Today there are well-funded entities that are looking
for properties in the natural-resources sector, which
includes oil and gas projects, as well as alluvial and
placer mining projects. Because funding sources are
often little known, the majority of commercial mortgage brokers may be unwilling to represent these entities. Brokers simply may not know where to place this
type of project for funding.
In addition, many lenders and funding sources may
give this type of project nothing more than a cursory
look. These lenders often lack the due-diligence acumen to make a positive financing decision, which results in them dropping most of these projects, even
if they’re good projects. For example, lenders that are
comfortable lending on office and retail projects may
be quick to reject a mining operation because they do
not understand the specifics of the transaction.
With more specialized funding sources available
for these projects now, they are expected to become
more popular. For brokers, it is critical to be among
the first to establish relationships with principals and
to seek out individual funding sources that specialize
in financing this type of project. By developing relationships with funding sources, brokers can position
themselves as experts who can get these deals done.
The key to success in this arena is to deal with financing sources that specialize in natural-resources funding. They will be experts, for example, in hydrocarbon
exploration (i.e., oil and natural gas exploration and
drilling operations) and in gold, silver and other precious metals’ mining operations.
Oil and gas exploration and drilling are at their peak,
and now is the perfect time to seek oil and gas exploration and construction project funding. There are funding sources that finance oil and gas construction on a
national and global basis. Several lenders provide financing for oil and gas projects in emerging markets
and for oil-rig construction. In some cases, they also
will assist with oil-drilling equipment and various other
aspects of oil and gas financing, such as the construction of related processing and transport facilities.
Keep in mind that oil and natural gas exploration
and drilling projects can be expensive, depending on
their locale and whether they are onshore or offshore.
The majority of these projects typically seek funding
between $500,000 and $30 million or more, depending on the size of the project.
Placer mining is the mining of alluvial deposits
for minerals. An alluvial deposit is a deposit of sand
and gravel in a stream or river bed. Water flow typically moves the metals from their original source to
that location, and they make only a small portion of
the deposit. The heavier metals like gold are more
dense than sand. They tend to accumulate at the
base of the placer deposit in places like river bends,
where the water flow is not strong enough to continue
moving the deposit. Placer mining of alluvial gold is
popular because of its low cost compared to other gold-mining methods. Gold is much heavier than the sand
and gravel transported with it by the flow of water and
can be separated easily from the sand, gravel and
other metals using gravity-based techniques.
This results in a high return on investment because production costs per ounce are low. When
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compared to hard-rock gold-mining methods, placer
mining of alluvial deposits also can yield productive
results in much shorter periods of time. For these
reasons, placer mining is popular and recognized as
profitable throughout the United States and around
Placer mining is what the old-time prospectors used
when they were panning for gold. Today, however, depending on the size of the placer deposit, much larger
equipment and techniques can be utilized to separate the precious metals from the sand and gravel.
Many of these placer deposits are large enough to require financing in millions of dollars. There are funding sources for different types of claims, as well as
equipment financing for all types of mining equipment. Funding also may include camp construction
and financing for operations when there are proven
reserves. Alluvial and placer mining is also useful for
mining other minerals, diamonds and gemstones.
By establishing yourself with one good project, you
open the door for many follow-up projects that can
be presented to a funding source that specializes in
this particular niche. This will make you one of the
few commercial real estate brokers who can prospect for this type of transaction successfully. The
dollar amounts of these transactions are similar to
the values of your typical commercial real estate
transactions. There also may be the advantage of including additional fees for equipment leasing, which
frequently is included as a part of these transactions.
In many cases, the equipment-financing aspects of
the transaction alone can be as expensive as an additional real estate transaction.
In essence, brokers may think of these types of
projects as gold mines because the number of avail-
able projects far outweighs the number of brokers
seeking them out. For the lucky few who represent
these types of transactions, the number of potential
projects is more than they could handle, leaving
them with an unlimited source of new deals to pres-
ent to the appropriate funding sources. In addition,
the vast number of these projects allows brokers to
cherry-pick the best of the best for presentation to
their funding sources.
Most commercial mortgage brokers are competing for hot property sectors where the competition
is stiff. Savvy brokers should think outside the box
and go after the natural-resources projects niche,
domestically and/or globally. Remember, these principals tend to be far more willing to accept the requirements for due-diligence fee payments than their
pure real estate counterparts. They know that their
financing choices are limited, and many have time
constraints in the form of deadlines for the continuation of their mineral-rights agreements. Under this
pressure, they typically will be willing to move forward at a much quicker pace than average real estate
principals who believe that they have many options
available. They also will be eager to provide documentation for their projects and will work to move
for ward as quickly as possible.
• • •
Taking a small risk and going after a lucrative, yet
underserved, market is worthwhile. The demand for
natural resources will continue to grow into the fore-
seeable future, and the suppliers of these products
will be expanding and seeking financing constantly.
These types of projects can be exactly what serious
commercial mortgage brokers need to take their busi-
nesses to the next level of financial success.
The transition into natural resources financing is
fairly simple. With slight variations for specifics, the
process is essentially identical to a standard real estate transaction. The documentation requirements
and due-diligence processes also are similar, as are
the closing procedures. The learning curve, therefore,
may be short or eliminated altogether.
Forward-thinking commercial mortgage brokers
should go where the competition is less intense and
the compensation is just as great. When working with
borrowers and putting a greater effort into presenting
themselves and their deals positively to their prospective lenders, the rewards may be even greater when
equipment financing and other types of related construction and operations are factored in. This avenue
also opens up new revenue sources for commercial
mortgage brokers. This is a niche that should not be
ignored, especially because it grows more lucrative as
time passes and demand for these natural resources
Milton Franklin is founder and president of Commercial Mortgage Exchange Inc., which maintains direct relationships with traditional and nontraditional domestic and international funding sources. The company offers a range of creative financing products
for clients and partnering opportunities for commercial mortgage brokers in commercial real estate and natural-resource transactions. Franklin is a graduate of Wharton Business School with 29 years of experience in financial services. Reach him at (786)
506-3578 or firstname.lastname@example.org. Visit commercialmortgageexchange.com.
“Lenders that are comfortable lending on
office and retail projects may be quick to
reject a mining operation because they do not
understand the specifics of the transaction.”