Strategic Risk in Equity Corporate Finance

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Strategic Risk in Equity Corporate
Finance By Frank Moxon CF FSI Managing Director,
Hoyt Moxon Ltd Securities Investment
Institute Risk Forum 10th April 2008
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Appendix II - personal biography
Frank Moxon CF, FSI, FIMMM, FEI Having trained
initially as an equity research analyst at
Capel-Cure Myers, Frank spent eighteen years in
the corporate finance departments of Beeson
Gregory, Société Générale, Old Mutual and was
latterly head of corporate finance and head of
natural resources at Williams de Broë before
heading up the mining team at its new parent,
Evolution Securities.
By the end of 2007, he had successfully completed
over 120 corporate finance transactions
(including 38 IPOs) raising well over 900m in
new funds and had acted as financial adviser or
stockbroker to well over 30 Oil Gas and Mining
companies. These included Cairn Energy, Premier
Oil, SOCO International, Centurion Energy, Faroe
Petroleum, Aminex, Lonmin, LionOre, Aquarius
Platinum, Petra Diamonds, European Goldfields,
Centamin Egypt, Central Rand Gold, Celtic
Resources and Tanzanite One. In addition to
managing primary and secondary listings on the
London Stock Exchanges Official List and AIM
Market, Frank has advised companies with dual
listings on the Nasdaq, Toronto (TSX and TSX-V),
Australian, Johannesburg, Botswana and Zimbabwe
stock exchanges and has completed corporate
finance transactions on the TSX-V, Oslo and
Stockholm stock exchanges. In 2008 Frank
established Hoyt Moxon Ltd which provides
corporate finance and other advisory services to
companies primarily engaged in Oil Gas and
Mining activities. Amongst other things, he is
also Chairman of the Securities and Investment
Institutes Corporate Finance Forum and a Fellow
of the Institute of Materials, Minerals Mining
and of the Energy Institute.
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Background Research

• Google
• Amazon
• Interviews with
• Investment bank CEOs
• Heads of Corporate Finance
• Corporate Finance Directors

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What is strategic risk?

• strategic adj. 1 of or serving the ends of a
  strategy useful or important with regard to
  strategy (strategic considerations, strategic
  move).
• risk n. v. 1 a chance or possibility of danger,
  loss, injury or other adverse consequences (a
  health risk a risk of fire). 2 a person or
  thing causing a risk or regarded in relation to
  risk (is a poor risk).
• (Source The Oxford English Reference
  Dictionary)
• So, if you are a corporate financier or a risk
  professional, strategy is a good thing and risk
  is a bad thing. Right?

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Well, strategy is only as good as your planning
staff...
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...and, in business, risk sometimes has to be
embraced!
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Practical experience is always better than theory
Let us remember the unfortunate econometrician
who, in one of the major functions of his system,
had to use a proxy for risk and a dummy for
sex. (Fritz Machlup, Austrian economist, in
Journal of Political Economy July/August 1974,
p.892)
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Strategic Risk in Equity Corporate Finance

• Corporate Finance Department
• Macro economic considerations
• Transaction portfolio considerations
• Product considerations
• Competitive considerations
• Higher Level Decisions
• Resource considerations

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Transaction Portfolio Considerations

• Country risk
• Legal system risk
• Environmental risk
• Project risk
• Commodity risk

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Country, Legal Environmental Risks
Civilian poverty / co-lateral
damage Nigeria
AIDS victims - Honduras
Landscape devastated by iron mining Canada Anti
government rebels - Congo
Legal title the rule of law Russia, Zimbabwe
etc.
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Project Risk

• Stage of Development
• moose pasture
• advanced exploration
• pre-feasibility study
• bankable feasibility study
• construction
• production
• Reserves or Resources?
• Risked category
• Mining code
• Size

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Commodity Risk

• Freely Traded Commodities
• - Precious metals gold, PGMs, silver...
• - Base metals nickel, copper, iron, zinc...
• - Gemstones diamonds
• - Other coal, uranium...
• Intermediate commodities
• - molybdenum...
• - tantalum, mineral sands...
• Difficult commodities
• - coloured gemstones (rubies, emeralds...)

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Product Considerations

• Variations on Equity (i.e. can use existing
  resources)
• - private equity
• - convertible securities
• - preference shares
• - corporate restructuring
• - mergers acquisitions execution only
• New Product Lines (i.e. may need to hire new
  staff)
• - mergers acquisitions search and select
• - debt advisory
• - project finance

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Competitive Considerations

• Client base
• - potential for loss of clients
• active attacks on rivals client base
• Raising the game
• invent new client retention/generation
  strategy
• - too late to join a band wagon
• Knowing when to quit
• poach new stars
• - withdraw from a product or sector

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Resource Considerations

• Potential Strategies
• Strong equity distribution focus CF income a
  bonus
• CF-led distribution house
• Best of both worlds

QuotedClient
Corporate Finance
Commercial Equilibrium - Independent advice -
Investment performance - Going the extra
mile
Equity Research
Equity Sales
Commercial Equilibrium - Independent advice -
Placing power - Going the extra
mile
InvestingClient
Compliance Equilibrium - Chinese walls
intact - Regulatory obedience
Resource Equilibrium - Optimum deployment -
Minimise politics dissent
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Conclusions strategic risk in equity corporate
finance

• Management risk focus tends to be on compliance
  and other operational risk
• Strategic risk
• - no standardised approach in either theory or
  practice
• - key decisions often left to individuals
• - system probably works for now
• - future regulatory changes might change this?
• The City doesnt have a Staff College like the
  military
• - Management is largely self taught
• - No formal schooling in strategy and tactics
• - No courses in combined operations
• - Career progress based on Machiavelli and
  luck?

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Afterthought
Ce nest pas en donnant la vie, cest en
risquant sa vie que lhomme sélève au-dessus de
lanimal. (Simone de Beauvoir)
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Contact Details

• Hoyt Moxon Ltd
• 153 Kennington Park Road
• London SE11 4JJ
• United Kingdom

Frank Moxon T 44
(0)20 7820 0280 Managing
Director M 44 (0)7918 760 278
E frank.moxon_at_hoytmoxon.com
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