Once reserved for charities, individual causes and fundraising, crowdfunding and crowdsourcing has become a viable way to bring startups to fruition and raise investment capital. Crowdfunding has also been fairly successful in creating a buzz, spreading word of mouth and increasing interest in philanthropic projects, new technologies and entertainment and media sector.
As the popularity of crowdsourcing grows, it’s interesting to note that other industries are beginning to look to crowdsourcing, one of those is the mining and resource industry.
Traditionally, mining investments are facilitated through various alternative financing tools, such as streams, off-take agreements and royalties. While these have proven to be tried and true strategies, the allure of technology is always tempting, especially when it promises to bring new financing tools. Mining companies that have turned to a crowdfunding platform to finance their ventures are certainly evidencing this trend.
Crowdfunding is different from traditional financial tools that mining companies are used to, in part because it uses a web-based platform to raise funds through small contributions from a large pool of registered users. Under this new financing method, investors can purchase shares from both private and public companies and derive profits from those shares, should the companies perform well financially.
Over the last year, we have begun to see the emergence of equity-based crowdfunding platforms specifically targeting the mining sector. In Canada, Toronto-based Klondike Strike Inc. was the first to offer a mining-centric equity crowdfunding interface. Its proprietary platform, Red Cloud, operates through the offering memorandum exemption pursuant to section 2.9 of the National Instrument 45-106 Prospectus Exemptions (NI 45-106).
“I believe we are the first to create this type of website and that is a bit daunting but I believe this is going to be the future of financing, not just in the mining sector but in all sectors,” said Chad Williams, Klondike Strike’s president and chief executive officer.
Late last year, Australia began looking seriously at using crowdfunding to alleviate the pressure junior mining companies were feeling from a decrease in capital. The potential capital that can be raised through large groups of investors is also appealing to the country’s larger resource and mining industry which have been suffering from capital issues.
But, what is the catch, Richard Warke, is something I’m asked when crowdsourcing and mining are combined in the same sentence.
The catch is that crowdfunding in the mining industry is new and unknown. Is there potential risk when we get investors who are naïve or unaware of the operations and protocols of a given sector? Yes. Should crowdsourcing investor do their due diligence? Absolutely. Should they be made absolutely well-aware of the risks associated with investing in the mining industry? Again, absolutely. These are all questions to contend with.
It’s still too early to tell how crowdsourcing will affect the mining industry. However, it does promise to be an alternative investment method to those that are popular now.
“This is a revolutionary event and opens the door for almost any Canadian to directly invest in a mining project,” said Mark Ayranto, chairman of the board of directors for Banyan, an international gold producer. “I don’t know if this will completely replace traditional financing but it enhances what is already in place.”