Big institutions behind Resource Capital Intl.

Take 45 of the largest financial institutions in the world, add almost $40 million in capital — loose change for the big players — and you get Resource Capital International (RCI).

Bermuda-based in tax haven heaven, Resource Capital International is being billed as the “only pure mine financing play in all of North America,” according to William F. White, senior vice president of corporate and government finance at Merrill Lynch Canada; the lead underwriter of the company’s $27.6 million public offering completed this year.

Created a year ago, the company is designed to provide private placement funds for junior exploration companies. More importantly, from the institutional perspective, RCI enables the companies to get in on the ground floor of any future gold discoveries with mine making capabilities. “The institutions know that if large sums of money are spent over the next few years, mines will be found and developed,” Mr White explained to The Northern Miner during an interview. The founders are a who’s who of global pension funds from Australia, New Zealand, Bermuda, the U.S., Britian and Canada. Canadian players include CBC Pension Board of Trustees and the Royal Bank of Canada’s penion fund, to name a few. A source of `hard dollars’

From the junior perspective, RCI intends to become a key source of `hard dollars’, which will be used to bolster working capital positions. A majority of funds raised in Canada are on a flow-through share basis, which provide considerable tax benefits to the investors. Unfortunatly that money must be used exclusively for exploration and not for corporate purposes.

The Merrill Lynch investment banker estimates that for every dollar of flow-through-raised funds spent, 20 cents is needed for working capital. “It’s that working capital that RCI is in the business of providing,” Mr White says.

On initial examination, one might wonder why institutions, taking into consideration their traditional conservative demeanor, would want to become junior resource speculators? In reality, however, their investment repr esents a mere fraction of their combined capital assets which number in the billions of dollars. Yet by carefully searching for well balanced junior resource investments, there is room for large capital appreciation — something speculators in this field have known for years.

Inorder to screen and identify exploration projects of merit, RCI is using the services MPH Consulting, a well-known Canadian company with more than 70 professional geologists and geophysicists on staff. “We intend to specialize on high growth companies with developing reserves,” P. Grenville Schoch, president of MPH says. Commenting on RCI’s right to do future financings when it completes a placement, Mr Schoch says that “the team is very powerful. If a junior needs $50-$100 million in capital mine financing, we can do it. The junior company no longer has to be taken over by a major.”

RCI plans to generate income by selling shares received from its private placements back into rising markets. An instant paper gain is made on closing a deal, as the average discount received is 25%, Mr White notes. Also, RCI doubles its leverage by take down warrants giving it the right to purchase additional shares within a year. Potential $100 million company

During the first quarter of operation, Mr Schoch estimates the company’s return on equity at 35%. Mr White calculates that returns will average a minimum of 30%, assuming no discoveries are made by the junior operators and placing zero value on the warrants received. First year after tax profit is estimated at $12.6 million. “RCI will be valued on an earnings per share basis,” Mr Schoch adds. Unlike gold funds, which do not generate income and usually trade at hefty discounts to their net asset value.

To date, approximately 30 junior companies have received funds from RCI totalling $10 million.