The Ins and Outs of Making a Private Placement

In part two of his series, 'All About Private Placements,' Maurice Jackson of Proven and Probable solicits details on how to find private placements, and then how to process forms for those placements, from Tekoa Da Silva, a financial advisor with Sprott USA.

Maurice Jackson: Thank you for joining us for a special four-part series entitled, 'All About Private Placements, Part 2.' Joining us for conversation is Tekoa Da Silva; he is an accomplished licensed financial advisor for Sprott USA, the preeminent name in the natural resource space. Full disclosure, the following is not a Sprott USA endorsed product and it is for educational purposes only.

Tekoa, can I find a private placement on my own or do I have to use a broker?

Tekoa Da Silva: For the reader, you can find a private placement on your own. I think it's probably good if a person wants to do that. They could try it out for a bit to see if it fits. And the best way to start that process is to visit a couple of news websites that [have] published press releases and other information on junior mining companies. Those websites will routinely republish the press releases announcing private placement by companies in the space. And the way to dip your toes in is to call and e-mail the contact information at the bottom of some of those press releases—the investor relations contact—and just start talking to them. If you like the way that a certain private placement looks, you can request the paperwork; you can participate in it if you like. That could be a way to sort of dip your toes in and see if you like that process, if you want to do it.

If you want to create for yourself a pipeline of incoming deals—I would say that process probably takes a couple of years—a great way to build that for yourself, is to do what I just mentioned. . .put together a list of websites that publish those things. One that comes to mind is, of course, Proven and Probable, your website, Maurice, which is fantastic. And then 321 gold, Bob Moriarty's site, is wonderful for that too, as well as kitco.com and many other sites. Speculators can start to bookmark those first.

But building out the infrastructure, I think, also includes two very good sources of information. And the first one is brokerage houses. A person can open two to three brokerage accounts with natural resource specialist firms where they indicate that they have an ongoing stream of private placement opportunities available to them.

Just get the account open, see if you can open it with maybe a zero deposit or something like that so you can get to know them. And then talk to a couple of different brokers there and see if there's someone that you seem to get along with. And then give them 6 months or 12 months of getting to know each other and see what they present to you.

During poor market conditions you will always be fed a stream of probably suspect private placement deals, where the cost of capital is really low for the issuer and high for you, the investor. And in many of those cases it will be a capital markets or a capital raising group who's earning a commission selling the deal. They're not buying it themselves in many cases, they're just making a fee selling it. You want to keep that in mind as you consider deals from those sources, one at a time. So that's the second source.

The third source I think is wonderful is a growing source, and that is newsletters that focus on natural resource mining or junior mining shares that are building out a private placement information delivery part of their service. There are a couple that come to mind, but the best way to do it is to e-mail the dozen or so junior mining resource newsletters out there and ask the editor of every single one of them, do you cover private placements? Can you put me on your VIP list? And I know they'll tell you, as opposed to me recommending, which may or may not be good for any one person.

So once again, junior mining websites, two or three brokerage accounts with specialists, natural resource firms. I'm just thinking North America because that's where I have more experience dealing. Three firms that a person could look at are Sprott Global Resource Investments, the office in Carlsbad, California. They could also look up Haywood Securities. I believe they have an office in Vancouver, as well as Canaccord Genuity; I think they have an office in Vancouver too. Talk to all three of them and then, once again, look up a dozen junior mining newsletters and talk to the editors and see what they could provide.

Maurice Jackson: What type of people and resources do I need to participate in a private placement?

Tekoa Da Silva: Assuming that you've got your deal flow structure built, using those junior mining websites, using your broker contacts and using your newsletters, what else do you need? If you're going to be doing junior mining private placements, it's again, exploration and development-stage companies that most often raise money by private placement. It is an extremely high-risk business. . .To do intelligent speculation or investing, I think it's really important to have geological input—having skilled experienced geologists; geological input from some source, hopefully multiple sources—so you can compare them against each other, so that you're not just relying on the information that a management team may be giving you, the same management team that's asking you for your money by private placement. You really need someone to help you vet the deals, the quality of the deals.

Now, where can you get geological information and input? Boy, a person could do some scuttlebutt, they can go to some junior mining resource conferences and meet geologists on their own and pick up business cards. And meet a number of them, talk to them over time, develop friendships and see who has a more experienced and a skeptical eye in looking for good investments. They can talk to the brokerage houses and say, "Who do you have on staff? What is their experience? How many people do you have on staff with geological expertise?" And then they could also ask the same thing to the newsletter writers that they may deal with. "Hey, do you have a background in geology?" There's one newsletter that I'm thinking of that has a couple of guys that have spectacular background in geology. . .

Maurice Jackson: Are you referring to Brent Cook?

Tekoa Da Silva: Yeah, darn right. Yes, Brent Cook and his partner Joe Mazumdar of Exploration Insights. These guys are brilliant. And my belief is that they have skepticism and experience, [which] I think is really needed.

What people resources do you need? Assuming that you've got your pipeline for deal flow in place, that's [a] check. Assuming you've got your deal quality filter in process, in place in terms of geological input from those places that I just mentioned: Check. Lastly, you need administrative people in place to be able to help you deposit your securities and then strip off any restrictive treatment that may be in place that would preclude you from being able to resell your stock in the open market. So where do you get that administrative staff? That goes back to our group of broker-dealer houses, where in addition to a broker-dealer that has expertise in private placements and geological expertise, you want to talk about their depositing capabilities.

Are you able to deposit physical shares or physical securities for companies? What are the costs? What are the timeframe for doing so? What is the paperwork assembly procedure? Because these days, the cost of doing that for North American companies—certainly for American broker-dealer houses in my view—[the cost of offering that service] continues to go up. And it really is just as much legal as it is financial. So you really want to have that part mapped out before you even buy a private placement. You want to find out about the administrative route to get out of the speculation and out of the investment when you're ready.

So, people and resources, again: your infrastructure to find the deals, your people infrastructure to vet the deals and get secondary and tertiary opinions on the quality and the terms. Thirdly, your administrative staff in place who can process it, clean it, clear the restrictive ledges, and then help you sell the stock at some point in the future.

Maurice Jackson: We've covered the administrative costs. Let's talk about the cost to participate in a private placement. What are those costs usually?

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