Everyone loves to talk about creating the next great mining business, but are they willing to put that talk into action?
There is real money and real management behind every company—but surprisingly, not every company has a concrete strategy to build a business and create value for shareholders.
Business Plan, or Lack Thereof?
Today’s infographic comes to us from Eclipse Gold Mining and it shows you how to avoid common mistakes when evaluating and investing in mining exploration stocks.
Specifically, we look at five ways that potential investors can detect the presence and viability of a mining company’s business plan.
Part 2: The Business Plan
Mining exploration may seem like a luck of the draw. There is real money and real management behind every endeavor but, suprisingly not every company has a plan to return money to shareholders.
In volatile cpommodity markets, crystal clear objectives are kore important than ever, Without a strategic vision, a company will simply chase the latest trends, fail to deliver on their goals and disappoint investors.
There are five signals inverstors can use to detect the presence of a solid business plan.
#1: The company should articulate a clear vision, versus simply just following trends and hoping for the best.
Plan: Clear vision
- Actively reaching out to investors
- Project can be profitable at today’s commodity prices
- Provide detailed timelines of work
- Funds committed to work
No plan: All hopes and dreams
- Hoping for an investor and their money
- Hoping for a turn in commodity prices
- Following trends
- No specific budget for work
- All talk, no action
#2: The company should articulate a clear vision, versus simply just following trends and hoping for the best.
Plan: Sense of Urgency
- “Time is now” mentality
- Decisive actions
- Sense of purpose
- Solution-oriented thinking
No plan: Wait and See
- ” Maybe one day” metality
- No immediate work plans
- Constant delays
- Obstacles become excuses for inaction
#3: The mineral exploration business is tough. Smart companies maintain incredible focus to de-risk their project, while others spread themselves thin with too many projects
Plan: Laser Focus
- Properties with a focused vision to production
- Specialized management experience aligned with the project
- Aligning managment skill sets with each phase of a projec
No plan: Spray and Pray
- Throwing money around, hoping something will succeed
- Multiple assets and jurisdictions
- Numerous shifts in business focus: one property today, another tomorrow
- Lack of work on properties
#4: Communication and business acumen are the key to take a project to market. Companies that hide behind a wall of geological slides may not have a real story to tell.
Plan: Tell and Story
- Aware of and communicates the risks
- Clear understanding of local geology
- Data from drill results backs up the story
- Consistent message
No plan: Hiding behind and Science
- Incomplete picture of geology
- Unproven theory of what metal and how much
- Always relying on the next drill results
- Inconsistent message
#5: Quality companies foresee how their project will come together to generate both liquidity and an exit plan for shareholders
Plan: End game in mind
- List of accomplished goals
- Clear vision of future goals and exit strategy
- Plan for liquidity events for sharehoder
No plan: Kicking the can down the road
- Stalled work and delayed plan
- Re-interpretation of results
- Lack of communication
- Rare positive liquidity events
Key questions and terms to understanding a business plan
When trying to figure out whether your next mining investment has a solid business plan, there are some key terms to consider.
Is it evident that management understands these terms and have incorporated them into their business plan?
Exit Strategy
What is the company’s goal and competency?
Most junior exploration companies do not have a goal of opening a mine. That’s not their game. The skills required to identify a successful exploration prospect are quite different to those required to design and operate a mine.
You can not know how to start a project if you do not know how to end it
Cost of Capital
How does financing affect the value of a company? Mining and exploration companies need to consider how equity and debt financing impacts its value to shareholders. To maximize the value of the company, the capital structure of the company should be composed to minimize the cost of capital and dilution.
Time is the Enemy
Does the company make the most of time and money? Time is money, especially in mineral exploration. There are expenses that at away at a comany’s financial position rather than being used to build value through discovery. The quicker a company puts its money to work, the better for shareholders
Leaving monet on the table
Is the comapny getting full value for its work and assets? Companies may not get full value for their assets if they do not stick to their plan, and sell too early or too late. Giving up on a project can be a mistake. One of the most frustraing parts of minetal exploration/development is a partially executed exploration plan, overseen by a nervous management team.
Rate of return
What is the company’s plan to make a profit? A rate of return ( RoR ) is the net gain or loss on an investment over a specified time period. A company must have a plan to make a sustainable business, how are they going to generate cash in excess of cah spent or how for shareholders within a reasonable timeline.
Within the cut-throat and ever-changing mining business, an unflinching business plan anticipates volatile conditions.
Ultimately, strategy companies know how to set themselves apart, with a vision that adapts and thrives.
The business plan is just 1 of 5 aspects that need to be ” aligned” for investor success.
So, what should investors be looking for, when it comes to examining the business plan of a mining exploration company?
#1: Clear Vision vs. All Hope & Dreams
A company should articulate a clear vision rather just simply following the trends and hoping for the best. A long term vision for a business plan is critical as it will be guiding and reminding stakeholders of the company’s purpose through the thick and thin.
Signs of a Clear Vision:
- The company is actively reaching out to investors
- Projects can be profitable at today’s commodity prices
- Provide detailed timelines of work
- Funds committed to work
- A clear vision in business will give the company a direction to aim for, allowing everyone to work quickly towards objectives.
#2: Sense of Urgency vs. Wait & See
Time is money, especially in mining. Companies need to build value fast to finance at higher share prices so that early shareholders do not get diluted. A company needs to make concrete decisions that drive towards value creation.
Signs of a Sense of Urgency:
- “Time is now” mentality
- Decisive actions
- Sense of purpose
- Solution-oriented thinking
It is expensive to maintain a company, especially one that does not yet produce income. Expenses add up quickly and that is why management needs to make sure they focus their efforts and money on activities that generate value for shareholders.
#3: Laser Focus vs. Spray & Pray
The mineral exploration business is tough and each project requires the undivided attention of managers. Smart companies maintain incredible focus to de-risk their projects while others spread themselves thin with multiple projects.
Signs of a Laser Focus:
- Properties with a focused vision towards production
- Specialized management experience aligned with the project
- Aligning management skill sets with each phase of a project
In order to assess whether a company has the right focus you have to see whether the company is aligning its human assets with its physical assets and a goal in mind.
This focus will help to clarify the story for investors.
#4: Tell the Story vs. Hiding Behind the Science
Communication and business acumen are the key to take a project to market. Mining requires massive amounts of geological knowledge, but that is not the investor’s job to handle. They do not want to want to know the subtleties of geochemistry—they just want to know whether they can make money from those rocks.
Companies that hide behind a wall of geological slides may not have not a real story to tell, and they may be pulling investors into funding their own science projects. At the same time, investors need to make sure that the data being presented matches the story being told.
Signs of Telling the Story:
- Aware of risks, and communicating those risks
- Clear understanding of local geology
- Data from drill results back up the story
- Consistent message
If a company cannot communicate effectively, how are they going to deal with other, more complicated aspects of a mining business plan?
#5: Endgame in Mind vs. Kicking the Can Down the Road
A journey begins with a single step, but without a business plan and commitment, there will never be an end in sight. Quality companies foresee how their project will come together to generate both liquidity and an exit plan for shareholders. There are several clues investors can use to tell if a company is moving towards its goals.
Signs of the Endgame in Mind:
- List of accomplished goals
- Clear vision of future goals and exit strategy
- Plan for liquidity events for shareholder
The goal in investing is to make money. If shareholders are not making money, what is the point? If a company has no plan, it has no hope.
Making the Right Decisions
Understanding the characters that create value for mining companies is the first step, and the second step is assessing whether there is a viable business plan at hand.
While the risks are high, an effective plan is the first step towards reducing risks and providing shareholders with value.
The original article can be found here:
