The 3 People Every Junior Mining Company Needs on Their Management Team
Most junior mining companies will fail, and the success of a mining company is largely dependent on the management team. A strong team with focus and a solid business plan is set up for success. Strong management teams communicate clearly with investors and are focused on future profitability.
As an investor, you want to make sure a company’s management team is competent before making investment choices. But what defines a good management team? Below, we’ve identified the three key players every junior mining management team needs to be successful.
Team members with relevant experience
In order for a junior mining company to be successful, the management team must have relevant experience. Relevant experience is experience directly related to the junior’s project.
Understand what the company’s goals are - are they exploring for undiscovered deposits, or are they acquiring an existing project or mine - and make sure the team members’ experience is the right fit. A good team is well-rounded, with the necessary geologic, engineering, financial and legal talents.
1. Relevant jurisdictional experience
Teams who are familiar with local permitting, infrastructure and community relations are more likely to be successful.
2. Relevant geological experience
Teams who have previous experience with the commodity can determine if the resource is present and if it can be economically extracted.
3. Relevant engineering experience
Teams who have experience operating a similar mine will be able to keep the project on track and address any engineering or operational issues.
Teams who have experience with their commodity will have connections with potential financiers and business partners.
1. Management teams who have no experience in the mining industry!
It may sound stupid, but in the last bull market there were several that came through the door. Expect more this time around.
2. Team members who don’t have experience with juniors.
The budgets and operations of a major mining company are different from those of a junior. Often useful as NEDs, big company execs often do not necessarily work well as managers of junior companies. It takes years to reprogramme someone!
3. Teams who only have exploration experience and no experience opening a mine.
Fine for exploration, but not for building a mine.
Team members with previous success
Investing in a company who has never opened a mine or provided returns for shareholders is a huge risk, if the company is attempting to open a mine. Management teams who have been successful in the past are far more likely to do it again. Companies who have successfully opened mines and funded projects in the past, even in challenging markets, are set up for success.
1. Team members who have opened a mine
Companies who have the technical, financial and operational experience of opening a mine are far more likely to successfully open another mine.
2. Team members who have successfully exited
The goal of most juniors is to develop a property, open a mine and sell it. Companies who have done this one are well-equipped to do it again.
3. Team members who deliver on promises to investors
Companies who have a history of delivering results to shareholders on time will likely continue to meet expectations. This is KEY, and it is called integrity. It works for exploration companies through to production companies, but avoid an exploration guy trying to carry over a track record of delivery in his core skill set to a new area such as production or development.
4. Team members focused on future profitability
Management teams should focus on continuing to secure financing, managing expenses and generating profits for shareholders. These are the commercial brains in the group - very important!
Good companies will be transparent with their financial records and honest with shareholders.
1. Management teams with no prior success building and/or selling a mine.
2. Team members - especially CEOs - with bad reputations.
Avoid teams with excessively high salaries and expenses, and teams who lack integrity. It may sound obvious, but it is important.
3. Companies without a business plan or focus.
A management team who is developing multiple, unrelated assets or has too many assets will have difficulty opening a mine and delivering results to shareholders.
Team members with a stake in the company
It’s a good sign when at least some of the management team owns a large stake of the company. When team members have ‘skin in the game’, the company’s outcome directly affects them.
During the exploration phase, it is critical for some or all of the management to have a stake in the company, so the company can grow and attract institutional and retail investors. Management ownership shows that the team believes the project will be successful.
1. Teams with vested interest in the company.
They are more likely to make good decisions for the company and thus, good decisions for shareholders.
2. Teams who use shareholder money responsibly.
When the management team’s money is at stake, they are more likely to use the money responsibly by growing the company and getting work done.
1. Team members who only have stock options.
Options can be re-priced and it won’t affect the team if the share structure is diluted.
2. No management ownership in the company.
How to evaluate a management team
Now that you know who to look for on a junior mining company’s management team, how do you evaluate the team members? First, research the team members’ backgrounds. Read about their previous work experience to understand if it’s relevant, particularly to a junior miner. Look for experience opening a mine, working with similar ore deposits/commodities, and in similar jurisdictions.
Next, research team members’ previous companies. Did their companies deliver results to shareholders? Did they follow through on promises? Look for companies with a proven track record of honesty and success.
Strong management teams are well-rounded, experienced, and focused. They work together to build mines and provide returns for shareholders. Success depends on the management team, so don’t make an investment decision without reviewing the management team first.