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Is cash the mining industry’s most important resource?

The old adage that cash is king is perhaps most true in the resource sector, especially among early stage exploration and development companies. Far from being able to rely on earnings from production, these firms need to raise capital to do more than keep the lights on. Funding is needed for the core elements of the business: geology, discovery, analysis and building. Without adequate funding, a company’s progress can be halted, sometimes for months or years.

Smirnova, who is senior portfolio manager and chief investment officer at Sprott Asset Management, identified three key elements she evaluates when examining companies in the resource sector.

“The first is the people. What’s the team? Have they done this before? What is the knowledge they have? Number two is the asset — the geology and location — and number three is the financial situation of the company,” she said.

Smirnova emphasized that while a company’s personnel and financial position can be altered, geology remains unchangeable. This has prompted her to adopt a more holistic approach when analyzing opportunities in the mining sector. She wants to see key elements utilized efficiently, including the strategic management of cashflow.

“Cash is important because you have to do things as a company. You want to discover the resource, and you want to move it towards production, but people definitely optimize that process,” Smirnova said.

Woodyer Sherron, who is president and CEO of Empress Royalty (TSXV:EMPR,OTCQX:EMPYF), echoed this point.

“You need cash. Without cash, a company is constrained. It’s difficult to move forward, so absolutely I think cash is the most important resource,” she told the audience at VRIC.

When asked if there is a minimum level of capital that would define a productive raise versus a non-productive raise, Woodyer Sherron suggested this is dependent on the stage of the company.

“There are so many different aspects to money, whether it’s exploration, development, production,” she said.

“From Empress’ point of view, we invest $5 million to $10 million into companies, but we focus on ones that are producing. They’re going to bring immediate cash,” added Woodyer Sherron.

Kiernan, who is founder and principal at Bellevue Strategic Advisory, and Rule, the proprietor of Rule Investment Media, said money is important for mining companies, but not as important as leadership.

Rule has frequently said that people are the most important part of a company, but has also acknowledged that cash may be the most underrated asset. Drawing from his extensive experience in the resource sector, he noted that retail investors get excited about stories, not cash, and companies worry about the cost of capital inside the industry.

“They say the cost of capital is extraordinary. Have you ever considered the cost of not having capital? This is a…