A few years ago when Chad Williams was CEO of Victoria Gold (VIT-V), the company was looking to acquire a particular 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 had wanted to dig into the details of target asset with someone from outside his own firm, but the sensitive information would require a confidentiality agreement, neutrality and intimate knowledge of Victoria and the acquisition target. Finding someone who met those criteria turned out to be impractical at the time.
However, Victoria eventually made the acquisition, and merged with StrataGold to gain what is today Victoria’s flagship Dublin Gulch property.
But the experience made an impression on Williams, and he’s doing something about it. As founder of Red Cloud Mining Capital, he has created a company that aims to break the hermetic seal that can form around a mining company’s executive team, and 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 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.”
Mining executives might ask how exactly Red Cloud would build such a bridge.
“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 an extension of management.”
In the world of construction, Red Cloud would serve as the general contractor, liaising between all the parties needed to get a 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 in a good position to make things happen for a junior that has been floundering in rough waters.
“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 what brokers were active in a certain deal size or commodity . . . brokers will all claim good execution, but which ones really do? I know which brokers are functional and which ones are dysfunctional. I also have deeply rooted relationships that will put our clients to the front of the line with those best suited to provided financing.”
Red Cloud vice-president Mac Bell says the firm aims to be the first stop for companies when they land in Toronto.
“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,” Bell says. “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 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 focused on the short-term, with a bias towards protecting their own interests.
Red Cloud’s business model, however, is based on forging long-term relationships with its partners. This alignment 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 has teamed up with include NuLegacy Gold (NUG-V), Austral Gold (AGD-A) and Temex Resources (TME-V).
The locations of their head offices are as divergent as their stages of development, and that is exactly the way Red Cloud wants it.
“We want 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 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 in our own money.”
Williams also has plenty of street credibility, which plays a part in attracting portfolio managers.
Before taking the reins at Victoria, Williams worked as an investment banker and as a research analyst, where he was the first on the street to pick up coverage on Ivanhoe Mines.
His experience and depth of contacts has paid off for Temex — the company signed up with Red Cloud last December, and after Red Cloud presided over a rebranding and refocused Temex’s marketing campaign, the junior secured an oversubscribed private placement that raised $8.9 million.
It’s a tidy sum for a junior at a time that equity financings for other mining executives seem next to impossible.