First Mining Finance has been on an acquisition spree recently, picking up eight assets over the past year and a half — none of which it intends to develop. Why not? Because First Mining is not a mining company. Rather, it’s a “mineral bank,” which picks up junior mining assets during bear markets, ceases operations and simply sits on them until markets recover. Tamaka Gold’s shareholders were full of questions.
LEXPERT: The acquirer here is a bit unusual. First Mining isn’t a mining company, but rather an investment company, right?
James Beeby (McCullough, O’Connor Irwin LLP, for First Mining): That’s right. First Mining was created to take advantage of one of the worst bear markets in recent history for junior mineral exploration companies. Valuations have been at historic lows and financing opportunities have been virtually non-existent for a lot of these companies going back almost five years now. So we have a lot of juniors out there with low stock prices. First Mining aims to acquire properties at an attractive price with the goal of holding onto them until the market has turned and then realizing value by selling, optioning or joint-venturing the assets.
LEXPERT: So what was driving this deal? First Mining is looking to flip the property. But why northwestern Ontario?
Beeby: First Mining looks for early-cycle assets in easily accessible, mining-friendly jurisdictions. Ontario is a jurisdiction that ticks all of the boxes.
LEXPERT: And from the sell side? Tamaka’s owners would be walking away with a significant stake in First Mining, right?
Russel Drew (DLA Piper (Canada) LLP, for Tamaka): The company had considered a number of strategic alternatives, including an IPO, and had received various overtures from potential acquirers. Tamaka was prepared to continue to push the project forward, but the offer from First Mining presented a unique opportunity for shareholders to obtain liquidity, while enabling investors to become shareholders of a business with a unique business plan. ... The opportunity that an ownership position in First Mining presented for Tamaka shareholders was a significant catalyst in getting this deal done.
LEXPERT: How important are external counsel to non-operational entities like First Mining, which usually don’t haave a large in-house presence?
Drew: Having quality external counsel is extremely important to an entity like First Mining. The company is extremely acquisitive and is aiming to unlock value for its shareholders through transactions. Having the expertise that external counsel can offer is critical to ensuring the successful implementation of these transactions.
Beeby: First Mining has kept us very, very busy. We’ve done a total of eight acquisitions with them in a year and a half with many of those transactions overlapping in time. We’ve also had some tight time frames and some less-than-friendly deals. Given the amount of due diligence, negotiation and drafting, they would have needed a huge in-house team with significant deal experience to run all those deals in-house, and that just wasn’t feasible for a company that had a market cap of $15 million when we started out.
LEXPERT: The deal required two-thirds approval, but I understand that the majority shareholders held nearly 50 per cent of the vote. Did that make for a smooth negotiation? Was there any opposition?
Beeby: Well, you have to get to a certain level of agreement with target management before you can really approach shareholders. So first there had to be an agreement on price and, given that the markets were improving while negotiations were ongoing, the negotiation on price in particular was lengthy. Once we were able to settle the price and lock up the majority shareholder, we definitely had more certainty that we were going to close.
Drew: The proposed transaction was met with great enthusiasm. The most significant shareholder even agreed to lock up its shares of First Mining for a period of time post-closing and indicated strong support for the First Mining business plan. However, ensuring that each Tamaka shareholder had full disclosure and a good understanding of the transaction was a critical part of this deal, given all of the questions that naturally arise when people first hear of the “mineral bank” concept.
Beeby: And since Tamaka was a private company, it allowed us to really narrow the typical “fiduciary out” provisions in the acquisition agreement, although we did have considerable back-and-forth with DLA Piper and Tamaka on that point, too.
LEXPERT: How would you characterize the tone of the negotiations? Tense? Friendly? Were you well-acquainted with the other team in the transaction?
Noam Goodman (DLA Piper (Canada) LLP): There were definitely tense moments, but the legal teams did an excellent job of representing their respective clients in a professional manner to ensure that the interests of the clients were always paramount.
Beeby: The process went quite smoothly for us. In most of the deals we’ve done with First Mining, the target companies have been quite eager to sell and that has led to relatively friendly negotiations. That’s not to say that you get everything you want in the negotiation, and there’s always a lot of work that goes into settling the final terms, but it’s certainly easier and more amicable when you don’t have to drag the other party to the table kicking and screaming.
LEXPERT: What would you say was the biggest challenge or obstacle in executing this transaction?
Beeby: We conducted detailed diligence on Tamaka, but since it is a private company with a single major asset, the diligence was simpler than it has been for some of the other acquisitions we’ve worked on with First Mining. That said, we also didn’t have the ability to rely on public disclosure that you have with a public company. To be honest, the biggest challenge from our perspective was that we were also in the midst of acquiring the Cameron property at the same time, so that sometimes led to challenges with timing and disclosure.
Drew: There was a definite need to manage disclosure and diligence in light of First Mining’s very active business — including the execution of another acquisition during the negotiation of this deal. Ensuring that the consequences of other potential transactions were factored into the value to be received by Tamaka shareholders was very important.
LEXPERT: I understand that First Mining is taking a breather after many acquisitions. Is there a hibernation that occurs as the company waits for prices to rise?
Beeby: The timing of closing on this deal couldn’t have been better. Right after we closed, the Brexit vote went ahead and then gold prices started to climb. As a result, asset valuations have been going up and there aren’t as many “bargain” assets out there anymore. So it would be natural for the company to take a break on its acquisition cycle and consolidate its portfolio. As you can imagine there’s a lot of work that needs to be done in digesting all of these properties after acquisition. That said, knowing this group, if they see an attractive asset at a good price I’m sure they’ll jump on it.
LEXPERT: What would you say was the most memorable or unusual aspect of this deal? What will you take away with you?
Beeby: This transaction represents the most recent and largest transaction in a long string of acquisitions we’ve done for First Mining in such a short period of time. We’ve gotten into a really good groove working with their group. In terms of takeaways, the number and pace of these acquisitions really underscored the importance of knowing your client and their needs and developing a good working relationship with their entire team.
Goodman: The most memorable part for us would be the shareholder meeting to approve the transaction. Most corporations with a broad shareholder base have limited turnout for a meeting. Tamaka, however, had significant shareholder turnout, and its shareholders had significant interest in learning about the intriguing business of First Mining. The challenges of running a transaction for a private company that is widely held are definitely memorable, but we have had significant previous experience with similar transactions.
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