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Case Study

Mining an Opportunity

Javier G. had organized a consortium of investors for what was potentially a highly lucrative mining project. Each of the ten investors was being asked to put up a million dollars to participate. But there were sizable hurdles that needed to be resolved. What Javier and his investors sought was a solution to what otherwise might have proved insurmountable issues that jeopardized their investment.

The project was in Mexico, and though Javier had done a lot of business there and had nurtured trusted contacts, his investors were hesitant to put their dollars at risk abroad.

While the land surrounding the land Javier controlled had proven reserves of iron ore, there was no proof his land did. To get that proof would cost seed money, which was expensive and hard to obtain. And even if there were ore on the land, it would take a considerable investment to get the equipment needed to mine it.

The primary buyer was in China and there was no system in place to insure payment. Establishing that system wasn’t possible without proof that a guaranteed volume could be delivered.

Investors were beginning to see the proposition as too risky and Javier was seriously considering selling the property when one of his possible investors told him about Lendacy.

By opening a credit line with us at a 2% interest rate, Javier and his investors were able to test the viability of their land at a very low cost. Were it to prove fallow, the investors would have been able to pay off the credit line with the 5.5% interest they were earning in an insured hedge fund operated by one of the investment managers with whom we partner.

If the land proved to be rich in ore, Javier and his investors would be able to demonstrate to their Chinese buyer they had the capacity to deliver the required amount of iron ore to obtain the guarantee of a contract.

Even the decline of the price of iron ore worldwide proved a boon to Javier and his investors. Their low cost of capital enabled them to wait out the market while their competition, forced to pay much higher costs for their capital, went out of business.

It was a win-win for the investors. If the land didn’t hold sufficient ore deposits to make the deal happen, they would have the return from the fund necessary to pay off the line and still have a positive cash flow. Or, as turned out to be the case, they would have a booming mining business.