Financing Of The Small, Independent Mining Enterprise (6a08ec96-0449-4356-92c9-38941820ccfa)

INTRODUCTION A small, independent mining enterprise (SIME) is an independently owned and operated business concern engaged primarily in mineral development, from the exploration to the production stage. A SIME may or may not be listed on stock exchanges. By definition, a SIME is not dominant in its field and has no long-term financial backing. As such, it is not a major producer of minerals, nor is it a petroleum company, a government organization or a subsidiary of such organizations. The survival and growth of a SIME is most often controlled by an independently minded entrepreneur, who not only conceives and carries out new projects, but is materially affected by the success or failure of these projects. Usually, a SIME does not have a large or constant cash flow. Such a lack of long-term financial backing forces the SIME to meet the challenge of finding capital for its activities on a step-by-step basis. Its survival strategy is thus based on finding funds at the right time, of the right type and in the right quantities. The purpose of this paper is to show that the type of venture in which a SIME is involved affects the difficulty of raising new capital and the choice of possible sources of funds. The Small, Independent Mining Enterprise The SIME, also called small miner, junior mining company, speculative mining company, and pennystock mining company, is not a figment of the imagination of financial speculators. In Canada, there are more than 1,800 small mineral enterprises which spend on the average less than $1,000,000 per year on activity which is directed at bringing forth new mineral supply. In the United States, 64 percent of the non-fuel mining operations are conducted by nine or fewer men, and the coal industry is characterized by several thousand smaller independent producers, still predominantly family-owned or controlled. In Chile, 80 percent of the mines can be classified as small mines. In the Philipines, approximately 60 percent of metal mining operations are classified as small mines. The SIME is actively engaged in mining all over the world, and very much so in the Pacific Rim. The Mineral Supply Process The whole process of bringing forth new mineral supply involves a dynamic sequence of activities, ranging from the initial exploration for a mineral occurrence to the production of a marketable product. A typical sequence is outlined in Figure 1. At the grass-roots exploration stage, a series of geological, geophysical and geochemical tests is aimed at locating a mineral occurrence. Especially in the early phases of such activities, the uncertainty (risk) surrounding a venture is high, since only general geological information exists on which to base a judgement of the economic viability of the venture. Such risk is attractive to few investors.