Could share issues become a thing of the past as miners take to ‘crypto’ capital?
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The mining sector is set for an ‘Uber-style event’ with cryptocurrency increasingly used to fund projects, a top investment expert says.
For the first time ever, cryptocurrencies are being used to raise capital for the mining sector.
Some $US200 million ($272.3 million) has been raised over the past 12 months through the sale of “digital tokens”, PCF Capital principal Liam Twigger told delegates at the Africa Down Under conference in Perth, WA.
The process is similar to Initial Coin Offerings where a business undertakes a form of crowdfunding. Instead of offering share market-listed shares, an issuer sells digital tokens that can be traded on cryptocurrency platforms or swapped for products and services.
“Crypto funding is attractive due to the speed and volume of funding available combined with access to a more global and retail investor base,” he said.
“Raising capital for mining companies is at an inflection point.”
“We are about to witness an Uber-style event on the way resources companies fund themselves with the concept of companies issuing shares to raise equity potentially being a thing of the past.”
This comes after mineral exploration sank to an all-time low in 2018.
While there were 24 initial public offerings in Australia last year, there has been only eight this year, according to Mr Twigger.
“On a long-term trend, global grassroots exploration is at an all-time low, with market observers pointing to a 66 per cent decline in exploration budgets over the past four years,” he said.
“This has been mainly due to the lack of access to risk capital.”
Compliance and regulatory burdens have also led to a 50 per cent decline in the number of listed companies in the US to just over 4000 in the past decade.
“The decline in IPOs across all industries has been a notable worldwide phenomenon,” says Mr Twigger, who believes some of that share market funding will be replaced by cryptocurrency offers.
“Like running water, in the long-term, capital will always find a way around obstacles and the $US18 billion raised in cryptocurrency ICO’s over the past 12 months – almost 50 per cent of the amount raised by global IPOs – is testament to the change in dynamic,” Mr Twigger said.