Mining Companies: Where to Get Money?

THIS POST WAS ORIGINALLY PUBLISHED JANUARY 25, 2010

Mining Companies: Where to Get Money?

As some of the mining pundits mention, mining industry has a very distinctive feature: it takes minerals from the Earth and converts them into wealth. However, this process is extremely tedious and requires, besides strong will and determination, something more – money – and big money. A very good point is highlighted in presentation of MinEx Consulting “without additional funding, a quarter of the industry will go out business within 6 months”  – this is based on their analysis of Australian juniors.

Of course, every mining entrepreneur is continuously working on raising value, as it is shown in this Value Addition Curve:

 

 Source: VALUATION METHODS FOR MINERAL  PROJECTS

In mentioned earlier presentation of MinEx Consulting there are some useful tips to survival for mining companies in the present environment:
1.Work hard on developing a loyal shareholder base
2.Raise money when you can — But need to pin it to a good story
3.Keep head office costs to a minimum
4.Incentivise your staff
5.When spending money on drilling, make sure it’s well spent by camping out with the drilling crews
In fact, this presentation gives a good analysis where the miners spent their money on; including some interesting data (like the average life cycle for a mining junior company is about 12 years, etc.). Definitely worth reading!

In this small series of posts, I want to provide some hints on #2 mentioned: RAISE MONEY WHEN YOU CAN. In my opinion, which is supported by the latest set of events on financial world, we are now on the brink of a major upsurge in M&A activities, and other ways of fund raising (sic: recent RUSAL’s IPO).

So, starting from the very general things: what is financing for mining projects, per se? 
There are three ways to finance:

Of course, various mining projects, being at various stages require different types, ways and means for raising money. This is generally illustrated in the following graph:

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