When mining exploration tanked in 2015 and junior miners struggled to keep the lights on, Keith Neumeyer, president and CEO of Vancouver-based First Majestic Silver decided it was a perfect time to start scooping up companies with attractive properties.
Conceived as “a mineral bank,” First Mining Finance today boasts a portfolio of 25 properties in North America, including four gold properties in northwestern Ontario.
Springpole was acquired from Gold Canyon Resources, Cameron from Chalice Gold Mines, Pickle Crow from PC Gold and Goldlund from Tamaka Gold.
“When we put the company together in early 2015, it was a very challenging market,” recalled First Mining Finance president Patrick Donnelly.
“There were other groups trying to do what we were doing, but it’s one thing to say it. It’s another thing to do it. Even we had challenges trying to get it off the ground.
“The main challenge was just trying to raise money. It took us a while to raise our first $5 million. It was a bear market. On top of that, just when we started was when oil collapsed, so it was very challenging. People agreed we were at the bottom of the market, but the issue was how long we would continue to drag along the bottom until a recovery.
"There was a very negative sentiment toward mining because so many people had lost money. They’d almost given up on the sector, but once we raised the money, we were off to the races. “We had a plan in place, a list of targets and a strategy about how we were going to go after them.”
Junior miners struggling to stay alive wanted to know there was some upside to selling out and lowball cash offers wouldn’t swing it. Strong leadership was key, said Donnelly.
“These companies wanted to make sure they would be in good hands and someone like Keith, who has created value and has a good track record, opens a lot of doors.”
Neumeyer’s First Majestic Silver operates six silver mines in Mexico and boasts market capitalization of $2 billion.
First Mining Finance ultimately raised $5 million and with funds held in escrow, came out of the gate with more than $7 million, “but when we did these deals, we didn’t use cash,” said Donnelly.
“We used our shares. Private equity groups were also hunting for assets, but they were using cash. What made us attractive is the fact that the shareholders of these companies could still participate in the upside by having the shares.”
The acquisition of Gold Canyon Resources and its Springpole property, for example, valued the Gold Canyon’s shares at 35 cents, noted Donnelly.
“A private equity company we were competing with was offering 35 cents cash, but if your cost base is $2, would you take the 35 cents cash, crystallize your losses and walk away with a big haircut or would you take 35 cents in First Mining Finance shares and still have the potential to recoup your losses and maybe make some money?”
By the summer of 2016, the market changed. Gold prices went up and money was easier to raise, but deals were harder to come by.
“We needed to demonstrate to the market that the assets we acquired are high quality, and the best way to do that is to put money in the ground,” said Donnelly.
Flush with $35 million cash, First Mining Finance turned its attention to drilling, resource estimates, and economic studies, approving a $21- million exploration budget for 2017.
“We’ll advance them up to the point of mine development, but we’re not interested in putting them into production,” said Donnelly.
“The goal is to enter into agreements with third parties and hold onto some residual interest through royalty streams, joint ventures, minority interests or equity positions.”
First Mining Finance had a keen interest in Ontario. “It’s just a great province,” said Donnelly. “Our focus is the Americas and the U.S. is very challenging in terms of permitting. Ontario is a major gold producer, hosts a lot of world-class gold assets and is highly prolific. Northern Ontario is a mining jurisdiction, with good support, technical people and great geology. I have met all the First Nations in the area. I handle that aspect personally and as soon as we do a deal, we approach the First Nations. We hire as many as possible and we offer them training. We want to make a positive contribution and try to do the right thing.”
Donnelly is optimistic about gold.
“I’m not one of those people predicting a $2,000 gold price. There haven’t been any major discoveries in many years, so gold supply will continue to go down, along with head grades. In terms of catalysts going forward, there’s a lot of global uncertainty and gold tends to thrive in uncertain times, especially with Donald Trump promising to rip up trade agreements and picking fights with the Chinese and the Iranians.
“If gold went up to $1,300 or $1,400, that would be great for mining. The Canadian dollar at 75 cents is also very good. That’s another reason why we like Ontario. Even if gold stays where it is now, it’s very good for Canadian producers.”