My Dear Extended Family,
Why the Cluff deal is a Game Changer in the gold industry:
The scenario that gave comfort to hedge funds is the capital intensity of building a mine. That means all money in before profit out. The hedge funds believed by raiding the price of the shares of gold explorers and junior gold producers that they could strangle the company’s ability to raise funds free of major dilution, if at all. Unable to raise funds, the company would not be able take a property to the level of Definitive Feasibility where it is financeable by various industry standard methods free of the issue of significant common shares.
Hedge funds that undertook short and distort did so feeling they had no risk because they had crippled the company’s ability to finance. We are all familiar with the dirty tricks used, selling of good news and capping activities undertaken in order to keep the company from it historical financing methods.
Looking at the Cluff deal, the key elements to this game changer is the bypassing of the normal cash royalty company and raising significant money prior to Definitive Feasibility from a company not normally a financier of the mine development without dilution of any significant degree. Hedge funds beware! Your risk free game of destroying just got extremely risky, as gold begins its move to and above $3500 and non dilution financing is available, dependent on the property, before Definitive Feasibility, not the stock price. This is not a new way to structure a deal. It is the timing, size and source that distinguish it. Maybe Google might find this an interesting source for those billions in earnings?
1. Samsung is not your usual source of finance for the development of a mine.
2. Bakino Faso is ok, but not downtown Denver or Tokyo.
3. Cluff bypassed the normal lenders and financiers for minerals such as the gold royalty companies, international banks that specialize in mineral financing and quasi government lending institutions all that rarely will commit significant money to any project prior to a completed Definitive Feasibility Study and this is the KEY for your understanding.
4. Cluff vended a Gross Royalty Option limited in time to the financing entity as a small percentage of the gross gold sold as a sweetener to the cost of money.
5. Samsung has a return well above anything possible to find elsewhere with less risk than a junk bond inherently has.
This is bad news for the hedge funds who think they have killed good projects in developing nations by their short and distort tactic. This is bad news for the major royalty companies with projects in Africa, Cluff eliminated the normal route of cash producing royalty financing. This news is good news to those juniors with serious projects as they negotiated their own short term Gross Production Royalty agreement prior to having a Definitive Feasibility Study as a form of paying an attractive interest rate.
The key elements to this game changer is the bypassing of the normal cash royalty company and raising significant money prior to Definitive Feasibility from a company not normally a financier of the mine development without dilution of any significant degree. Hedge funds beware! Your risk free game of destroying just got extremely risky as gold begins its move to and above $3500 and non dilution financing is available dependent on the property, not the stock price.
The growing use of this method at that early time in a company’s history reverses the fundamental weakness that Hedge Funds took advantage of in the capital intensive business of developing major new gold mines for exploration and development companies as well as junior producers.
The formula for your understanding:
1. Significant money.
2. Prior to Definitive Feasability.
3. For a junior producer.
4. From a cash rich company not usual to mine exploration & development financing.
5. Not in the form of the cash royalty company as a middle man.