Mature investors will find the idea of crowdfunding a mining project completely bizarre.
Crowdfunding is associated with young people raising donations or loans from strangers over the Internet for worthy causes (like university fees and student productions) or to commercialise new (often wacky) inventions.
Traditionally, older people with savings looking for a bit of diversification or extra return might put some money into a mining venture on the advice of their personal brokers.
The two goals seem very far apart.
Chad Williams, president and CEO of Red Cloud Klondike Strike Inc, in a live feed from Toronto to the Junior Mining Indaba in Auckland Park last week, said crowdfunding for mining projects was lagging crowdfunding for other purposes, such as property funding. He said this was the future of raising venture capital for mining.
In SA, even during the mining boom, it was difficult for mining explorers and developers to raise financing from shareholders and banks, but Canadian and Australian investors have tended to be less risk-averse. Crowdfunding would make it possible to reach that source of funds.
Peter Major of Cadiz Corporate Solutions says it is surprising it has taken so long for the mining sector to discover crowdfunding. In the information technology sector, “angel” investors have been around for years, and this is a similar concept.
So far, Red Cloud is the first and only company in the world to do mining crowdfunding, though Williams says there are more than 1,000 other crowdfunding platforms in the world.
Crowdfunding offers investors access to opportunities they have not had before and widens the potential source of funds for mining ventures beyond what Williams calls “love money” — contributions from friends and family.
Williams is a former mining analyst, fund manager and mine manager. He started the company four years ago, after identifying a gap for assisting mining companies that have good projects but no relationships to access capital markets. Red Cloud now employs 15 people.
The company began working on crowdfunding about 18 months ago and it took about 14 months to get Canadian regulatory approvals for it.
“It was very, very difficult,” Williams says. “On a scale of 1 to 100, it was 110. They scrubbed us very hard. Regulators are adapting to new technology and their first mandate is to protect investors. It will be easier for the next company.”
Red Cloud is permitted to take money from investors anywhere in the world except the US. It offers only projects on which it has done traditional broker due diligence research. “Investors can be sure we have looked under the rocks,” he says.
Williams says Red Cloud has about 45 companies in the pipeline but will select only about 5% of them, or even fewer, to go onto the platform. “Our reputation is on the line,” he says. Red Cloud takes a stake in the companies it is promoting and hopes to continue doing so.
The company’s website has five listings, ranging from C$1m sought by Radisson Mining to C$5m for Goldquest Mining Corp.
So far Red Cloud has only raised equity the traditional way but it is planning to source other types of funding for mining in future.
The platform has about 500 users already and is adding about 10 a day. These are male “baby boomers”, who are typical mining investors. But as this generation gets older, millennials (born in the 1980s) will take over, and they are far more likely to want to invest online. Red Cloud intends to devote a lot of effort to marketing to this age group.
Potential investors must register on the platform before they can browse the offerings. Investments can be made immediately through the website and the money is put into a trust account until the minimum subscription is raised, when it is transferred to the mining company.
Mining companies wanting to raise funds this way have to apply online. Red Cloud will tell them whether they are accepted, and then they have to complete some legal documentation.
They should use social media themselves to raise interest in their venture and Red Cloud will also market it.
Williams says the minimum funding that Red Cloud will raise is C$500,000 for a project as it is not cost effective to raise smaller amounts. There is no upper limit.
Fees are similar to traditional brokerages, at 5%-7%, with 7% charged for smaller projects. These fees are likely to fall as more competition enters the market. The biggest fundraising Red Cloud has done so far is a portion of the C$11m that was raised by IDM Mining.
Traditional financiers may feel threatened by Red Cloud but Williams says the market is changing. An analogy would be the travel agency business, where customers no longer visit agents to make bookings but do most of the arrangements themselves over the Internet.
“The old boys’ club is reluctant to change but the more forward-thinking firms will either buy us or start their own platforms,” Williams says.
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