Mining isn’t just about drills, cut-off grades, or mineral reserves. It’s also financed in offices, through complex negotiations with banks, funds, and market analysts. For mining companies, especially those focused on exploration, understanding how capital markets work is as vital as understanding the subsoil.
In this sense, understanding how to raise funds, what financial instruments exist, and how an acquisition is structured can make the difference between moving toward production or disappearing altogether. According to the experience shared at a recent conference, fewer than 20 of the companies we closely monitor actually reach production.
The Challenge of Financing Without Revenue
The vast majority of exploration companies don’t generate revenue: their business model is to drill, estimate resources, and seek investors willing to bet on the discovery. This forces them to understand the mechanisms of venture capital financing, where capital markets connect those with money to those who need it.
A key instrument in this process is private placements: transactions in which a broker seeks investors willing to provide financing in exchange for shares, generally at a discount to the market value and with incentives such as warrants, which allow investors to acquire shares at a fixed price if the value rises.
Options available in developed markets
In countries like Canada, there are specific tools such as flow-through shares, which allow investors to deduct their investment from taxes, incentivizing investment in early-stage projects.
Another option is bought deals, where a bank directly acquires a company’s shares, without the need for promotional campaigns. This type of agreement ensures immediate financing, although it involves fees and discounts that can affect the company’s valuation.
Another financing alternative available in developed markets like Canada is the Capital Pool Company (CPC) Program, a route used by early-stage mining companies to enter the stock market without needing consolidated operations. This mechanism allows a group of investors to create a company without operating assets, list it on the TSX Venture Exchange, and then merge that entity with a private mining project. This facilitates access to capital from the initial stages, within a regulated and transparent framework, reducing the costs and requirements of a traditional IPO. The CPC is a strategic tool for entrepreneurs in the mining sector seeking structured financing from the public market.
Taking on debt? Not without revenue
Traditional debt—such as bank loans—is usually ruled out in the early stages. Without revenue, the possibility of default is high. In contrast, other alternatives stand out, such as royalties, which provide a percentage of future production in exchange for current cash, or metal streaming agreements, which secure financing without incurring direct debt.
These options allow development to progress without compromising the project’s financial stability.
Instruments to Incentivize Investment
Canada, a global hub for mining finance, offers unique options such as flow-through shares. This mechanism allows companies to transfer their tax benefits to investors, who can deduct taxes, making the transaction more attractive even if the company is not yet profitable.
There are also bought deals, where a bank directly acquires shares of a company without prior promotional campaigns. This accelerates financing but often involves high fees (up to 6%) and discounts on market value, which can negatively impact the perceived value of the company.
Mergers and Acquisitions as a Growth Strategy
Many junior companies are not looking to build a mine, but rather to be acquired. Developing an attractive resource and demonstrating viability can make them desirable targets for larger companies. Transactions can be friendly, when there is agreement between the parties, or hostile takeovers, when the interested company goes directly to the shareholders without prior negotiation.
These operations can involve changes in control, the generation of value for shareholders, or strategic disputes if the parties have divergent visions of the project’s future.
Understanding the System, Making Better Decisions
Experience indicates that projects that successfully progress from exploration have
- Significant mineral potential.
- Location in politically stable jurisdictions.
- Simplicity in its design and in metallurgical processing.
Complex projects with high costs or regulatory risks are far less attractive to investors. Therefore, in addition to geological potential, financial and strategic clarity is essential to stand out in a competitive market. The sustainability of a mining project begins long before the first gram of ore is extracted: it starts with how it is financed, how it is communicated, and how strategic decisions are made to ensure its viability.
Content based on the presentation by Dale Mah, geologist and Vice President of Corporate Development at Endeavour Silver Corp., during the 2024 Sustainable Mining Summit, held in Mendoza, Argentina. Full video available at this link.
Boosting financing for the mining sector
This work is linked to our program Impulsando el Financiamiento, which seeks to strengthen local capacities and facilitate access to financing for companies and entrepreneurs in the mining sector. The program offers information, tools, and training so that those seeking to invest, grow, or provide goods and services can better understand the available financial mechanisms and connect with major global financial centers. We invite you to explore these resources, learn more, and develop your skills to enhance your opportunities.
As part of this program, the Workshop: Financing Tools for Mining Suppliers will be held on August 6. This training will be key for suppliers in the mining value chain who are looking to improve their financing options through the capital markets and boost their growth.
The workshop, which will be held in person at the Mendoza Legislature auditorium, is free of charge and requires prior registration.