~*~Mining and Metals Du Jour~*~

[goforthebet]

First Mining Finance: Building A Billion Dollar Gold Company Via Massive Dilution

Must Read
|
Sep. 21, 2016 8:48 AM ET

http://seekingalpha.com/article/4007549-first-mining-finance-building-billion-dollar-gold-company-via-massive-dilution


Summary


•When I initially read about Neumeyer's plans for First Mining Finance - and the reason for creating the company - I thought it was a very well timed idea.

•Growing a small company organically (bit by bit) into one that sports a $1 billion market cap is much different than diluting yourself to the "promised land.".

•Overall, it's a very interesting group of assets that have been brought under one umbrella.

•For an investor during this gold cycle, I wouldn't count on any immediate cash flow or a dividend.

•The main risk with owning the stock over the last 15 months was always the amount of dilution that was possible. That risk has diminished substantially.


In any article written about First Mining Finance (OTCQB:FFMGF), you will most likely see the following redundant statement being made:

“
Keith Neumeyer has created two separate billion dollar companies over the last few decades, his goal is to make First Mining Finance his third.

Neumeyer is best known for his role at First Majestic Silver (NYSE:AG), which thanks in large part to its explosive growth, attained its billion dollar status during the 2010-2011 bull run in precious metal stocks. Today, its market cap sits at just under $2 billion, as Neumeyer continues to expand First Majestic's production at a very brisk pace. Before he created First Majestic, he turned First Quantum Minerals (OTCPK:FQVLF) into a billion dollar copper play.

Neumeyer's new foray is First Mining Finance, and you have to love the consistency with the names of his companies. He holds the role of Chairman at this new venture - not CEO - given his commitments still to First Majestic Silver as acting President and CEO.

When I initially read about Neumeyer's plans for First Mining Finance - and the reason for creating the company - I thought it was a very well timed idea. First Mining's business model is to:

“
acquire mineral assets at exceptionally low valuations and holding or banking these assets until the capital markets for commodities and mining improves.


Neumeyer created First Mining in the Spring of 2015, at a time when the gold and silver sector were in the late stages of a vicious bear market, and valuations for precious metal companies were at ridiculously low levels. I myself was a big believer that a significant rebound in the sector would occur, and soon. So creating a "mineral bank" and gobbling up numerous gold and silver exploration and development projects was an idea I could get behind.

Using this business model, First Mining has been acquiring quality mineral projects that have had multi-millions of exploration and development dollars poured into them already. The company is buying these assets at a fraction of the costs, and will hold them the until the sector rebounds. At that stage, First Mining plans to "enter into agreements with other parties who would move the projects forward through development or exploration while First Mining holds residual interests in the projects." This residual interests may be in the form of royalties, metal streams, minority interests, or equity positions in the acquiring company. The ultimate goal for First Mining Finance is to have several projects in its portfolio that would be generating annual cash flow, and then they would return that cash to shareholders by way of a dividend.

In theory, First Mining Finance is a tremendous investment vehicle for anybody looking for exposure to a rising gold price environment. It also provides 100% access to the junior gold mining sector (which offers the most leverage), and allows investors to own numerous exploration and development projects simply by buying one stock.

It's not easy building up a sizable position in an exploration company, especially when it's in the midst of a bear market in the sector. Volume is typically very low, the stock price is most likely well under $1 a share, and spreads are usually extremely wide. When you combine all of those factors, buying any decent amount of shares in a junior gold play is very challenging (to put it mildly). Then you add to that the risk that comes with owning one small exploration stock - which most likely has a very limited amount of funds in their treasury to advance their project(s) - and you start to understand how combining numerous of these companies under one umbrella would make a lot of sense. When you stamp Neumeyer's name on it, then you are creating a very high demand product.

........