Speedy progress in
blockchain technology is prompting companies to reinvent the way they operate
and deliver products and services to their clients, particularly in the mining
and metals industry.
Though
traditionally slow in adopting technological innovations, miners are
increasingly adopting blockchains and smart contracts as a source of
productivity and transparency gains, a study
by global law firm White & Case shows.
According to
authors Rebecca Campbell and Andrzej Omietanski, the same technologies could
also herald new sources of finance, particularly for small to medium miners,
which continue to struggle to raise equity and equity-like capital to fund
ventures.
While traditional
financing options — bonds, loans, project finance, prepayment, convertible
bonds, equity — remain generally the most attractive and understood, it is now
common for companies to access multiple financing sources.
Mining royalty and
metal streaming financings, say Campbell and Omietanski, have been particularly
popular with miners in the last decade as an alternative financing source for
growth projects, allowing access to early-stage capital without diluting equity
ownership.
White & Case
argues it’s time for digital token offerings to become an alternate or
supplement to traditional financing options available to mining companies. The so-called
“tokenization” is gearing up as a standardized mechanism for providing access
to the ownership of traditional assets by representing them in digital and
programmable form on public or private blockchains. It’s particularly being
applied to illiquid assets in the belief that the collective digitization and
unitization of the underlying asset can make it more tradeable.
In a report published
earlier this month, the Financial Stability Board warns however that, while
digital tokens could be an answer to lack of investors, they could potentially
create an appearance of liquidity in assets that are inherently illiquid, which
would may also have negative implications for financial balance.
Campbell and
Omietanski believe the arrival of tokjenization to the mining industry is
imminent. They foresee traditional mining royalty financings, wrapped in a
security token offering (STO), as the first blockchain-based digital financing
structures to be widely applied in the worldwide sector.
They conclude that while it may take some time for the traditional ecosystem to change, it’s a question of when, not if.