By James Kwantes
Published first at Patreon
Tough capital markets for juniors are a brutal Darwinian filter. It's never been easy to tell the bargains from the zeroes around TSXV bottoms – never mind identifying a bottom.
Cautiously though … with the index around 600 yet again and metals prices ascendant, this may not be a bad place to start looking.
Access to Capital
One historically reliable filter has been to focus on companies that find ways to find capital – rain or shine.
In late September, a junior mining CEO sold more than $2 million worth of stock in the company he runs. At a glance, it looked like the type of bad behaviour that resource speculators have become accustomed to from some Vancouver operators.
It wasn’t.
The seller was Jim Paterson (right), chairman and CEO of Brazil-focused platinum-group-metals play ValOre Metals (VO-V). Between Sept. 19 and 24, Paterson sold 33,653,100 ValOre shares at 6 cents, placing the stock into friendly hands, for proceeds of just over $2 million. He then spent $3 million to buy 40 million 7.5-cent units, each one consisting of a share and a full three-year warrant at 10 cents. ValOre raised $4.14 million in the financing.
Who got the better deal?
On the face of it, the trade-off math seems obvious. Incoming investors, sourced by Jim, decided to swap a three-year warrant for a 1.5-cent discount and free-trading paper.
You may think that by giving up the juicy warrant, incoming investors paid a steep price for liquidity. Digging deeper, though, the swappers got more than the mere elimination of the four-month hold. Barring a similar transaction in the future, Jim will likely never be able to sell his stock. Further, the majority of those warrants will be held by Jim – the stakeholder with the strongest incentive to see ValOre well-capitalized and successful.
With traditional mutual funds adopting ever greater restrictions on illiquid holdings, four-month-hold private placement money has become extremely scarce. It’s especially true because PGE explorecos are harder to finance than gold plays.
Swaps of this nature are one solution but investors’ willingness to participate here was likely a result of trust in management. Paterson was appointed CEO of predecessor Kivalliq Energy almost exactly 14 years ago; he’s unlikely to throw in the towel now. Of course, this kind of innovative swap could not occur without significant insider ownership.
Trust well-placed?
According to INK Research data, Paterson has put a net $6.15 million into ValOre over the past five years, in financings and public-market purchases. Previously, he was buying shares of both ValOre and predecessor Kivalliq – a uranium-focused spinout of Kaminak Gold – often at prices that were a multiple of ValOre’s current stock price. He has extended credit facilities on favourable terms to ValOre and run rights offerings. All in a bid to avoid dilutive financings.
The latest purchases give him 41.046 million shares, a 17.9% stake in the company. Few CEOs have that much skin in the game, and Paterson paid market prices for his shares.
Paterson and other shareholders watched the 2011 Fukushima nuclear meltdown kick Kivalliq to the curb. That has been followed by a vicious junior mining bear market that drove shares of successor ValOre further towards the bottom right.
ValOre bought its flagship Pedra Blanca platinum group metals project in 2018. Last year, the company sold its Angilak uranium project in Nunavut to Labrador Uranium and distributed those shares to VO shareholders (Labrador was renamed Latitude Uranium and early this year merged with uranium rollup play ATHA Energy (SASK-V).
Paterson got a taste for markets in elementary school when his father Del, a banker, gifted young Jim some Bank of Nova Scotia shares, he told me in an interview. Many years later, he would use those BNS shares to write covered call options.
It was a rather blue-chip start to a successful career in junior mining. Paterson and John Robins’ Discovery Group is one of the more successful Vancouver-based mining houses, logging takeouts including:
- Great Bear Resources, bought by Kinross for $1.8 billion
- Great Bear Royalties, bought for $200M by Royal Gold
- Northern Empire Resources, purchased for $117M by Coeur Mining
- Kaminak Gold, bought by Goldcorp for $520 million.
On Tuesday, ValOre announced positive assay and rock sample results from its Boa Vista target at Pedra Branca, including 5 metres grading 6.58 g/t palladium + platinum + gold from surface (incl. 2m grading 11.96 g/t 2PGE+Au). Pedra Branca hosts an Inferred resource of 2.2 million ounces platinum-palladium-gold grading 1.08 g/t in seven near-surface deposits.
Interestingly, platinum and palladium – those “other” precious metals – have yet to participate in the rally that has taken gold past US$2,700 an ounce. Platinum trades for about US$1,000 an ounce, within about $100 of five-year lows (not including the early-2020 COVID-19 plunge). Palladium trades at about US$1,020/oz, within a 5-year range of 900-2900.
Survival of the innovators
In a December 2023 interview with EarthLabs (SPOT-V) CEO Denis Laviolette, Paterson talked about the importance of executives aligning themselves with shareholders.
“As a group, (Discovery is) not about – hey, we’re going to stick our big hose up to your treasury and suck all the money out. … It’s necessary sometimes in tough market conditions, to say, ‘Look, I’m right with you, I’m shoulder to shoulder with you as an investor, as an owner of this deal.’ ”
In this junior mining market, it’s “survival of the innovators.” By placing large blocks of stock into friendly hands and then backstopping most of the financing, Paterson has turned ValOre from capital-starved to well-financed at what looks a lot like a market bottom. Judging from volume since the financing closed on October 8, speculators have taken notice.
ValOre Metals (VO-V, KVLQF-OTC)
Price: .085
Shares out: 229 million (71M fully diluted)
Market cap: $19.5 million
Disclosure: I own ValOre Metals shares, purchased in the public market. No business relationship with any company mentioned.
