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24 Jan 2020, by Amy Sarcevic
With more than half of ASX-listed mineral sands companies showing gains of up to 200 percent in recent years, now has never been a better time to invest in commodities like zircon, TiO2 and ilmenite. But does that mean resource investors are putting their hands in their wallets for mineral sands projects more than ever?
Far from it. In fact, a mineral sands investment pitch is more likely to fail than succeed, with an estimated 70-80 percent of funding applications rejected.
The reasons for this bearish approach often have little to do with market forces and can be frustratingly simple. With this in mind, here are some useful tips to assist you with your mineral sands capital raise.
#1 – Keep it simple
The mineral sands asset class is complex and not well understood by much of the investment community. Generally, it doesn’t have as much data as its mainstream counterparts, like gold or copper. It’s a more opaque industry and harder to determine price direction.
So even if your investor specialises in resources, he or she may have little knowledge of this particular commodity segment.
That’s a problem because it’s easier to say ‘no’ to stocks which aren’t familiar.
With that in mind, you’ll want to make sure your pitch is seamless and easy to understand. If most of your revenue comes from a particular part of the product suite, focus your attention on that – i.e. the most material thing for the investor. If you’re a foreign developer, summarise country risks in an easy-to-read fashion.
A simple plan generally gives investors more comfort around things like commissioning risk, than complicated flow sheets.
#2 – Allow enough runway
The average time from pitch to cash in any capital raise is typically six months, but within mineral sands, this process can take much longer.
Not only are these projects being told ‘no’ more – which means they have to work their way through a larger pipeline of prospects – but the due diligence (DD) process tends to be more drawn out than with mainstream commodities.
A key reason for this is a dwindling resource investor pool – meaning that current investors are spreading themselves thinner between more hopefuls. Ten years ago, resource investors were plentiful. These days, fee pressure for fund managers means they aren’t allocating as many geology specialists as they used to.
Mineral sands specialist investors are even more scarce.
With not as much expertise in the industry – and with less available data – it’s exacerbating the time it takes for investors to perform DD. It might take a non-resource specialist just one day to learn about a gold company, but a week to fully get to grips with a mineral sands project.
# 3 – Consider private equity
Statistics suggest that there has been more funding from private equity into mineral sands than other commodity segments. Therefore, it may be a stronger avenue for capital raises for those consistently being told ‘no’ by mainstream investors.
Private equity is generally more willing to take time to learn about and specialise in an industry where they might get an informational advantage.
The downside of private equity is reduced liquidity, but the upside is you are more likely to get an investment partner that can add value.
#4 – Use a financial partner
Convincing investors that a pitch is worth the time and effort is often half of the job, regardless of how good the investment opportunity might be. To this end, a broker or financial partner can make or break your success.
With expertise on writing reports on stock performance and market dynamics, a broker can fill in the gaps of data and educate investors in the most coherent way possible.
On top of this, a stockbroker’s reputation can often carry a project through to an investor. With the company’s reputation at stake, investors tend to trust projects brought forward by a broker more than those who skip the middleperson.
With that said, we wish you luck in your capital raise.
Learn more about what investors are looking for at Informa’s forthcoming Mineral Sands Conference due to take place 18-19 March 2020 in Perth.
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