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Leading precious metal projects getting the 'big bucks' in recent financings

Precious metal mining projects have seen an influx of significant financings in recent weeks with veteran investors lending their weight to deals backing advanced-stage precious metal plays as higher gold prices help pique market interest, analysts and veteran investors have said.

"The stuff that's getting financed is, I think, most of the stuff that deserves to get financed," Sprott U.S. Holdings Inc. President Rick Rule said in an interview.

In late March, Orla Mining Ltd. announced a C$75 million financing to fund its Camino Rojo gold project in Mexico with the backing of Newmont Corp., Agnico Eagle Mines Ltd. and Pierre Lassonde, chairman of Franco-Nevada Corp. In mid-April, SilverCrest Metals Inc. pulled the trigger on a C$101.0 million financing to fund its Las Chispas silver-gold project in Mexico, and in a related transaction, SSR Mining Inc. exercised equity participation rights in a C$27.0 million private placement and agreed to sell the shares to mining entrepreneur Eric Sprott.

Sprott also backed MAG Silver Corp. as it announced a C$60 million financing April 27 to help fund its 44%-owned Juanicipio silver project in Mexico. And on April 23, Bluestone Resources Inc., a company backed by Lundin Gold Inc., announced an C$80 million bought-deal financing to fund its Cerro Blanco gold-silver project in Guatemala.

"I don't see people just willy-nilly raising funds for marginal projects," Exploration Insights partner Joe Mazumdar said.

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Mining investors Mazumdar and Rule, along with others S&P Global Market Intelligence spoke or corresponded with including Eric Coffin of HRA Advisories and Kai Hoffmann, CEO of financing-tracker Oreninc, said recent funding deals were clearly targeted at advanced-stage projects.

"The development companies are all raising the big bucks right now," Hoffmann said.

Christopher Galbraith, a Market Intelligence gold mining analyst, took a similar view, noting that gold stands out as a relative bright spot in the mining sector. "It wouldn't be surprising to see more large financings for gold assets, which could be appealing to potential investors with gold around US$1,700 per ounce," Galbraith said.

The financings also highlight a sector where investor interest looks to be picking up, Rule and Coffin said. Coffin said CEOs of mining development companies told him they were getting more calls from generalist funds this year, whereas the same contacts had recently been difficult to get in touch with for meetings. Coffin also noted that it looked like stock trading volumes in development plays had picked up in 2020.

"We're seeing the leading edge of generalist money," Coffin said.

Generalist funds tend to take a greater interest in the gold sector when earnings boom as the price of gold climbs, veteran investors said. Money typically flows to larger miners first, meaning companies such as Newmont and Barrick Gold Corp., but eventually, generalists begin to look for bargains in smaller miners and development plays. In a sector that is tiny compared to the broader stock market, the influx of cash from larger funds can have an outsized impact on share prices, Rule and others noted.

"The progression of response among the equities is that the biggest and the best and the most liquid move first," Rule said.

Rule said Sprott U.S. Holdings had started getting far more calls this year about interest in the gold sector than in the past couple of years, largely from high-net-worth people.

"There, our inbound inquiries, systemwide, have grown from about five a day in 2018 and 2019 to over 200 a day today," Rule said.

As for the spate of recent financings, Rule and Mazumdar said the backing of veteran investors such as Sprott or Lassonde helped bring aboard other investors and, in cases, gave brokerages confidence that they could fill their books. Rule said it also benefited companies in attracting sector cheerleaders. For example, Sprott, a silver bull, telegraphed his investing strategy and sector outlook in financing MAG Silver, Rule said.

"The truth is, that was a highly intelligent financing because they got more than money," Rule said. "They got Eric Sprott ... and Eric has become a thought leader in silver."

But while recent financings may speak to investor willingness to back more significant precious metal projects, the sector's smaller fish may have more trouble sourcing cash. Hoffmann told Market Intelligence that the market is leaving companies looking for financings under about C$10 million high and dry.

"We have seen a massive drop-off in financing activity for them," Hoffmann said.

Galbraith also noted that while the gold mining sector is in a strong position with prices on the rise, companies in industrial metals face a tougher market. "Of course, financing conditions in general are difficult with the impact COVID-19 is having on global economies," he said. "This will definitely impact base metals for the near term."