A mining company’s past projects and funding strength are interlinked, and can provide clues as to its potential success.

A good track record can provide better opportunities to raise capital, but the company must still ensure it times its financing with the market, protects its shareholders, and demonstrates value creation from the funding it receives.

Part 5: The Role of Funding Strength

We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.

Part 5 of the series highlights six things to keep in mind when analyzing a company’s project history and funding ability.

View all five parts of the series:

• 1. Common mistakes made with the team
• 2. Common mistakes made with the business plan
• 3. Common mistakes with the jurisdiction of the project
• 4. Common mistakes with the project and technical risks
• 5. Common mistakes with raising money

Part 5: Raising Capital and Funding Strength

So what must investors evaluate when it comes to funding strength?

Here are six important areas to cover.

1. Past Project Success: Veteran vs. Recruit

A history of success in mining helps to attract capital from knowledgeable investors. Having an experienced team provides confidence and opens up opportunities to raise additional capital on more favorable terms.

Veteran:

• A team with past experience and success in similar projects
• A history of past projects creating value for shareholders
• A clear understanding of the building blocks of a successful project

A company with successful past projects instills confidence in investors and indicates the company knows how to make future projects successful, as well.

2. Well-balanced Financing: Shareholder Friendly vs. Banker Friendly

Companies need to balance between large investors and protecting retail shareholders. Management with skin in the game ensures they find a balance between serving the interests of both of these unique groups.

Shareholder Friendly:

• Clear communication with shareholders regarding the company’s financing plans
• High levels of insider ownership ensures management has faith in the company’s direction, and is less likely to make decisions which hurt shareholders
• Share dilution is done in a limited capacity and only when it helps finance new projects that will create more value for shareholders

Mining companies need to find a balance between keeping their current shareholders happy while also offering attractive financing options to attract further investors.

3. A Liquid Stock: Hot Spot vs. Ghost Town

Lack of liquidity in a stock can be a major problem when it comes to attracting investment. It can limit investments from bigger players like funds and savvy investors. Investors prefer liquid stocks that are easily traded, as this allows them to capitalize on market trends.

Hot Spot:

• A liquid stock ensures shareholders are able to buy and sell shares at their expected price
• More liquid stocks often trade at better valuations than their illiquid counterparts
• High liquidity can help avoid price crashes during times of market instability

Liquidity makes all the difference when it comes to attracting investors and ensuring they’re comfortable holding a company’s stock.

4. Timing the Market: On Time vs. Too Late or Too Early

Raising capital at the wrong time can result in little interest from investors. Companies in tune with market cycles can raise capital to capture rising interest in the commodity they’re mining.

Being On Time:

• Raising capital near the start of a commodity’s bull market can attract interest from speculators looking to capitalize on price trends
• If timed well, the attention around a commodity can attract investors
• Well-timed financing will instill confidence in shareholders, who will be more likely to hold onto their stock
• Raising capital at the right time during bull markets is less expensive for the company and reduces risk for investors

Companies need to time when they raise capital in order to maximize the amount raised.

5. Where is the Money Going? Money Well Spent vs. Well Wasted

How a company spends its money plays a crucial role in whether the company is generating more value or just keeping the lights on. Investors should always try to determine if management is simply in it for a quick buck, or if they truly believe in their projects and the quality of the ore the company is mining.

Money Well Spent:

• Raised capital goes towards expanding projects and operations
• Efficient use of capital can increase revenue and keep shareholders happy with dividend hikes and share buybacks
• By showing tangible results from previous investments, a company can more easily raise capital in the future

Raised capital needs to be allocated wisely in order to support projects and generate value for shareholders.

6. Additional Capital: Back for More vs. Tapped Out

Mining is a capital intensive process, and unless the company has access to a treasure trove, funding is crucial to advancing any project. Companies that demonstrate consistency in their ability to create value at every stage will find it easier to raise capital when it’s necessary.

Back For More:

• Raise more capital when necessary to fund further development on a project
• Able to show the value they generated from previous funding when looking to raise capital a second time
• Attract future shareholders easily by treating current shareholders well

Every mining project requires numerous financings. However, if management proves they spend capital in a way that creates value, investors will likely offer more funding during difficult or unexpected times.

Wealth Creation and Funding Strength

Mining companies that develop significant assets can create massive amounts of wealth, but often the company will not see cash flow for years. This is why it is so important to have funding strength: an ability to raise capital and build value to harvest later.

It is a challenging process to build a mining company, but management that has the ability to treat their shareholders and raise money can see their dreams built.

The 25 Largest Private Equity Firms Since 2015

Frequent the business section of your favorite newspaper long enough, and you’ll see mentions of private equity (PE).

Maybe it’s because a struggling company got bought out and taken private, just as Toys “R” Us did in 2005 for $6.6 billion.

Otherwise, it’s likely a mention of a major investment (or payout) that a PE firm scored through venture or growth capital. For example, after Airbnb had to postpone its original plans for a 2020 initial public offering (IPO) in light of the pandemic, the company raised more than $1 billion in PE funding to plan for a new listing later this year.

Yet many people don’t fully understand the size and scope of private equity. To demonstrate the impact of PE, we break down the funds raised by the top 25 firms over the last five years.

How Private Equity Firms Operate

First, we need to differentiate between private equity and other forms of investment.

A PE firm makes investments and provides financial backing to startups and non-public companies (or public companies that are being taken private).

Each firm raises a PE fund by pooling capital from investors, which it then uses to carry out transactions such as leveraged buyouts, venture and growth capital, distressed investments, and mezzanine capital.

Unlike other investment firms such as hedge funds, private equity firms take a direct role in managing their assets. In order to maximize value, that can mean asset stripping, lay-offs, and other significant restructuring.

Traditionally, PE investments are held on a longer-term basis, with the goal of maximizing the target company’s value through an IPO, merger, recapitalization, or sale.

The List: The Most PE Funds Raised in Five Years

So which names should you know in private equity?

Here are the largest 25 private equity firms by their five-year PE fundraising total over the last five years, with data on funds and investments from respective firms and Private Equity International.

They include well-known private equity houses like The Blackstone Group and KKR (Kohlberg Kravis Roberts), as well as investment managers with private equity divisions like BlackRock.

Most of the world’s top PE firms, including TPG Capital (which invested in Ducati Motorcycles, J. Crew, and Del Monte Foods) and Advent International (an early investor in Lululemon Athletica) are headquartered in the U.S.

In fact, of the largest 25 private equity firms in the last five years, just four are headquartered in Europe (CVC, EQT, Cinven, and Permira) and one in Asia (Hillhouse).

Another name that might be recognizable is Bain Capital, which was co-founded by Utah Senator and former Republican Presidential nominee Mitt Romney and found success with investments in AMC Theatres, Domino’s Pizza, and iHeartMedia.

Famous Private Equity Investments

One of the most surprising things investors discover about private equity is how many large organizations have been funded through the PE world.

More well-known investments include KKR’s $31.1 billion takeover of food and tobacco conglomerate RJR Nabisco in 1989, and Blackstone’s $26 billion buyout of Hilton Hotels Corporation in 2007.

But other well-known companies have been funded, saved, or restructured through private equity. That list includes grocery chain Safeway, fast food chain Burger King, international racing operator Formula One Group, and hotel and casino company Caesars Entertainment (then called Harrah’s Entertainment).

Many other notable investments could soon pay off for private equity. With IPOs back in season, tech companies like Airbnb and Epic Games are ripe for payouts. At the same time, restructuring companies like J. Crew and Chuck E Cheese’s always offers a chance to recapitalize.

With the COVID-19 economic downturn resulting in newly distressed companies and potential takeover targets, expect the private equity world to be very active in the foreseeable future.