Hi ILDS,
Unfortunately, there is not much more detail I can go in to nor timeframes that I can lay out. When it comes to deal timeframes, often it’s like how long is a piece of string?
The M&A process is a well worn one and can move quickly or slowly depending on the players and stakes involved. When we look to consolidate ground with other juniors or prospectors, there has usually been little exploration work done, no bureaucracy and we can move quickly. When we are playing with majors, there can be a lot more data and lots of departments that get involved to each tick their own boxes!
Generally, the stages of M&A are:
1. Preliminary Discussions
We meet with potentially interested parties, introduce ourselves, talk about publicly available information and what each of us are looking for in terms of projects or possible deals. Pitch decks, one pagers or information memorandums are generally prepared for these discussions.
For example, we have some potential for XX commodity at XX project, we’ve done a little bit of work on it but it’s not a focus for us at the moment because of X, Y or Z. We see that you have done some deals, or you might have XX commodity as a focus for your company. We are looking for someone to partner to fund exploration and mining development should we be successful. The other side determines if it is at the right stage of exploration for them, right regions or commodities etc. And if it is a match, then we agree to look into things deeper.
Generally, this happens over a coffee / beer or two.
2. Signing NDA/CA
This allows the sharing of non-publicly available information and have confidential discussions.
If working with groups in Perth, this can take an hour to draft up and have signed. If working with an international major in Canada or the US, this can take weeks. I would say generally because their legal teams have a lot more pressing things to deal with than a CA with a junior company!
3. High level assessment and evaluation
3 and 4 can overlap or blend together. But some companies will have a high level review, look for any red flags, make sure both sides represented their position accurately to justify the time required for Due Diligence.
4. Due Diligence and the Dataroom
This is the first serious step and can require a significant commitment of time and resources. From technical teams reviewing and interpreting the data, to full legal reviews of all agreements and tenements etc. We even recently went through a Modern Slavery due diligence review! We’ve had assay certificates requested, and if a more advanced project, this is where they would check assays from pulps, organise site visits and or technical visits with the geos over rocks and drill core etc.
The bigger the company / more advanced the project or size of deal, the bigger and longer this process can take. From days to months.
It is also in this stage that we tend to be with a lot of majors for years sometimes! Given our general strategy and exploration focused business model, we tend to have a couple of major companies “in the room” from early days.
We see this as being transparent with majors and shows an understanding and appreciating that all companies have thresholds at what with and when they get involved with a project or company (and that those thresholds and interests can change at any time, so ensuring that we get a review and keep our finger on the pulse). When this is the case, I generally do not refer to it as “discussions” with another company, just that we have people in the room which helps us know that should we have success on a project, there are major companies already interested, with a relationship in place, and advanced in their due diligence. This allows both sides to move quicker if and when the time comes.
5. Negotiating Terms
This is where the dealing starts. The parties have expressed commercial interest and now the discussions are about value, structure, perception to market and shareholders (for both sides) and so on. The main outcome of this stage is a one-to-two-page document that outlines the main terms of the agreement.
- Who are the parties? (a lot of deals involve subsidiaries),
- What is being acquired and how? (100% ownership, Rights for XXX commodities, Option and Earn-in, Joint Venture),
- What is the Consideration? (cash, shares, royalties, staged payments, sometimes rights to the other parties tenements, work programs, stages of earn-in)
- Any other items like exclusivity, governing law etc.
This term sheet is generally not legally binding nor complete (and therefore under ASX LR 3.1A still not material for disclosure and held under confidentiality). But it lays out the terms for which a legally binding agreement will be drafted. These are the big-ticket items to both companies. If both sides can’t come to an agreement on the major terms, it falls over. If they do, then the lawyers get involved.
As with the others, this can be done in a few days, or can go back and forth for weeks if there are major sticking points.
6. Negotiating an Agreement
This is the pointy end of the process. In a simple agreement, this can look like a beefed up term sheet, still just a couple of pages long but with additional items included such as:
- Conditions precedent (what needs to be achieved to being the deal to completion, approvals, deeds of assignment and assumptions, regulatory approvals received – like FIRB),
- Completion (when will completion happen and what will happen at completion – generally the payments made / shares issued, and any legal titles or agreements signed)
- Obligations post deal, warranties, disputes, indemnities and the rest of the legal kitchen sink that lays out contractually how both sides will legally interact and solve issues.
This can also be dozens of pages long (or longer…) and provides the lawyers, board and management involved more details to review and involved a lot of working back and forth, negotiating and compromising.
This stage can be very long with major companies, I believe our previous major agreement took three or four months from a term sheet to agreement being finalised (to be fair, Christmas was in that period).
7. Close the deal
Once the agreement is signed, it is finalised, legally binding and material to disclose. The final stages of this signing may take a bit of time once agreed and can lead to trading halts if required.
If a deal isn’t closed, then as far as the market or public are concerned, it never happened! Which can be very frustrating for both parties after allocating time and effort into the process.
I hope that helps explain the process a bit and why it doesn’t always happen as quickly as we would want and that it is hard to provide any sort of timeline.
Having said all of that, we are currently negotiating (stages 5 and 6) ~8 potential deals. This does not include the deals for which terms we have knocked back thus far. I would like to believe that four or five of these could be sorted and mutually agreed and closed out in the coming weeks.
(20min delay)