Crowdfunding Our Natural Resources: A Way to Ethical Mining? #crowdfundmining

Natural resources, which include minerals, metals, oil or gas, occupy a central role in our everyday life. Minerals are essential to our economic development. The minerals, particularly the metals, have specific properties such as high strength, durability, conductor of heat and electricity and aesthetic appeal that endear them to the industries, and us.

Figure 1, from the International Council on Mining and Metals (ICCM), shows the location of mining around the world from 1850 to present. At first, you can see a dramatic increase in the developed countries then a dramatic decline in recent years. The mining locations around the world shifted from developed to developing countries, starting mid 20th century.

According to the statistics provided by ICCM, the demand for minerals grows once a country reaches the 30% urbanization mark and when per capita income reaches $5000 – $10 000 per year. Large countries (Brazil, China, India) have reached those benchmarks, thus, during the last couple of decades, the demand for minerals grew exponentially worldwide. The increased demand for metals and the increased value of most metals have resulted in a significant development of the mining industry, from US $214 billion in 2000 to US $644 billion in 2010.

In addition, the ICCM report revealed that the top 3 metals mined are iron ore, gold and copper. Together, they account for 68 percent of the total value mined (US$ 854 billion) produced globally in 2011. The remaining 32 percent comprised nickel, phosphate rock, zinc, PGMs, diamonds and other metals. They may not be economically important, but they are strategically important in our daily living.

World Mining by Region 1850-present

World Mining by Region 1850-present
Figure 1. Location of mining around the world, 1850-present.

The demand for rare minerals on the global market is driven by technological advances. Products like microprocessors, sophisticated medical devices, aircraft engines, and all sorts of electric and electronic equipment depend on the extraction of such minerals.

Mining was (and in many ways it still is) a tough industry from all points of view: risky and expensive for investors, hazardous for the workers and last, but not least, with a bad reputation among the ecologists. Work conditions improved drastically in the last decades, as well as environment protection standards, but the industry still has a rather bad public reputation.

However, companies specialized in natural resources exploitation (mining for minerals included) are ready to change the face of this industry through crowdfunding. This type of public financing ensures easier access to the money, transparency, full disclosure of financial interests, technological advances and better protection for the environment.

Crowdfunding recently became an option for companies that are trying to finance their mining-related projects and for accredited investors interested in this industry.

A U.S. based tech startup, ExplorationFunder, launched in 2013 the world’s first crowdfunding platform that intends to connect accredited investors with junior mining firms. On a market averse to risk, early stage exploration and development mining companies are having an increasingly hard time finding investors – and this is where ExplorationFunder intervenes. Robert Leclerc, CEO and co-founder of ExplorationFunder, declared that he hopes the platform will become “The Facebook” for natural resources companies.

KlondikeStrike Canada is the world’s first equity crowdfunding platform for mining investing, soon to be launched in 2014. Mining companies will be able to list their projects on the platform. Accredited investors have the opportunity to select the ones they are interested in. Not all companies that apply will be accepted and listed on the platform. KlondikeStrike Canada has advisers that will select only viable, trustworthy projects. The final approval for each project will come from investors. The crowdfunding platform’s promoters declared that the typical mining project will be between $500 and $10 million.

Some companies managed to gather funds in record amount of time, for projects that are truly sci-fi. Planetary Resources, a mining company that intends to mine near-Earth asteroids, raised $1 million dollars on Kickstarter in just 20 days, in June 2013. The money will be used to send a telescope into space to search for potential asteroids suitable for mining. Although the days of mining on asteroids might be a little further down the road, the very fact that a startup company got so much public support for a project so ambitious says a lot about the huge opportunity provided by crowdfunding. A cutting-edge project such as the one proposed by Planetary Resources would have been nearly impossible to finance through conventional channels

Case study: how crowdfunding could make a difference

Rosia Montana is a small town located in Transylvania, in the middle of Romania, in an area very rich in gold and other mineral resources. Gold and other metals were extracted here since Roman times or before. During the last decade, the small town of Rosia Montana became the scene of a battle that involved a mining company, corrupt officials, unemployed miners and very active and vocal environmental activists.

Gabriel Resources LTD, a Canadian TSX listed company, tried to push for the development of a controversial mining project that would have become Europe’s largest open-pit gold mine. The extraction process would have been based on cyanides, and 8 million ounces of gold and other rare metals would have been extracted over a period of 25 years.

The project raised public suspicions right from the start: the company had no previous mining experience and was founded in Channel Island of Jersey, a well-known tax haven. The company obtained a very generous mining license from the Romanian government for that area, and the vast majority of the citizens suspect that the officials were corrupted by the company.

The biggest concerns, however, were raised by the immense pond of cyanide infested sludge that would result from the mining project and the estimated 214 million tons of dust particles.

While some of the locals, unemployed miners, were militating for the project, the vast majority of people living in that area were firmly against the project. In 2013 after some of the largest public manifestations seen by Romania in the last 25 years, and after more than 10 years of court battles between the company and the local communities, the project was halted. Miners in Rosia Montana are still unemployed and the company is suing the Romanian government for compensations.

This is actually the perfect example to illustrate how crowdfunding is a better option for many projects in mining industry. The source of the funds and their destination is public: no more suspicions about corrupt officials or shady investors. A project gets through several channels of approval (first, the crowdfunding platform then the investors) and gets funded only if it’s viable from all points of view. Also, crowdfunding could potentially allow local communities to be part of these mining projects, which would give them a sense of control and empowerment.

A new approach to mining, supported by crowdfunding

Large corporations active in natural resources exploitation don’t have the best public reputation, and mostly for good reasons. In a very large organization, direct responsibility and an ethic approach toward the mining project, toward the local communities, the miners and the environment tend to dissipate.

In today’s world, as more and more people become preoccupied with environment protection and a judicious exploitation and use of natural resources, traditional mining projects, involving large, financially potent corporations, are under a lot of scrutiny. Crowdfunding, on the other hand, offers the transparency that satisfies all the curiosities of the public.

Although statistics about crowdfunding in natural resources industry are not available yet, since it’s a very new activity (first website launched merely a few months ago), the signs are more than encouraging. Planetary Resources reached its $1 million milestone in 20 days, and another $500 000 during the following 10 days. Also, ExplorationFunder already listed several mining project located all over the world that are waiting for accredited investors.

Crowdfunding offers startup mining companies to develop smaller-scale, but safer and more technologically-advanced projects. With safeguards in place, crowdfunding for mining projects can and will turn this industry into better, more responsible and ethical industry.

If you are part of this industry please reach out to us and share your stories. We keep track of how crowdfunding is being explored for the natural resources industry at the June 19 Newport Beach conference.

Note: This article originally appeared on HedgeCo.net with this link http://www.hedgeco.net/blogs/2014/06/16/crowdfunding-our-natural-resources-a-way-to-ethical-mining-crowdfundmining/  on June 16, 2014.

 

David Drake is the Chairman of LDJ Capital, a multi-family office; Victoria Partners, a 300 family office network; LDJ Real Estate Group and  Drake Hospitality Group; and The Soho Loft Media Group with divisions Victoria Global Communications,Times Impact Publications, and The Soho Loft Conferences. Reach him directly at David@LDJCapital.com.

Judith Rodin

Judith Rodin

President, The Rockefeller Foundation

Margot Brandenburg

Margot Brandenburg

Former Senior Associate Director

Today, our new e-book hit the digital shelves, “The Power of Impact Investing: Putting Markets to Work for Profit and Global Good.” This e-book has been in the making since 2007, when the term “impact investing” was first coined at a convening hosted by the Rockefeller Foundation at our Bellagio Conference Center. Seven years later, we are proud that impact investments are punching bigger than the weight of those two words, providing a vibrant and viable option for investors looking to generate both financial return and make social or environmental impact.

Here’s what we’ve learned along the way:

1. Impact investing is incredibly diverse. While all impact investing is united by a dual intent to generate both financial and social returns, the opportunities within the umbrella are vast. They include microfinance, affordable housing development, conservation and renewable energy finance and social impact bonds, to name just a few. And it varies by asset class, the investor’s risk tolerance and expectation of return, sector and geographical scope. Impact investments can take the form of equity, debt, cash deposits or another hybrid form. Investors are as diverse as impact investing itself—ranging from private bankers, institutional investors, board members of nonprofits, or the smaller-scale crowd-funders who represent an array of goals, appetite for risk, amount of capital to spare and time horizon. There is something for everyone.

2. Impact enterprises are at the heart of impact investing. Impact enterprises—more traditionally referred to as social enterprises—combine passion with good ideas. They are creating jobs, providing critical goods and services, and creating social and environmental benefits. Without these enterprises and other, non-enterprise destinations for capital—such community facilities and sustainably managed natural resources—impact investors could not translate their dollars into their desired impacts. For example, an impact investor who wanted to help improve sanitation in Africa could not do so much without enterprises, such as Ecotact, which developed a waterless toilet that is funded through modest user fees and local advertising. More work is needed to build a robust pipeline of impact enterprises to absorb the incoming capital.

3. Of all the support mechanisms needed for successful impact investing, impact rating and measurement systems are among the most critical. These systems not only help mission-focused investors and fund managers assess the social and environmental performance of their investments, but also enable impact enterprises to measure and improve their operations and services. Today, effective measurement systems such as the Global Impact Investing Rating System (GIIRS) and theImpact Reporting and Investment Standards (IRIS) are leading the pack, but continued refinement of these tools will only increase investors’ confidence and enterprises’ performance.

4. Data on investments that fail are as valuable as positive track records. Many investments—even mainstream investments—have the potential to fail, and often do. Understandably, investors are often hesitant to share this kind of data. But the open sharing of information and lessons learned will help both investors and companies spend more time on scaling up models that work.

5. The universe for impact investing is global, as both a destination and source for impact capital.In its early years, impact investing gained its greatest momentum in North America and in parts of Europe, such as the United Kingdom. But recently, impact investing is gaining traction in South and Southeast Asia, India, Africa, Latin America and the Middle East where it can play a critical role in the continent’s continued economic and social development.

6. Governments play a critical role in the decisions of impact investors. It might not be immediately obvious to the average investor, but governments can make their lives easier or harder, depending on the kind of environment they create for impact investing. Some of the ways that governments can enable impact investing include introducing benefit corporation legislation, providing lower corporate income taxes for high-impact businesses, funding incubators, and making equity investments.

7. If impact investing becomes “business as usual,” the future will be a much different place. As far as impact investing has come in seven years, there is still more to do to make it the norm, and give everyday investors access to a range of investment products. But if we do, aspirational estimates suggest that impact investments could one day represent 1 percent of professionally managed global assets, channeling up to hundreds of billions of dollars towards solutions that can address some of our biggest problems, from poor health to climate change.

We keep learning more about this exciting field every day—and our imaginations keep growing with every new possibility. Thank you to all who have been a part of this mutual learning over the last 7 years, and we hope you are as proud of this e-book and the progress it represents as we are.

This article originally appeared here.