It has been several years since global commodity prices plummeted in 2011 / 2012 ,many junior and exploratory mining companies are still struggling to secure project investment. Many lower-tier miners missed out completely on the 2017 mining boom, despite a surge in demand for metals and minerals like copper, zinc, nickel, cobalt and lithium.
2017 was a bumper year for the world’s top 40 miners who recorded a 30% surge in their combined market caps to $926 billion, delivering an 11% return on equity for the year, according to figures from PwC.
In 2018, as metals prices continued to surge, mining stocks went into retreat – declining by 25% globally between 1 January and 31 October 2018, according to Bloomberg’s World Mining Index.
Now,the continued weak confidence in junior and exploration mining firms is in part due to the increased competition from a raft of new investment opportunities, such as technology and cryptocurrencies, life sciences, and even the cannabis industry in North America,which exacerbate the financing difficulties.
Therefore, it is very meaningful for small and medium-sized mining companies to seek other flexible financing methods to replace the traditional equity, debt and project financing.
In this paper, Rockx Capital will introduce the non-traditional financing methods that have sprung up in recent years.
Cryptocurrencies and crowdfunding in mining
According to Fieldfisher, one of the striking trends in mining finance over the last two years – due to its novelty, rather than the volume of transactions – is the emergence of cryptocurrencies or crypto tokens as a form of funding.
This type of financing, according to Isaac, is happening mostly in Canada and Australia.
As explained in the Fieldfisher report, tokenised financing is based on the intrinsic value of a mineral deposit or its production. This differentiates such tokens from many established cryptocurrencies, such as Bitcoin and Ethereum, which are not backed by any kind of physical security. The tokens are distributed via an initial token or coin offering using blockchain technology. Once these tokens have been issued, they can be listed on third party exchanges to facilitate trading and liquidity.
The new form of financing is embryonic and therefore has associated risks, Companies should be wary of its novelty, and consider regulation carefully .Another, the way tokens and crypto is regulated is unclear, so it’s a bit riskier; but it does provide another potential avenue for people to raise money,
Production-based financing
Production-based financing – whereby companies secure cash by selling rights to receive future production from their mines – has become a common feature of the mining industry, particularly in connection with strategic metals such as lithium, nickel and cobalt.
NQ Minerals, for example, entered into an offtake agreement with Traxys Europe in July last year. For 100% of zinc and lead production from its Hellyer project in Tasmania, the company will receive $10m secured prepayment facility.
“It’s very helpful that off-takers, users, and metals traders have entered and helped fill the equity gap,” says Brad Isaac, partner, corporate, at Fieldfisher. But, he cautions, it’s not a ‘cure all’ and providers of such funding are generally ‘picky and choosy’.
Nevertheless, such arrangements have evolved over the last two years, becoming more flexible to accommodate individual mining projects. However, they have also, in turn, become more complicated.
Firms considering this kind of financial arrangement will likely need professional advisors to make sure they are going into it “with their eyes wide open”, says Jonathan Brooks, partner, head of mining and metals, corporate at Fieldfisher.
“Companies will not want to enter into evergreen arrangements where, ten years down the line, additional sources of reserves are found and the company is committed to sell those reserves.”
“It can be difficult for companies to determine pricing before they have got their head around what their project will be and what the cost of production will be further down the line. Therefore, they need to be very defined about how much they are agreeing to sell in advance and whether it’s for a set period of production or tonnage,” explains Brooks.
Private equity finance for mining companies
Another active part of the alternative finance market is the specialist mining private equity funds, such as Orion Mine Finance, Resource Capital Funds and Taurus. While most miners will normally consider raising equity on public markets, public bourses remain tough places for junior exploration and development miners to raise cash.
Private equity offers cash in return for minority stakes in projects, and a say in how they are run, with the aim of eventually selling on their stake for a profit.
In the last two years, some of these groups have started experimenting with new kinds of deal structure, with a shift towards specialist mining funds buying assets with an eye to permitting, building and operating them themselves.
These groups offer a “genuine alternative” for mining companies, says Brooks, especially because they will typically put in money at exploration stage.
The upside is that these alternative finance providers can move very quickly, their unique selling point is they will tie companies up with looser governance and restrictions than the banks and move quicker.The requirement is their money is probably more expensive and they’ll likely take some equity, but they’re very open about this.
How to get alternative finance?
Given the growing complexity in the market – and the increased competition – how should junior and exploration companies go about securing project financing?
1、 Speak to the bigger companies, see what interests they have in funding exploration, because another trend is, once the majors are doing well, they’re doing M&A deals, as they reducing their own exploration activities and relying upon juniors to find interesting projects for them,” he adds.
2、Approach a specialist broker in the mining field,,who have access to private funding, whether that be a high net worth individual or family or private equity or a wealth fund,such as Rockx Capital. That can effectively improve more financing opportunities.
About Rockx Capital:
Rockx Capital, the valuable partner of junior exploration companies ,was founded by a number of mining Competent Persons, focusing on investment of rare and precious mineral resources, focusing on rare and valuable mineral resources investment, focusing on "small and nice" mining exploration projects.
Significant position of resource industry
The core team has the signing right of JORC technical report recognized by CRIRSCO, which is used for the public listing of mining projects in Canada, Australia, Hong Kong and other international capital markets.
Rich Mining Experience
Our core team have complete experience in mine exploration, development and construction, mining and mineral processing plant operation. In the past, our core team has served more than 40 countries. The mining projects we’ve participated in evaluation and consultation worth more than US $3 billion, and we led the development, construction and operation of many large-scale mining projects, with minerals including: gold, copper, silver, cobalt, lead, zinc, lithium, coal, etc. Our customers including Anglo American gold (South Africa), KORES (South Korea), SUEK (Russia), Rio Tinto, Anglo American, Glencore, Xstrata, Mongolia Mining Corporation (Mongolia), China Shenhua, China National Coal Group, etc.
Value-added Service
Combine GP's experience in mine exploration, operation and safety management.
Exploration quality control and optimization.
Mining and Mineral Process optimization and management improvement.
Promote mines to grow to new stages at a lower cost.
Contact us
Website: http://en.rockxcapital.com/ && http://www.rockxcapital.com/
Email:info@rockxcapital.com
Tel: 86-28-85112667
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