and need a unique vision.

So what is the future of Chidliak?

That is a big question and pertains to all relevant stakeholders --> Chidliak Stakeholders

Money is the biggest item right now that will determine when/how Chidliak develops. 
Where is that money coming from and how will it be used?

The above lists a lot of the historic means of progressing a project. There are several options and a lot of them are tried and true. The problem is the tried and true is becoming less and less because the owners of money have pulled away from, what is perceived, as higher risk projects. They would rather take their money elsewhere. Also, mutual funds, etc. are dwindling and more money is being put in ETF's...which do not normally financing individual mines. 

Forget tried and true, and question whether there are any alternatives that would be benefit both the funder and all the stakeholders involved? A bit of creativity and maybe something like this would work:

1 - Find a deep pocketed institution looking to get some reasonable yield for their money.
2 - Contribute a 5 to 10% equity stake in the project to that institution in exchange for access to a very large Line of Credit at a reasonable interest rate (prime?). The line of credit would be secured with the 90 to 95 % interest in the project.

Step 1 - Lots of institutions are trying to get any sort of yield for their large amounts of cash in low interest deposits. The prime or prime +1 yield does not incorporate the risk of the project...however the risk is remunerated by a direct interest in the project (step 2).  
Step 2 - The institution gets an interest in the project...that comes with its fair share of capital and operating cost contribution, but it also comes with its fair share of return (40% IRR??). This equity stake in the project could also be floated in a public vehicle in the future and or also possibly have a buy back clause from PGD.

This would give utmost flexibility for PGD to realize many other synergies too. Capital cost for the project itself is TBD (PEA in a couple of weeks), but could easily be in the CAD$400 million + category. If one were to get a  line of credit at $750 million or even $1 billion, the project could look at several alternatives and wouldn't be restricted at just allocated money to the project itself. Other options would be contribution to a  hydro project that would go beyond the LOM and service Iqaluit for the foreseeable future. Or, a wind farm like Diavik. That could be put in sooner and used to electrify the project as it heads to construction as well as feeding electricity to Iqaluit in the mean time. A DMS (Dense Media Separation) unit could be purchased as soon as possible to help process a lot more bulk samples on site at a much more reasonable cost. 

The point is, this LOC concept would open up the options and there would be no risk to the company needing to raise equity in the stock market. It would also realize the market value of the equity of the company to be closer to the true NPV of the 90% share as financing would already have been taken care of. That would make equity financing a lot more palatable and would absolutely put more money available to the project beyond the LOC.

So who could put up this massive LOC?

Banks in Canada? Banks in London?
Financial institutions? Wealth funds?
Robert Friedland? Robert and friends?

Maybe some of these would be options, but the sign of risk adverse is still present in all of these...and this might be a bit too big for even Robert to allocate that amount of capital to one project.

What about crowd funding? Could a vehicle be created to contribute access to a billion $ crowd fund vehicle that will help Chidliak be developed? Even existing stakeholders/shareholders/robert/etc. could contribute to this crowd funding.

The one logistical problem for this method is that PGD doesn't need all that money right now...they need a LOC that they can pull from in chunks as the project they really don't want to end up with a big interest payment each you have to creative again.

#1 - Crowd fund - CAD$1 billion.
#2 - Issue a 5 to 10% stake in the company to the crowd fund vehicle.
#3 - That CAD $1 billion would go to third party institution (Bank or investment institution).
#4 - With nothing done on the project yet...the institution would pay the crowd fund vehicle 1.5 to 2% or whatever the going rate is to have access to that money (savings account).
#5 - The institution would contribute the 5 to 10% stake's share of operating and capital costs to PGD and reduce the amount that the 1.5 to 2% is being paid to the crowd source.
#6 - As PGD borrows money from that institution the interest on that part now goes up to 4% or whatever is determined and that is now what is payable to the crowd fund vehicle. It can be paid with by further contributions from the LOC to PGD
#7 - As cash flow comes in for PGD's part, that money can be used to pay down the line of credit and put money into the fund. The money can go into the institution's portion and that portion could still pay 2% to the fund.
#8 - After paying its share of operating cost, the remaining profit from the revenue can contributed direct to the crowd fund vehicle bypassing the bank. 
# 9 - Once the LOC is paid back, the institution can distribute all cash on hand back to the venture fund and PGD will have an option to buy back the 5 to 10% contribution at previously negotiated cost or possibly a conversion into shares.

This is how a crowd fund could work.
Now, how does one get the contributors to the crowd fund to buy in?
This is where options like wind farm and hydro project can really be utilized as a selling point on the project.
Being a responsible mine builder and operator is absolutely key in this field.

Aim for CAD$1 billion. Crowd fund would involve lots of investors from all around the world...but probably mainly from the US. If you can get 10,000 people to invest $100,000 into the project, then you have an option. Investing $100K is a bit much for a crowd source. That is really not the point of it. How about getting 100,000 people to invest $10K in it. That might absolutely be the sweet spot for a fund like this. One step further...can you get 1,000,000 people to invest $1K.  You could get a lot of people to invest $1K in a fund like this..the question is whether you can get 1 million people. The reality is, you start with a unit based like $1K and then people can buy as many units as they want. 

It is really an interesting concept and the two reasons we are talking about this, is that tried and trued is less and less accessible (therefore losing its tried and trued title) and crowd funding is becoming more and more of an option.

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