By Dr Nicolaas C Steenkamp
The need for alternative fund raising in mining based on new and alternative platforms is increasingly being explored, with varying degrees of success.
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Dr Nicolaas C Steenkamp is an independent consultant, specialising in geological, geotechnical and geometallurgical projects and mining project management. He has over two decades of industry experience with global exposure. (ncs.contract@gmail.com) |
One of the greatest challenges for exploration and mine development remains raising funds. Traditional routes of raising funds can be cumbersome and in most instances have a significant burden on the project or could be completely unsuccessful. The need for alternative fund raising based on new and alternative platforms are increasingly being explored, with varying degrees of success. Blockchain technology, specifically cryptocurrencies and security tokens, can be used to raise funds for mining exploration and development. This approach allows companies to bypass traditional financial institutions and access a global pool of investors interested in both cryptocurrency and the mining sector.
Security tokens
Mining companies can tokenise their unmined resources – like gold or other minerals – and sell these tokens to investors. This allows for fractional ownership of the resource, making it more accessible to a wider range of investors. The value of the tokens may be guided by estimates of potential mineral inventories but is considered to be high risk. It may be linked to inferred mineral resources if previous funding was obtained that allowed initial exploration to be undertaken.
Companies can raise capital without relying on traditional bank loans or venture capital, potentially avoiding high interest rates or predatory financing. The use of blockchain technology ensures transparency and security in transactions, providing investors with a clear record of ownership and transactions.
Few companies have ventured into this approach as it is still considered to be in proof-of-concept stage of development. A couple of pioneering companies have issued security tokens in order to raise funds. One such company is FutureGold, which uses security tokens backed by gold royalties and streams, offering investors potential capital appreciation and access to monthly reports on the investments.
Cryptocurrencies
The use of cryptocurrencies allows companies to directly raise funds by selling cryptocurrencies in an “initial Coin offering (ICO)” or similar mechanisms. This approach can attract investors who are more comfortable with cryptocurrencies and potentially bypass traditional investment hurdles. This approach is geared towards investors that may be attracted by the potential for high returns associated with successful mining projects. It is however not without risks, including volatility in cryptocurrency prices and regulatory uncertainty.
Smart contracts
Smart contracts can be used to automate compliance with environmental regulations and ensure funds are allocated to projects meeting specific green standards. It can also automate other processes, such as royalty payments and production sharing, streamlining operations and reducing administrative costs.
Benefits
The biggest benefit touted is that the blockchain-based fundraising can open up new avenues for raising capital, especially for junior mining companies. It has the potential that new and junior companies can tap into a global pool of investors interested in both cryptocurrency and the mining sector.
Blockchain technology can help reduce administrative costs and streamline operations. The transparent and secure nature of blockchain can build trust with investors, where provenance of the metals, such as cobalt from the DRC or diamonds, is considered a requirement.
Investors can diversify their portfolios by investing in mining projects through blockchain-based instruments. Investors would need to conduct either an independent due diligence or have a third party undertake it on their behalf to derisk the investment, where successful mining projects can offer high returns on investment. The utilisation of Blockchain technology provides a transparent and secure way to track investments and ownership.
Considerations
The regulatory landscape surrounding cryptocurrencies and blockchain is still evolving, and companies need to carefully consider the legal and regulatory implications of using these technologies for fundraising, notes Riaan van der Walt, an independent geological project advisor. Cryptocurrency prices can be highly volatile, and investors need to be aware of the potential risks associated with investing in cryptocurrencies. Some blockchain-based fundraising methods may require specialised knowledge of both the mining industry and blockchain technology.
He notes that the success of blockchain-based fundraising in the mining sector will depend on the level of interest from investors – particularly retail investors – in this type of investment.
Non-fungible tokens
Non-Fungible Tokens (NFTs) are relatively new and have not had a significant contribution to the potential funding of exploration and mine development funding. An NFT can be used to raise funds for mining exploration and development by creating a digital representation of a stake in the project, offering it to investors as a token. This allows for the tokenisation of assets like royalties or even fractions of future production, enabling retail investors to participate in mining projects that might otherwise be inaccessible due to high entry costs or complex financing structures.
Tokenising mining assets
Mining companies can tokenise future royalty streams, selling NFTs that represent a percentage of the revenue generated from a mine’s production. The issued NFTs can represent a claim on a certain amount of future mined material, like a specific quantity of gold or other precious metals. NFTs could even be used to represent fractional ownership in exploration licenses or permits.
Attracting investors
NFTs can make mining investments accessible to a wider range of investors, including those who may not qualify for traditional mining finance or lack the resources for large-scale investments. NFTs can foster a sense of community among investors and the mining company, potentially leading to increased engagement and loyalty. Blockchain technology behind NFTs provides a transparent and traceable record of ownership, which can be appealing to investors concerned about accountability.
Potential for mining companies
NFTs offer a new avenue for raising capital, potentially reducing reliance on traditional financing methods. With access to more capital, mining companies could accelerate project development timelines and may be able to raise capital without diluting ownership through equity offerings.
Lacklustre start
To date, only one company has made an attempt to use NFTs to finance operations. Madison Metals launched what it claims to be the first uranium-backed NFT in 2023, aiming to attract retail investors to the uranium market. It however did not garner the expected interest and Madison Metals abandoned the NFT and returned to traditional fund-raising efforts in 2025.
NTF considerations
It is further stated by van der Walt that the regulatory landscape for NFTs and tokenised assets is still evolving, and companies need to ensure compliance. As with the cryptocurrency market, the NFT markets can be volatile, and investors need to be aware of the risks involved. It is finally stressed by van der Walt that just like any investment, thorough due diligence is crucial when considering NFTs representing mining assets.
Conclusion
The issue of digital or virtual tokens presents a novel way for mining companies to raise capital and for investors to participate in the mining sector. By tokenising assets and leveraging blockchain technology, this approach can unlock new funding opportunities, accelerate project development and foster a more engaged investor community.