This article was originally published in Canadian Mining Magazine, and is being republished with permission.
Although a sense of optimism seems to have caught up to the mining industry in this post-federal budget announcement period, the quest to find funds to finance mining ventures remains challenging. While various alternative financing tools, such as streams, off-take agreements and royalties, have been on the rise and increasingly relied upon, there seems to be a constant interest in new financing tools. Mining companies that have turned to a crowdfunding platform to finance their ventures are certainly evidencing this trend.
Crowdfunding is different from the traditional and alternative financing methods previously mentioned because it uses a web-based platform to raise relatively small amounts of contribution from a large pool of registered users. Traditionally associated with philanthropic projects, new technologies, entertainment and media, equity crowdfunding platforms are now emerging in the mining sector. Under this financing method, investors can purchase shares from both private and public companies, and derive profits from the shares should the companies perform well financially.
In Canada, the Toronto-based company Klondike Strike Inc. was the first to offer a mining-centric equity crowdfunding platform. Its platform, Red Cloud, operates through the offering memorandum exemption pursuant to section 2.9 of the National Instrument 45-106 Prospectus Exemptions (NI 45-106) and as an exempt market dealer1 through the National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Exemptions (NI 31-103).
By relying on the offering memorandum exemption under the NI 45-106, an equity crowdfunding platform can allow mining companies to solicit investments from a wider range of investors than it would normally through the Multilateral CSA Notice 45-316 – Start-up Crowdfunding Registration and Prospectus Exemptions (Notice 45-316) and the Multilateral Instrument 45-108 Crowdfunding2 (MI 45-108).
For instance, the Red Cloud platform requires a minimum of $2,500 per investor, and the maximum amount depends on whether the investor qualifies as an eligible investor or as a non-eligible investor under the NI 45-106. Non-eligible investors3 may invest a maximum of $10,000 cumulatively for all investments made within a 12-month period. Eligible investors4 may invest a maximum of $30,000 cumulatively for all investments made within a 12-month period, unless they receive suitability advice from a portfolio manager, investment dealer or exempt market dealer, in which case this limit is increased to $100,000. Furthermore, investors who qualify as institutional investors, accredited investors,5 or family, friends and business associates may invest without any amount limitations.
Currently, the two mining companies listed on the Red Cloud platform, Radisson Mining and Banyan Gold, are respectively seeking $1 million and $750,000 on an equity-based model. However, Klondike Strike plans to offer flow-through shares, streaming agreements and other financing tools on its platform in the near future.
What distinguishes crowdfunding platforms from other traditional financing methods is not simply their use of the Internet and social media, but the fact that they provide everything investors require to make an investment decision in a single platform. Investors can research a company, have access to its disclosed documents, such as financial statements and management discussion and analysis, and invest in it all through a single web-based platform.
Given its accessibility and flexibility, crowdfunding could provide an interesting opportunity to mining companies to have access to an extensive pool of investors who are not necessarily reachable by traditional financing methods to finance their mining ventures.
In British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland & Labrador, and Yukon.
The British Columbia securities regulator has not yet implemented this instrument.
Investors who do not meet certain income or asset thresholds specified for the eligible investors.
Any individual who owns alone or with a spouse at least $1 million in financial assets or whose net income exceeded $200,000 alone or $300,000 with a spouse in each of the last two years and, finally, companies with net assets of at least $5 million may also qualify as an “accredited investor.”
Net income before taxes was more than $200,000 in each of the two most recent calendar years and is expected to be more than $200,000 in the current calendar year; net income before taxes combined with a spouse was more than $300,000 in each of the two most recent calendar years, and their combined net income is expected to be more than $300,000 in the current calendar year; financial assets, alone or with a spouse, of more than $1 million before taxes but net of related liabilities or net assets, alone or with a spouse, worth more than $5 million.