Crowd-Financed Exploration: Striking Gold!

By  David Drake , Natural resources, whether we are referring to metals, minerals, oil or gas, is the cornerstone of the global economy and of our way of life. The industrial revolution started with coal mining and with the energy produced from burning of the coal.

According to the statistics provided by the International Council on Mining and Metals, the demand for minerals grows once a country reaches the 30% urbanization mark and when per capita income reaches $5000 – $10 000 per year. Large countries (Brazil, China, India) have reached those benchmarks, thus, during the last couple of decades, the demand for minerals grew exponentially worldwide. The increased demand for metals and the increased value of most metals have resulted in a significant development of the mining industry, from US $214 billion in 2000 to US $644 billion in 2010.

Figure 1 shows the value of global production by metal in 2011. The top 3 metals mined are iron ore, gold and copper. Together, they account for 68 percent of the total value mined (US$ 854 billion) produced globally in 2011. The remaining 32 percent comprised nickel, phosphate rock, zinc, PGMs, diamonds and other metals. They may not be economically important, but they are strategically important in our daily living. Nickel is vital component in stainless steel production while manganese, chromite and other alloying elements provide strength and hardness to steel. PGMs, on the other hand, are used in catalytic converters to reduce car emissions.

 

global production by metal, Mining and Metals, Nickel, Gold, Silver

Figure 1. Value of global production by metal in 2011.

The demand for rare minerals on the global market is driven by technological advances. Products like microprocessors, sophisticated medical devices, aircraft engines, and all sorts of electric and electronic equipment depend on the extraction of such minerals.

Mining was (and in many ways it still is) a tough industry from all points of view: risky and expensive for investors, hazardous for the workers and last, but not least, with a bad reputation among the ecologists. Work conditions improved drastically in the last decades, as well as environment protection standards, but the industry still has a rather bad public reputation.

However, companies specialized in natural resources exploitation (mining for minerals included) are ready to change the face of this industry through crowdfunding. This type of public financing ensures easier access to the money, transparency, full disclosure of financial interests, technological advances and better protection for the environment.

Crowdfunding recently became an option for companies that are trying to finance their mining-related projects and for accredited investors interested in this industry.

A U.S. based tech startup, ExplorationFunder, launched in 2013 the world’s first crowdfunding platform that intends to connect accredited investors with junior mining firms. On a market adverse to risk, early stage exploration and development mining companies are having an increasingly hard time finding investors – and this is where ExplorationFunder intervenes. Robert Leclerc, CEO and co-founder of ExplorationFunder, declared that he hopes the platform will become “The Facebook” for natural resources companies.

KlondikeStrike Canada is the world’s first equity crowdfunding platform for mining investing, soon to be  launched in 2014. Mining companies will be able to list their projects on the platform. Accredited investors have the opportunity to select the ones they are interested in. Not all companies that apply will be accepted and listed on the platform.  KlondikeStrike Canada has advisers that will select only viable, trustworthy projects. The final approval for each project will come from investors. The crowdfunding platform’s promoters declared that the typical mining project will be between $500 and $10 million.

Some companies managed to gather funds in record amount of time, for projects that are truly sci-fi. Planetary Resources, a mining company that intends to mine near-Earth asteroids, raised $1 million dollars on Kickstarter in just 20 days, in June 2013. The money will be used to send a telescope into space to search for potential asteroids suitable for mining. Although the days of mining on asteroids might be a little further down the road, the very fact that a startup company got so much public support for a project so ambitious says a lot about the huge opportunity provided by crowdfunding. A cutting-edge project such as the one proposed by Planetary Resources would have been nearly impossible to finance through conventional channels

Case study: how crowdfunding could make a difference

Rosia Montana is a small town located in Transylvania, in the middle of Romania, in an area very rich in gold and other mineral resources.  Gold and other metals were extracted here since Roman times or before. During the last decade, the small town of Rosia Montana became the scene of a battle that involved a mining company, corrupt officials, unemployed miners and very active and vocal environmental activists.

Gabriel Resources LTD, a Canadian TSX listed company, tried to push for the development of a controversial mining project that would have become Europe’s largest open-pit gold mine. The extraction process would have been based on cyanides, and 8 million ounces of goldand other rare metals would have been extracted over a period of 25 years.

The project raised public suspicions right from the start: the company had no previous mining experience and was founded in Channel Island of Jersey, a well-known tax haven. The company obtained a very generous mining license from the Romanian government for that area, and the vast majority of the citizens  suspect that the officials were corrupted by the company.

The biggest concerns, however, were raised by the immense pond of cyanide infested sludge that would result from the mining project and the estimated 214 million tons of dust particles.

While some of the locals, unemployed miners, were militating for the project, the vast majority of people living in that area were firmly against the project. In 2013 after some of the largest public manifestations seen by Romania in the last 25 years, and after more than 10 years of court battles between the company and the local communities, the project was halted. Miners in Rosia Montana are still unemployed and the company is suing the Romanian government for compensations.

This is actually the perfect example to illustrate how crowdfunding is a better option for many projects in mining industry. The source of the funds and their destination is public: no more suspicions about corrupt officials or shady investors. A project gets through several channels of approval (first, the crowdfunding platform then the investors) and gets funded only if it’s viable from all points of view. Also, crowdfunding could potentially allow local communities to be part of these mining projects, which would give them a sense of control and empowerment.

A new approach to mining, supported by crowdfunding

Large corporations active in natural resources exploitation don’t have the best public reputation, and mostly for good reasons. In a very large organization, direct responsibility and an ethic approach toward the mining project, toward the local communities, the miners and the environment tend to dissipate.

In today’s world, as more and more people become preoccupied with environment protection and a judicious exploitation and use of natural resources, traditional mining projects, involving large, financially potent corporations, are under a lot of scrutiny. Crowdfunding, on the other hand, offers the transparency that satisfies all the curiosities of the public.

Although statistics about crowdfunding in natural resources industry are not available yet, since it’s a very new activity (first website launched merely a few months ago), the signs are more than encouraging. Planetary Resources reached its $1 million milestone in 20 days, and another $500 000 during the following 10 days. Also, ExplorationFunder already listed several mining project located all over the world that are  waiting for accredited investors.

Crowdfunding offers a chance to startup mining companies to develop smaller-scale, but safer and more technologically-advanced projects. Crowdfunding could just be the instrument that will turn mining into a more ethical, more responsible industry.

If you are part of this industry please reach out to us and share your stories. We keep track of how crowdfunding is being explored for the natural resources industry at the June 19 Newport Beach conference.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Group– Impact Investing Media – a global financial media company with divisions in Corporate Communications, Publications and Conferences. You can reach him directly at David@LDJCapital.com.

 

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