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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 10 th April 2008. Appendix II - personal biography. Frank Moxon CF, FSI, FIMMM, FEI
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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
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 Exchange’s 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 Institute’s Corporate Finance Forum and a Fellow of the Institute of Materials, Minerals & Mining and of the Energy Institute.
Background Research • Google • Amazon • Interviews with: • Investment bank CEOs • Heads of Corporate Finance • Corporate Finance Directors
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?
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)
Strategic Risk in Equity Corporate Finance • Corporate Finance Department • Macro economic considerations • Transaction & portfolio considerations • Product considerations • Competitive considerations • Higher Level Decisions • Resource considerations
Transaction & Portfolio Considerations • Country risk • Legal system risk • Environmental risk • Project risk • Commodity risk
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.
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
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...)
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
Competitive Considerations Client base - potential for loss of clients + active attacks on rival’s 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
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 Commercial Equilibrium: - Independent advice - Placing power - Going the extra mile Equity Research Equity Sales InvestingClient Compliance Equilibrium: - Chinese walls intact - Regulatory obedience Resource Equilibrium: - Optimum deployment - Minimise politics & dissent
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 doesn’t 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?
Afterthought “Cen’est pas en donnant la vie, c’est en risquantsa vie quel’hommes’élève au-dessus de l’animal.” (Simone de Beauvoir)
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@hoytmoxon.com
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