Driven by challenging financing conditions, mining companies have sought creative financing options to fund their ventures. While traditional financing options such as bonds, loans and equity generally remain most attractive, companies now access multiple financing sources, combining traditional options with alternatives such as mining royalty and metal streaming financings. These approaches have been particularly popular in the last decade as alternative financing sources that allow access to early-stage capital without diluting equity ownership.
Combining the mining royalty finance model with an innovative digital financing wrapper in the form of a security token offering (STO) could prove attractive to both mining companies seeking capital and to investors. Similarly, the mining stream financing model—a common metals prepayment structure—would be potentially amenable to tokenization (the process of issuing a blockchain security token that represents a tradable asset).
There are many ways to structure a mining royalty token. For example, token issuance could be split into two simultaneous offerings—“Series A Tokens” and “Series B Tokens”—to ensure a light regulatory burden in compliance with US Securities Regulations. Series A Tokens could be issued only in the US to targeted investors who need no immediate liquid market and would be happy to retain the tokens. Series B Tokens could be issued in another jurisdiction with favorable token issuance regulations toward non-US investors.
The royalty token offering gives mining companies greater control in raising royalty-linked capital, and potentially diversifies the sources of royalty finance away from the select group of listed royalty companies and specialist funds that have traditionally dominated this area of mining finance.
Eventually, digital financing structures will profoundly affect the mining & metals industry, though it may take some time for the traditional ecosystem to change.
Back to the Annual Review landing page
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2020 White & Case LLP
