Digital financing emerging as funding option for cash-strapped miners — report
Speedy progress in blockchain technology is prompting companies to reinvent the way they operate and deliver products and services to their clients, particularly in the mining and metals industry.
Though traditionally slow in adopting technological innovations, miners are increasingly adopting blockchains and smart contracts as a source of productivity and transparency gains, a study by global law firm White & Case shows.
According to authors Rebecca Campbell and Andrzej Omietanski, the same technologies could also herald new sources of finance, particularly for small to medium miners, which continue to struggle to raise equity and equity-like capital to fund ventures.
While traditional financing options — bonds, loans, project finance, prepayment, convertible bonds, equity — remain generally the most attractive and understood, it is now common for companies to access multiple financing sources.
Mining royalty and metal streaming financings, say Campbell and Omietanski, have been particularly popular with miners in the last decade as an alternative financing source for growth projects, allowing access to early-stage capital without diluting equity ownership.
White & Case argues it’s time for digital token offerings to become an alternate or supplement to traditional financing options available to mining companies. The so-called “tokenization” is gearing up as a standardized mechanism for providing access to the ownership of traditional assets by representing them in digital and programmable form on public or private blockchains. It’s particularly being applied to illiquid assets in the belief that the collective digitization and unitization of the underlying asset can make it more tradeable.
In a report published earlier this month, the Financial Stability Board warns however that, while digital tokens could be an answer to lack of investors, they could potentially create an appearance of liquidity in assets that are inherently illiquid, which would may also have negative implications for financial balance.
Campbell and Omietanski believe the arrival of tokjenization to the mining industry is imminent. They foresee traditional mining royalty financings, wrapped in a security token offering (STO), as the first blockchain-based digital financing structures to be widely applied in the worldwide sector.
They conclude that while it may take some time for the traditional ecosystem to change, it’s a question of when, not if.