Development and Production of a Mining Company Project

Let’s now suppose that our exploration program has found a major mine. Production is justified at a rate of 1,500 tonnes per day. ABC Mines may still have a million shares in the treasury, and per perhaps a small cash balance. But it is now faced with the problem of raising something like $60 million for the construction of a major mine and miII.

ABC Mines is not as risky an investment anymore; it has ore in the ground and a good chance of making money. This gives the company more ways to finance the development of the mine.

In rare cases, it may be possible to raise a substantial part of the money the company needs by selling the million shares remaining in the ABC treasury. Market conditions and patterns of investor behavior at the time may be such that the sale of these shares, together with a bond or debenture issue, may fit the bill. There are other possibilities: for example, it may be possible to combine equity with debt financing.

Often, however, it will be necessary to create a large number of new shares. The simplest way to do this is to reorganize the company. In this case, a new company, New ABC Mines Corp., will be formed. It will have its own share capital structure and its own identity separated from that of its predecessor.

The property and assets of Monty Mines will be transferred to New ABC Mines in exchange for some agreed portion of the New ABC shares, to be distributed among the equity holders of the older company. These shares in turn may also be pooled or placed in escrow in the same way and for the same reason described above.

New ABC Mines then sets out o sell its shares through an underwriter. If our example is as good as we set out to make it, New ABC ilI be able to raise the necessary funds to bring its find into production.