How To Take A Mining Company Public

MichaelThomson September 28, 2017

Mick Thomson is an expert when it comes to the process of publicly listing a company, whether it be through the use of a capital pool company (CPC), a reverse take-over (RTO), or an initial public offering (IPO).

Palisade Global Investments first met Mick last year while working on taking a mining asset to the public markets. Ultimately, that transaction did not go through, but the effort was well rewarded in adding Mick to our roster of experts in the space.

Delving into his past, we found numerous success stories attributed to Mick Thomson and for that reason, we are pleased to have permission to publish this very informative piece – a guideline on how to go public. Today we present what is hopefully the first in a series about a world that is integral to the mining sector, but hardly covered in a practical manner.


Mine Finance – Part I – The Going Public Process

By: Mick Thomson

Michael G. (“Mick”) Thomson is the President of Independent Capital Partners Inc., a corporate finance advisory firm that focuses on going public transactions.   He is a Director of four companies listed on the TSX Venture Exchange and a former Member of the TSX Venture’s Listings Advisory Committee and the Vancouver Stock Exchange’s Pre-Listing Advisory Committee.


 

In January of 2017, Soleil Capital Corp. (TSX.V: SOLE.P), a capital pool company (“CPC”), of which I am President, completed a $1 million IPO and obtained a listing on the TSX Venture Exchange (the “TSX.V”).

Even though I am an experienced capital markets participant and a former investment banker, I am not sure that I was ready for the onslaught of inquiries I received from companies that were a CPC target and wanted to go public (a “Target”).  I estimate that I had about 50 different inquiries, from entrepreneurs in various industry sectors, from medical marijuana to medical devices to mining.

Looking back on it, I may have had a bias against mining, having successfully completed a mining company acquisition in March of 2017.  In that transaction, another CPC of which I was President, Roll-Up Capital Corp. completed a “Qualifying Transaction“ (QT – going public event) via plan of arrangement and a $4.4 million financing with a Vancouver based mining company named VR Resources Ltd.   The company, now named VR Resources Ltd. (TSX.V: VRR) is lead by Dr. Michael Gunning and Darin Wagner, two very capable mining executives.  VRR is currently drilling the Bonita Property, a copper/gold prospect in Nevada.

The bias against mining did not come from a lack of faith in the sector’s revival and prospects, but rather a desire to have a more balanced portfolio of investments in TSX Venture issuers.   However, after some eight months of dealing with concept companies, MMJ wannabes, and high-tech entrepreneurs that though they had the next “unicorn”, I entered into and LOI to do another mining deal.

So Why Mining?  

Very simply, the mining company in question met the criteria I had set for any QT, regardless of industry sector, as follows:

1. Experienced management. As Rick Rule commented at the Money and Mines Americas Conference in Toronto – “…during the downturn mining has gone from (property) location, location, location to people, people, people…” (I apologize to Rick for the loose translation). I just don’t like betting on first time entrepreneurs;

2. Reasonable valuation. The private mining company in question has a property portfolio in the Rosario mining district in Mexico and good prospects. The company was available at a good price relative to peers;

3. The private mining company had raised substantial seed capital – in excess of $2 million and the shareholders’ list included some recognized names in the business (one long-time, Vancouver based mining broker in particular);

4. The Target has a Board of Directors (“BOD”) with substantial direct industry experience and an enviable track-record of crating shareholder value;

5. One member of the BOD has promoted a number of other TSX.V issuers and understands the need to create liquidity in the issuer’s stock, post going public transaction; and

6. The Founders had put up a substantial amount of their own cash – not just $0.001 cheap stock.

Why A CPC? 

The CPC Program is a made in Canada (Calgary) success story.   Dr. Michael Robinson helped usher in the Junior Capital Pool (“JCP”) program in 1986 with the old “nickel” deals embraced by the former McDermid St. Lawrence firm and others.

JCP’s became CPC’s when they migrated into British Columbia, in part because Michael Johnson, then president of the old Vancouver Stock Exchange, realized that Alberta was eating B.C.’s lunch because the number of new JCP’s being listed on the old ASE were far outpacing VSE listings, and Vancouver based promoters were commuting to Calgary in increasing numbers.

Following the consolidation of the Stock Exchanges in Canada, Ontario adopted the CPC program and the rest, as they say, is history.  CPC’s are now a well recognized financing vehicle and an integral part of the fabric of junior and emerging company financing.

What Are The Advantages Of Using A CPC Instead Of A TSX.V Shell?

1. WYSIWYG (What You See Is What You Get). A CPC is a newly incorporated, clean company with cash in treasury. Most shells have a history, some replete with “skeletons” in the closet, usually in the form of undisclosed liabilities or legal claims. Do you really want to take over a 20 year old company that has had five different names, a couple of share consolidations and has been involved in 10 different projects?

2. Institutional investors may prefer CPC’s since it reduces transactional risk;

3. Unlike a lot of “shell” companies, most CPC’s have cash in treasury that can be used to fund a portion of the substantial “going public” costs. In a small number of cases, the CPC may advance funds to the Target to help make property payments or pay for the cost of an NI 43-101 Technical Report on the “Property of Merit”;

4. The cost of doing due diligence is typically much cheaper for a CPC. Every CPC has a recent prospectus filed on SEDAR and typically a short continuous disclosure filing record; and

5. A portion of the Founders’ (Escrow) shares in a CPC can sometimes be acquired by the principals of the Target. In the case of one CPC in which I held escrow shares, the escrow shares were sold for $0.07 (issue price of $0.05) and worth over $11.00, some two and a half years later when Coeur Mining (NYSE: CDE) made a successful taker-over bid offer for the company (Palmarejo).

How Do I Take My Mining Company Public In A Timely & Cost Effective Manner?

As a very active market participant and having completed ten plus going public transactions in the past ten years, I have the following tips for success:

1. Take the time to plan the venture and get the right people involved from the outset. In my experience, a lot of promoters take the path of least resistance and go to the “usual suspects” for seed funding instead of thinking about the medium and long-term development prospects for the mining company;

2. Talk to Kyle Araki (Calgary), Tim Babcock (Toronto) or Andy Creech (Vancouver) at the TSX.V or Richard Carleton at the CSE. All of these quality professionals can give you great (FREE) advice on the status of the local capital markets and the prospects for your new mining venture. They are all smart, credible and knowledgeable – LISTEN TO THEM, don’t just talk to them;

3. Try to ensure that some of your investors bring not only money, but “intellectual capital”. Not all investors are created equal – some have amazing contacts. But remember, don’t ask for access to someone’s database;

4. Avoid flavor of the month metals (what is the new lithium?) versus those that always shine, i.e. gold, silver and copper;

5. Interview and engage the very best professional advisors, particularly your lawyer(s). Choose an experienced securities lawyer that can open doors for you and insure that you are making a fully-informed decision that can help insure success;

6. Use the seed capital wisely – Class “AAA” office space, big bar tabs and first class airfares represent scarce funds that should be going into the (ground) Property of Merit;

7. Build a small, but credible, BOD with members that are willing to invest, rather than just advise; and

8. Do substantial due diligence before approaching Securities Dealers or Exempt Market Dealers about helping you to go public. For example, don’t pitch Cormark Securities, one of my favourites and perhaps Canada’s top independent Securities Dealer, about a “greenfields” property. Unless you are Jim Crombie or David Fennell, Cormark is only going to be interested in advanced exploration stage companies or near-term producers. Be smart – know how the Firms operate. For example, some Brokers will only take your mining company public if you use one of their shells (Red Alert – using an old shell with 20 million shares outstanding and debts of $250,000 is not in your best interest). Speaking of alerts, if you are dealing with the lower end of the Financier spectrum, watch the movie the “Good, the Bad and the Ugly” before setting up any meetings. As charming as Eli Wallach was in his role as “Tuco”, avoid rogues, charlatans, hustlers, has-beens, and bottom feeders (generally not welcome in Calgary, but very common in Vancouver). You would do well do remember that most rogues (charlatans) are charming – how else would they gain your trust before fleecing you?

There are three sayings that I always reflect on when embarking on a new public company venture and I would ask you to at least consider them:

1. If a job is worth doing, it is worth doing right (Dennis Welin, my former plumbing teacher at Timmins High & Vocations School, repeated this weekly). He went on to be mayor of that historic mining town;

2. Take the Money Where and When You Can Get it! (Investment Banker’s #1 Line); and

3. If the Going Public Process were easy, everyone would be doing it (Unknown).

Good luck and be safe on your path to going public.


If you would like to contact Mick, feel free to drop him a line at: cpc.thomson@icloud.com

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