Mining investments: trends and realities

Investing in mining is changing

Investment is not coming to the table at scales that are needed to fund supply growth that demand outlooks point toward as being needed. Traditional investor focus has been on the size of reserves that underlay earnings potential, along with traditional industry risks that include cost, price, exploration and political risks. Although these things will continue to matter, a changing world is changing the investment landscape of the industry.

Changes we are seeing:

1. Demand for critical minerals is soaring, shifting risk-return trade-offs. More investment is needed

2. Geopolitical rivalries, with the US, EU and China jockeying for supply positions, introduce stronger opportunities as well as broader risks

3. New investor segments are entering the market, challenging long held paradigms based on value potential that they see. These investors include country level actors- Saudi Arabia and the UAE - end customers like OEM’s and high net worth investors like Bill Gates and Jeff Bezos with Kobold Metals who see shifting dynamics that can change value propositions. The potential for blended finance approaches that integrate across investor segments has never been greater

4. ESG is here to stay - acronyms may change, but what won’t change is that communities can make or break conflict-free projects and that environmental oversight is now a basic expectation. As finance considers ESG related risks, focus and expectations will continue to sharpen. The UN Mining2030 Investor Commission speaks to this fact, as investors increasingly come together to define expectations on responsibility as well as transparency

5. Technology is changing in the mining business – AI, robotics, big data, satellite imaging – opening the door for new business and investment models

Mining projects are inherently long term. It takes 15+ years to transition from pre-exploration to operations for a large project, a timeframe that does not sit well with publicly traded companies that think in terms of quarterly and annual earnings. Today’s investment may only start yielding returns in 20 years, meaning that investment is generational in a real way. Very long timelines give private and digital equity a natural advantage over publicly held shares, as focus can more unambiguously be on value optimization over the long term.

A digital marketplace

The digital marketplace that The Blended Capital Group, Capitals Coalition, Capitals Hub Canada and Alliance for Responsible Mining are standing up will democratize access to capital for artisanal mining in a way that makes sense given broader mining investor trends.

Investors and miners will access an environment where trust, timeliness and transparency are the norm. A series of asset classes that reflect the financial, social, environmental and economic outcomes that artisanal mining formalization delivers will be the basis for integrating diverse investors into capital stacks that make sense for specific opportunities. Proven blockchain-based technology will be the backbone, supporting asset tokenization in ways that naturally encourage blends of diverse investors. AI-based technology embedded in the online marketplace will connect diverse investors, asset classes and debt-based financial instruments in ways that make sense. Along with traditional mining and non-traditional mining investors, impact investors, mining companies and public financing will all potentially benefit from the scaled formalization of ASM that at-scale capital delivered through this digital marketplace supports.

With 45 million artisanal miners operating across 80 or more countries, this digital marketplace reflects broad trends in mining investment while moving possibilities for investors ahead.

1. A blockchain-based approach that supports asset tokenization positions long-term investing – the environment is regulated, but it does not come with the short term quarterly/annual pressures to deliver that are all too central in public equity markets.  Further, timelines to formalize artisanal miners are much shorter than development times for large mines, 18-24 months, while also adding value to large mines being developed as collaborative productivity becomes a norm

2. Blending of diverse investors drives leverage – although mining has talked about the benefits of blended finance for a long time, this kind of marketplace will make it tangibly real

3. As new investor segments enter the market, a digital marketplace naturally reduces barriers for entries – OEM’s, governments, high net worth individuals, traditional mining investors and impact investors can all collaborate effectively through targeted asset class applications in individual projects

4. ESG is central – along with financial value, ASM formalization reimagines social, environmental and economic outcomes.  Local miners and communities are naturally king, given that the work is fundamentally with and about them.  Environmental oversight is de rigueur, given that it directly affects local stakeholders.  Alignment of stakeholders and investors is natural in this context

5. Artisanal miners produce critical minerals like copper and cobalt – at-scale capital delivered through a digital marketplace directly supports formalization, which in turn increases supply.  Recognizing soaring global demand for critical minerals and supply outlooks that fall short of demand, ASM is a strategic opportunity for combining tonnage, value and impact

6. Formalization is standards driven – Fair Mined, CRAFT Code, Forest Smart Mining – which enables ground-level validation of success in support of the transparency that investors rightfully look for

The specific work that is involved in formalization includes equipping, training and transitioning miners to good practices, while building capacity and standing-up fit for purpose governance approaches through coops, companies or associations, along with transforming downstream value chains in order to transition to equitable intermediates.  Details as well as benefits vary, which is why a variety of asset classes are essential.

In summary

Mining investment is changing as the broader mining industry changes.  

Combined pressure from increasing demand, emergent risks, geopolitics and shifting technology likely mean that business models in the industry will change in coming years.  Non-traditional investors will be catalysts for change, given that they are not steeped in the historical assumptions that have defined the industry for a very long time.

Along with changing industry protocols, non-traditional investors are natural catalysts for changing the dynamics of how we think about investment in the global industry.  Concepts that are central to the digital marketplace that we are developing – blockchain, tokenization, integrated capital stacks delivered through a series of asset classes, bespoke financial instruments that make sense for specific investor segments – may seem relatively new today, but when combining investor expectations, industry dynamics and shifting technologies, these concepts will become the norms of tomorrow’s mining investment.