While Chad Williams was chief executive of Victoria Gold Corp. (VIT-V) the company was looking to acquire an advanced project. The board, however, was split on what to do.
“It was a big asset that could have been a game changer,” Williams says, “and it was hard to get a consensus.”
Williams wanted to review the acquisition with someone outside of the four walls of the firm, but due to the sensitive nature of the information he or she would have to be under a confidentiality agreement, be neutral, and be intimately knowledgeable of Victoria and the acquisition target. Finding someone that met all those criteria was an impossible task, especially for a CEO with so much on his plate.
Victoria eventually decided to make the acquisition, and merged with StrataGold to gain Victoria’s current flagship Dublin Gulch property. But the experience made an impression on Williams and now, a few years on, he is doing something about it.
As the founder of Red Cloud Mining Capital, Williams has created a company that aims to break the hermetic seal that can form around a mining company’s executive suite and in the process provide a bridge from head office to Bay Street.
“Mining companies are focused on managing their drill program or their employees or any number of other day-to-day issues,” he says, “but meanwhile, Bay Street is running a million miles an hour. To be successful a company needs to know what brokers and institutions are looking for, and which ones are worth developing relationships with.”
Such a statement would lead most curious mining executives to ask just how, specifically, would Red Cloud build such a bridge. And because filling such a role does mean the company has to provide a comprehensive suite of services, concretely defining what the company does has been a challenge.
“We’re not a broker, we’re not an investor relations firm and we’re not a fund,” Williams explains. “What we are is a link between all of them. You can see us as a facilitator — an extension of management.”
In the world of construction, Red Cloud would be filling the role of the general contractor, liaising between all the parties that are needed to get the building done on budget and on time.
It’s a business model that is particularly timely, given the anemic state of equity markets. The well heeled team assembled at Red Cloud — the top three executives at the company, including Williams, are all engineers with extensive Bay Street backgrounds — are well positioned to make things start to happen for a junior that has been floundering under such tough conditions.
“For a mining company, when they need money, failure is not an option,” Williams says from the company’s boardroom in downtown Toronto. “But we’ve seen many situations where mining companies weren’t intimately aware of which brokers were active given a certain deal size or commodity….brokers will all claim good execution but which ones really do? I know the brokers that are functional and the ones that are dysfunctional. I also have deeply rooted relationships that will put our clients to the front of the line with those groups best suited to provided financing.”
“We’re aiming to be the first stop for companies when they land in Toronto, because all too often company executives aren’t intimately familiar with the mining sector’s capital markets in Canada – in fact, many don’t even realize that their current relationships aren’t with the best groups,” Mac Bell, Red Cloud’s vice president adds. “If you’re a mining company executive and you come to Bay Street, you don’t know who the top guys are for your deal and moreover it’s too time consuming and challenging to constantly keep on top of the capital markets. Mining companies often don’t realize that the firms they’re working with could possibly wind up hurting them. That’s where we come in – we make sure they get the right analysts following their story, for example, and get financing through the right bankers and investors.”
Even for companies that feel they have the right relationship set up with a traditional broker dealer, there are points to consider. A traditional broker is deal oriented and that can make them short-term focused with a bias towards protecting their own interests.
Red Cloud’s business model, however, is based on forging long term relationships with the companies it partners with. Such an alignment of common interests avoids the conflict of interests that traditional broker dealers may have between issuers and the buy side.
Some of the key names that Red Cloud currently has teamed up with include: NuLegacy Gold (NUG-V), Austral Gold (AGD-A), and Temex Resources (TME-V).
The locations of their clients’ head offices are as divergent as their stages of development, and that is exactly as Red Cloud wants it.
“We are looking for companies with different commodities, at different stages and in different jurisdictions,” Williams says. “I see it like a bond portfolio, where you want to have assets with different maturities.”
And there’s another benefit to Red Cloud forging close ties with the companies in its portfolio: it opens up the doors at the funds that make the big equity purchases.
“Funds like us because we are more married to the companies we are presenting to them as opposed to just dating them,” Williams says. “It puts more weight behind the story when you have your own money invested in it and we wouldn’t ask someone to invest unless we put our own money in.”
Of course the fact that Williams himself has plenty of street credibility plays its part in capturing portfolio managers’ interest.
Before taking the reins at Victoria, Williams worked as an investment banker, where he helped arranged the financing for Virginia Gold Mines’ Eleanor gold discovery and as a research analyst, where he was the first on the Street to pick up coverage on Ivanhoe Mines.
Some of that experience and depth of contacts recently paid off for Temex Resources. The company signed up with Red Cloud in December of last year and after Red Cloud presided over a re-branding and re-focused its marketing campaign, the company secured an oversubscribed private placement that raised proceeds of $8.9 million.
A lofty sum for a junior at a time when many other mining executives can be heard saying that in the current environment, equity financings are next to impossible.