Mineral Exploration Financing – we need a new model
The “capital strike” that currently affects the junior exploration sector continues to deepen with the result that exploration risk capital is currently very difficult to obtain. The reason? The way we, as an industry, finance early stage exploration in the global junior sector is inefficient, wastes capital and is no longer working.
Our incentive is to tap into the large amount of sophisticated risk capital that currently avoids early stage exploration like the plague. To do so, we need a new approach that links this risk capital to strong projects through an interface of trust — trust that capital will be allocated effectively and that less reputable parts of our industry will be screened out.
The approach that WMS proposes is the Exploration Aggregator Model:
The key to this model is that within the Aggregator, between sophisticated risk capital and a portfolio of early stage exploration projects operated by junior companies, there sits a trusted third party. The role of the Aggregator is twofold:
- Select, carefully and with skill, the best exploration projects for investment, then
- Ensure these projects are advanced with the best science and technical discipline.
The Aggregator may be directly owned by the sophisticated risk capital, it may be a specialist third party or perhaps could be a division of a major mining company that is dedicated to this function (in that case, also tapping capital from the parent company). What is important is that the Aggregator must possess and integrate these capabilities: financial literacy, strong strategic understanding of mineral exploration, and world-class technical skills. Collectively, these capabilities earn the trust of the investor.
Please follow this link to our most recent Paper for more on this topic and why we at WMS support this Aggregator Model. Learn why we conclude that, in the context of this Model, early stage mineral exploration, investment in a high quality well-managed early-stage exploration portfolio, is actually a low risk investment, which should attract the sophisticated risk capital investor, when compared to the large, high risk investment typically required to test viability of one advanced project that in all likelihood has little chance of successful development.