PDAC-Mining investment more science than gamble, banker says

TORONTO, March 5 Mon Mar 5, 2012 3:06pm EST

TORONTO, March 5 (Reuters) - Mining investment is about betting on the team behind a project as much as on the project itself, according to the head of a boutique investment bank that has backed some of Canada's biggest mining firms.

Mike White, chief executive at investment bank IBK Capital, says due diligence is the key, and IBK offers a list of success stories to prove his point.

"I always get very upset when people call investing in junior exploration akin to buying a lottery ticket because that couldn't be further from the truth," said White, whose Toronto-based company is a major sponsor of the annual Prospectors and Developers Association of Canada conference.

"You are buying into a management team, you're buying into a number of projects whose merit is based on the work that's been done in the past and on the work that a management team is doing."

Bankers expect aggressive deal-making at this year's PDAC as junior explorers seek to take advantage of new optimism in equity markets after a near-drought in the second half of 2011.

A small player in the world of multibillion-dollar mine finance, IBK is one of the more successful independent financing firms in Toronto. Created by a group of investment bankers from Merrill Lynch in 1989, it has helped raise early-stage development capital for some of Canada's largest mining companies.

Top of the list of successes is Goldcorp Inc, now Canada's No. 2 gold miner, which grew from humble roots as a closed-end fund to its current market cap of some C$40 billion.

A wall of plaques in IBK's Toronto offices commemorates other companies IBK has helped turn into full-blown miners, including Western Goldfields, Capital Gold, US Gold and Detour Gold.

The original investors in Detour Gold bought into the company, then called Pelangio, in a 2000 private placement at 10 cents a share, meaning they would have made a 270-fold profit on their investments at today's stock price of about C$27 a share.

Shareholders who got in at the 2007 IPO price of C$3 a share would be up nine-fold on their original investment.

"If you are dealing with a good management team, they'll stick with it, they'll figure it out," said White, who took over IBK from his father in October 2010. At age 40, he is one of the youngest CEOs among Bay Street's mining industry bankers.

Among the teams IBK is betting on these days is the one at RX Exploration, a Toronto venture exchange-listed company that owns the Drumlummon Mine in Montana.

Once owned by the Rothschild family but abandoned by them amid a legal dispute a century ago, the gold mine was mostly forgotten until a group of miners started pulling the leases back together in recent years.

"They came to us just after they had accumulated all the claims," said White, who also invests in the companies he raises capital for.

RX plans to use Drumlummon to build a much larger mining company, with production of 300,000 oz of gold a year by 2015.

"Will they achieve that? Well they are a great team to make that happen," said White. "Let's give them time. I'll give them time. And I'll buy when I think the stock is cheap, and maybe I'll sell a little bit when it runs."