BlackRock’s tips for raising money as a private firm

Six years ago Sean Cleary raised a million dollars from family and friends and acquired an iron–titanium–vanadium property, 30 km southeast of Chibougamau in northern Quebec. 

Cleary — who has a background in investment banking, mergers and acquisitions, and corporate development that has included stints at Quest Capital, Deacon Capital (now Dundee Securities) and JP Colin Securities — then set out to recruit a management team and developed a plan to take a greenfield asset with a little bit of data through to commercial production.

“It was a dream, but nevertheless it was a plan,” the founder and chairman of BlackRock Metals said during a presentation at the Prospectors & Developers Association of Canada convention on March 5.

Cleary and his four-person team set about raising capital in earnest. In 2009 the company was introduced to a group in Hong Kong that was in the iron-ore trading business but also involved in mining investment. The group helped BlackRock Metals structure a joint venture that provided an earn-in to 51% of the property based on expenditures to get to a prefeasibility study.  

As part of the joint venture, the partners agreed that if BlackRock hit technical milestones during project development, the Hong Kong group would engage in off-take discussions.

When BlackRock started passing those milestones, the Hong Kong group grew more interested in what the company was doing. “They saw that we could build a business . . . and that they could help us with capital and become a customer of the eventual mine,” Cleary said.

Within the joint-venture structure, BlackRock raised $4 million with the Hong Kong group, hired consultants and built a presence locally near Chibougamau so that it could drill, assay and analyze data.

In 2010, BlackRock recruited more management, completed a prefeasibility study and raised $6 million from Hong Kong and local investors in Quebec. The same year the executive team unwound the joint-venture structure so that the assets were wholly owned by one company.

A feasibility study on the project’s first phase (the iron portion) was completed in 2011, and BlackRock signed its first off-take agreement for one-third of the project’s iron-ore production with the Hong Kong trading group and raised $40 million with the off-take agreement from other investors, which helped finance the project development.   

Once BlackRock had its first off-take agreement in hand, Cleary said, the company could show customers what it had accomplished. It was a key step. “We were then able to secure a second off-take agreement . . . we learned through the process of the first one that we could finance against that agreement as well, and help raise additional equity.”

In 2012 BlackRock completed a second feasibility study based on an extended iron-ore tonnage scenario and tried — but failed — to raise another $40 million with traditional Canadian investment banks. The company also tried to market an international private placement using a syndicate of the investment banks that have offices worldwide.

“It wasn’t their fault that it didn’t work,” Cleary says in a subsequent interview, explaining that the deal’s timing was not ideal, and the audience was not interested in a private company that had yet to complete a feasibility study.

“I think the market was a bit closed at the time, and we were a private company, so it’s tough to attract equity capital to a private company, because most mining investors are not used to necessarily seeing that.”

But it was a great learning experience, he says. The company signed a power agreement with Hydro Quebec and completed more drilling — all while negotiating with a sovereign wealth fund on a multi-part investment agreement.

It took 14 months, but BlackRock agreed on an investment with the state-owned Oman Oil Co. (OOC). The equity and off-take agreement was announced in the Oman Daily Observer on Dec. 18, 2012, with the terms of the agreement citing that OOC would acquire 25% of BlackRock.   

“We travelled to their location six times and they came to Quebec four times — all for various aspects,” Cleary says. “Those trips did not include the technical due diligence on the project from a third-party engineering firm, financial accounting firm and law firm.”

Last year, BlackRock signed a second investment agreement for $45 million, raised $20 million in equity, signed an impact-benefit agreement with the Grand Council of the Crees, Cree Regional Authority and the Cree Nation of Oujé-Bougoumou, completed a definitive feasibility study and received its certificate of authorization from the Quebec government, which allows for construction.

The company is wrapping up financing for the project’s first phase to produce 3 million tonnes iron-ore concentrate, and is signing off-take agreements and getting ready for to begin construction mid-year.

BlackRock is also building detailed business plans for the project’s second and third phase in titanium and vanadium, and putting together its corporate development team. And it is considering whether it should go public.   

Being a private mining-development company has its advantages, but Cleary says it also can be frustrating and requires tremendous patience and perseverance.

“Staying private is a little bit more effective to build and de-risk large projects, because you don’t have the transparency of the public markets and don’t have the day-to-day valuation from the financial aspect on your business . . . like market cap,” he explains. “So in a sense you are more in control: you have more control over items like valuation, and who owns the company’s shares.”

The flip side is that private capital is harder to attract.

“It requires the highest-quality projects and teams, and it can be a bit frustrating because the time, effort, commitment and investment in going out to see alternative sources of capital is significant. Deals can take a year or two years to complete.”

In terms of courting sovereign wealth funds, BlackRock approached as many as possible.

“We tried to turn over every rock we could, and met as many people as we could,” he says. But it wasn’t easy, particularly because sovereign wealth funds tend to be bureaucratic organizations that report to governments and are audited by state auditors. 

Companies hoping to sign deals with sovereign wealth funds (SWF) must be extremely well prepared, Cleary cautions.

“This isn’t like your traditional Toronto junior doing a private placement with the local investment bank, and you’re going to have your due diligence session with them, and they’re going to review some technical documents,” he says. “These [SWF] organizations are going out and hiring third-party technical experts and financial experts to dig through your company . . . the whole data room has to be prepared and ready . . . that due diligence is critical to success.”

Other ingredients include starting early and recruiting the right people.

“Focus on hiring talented stars, not trainees,” he says. “Teaching as you’re building a company — especially when you’re in a start-up phase — is hard, and time is a valuable commodity.”

Cleary emphasizes that management must be made up of strong team players with
balanced personalities and low egos.

As for BlackRock Metals, he says, there is a long way to go.

“In our ten-year plan, we are probably halfway there,” he says.  

The project’s first phase involves producing an iron-ore concentrate that will be trucked 25 km to the rail line at Chibougamau, and sent by CN rail to the Port of Saguenay, from where it will be loaded onto capesize cargo ships bound for Asia.