Hummingbird owns 7,000 sq km of jungle

Digging for gold

Gold exploration company Hummingbird Resources spends $1.5m a month searching for the precious yellow metal. But after five years, it has yet to make any money.

by Elizabeth Anderson
Last Updated: 26 Nov 2012

Entrepreneurs find it difficult enough to raise cash. But imagine attempting to raise $300m for a business which costs at least $1.5m a month to run, and won't create any revenue or profit for years?   

It's a problem Daniel Betts, the chief executive of Liberian-focused gold exploration company Hummingbird Resources, has been grappling with. Set up in 2005, the business is spending millions of dollars a month, but has yet to make any money. Despite discovering 4m ounces of gold last year - the biggest gold find in Africa in 2011 - the challenge is now getting it out of the ground and turning it into cash.

'The only way we can turn a profit is by pouring it into gold bars. This involves drilling a gold mine, which would require another $300m,' says Betts. 'To be honest, if you really understood the challenges ahead, you'd never start. But if you don't know what you're entering into, you just take each problem as it comes. Before you know it, five years have passed.' 

Betts started the company with his father, a gold merchant in Birmingham, and Matthew Ideons, a natural resources entrepreneur, after they visited Liberia in 2005 and noticed that large parts of the landscape were untapped. They acquired the rights to explore 7,000 square kilometres of jungle and started from scratch. 'There was no data, no maps and no access. We had to cut our own way to even take stream sediment samples,' he explains.

Hummingbird Resources now employs 250 people, and most of these work in Liberia taking samples, building infrastructure and supplying food. Hummingbird has built its own camp in the middle of the jungle which houses the workers, who are a combination of expats, Canadian geologists and Liberians. It's a day's drive from Monrovia, the nearest big city, and the camp is isolated. Then there's the challenge of working in Liberia itself, which is still in the shadow of civil war. 'When we first got to Monrovia, there was open sewers in the street. There were bullet holes dotting buildings which had no roofs. It was a war ravaged country,' says Betts.

The founders now own just 20% of the business - the rest is owned by 'long-term, patient shareholders.' And the shareholders need to be patient. Searching for gold involves months of painstaking work. 'First you take soil samples to find anomalies', says Betts. 'Then you dig through the soil and sample the top of the rock, which gives the first proof that there's gold underneath. Afterwards you drill into the target - and with drilling costing $200 a metre, you need to be sure you're going to find something.'

It wasn't until December 2010 that Hummingbird finally discovered flecks of gold. The company is now at the stage where it has the drilling targets, and is raising money for the drilling to start. For a year's work, they'll need around $10m.

So what attracts investors? Richard Griffith, Director of Smith and Williamson Investment Management is one of them. He says Hummingbird Resources has a track record of cheap discovery: 'Hummingbird seems confident of further targets in 2012 and has a substantial piece of land in Liberia. The country is also an emerging mining province with a number of the major players operating there including Arcelor Mittal and BHP Billiton.'

Betts says the rewards will ultimately be worth it. He expects to produce 300,000 ounces of gold once the mine is up and running, turning over $450m in gross revenues a year. But even then they're relying on the price of gold remaining high. And while that price has surged over the last few years, for the last six months it has remained flat. Meanwhile it seems investors are also having doubts. Hummingbird's share price has dropped to 113p - a 35% drop from a year-high of 175p last year.

But Betts is upbeat about the task ahead: 'It's the ultimate risk, reward. And you get exposure to some great people, you get to travel and there's a sense of adventure. Isn't that what business is about?'

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