BECOMING AN ENTREPRENEUR
Making the Sausage Starting the companies was relatively easy. My partner
had access to a securities lawyer and an accountant, and we incorporated the companies in British Columbia. Next, the company needed to be capitalized. The initial funding was offered to friends and family along with the principals. A sec- ond seed round was offered to several resource-focused funds. Initially, Company B raised CDN$1 million.
The cost of working toward a Canadian IPO is roughly CDN$400,000 for legal fees, various listing and exchange fees, audited financials and a National Instrument 43-101 Technical Report (“NI43-101”).
What is a NI43-101?
“NI43-101 is a national instrument for the Standards of Disclosure for Mineral Projects within Canada. The Instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges within Canada.”
The NI43-101 was created following the Bre-X scandal
to protect investors from unsubstantiated mineral project disclosures.
In March 1993 and October 1995, Bre-X Minerals Ltd.,
a Calgary based, Toronto Stock Exchange listed company announced that significant amounts of gold had been discov- ered at its Busang property in Kalimantan, Indonesia. The company’s stock price went from mere pennies to CDN$286.50 on a split-adjusted basis as claims of gold reserves of 200 mil- lion ounces were reported. In May 1996, the company’s market capitalization was over CDN$6Billion.
• is in good standing with a professional association and, in the case of a foreign association, is of recog- nized stature within that Organization.
The requirement for a Qualified Person in the NI 43-101 is different from that required by the The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), and the South African Mineral Reporting Codes (SAMREC and SAMVAL Codes), wherein the person must have 5 years’ experience relevant to the deposit type or style of mineralization but is otherwise similar in terms of who may or may not sign off on such a document.
The Qualified Person must declare whether a qualified person has verified the data disclosed, including sam- pling, analytical and test data underlying the information or opinions contained in the written disclosure; a descrip- tion of how the data was verified and any limitations on the verification process; and an explanation of any failure to verify the data.”
As a Certified Professional Geologist within AIPG, you are
a qualified person for the purposes of NI43-101; however, if you are an officer, director or related party of a company, you need an independent, third-party qualified person to write the first technical report for your qualifying property.
Before you do your IPO, your company needs audited financials, a title opinion from your US legal counsel, and a NI43-101 technical report from your qualified person. All of this information is sent to your securities lawyer to complete the prospectus. Now the fun starts.
I remember Placer
Dome offering to complete a “Merger of Equals” in January 1997, but later that year, Bre-X Minerals’ stock collapsed after salting of the samples was uncovered, and the gold values were found to be a fraud - there was no gold. It was an epic scandal and changed the industry for the good. The 2017 movie “GOLD” starring Matthew McConaughey dramatized the scandal; however, a truer account is available in print and titled, “Bre-X: Gold Today, Gone Tomorrow”, published by The Northern Miner.
The N143-101 requires that the information be vouched for by a “qualified person.”
“The Qualified Person, in the spirit of the National Instrument, is required to be a reputable professional who is knowledgeable of the mineral property concerned, and who has sufficient experience and qualifications to make the statements which are made within the report. Often the Qualified Person need not be the author of the report, but in attributing the report as being compliant with the National Instrument, they are vouching for it. This is a matter of professional integrity and carries legal risk, as misleading statements can result in legal sanctions in Canadian and other jurisdictions.
A qualified person is defined in the National Instrument as:
• an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these;
• one who has experience relevant to the subject matter of the mineral project and the technical report; and
Heading Out on the Road Show At Placer Dome, I would meet my boss and colleagues at
least three times per year at some location within one of our regions, and we would hash out priorities, budgets and person- nel. Projects that were not meeting their objectives were cut, and the funds re-directed to projects that were advancing. It was cut throat and demanded good information and a clear purpose to get the money. The process of finding a brokerage firm, setting the IPO price and going on a road show is similar. Getting money from people you don’t know is hard work. The story has to be crisp, clean and new. Investors want to know what the vision is, who the people are (people are important), where it will happen, and finally, what is the project. Investors bet on the jockey, not the horse.
So with presentation in hand, you learn your story very well
as you will likely repeat it every hour on the hour between 7 and 10 times a day during your road show. By the end of the day, you will be tired of listening to yourself but you must remain upbeat and fresh. The last meeting of the day is the hardest presentation to give. Everyone watches the clock because beer-thirty is next. However, on one road show when raising funds to purchase a Nevada mine, my last meeting of the day turned out to be the most successful, although it had a very rough start. I walked out of the meeting with my lead order – CDN$10 million ($10 million down, only $30 million to go).
One important learning from this process is that when investors say call me next week, they are not interested in investing in your company. I found that the people who were interested committed the same day.
Spreading the News
New companies are judged initially by their management. Investors expect you to execute on your vision and be trans- parent about your findings. Most investors know that your venture is high risk and if successful, high reward. You need
54 TPG •
Jul.Aug.Sep 2019
www.aipg.org
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