Basic Sources Of Mine Financing

INTRODUCTION The real problem is finding the "appropriate" financing sources by matching the risk and reward expectations of the various classes of investors and lenders. Generally, lenders who advance funds temporarily are interested in assuming only limited risk and conversely expect to earn only a limited reward. The equity owners on the other hand, are expected to take most of the risk of the enterprise, but should receive a reward commensurate with that risk. In particular they will receive the benefit of the company's increase in net worth over time. MINE DEVELOPMENT CYCLE Consider the development cycle of a mining project beginning with rank wildcat exploration (Figure 1) [ ] Just as different professionals must be utilized at different stages, so must different funding sources be used at different points in the pipeline. Figure 2 shows the general sources of funding: [ ] This concept can perhaps be better understood if we compare the risk with the capital requirements. Suppose each area within a triangle is proportional to the risk taken (see Figure 3): [ ]