From streaming deals to STOs: financing options for cash-strapped miners

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The mining and metals sector is certainly facing challenges, one of the biggest being raising capital to fund the projects needed to bring the minerals of the future to market.

In an industry known for being typically slow to adopt technology innovations, some miners, especially cash-strapped juniors, are needing to explore new financing structure options.

An STO is a digital asset that is structured to comply with applicable securities regulations. It is the same as a regulated investment, wrapped in a digital token structure

A success story in arranging alternative financing for the junior market is Nevada Copper’s Pumpkin Hollow project.

In 2017, Nevada entered into a $378 million construction financing and recapitalization package, including a $70 million precious metals stream, $80 million senior secured loan and $53 million debt to equity conversion.

In May 2019, Nevada Copper inked a $115 million credit agreement with Germany-based KfW IPEX-Bank and also announced a public share offer and concurrent private placements to raise $30m, two off-take agreements with European metal companies Aurubis and Concord Resources and a working capital facility worth $35m.

In October, Nevada Copper announced remains on target to commence production in Q4 2019 and to complete within its project cost estimate.

Blockchain-based solutions

Over the last few years, miners are increasingly adopting blockchains and smart contracts, a study by global law firm White & Case shows.

Mining royalty and metal streaming financings, the authors of Rise of digital finance: Tokenising mining assets and metal streams, Rebecca Campbell and Andrzej Omietanaski say, 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.

Rapid advances in blockchain technology are reinventing the way companies operate and deliver products and services to their clients, according to the authors.

“Tokenized mining royalties combine a traditional royalty instrument like an instrument that pays out by reference to actual mineral production or revenue derived from a mine site with an STO structure,” Campbell told MINING.com.  

An STO — a security token offering — is a digital asset that is structured to comply with applicable securities regulations. It is the same as a regulated investment, wrapped in a digital token structure.

STOs emerged in 2018, evolving from the ICO — introductory coin offering — a blockchain-based fund-raising mechanism in which new cryptotokens are created and sold to purchasers by the project itself in exchange for fiat and/ or cryptocurrencies, typically Bitcoin or Ethereum.

“Another way to think of it is that mining companies are able to securitize individual royalties via the STO — this contrasts to the current model where in most cases the counterparty to royalty instrument is a private mining fund or a listed royalty company,” Campbell said.

She added that an STO can be backed by any form of asset. In the case of tokenized mining royalty, they are backed by the royalty instrument itself – to the extent the royalty pays out, the token benefits.

While some see blockchain-based structures as a kind of financing revolution, Campbell sees it as an evolution.

“It is trendy to describe various aspects of digitalization and automation of the mining industry and of the capital markets as ‘revolutionary’. We think the opposite — it is quite a natural evolution of the existing capital raising techniques employed by the sector, especially in this case where the underlying asset is quite a traditional instrument.”

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