The following is a reproduction of an article featuring Oreninc and the ODL written byNancy E. Roth, Senior EditorofFuel Cycle Week, the premier nuclear business newsletter. The original article can be foundhere.
Vancouver, Washington-based Oreninc, has compiled a comprehensive database of Toronto Stock Exchange and TSX Venture Exchange junior resource-company financings. Each issue FCW displays a list of uranium-related fundraisings that have opened and closed over the course of the week, as tracked by the Oreninc Deal Log (see p. 7).
At this year’s Prospectors and Developers Association of Canada conference, Oreninc displayed a new product, the Pulse Report, which compares the performance of brokers who work on commodities financing deals, including uranium.
Managing Director Benjamin Cox, who worked in the financial industry at firms like D.E. Shaw, explained to FCW that the report is meant to help juniors make more informed decisions about how to seek financing for their projects.
FCW: Why should juniors be interested in the Pulse Report?
Cox: Excluding oil and gas ventures, the total dollars miners raised on the TSX and the TSX-V in 2011 was $9.5 billion, according to our data.* We found the weighted average brokerage fee across the covered commodities was 8.2% (cash and warrants). That means juniors spent more than $779 million in fees to the banks.
Let’s say we could drop that average to 6%—we could save juniors $200 million by providing a list of brokers and their fees, allowing them to make informed decisions about the brokers they feel will be of the best use.
Our goal is to reach 70% of the mining and oil and gas companies raising money. If that many rely on our data we will change the resource finance market. That will help juniors do more exploration on the same amount of money raised.
FCW: So how would a junior company use the data in your report?
Cox: The first question is, what is the deal size? The bank the junior chooses is going to be very different depending on how big a bite the company is trying to take.
For example, going to Royal Bank of Canada with a $2 million deal is a bad idea. RBC’s overhead just does not let it do micro deals. For small deals banks have to charge more as a percentage of the deal, because they have to spread their costs over less money raised. The big banks need half a million in profit per deal just to keep the lights on. On a $2 million deal, that would result in a 25% fee. But they can lower their fees if they are raising more money, like for a $50 million deal. In 2011 RBC did a $52 million deal in uranium. They walked away with 5% of that in cash.
The lowest fee the Pulse Report tracked was under 4% and the most expensive was over 14%, even though the basic paperwork costs for the banks are roughly the same whether $2 million or $20 million is raised.
Next you look at the average time it took the broker to close the deal. Are the brokers on the ball with how they are structuring and doing the deals? You don’t want an inefficient back office or broker. They have to raise the money in under 25 days or something is wrong.
FCW: Isn’t that a little harsh? Look at what happened in the uranium market after Fukushima.
Cox: Yes, and something was wrong. I didn’t say the broker is always at fault. But absent something unusual like that, when you see 30-plus days to close a deal, you know there is a good chance a brokerage firm is at fault and dropped the ball. We list every deal so you can quickly cross-reference the deal and decide who made the mistake.
You should also think about how much the brokerage cares about the commodity. In the case of a uranium project, you know that when uranium deals are a third of a bank’s business, it cares a lot about uranium. You look at the total book value of their uranium financings. How many dollars have they raised? Have they done the heavy lifting?
When you look at our chart for uranium financings you quickly get a sense of what the different brokers are doing.
FCW: How does Oreninc benefit from the data it collects?
Cox: We can look at our data and tell when a company can raise money and when it cannot. We see a lot of things that other people don’t. We are using the database to identify and build junior companies. We restructure companies that have structural issues, and help assets marry money.
FCW: What kinds of structural issues?
Cox: For example, a junior company has a copper property and a uranium property, but it is copper-focused and does not have the capital structure to develop the uranium. This makes the uranium what we call a “stranded” asset. We can assist in the development of the stranded uranium asset.
Last year we built a copper company in Nunavut. Commander Resources had gold-copper properties in British Columbia and the Yukon. They had the copper property in Nunavut as well. But they only had a market cap of about $14 million, and the Aston Bay property in Nunavut needed $10 million to progress. There was no way they could advance it without diluting out all their other assets, some of which were quite good.
The Aston Bay resource was world-class. If we look at 300 transactions we might find one or two we’re interested in doing business with per year. We cannot find ten good transactions in a year.
Oreninc formed a new company with Apex Geoscience Ltd. called Aston Bay Ventures, and then raised some of the money, put in the new management team and passed control on to them. We kept a small stake in it.
That’s how we came in and helped Commander restructure those assets. We did a fair job for everyone, and didn’t take a huge piece of the cake, and helped all parties do better in the future.
*The ODL total of $9.5 billion is $3 billion less than the $12.5 billion the TSX reports for mining sector financings in 2011. Several factors contribute to the discrepancy. The ODL does not include data from very large producers, which tend to raise funds in bigger financings than is usual for juniors. In addition the ODL numbers reflect only pure equity sales, whereas TSX hosts other kinds of financings, such as convertible debentures and shares for debt. ODL’s figures are particularly germane for the concerns of juniors.