Many have heard the euphemism of the Mining Finance Window. The chart below, showing Capitalight's Mining Finance Window Index visually, has three colored zones: gold, white and red. The gold zone located at the top of the chart signifies when the finance window is wide open. For example, when a rookie exploration team with a non-conforming project, within dicey jurisdiction, can raise equity. The white zone which encompasses most of the data points is where some projects will get financed – but not all. Merit will matter most when the index registers in this white zone. The red zone denotes a fundraising climate in which merit and experience matter little because it is very challenging to get financing. Of course, when an junior exploration company is unable to raise equity, its project is unable to move forward. If the project is unable to move forward, then the stock price suffers and things get tougher and tougher for the company.
The current index level shows that financing has improved drastically for mining. Certainly, since 2018 when readings were in the red zone which matches anecdotal evidence that the fundraising climate was as bad as it had ever been!
The Mining Finance Window Index has three components: 1) the amount of dollars raised in the TSXV mining sector on a monthly basis; 2) a proxy variable for companies that serve the gold industry by allocating capital; 3) a sentiment lag, which isolates changes in the gold price and deals with autocorrelation of the price as a time series.
Corporate development teams working for acquisitive companies can use this index to evaluate the funding climate and relate today’s climate to other points in history. Development teams need to know if their intended targets are easily able to raise equity funding instead of accepting an offer to purchase or to participate in a joint venture.
Targeted companies can use the index to evaluate critical questions such as: Should we take this deal or wait to raise equity? What does past behaviour of the index imply for the funding climate ahead? Is our brokerage firm’s opinion of the funding climate supported by the index?
Investor relations teams employed by mining companies can use our index when explaining to shareholders why now is the right (or wrong) time to raise equity despite the risks of dilution. Using the Mining Finance Window Index improves the opportunity to foresee/communicate risks of dilution.