Securing financing is a key milestone for junior mining companies to progress their projects from exploration through to production.
US Gold Corp (NASDAQ:USAU) CFO Eric Alexander joined Proactive’s Steve Darling to share his insights into the project financing process, touching on the opportunities and challenges presented by different funding avenues including traditional equity, project debt, and federal or state grants.
Proactive: Talk us through the different ways junior mining companies can finance projects.
Alexander: There are three categories and they’re not really independent of each other. There are traditional equity, debt, and federal/state grants or even loans.
That’s usually the maximum of what’s available for junior mining companies which don’t have a big balance sheet sitting there with a lot of cash in their treasury.
Let’s talk about the third one first and work our way backwards. There are governments in Canada, the US and other parts of the world that are looking to move along mining projects – are companies doing their due diligence and trying to hit those grants as hard as they can?
Copper, for example, just made the critical minerals list in 2023 for the United States so there is the potential for money to be there.
With our project in Wyoming, a gold and copper reserve, with copper on the critical minerals list there’s definitely interest in locally sourced materials.
Let’s talk about debt now. Companies and their projects have value, so is that where the debt comes from?
When I talk about debt, I am specifically referring to project financing debt, so debt at the project level. There are a couple of different categories. There are big institutional banks that can lend money or private equity firms.
There are also original equipment manufacturers (OEMs) who will potentially supply the necessary equipment for the construction of a plant who have the ability to guarantee loans through their sovereign wealth funds.
There are even commodity traders. In this scenario, companies can sell forward a certain amount of material and have cash upfront to finance their project.
Let’s talk about the first bucket, traditional equity.
Traditional equity, the issuance of common stock, is the hardest and has the biggest disadvantage for companies of our size. For junior mining companies, the overall market capitalization is potentially lower than the amount you are trying to finance for a project.
To get that financing through the issuance of equity, you’re potentially causing severe dilution to your existing shareholders.
There’s also an avenue whereby some of these larger mining companies will make an equity investment in the company with a royalty structure, joint venture or merger.
Let’s talk about US Gold. A lot is going on in 2024 for the company.
At US Gold our primary focus is on our asset in southeast Wyoming which is just outside Cheyenne called the Copper King project. We’ve got a copper and gold reserve with 1 million ounces of gold and 248 million pounds of copper. That’s from our pre-feasibility study published in late 2021 and we’ve been going through the permitting process.
The one really unique feature of this project is that we are entirely on the state of Wyoming and private land, so we don’t have the involvement of the United States government. So, all of our permitting is through the state of Wyoming and that’s been advantageous.
Quotes have been edited for style and clarity