Mineral Financing

The mineral industry, so important to industrial development, faces a major challenge in creating the most effective financial structure to provide funds essential for seeking, evaluating, developing, and extracting minerals. The acquisition of funds for mineral development and plant erection do not differ greatly from fund-raising in nonmineral ventures because risks are essentially comparable. High-risk exploration funds, however, are more difficult for the mineral industry to acquire. With the world's ever-increasing appetite for minerals, the internally generated cash of major oil and mining companies cannot be expected solely to maintain the world's mineral supply. The augmented costs, risks, and difficulties of exploration have been shared increasingly by the smaller independent operator and by private and public participation drilling programs within the petroleum industry over the past 30 years. Only recently has the mining industry awakened to the need for utilizing exploration and development funds derived from sources other than established mining and banking circles. Almost from its inception, the oil industry was forced to drill deep holes through overburden without the aid of a mineral "outcropping" which required geological, and in subsequent years, geophysical interpretation. The poorly financed, nontechnical prospector, who depended on a mineral outcrop, was not to play an important role in oil exploration as he did in mining. Because of the high cost of drilling and the demands for technical judgment to locate an exploration drill hole, corporate and sophisticated private funds generally financed oil discoveries. When external funds were subsequently required, these financially sophisticated explorers would turn to the banking community from which came numerous ingenious innovations, taking cognizance of existing tax laws. Like the oil explorer, the miner is now faced with probing below the surface, relying solely on regional geology and geophysical anomalies. The day is gone, for practical purposes, when the prospector discovers a deposit from a mineral outcrop. There is little doubt that the mining industry will now follow the course taken by the petroleum industry in acquiring external funds if it is to meet the future raw material requirements of the world. The oil industry has been able to attract bank funds more readily than the mining industry after a mineral discovery has been made because: (1) with few exceptions, an oil discovery can be placed into commercial production and will generate cash at much less expense and time than a mine; and (2) generally, costs of oil production, the value