Large mining companies also carry out a small amount of risky mineral exploration (that is, equivalent to my country's preliminary survey and general survey) through the exploration department or exploration branch. The parent company arranges the annual exploration budget to carry out mineral exploration, which does not involve mineral exploration. Capital market financing. This section only discusses commercial mineral exploration financing for individual prospectors and junior exploration companies (including private companies and listed companies). Project financing for mine feasibility studies and development that require a large amount of funds, that is, project financing similar to detailed investigation and exploration in my country, is not discussed in this book.
As mentioned above, in the risk exploration financing for junior exploration companies, since the risk of the lender is much greater than the risk of the borrower, it is difficult or rarely obtain debt financing. Risk exploration financing for junior exploration companies mainly includes the following types:
1. Seed capital
Seed capital comes from personal financial capital and is of the nature of private equity. For example, an individual's financial capital portfolio, private company investments, support from certain funds. Seed capital has a preference for promoter quality, prospecting ideas, and project selection. Private equity is based on the risk exploration tax credit system. Individual investments in risky mineral exploration can be deducted from personal income tax in some countries.
2. Listed Financing
The stock exchange originated from mining and railways. Listed financing is the main channel for junior exploration companies to raise funds in the capital market.
When the stocks of junior exploration companies were initially listed, because the company’s exploration rights were only a target area containing prospecting potential and ideas, the value of the exploration rights was not high, so the stocks of junior exploration companies at this time The price is not high, generally 0.3 to 0.4 Canadian dollars per share. Once a new discovery is made in exploration, the stock price will rise rapidly; once a large and profitable mine is discovered, the stock price will rise dozens or hundreds of times. For example, the discovery of the Boka gold mine in Yunnan sent shares in Canada's Southwestern Resources Corp. up 30-fold. The high growth of this kind of capital has attracted a large number of small and medium-sized investors to invest, pooling funds dispersed in society and investing them in risky exploration of minerals. Most prospecting projects fail, and investors can exit at the right time without losing all their money. In a sense, buying shares in junior exploration companies is entering a "mineral exploration casino." Investors in Western countries understand this kind of commercial mineral exploration culture, and there are a large number of such investors in North America, Western Europe, and Australia. After the promulgation of my country's new Mineral Resources Law in 1996, the Shenzhen Investment Promotion Bureau seized the opportunity and held a mining investment promotion conference in Shenzhen: EXPO-97. The intention is to attract investors from Japan, Singapore, South Korea, Hong Kong, and Taiwan to invest in mineral exploration and development. Due to the lack of business culture in mineral exploration, they are not used to "gamble on mineral exploration". Investors in East Asia such as Japan, Singapore, South Korea, Hong Kong, and Taiwan are happy to invest in projects where input and output can be calculated (such as factories, hotels, etc.), but are discouraged from high-risk and high-return exploration investments. In addition, in the second half of 1997, which coincided with the global retreat of mineral exploration, this investment fair did not attract a single risky exploration investment.
When a junior exploration company goes public for financing, in addition to selling stocks, it also allocates warrants, which means that a junior mineral exploration company grants investors the right to purchase a specified amount of the company's shares at a specific time and at a specific price. Once there are good prospecting results, investors in mineral exploration will receive excess returns on their risk investments.
Although listing financing can obtain valuable risk exploration funds that are difficult to obtain through borrowing, it will also bring a lot of trouble to junior exploration companies. Therefore, some junior exploration private companies with funding sources are not eager to go public. Financing. Preparing prospectuses, negotiating with stock underwriters, quarterly financial reports and annual financial audits, information disclosures, internal transaction reports, a large amount of paperwork, as well as tedious meetings such as shareholder meetings and board of directors meetings, these tasks are very difficult for companies with poor administrative resources. Junior exploration companies are a heavy liability. A CEO of a junior mining exploration company told me that 60% of his time was spent doing this. In addition, listed junior exploration companies must disclose prospecting information in a timely manner, which will cause trouble for junior exploration companies in countries and regions with poor mining order. Fluctuations in metal prices and the ups and downs of the securities market will also have some impact on the operations of junior exploration companies.
3. Joint venture exploration
Joint venture exploration (JV) is essentially a way of financing for junior exploration companies. Generally speaking, after investing in mineral exploration, a junior exploration company that owns exploration rights exchanges part of the rights and interests of the exploration rights with prospecting potential for the cash investment of another investor to establish a new legal person or unincorporated cooperation or joint venture. , continue mineral exploration. The financing nature and operation methods of joint venture exploration will be further discussed in Chapter 5, Operational Procedures of Commercial Mineral Exploration.
4. Mortgage Loans
Since mineral exploration is a high-risk investment and the cash flow is negative during the exploration stage, it is difficult to obtain exploration funds in the form of loans during the exploration stage. If an ore body with good grade and thickness has been discovered during the exploration, it is necessary to carry out intensification drilling control and carry out mineral processing tests, that is, it has entered the pre-feasibility study stage, which is roughly equivalent to the detailed investigation and exploration stage in my country, and it is possible to obtain a mortgage loan.