Experience can be everything in the business world, and the junior mining sector has caught on.
Last year, three new companies broke onto the mining scene boasting executives with lengthy industry experience.
The first was Vancouver-based Tahoe Resources (TSX:THO), which raised $348 million in a June initial public offering (IPO) thanks to a sterling precious metals project in Guatemala and a management team led by Kevin McArthur, the former president and CEO of Goldcorp (TSX:G).
The second company to hit the ground running was Primero Mining (TSX:P). It was welcomed to the market with a $300 million IPO led by former Iamgold Corp. (TSX:IMG) president and CEO Joseph Conway.
Then, in December, former Silver Standard Resources (TSX:SSO) president and CEO Bob Quartermain took his latest venture, Pretium Resources (TSX:PVG), public with a $265 million IPO (see “Veteran mining executive stakes claim to new gold venture in B.C.” – issue 1107, January 11-17).
All three companies banked on stellar assets in the ground and management experience to break out of the gate at a sprint.
Danley Yip, a division director for recruitment firm Robert Half Management Resources, said high commodity prices and a shortage of C-Suite executives in the sector have whetted investor appetite for these new ventures.
“There’s huge demand these days for top talent,” Yip said, “and that’s why companies are knocking on the doors of these retired CEOs.”
Tom Whelan, Ernst & Young’s Canadian mining leader, said top-tier executives help junior mining companies get attention in the market place.
“Old miners don’t retire, right? They’re just looking for that next project and … are well versed in managing all aspects of the risks involved with these projects … all of those key strategic issues that require a significant level of management time and attention.”
But what’s driving the industry to net veteran executives for new companies?
Whelan agreed that a shortage of top-level executives is part of the equation, but he also said the large IPOs are a product of major mining companies that want to divest assets that don’t play a key role in their project portfolios.
Take Primero Mining, for example.
Its main asset, San Dimas, is a producing gold-silver mine that Goldcorp sold to the junior company for $500 million.
The deal generated significant cash flow for Goldcorp and allowed the gold producer to remain a significant Primero shareholder.
Today, Primero’s market capitalization stands at approximately $385 million.
The deals that formed Vancouver’s Pretium Resources and Tahoe Resources are similar.
Pretium’s market capitalization stands at approximately $718.5 million; Tahoe boasts a capitalization in excess of $2 billion. Conway believes his track record with Iamgold helped Toronto-based Primero enter the market with a strong IPO, but he was originally attracted to the company because he wasn’t ready for retirement.
Primero also offered him a chance to own a significant chunk of a junior mining company early in its development.
“It’s a fun game,” Conway said. “I’ve sat back for a few months, and I did my bucket list and I realized, ‘now what?’ I looked at my colleagues and my friends who were still pushing and driving to make a difference and I thought, ‘I’m still too young to sit on boards.’”
Ernst & Young Canadian mining leader Tom Whelan told Business in Vancouver that the junior mining scene, for which Vancouver is a hub, is likely to see a flurry of new companies entering the market this year.
Whelan pointed out that major and mid-tier mining companies have cashed in on a recent bull run in the commodities market, which has allowed more funds to trickle back into a junior space that has been equity starved since the global recession.
“If you just picture a funnel of money, it starts with the majors, it’s overflowed, so it goes down to the mid-tiers and they’ve got plenty of cash, so where can investors look to place their funds? … I would anticipate we’re going to see a host of junior mining IPOs in that $5 million to as big as $100 million range.”