• Published in March 05, 2024 18:20 inMining

Raising Funds for Geological Exploration: Strategies and Challenges

Geological exploration is a fundamental pillar in the search for mineral resources, essential for both economic development and the global energy transition. However, this activity requires significant investments in research and development. In this article, we discuss effective strategies for raising capital, the challenges faced by companies in the sector, and how Silveira Capital can assist in structuring and presenting financing projects, focusing especially on the recent financing program launched by BNDES.

Introduction to Geological Exploration

Geological exploration encompasses the investigation of the subsoil to identify exploitable mineral deposits, being the critical first step in the life cycle of a mine. This highly technical and specialized process requires not only geological expertise but also substantial capital to be effectively carried out.

The Importance of Capital in Geological Exploration

Capital is crucial at all stages of geological exploration. From preliminary research to advanced exploration, each phase requires financial resources for equipment acquisition, testing and analysis, and compliance with environmental and safety regulations. This is a high-risk capital-intensive stage.

Challenges in Raising Capital

The more embryonic the project, the greater the uncertainty of its technical and economic viability and, consequently, the higher its risk. As geological exploration is the initial step in developing a mineral project, it is also the riskiest stage of the process, and therefore companies face several challenges in seeking financing and investors for this stage. There are few investors and financial institutions that accept the risk of this business stage.

Sources of Capital for Geological Exploration

Financing sources range from venture capital and debt financing to initial public offerings and strategic partnerships. Each source has its specific advantages and requirements, making the choice an important strategic decision. In Brazil, there are no specific financing lines for geological exploration, and the Brazilian stock exchange has not yet structured for public offerings of junior companies, leaving only the construction of strategic partnerships and public offerings in countries like Canada (Toronto Stock Exchange, TSX) and Australia (Australian Securities Exchange, ASX). A national alternative is the Strategic Minerals Investment Fund (FIP) launched by BNDES, which we will discuss later.

Effective Strategies for Raising Funds

Companies can increase their chances of successfully raising funds. The first step is through the preparation of compelling technical reports, even a project at an early stage can explore this step very well by pointing out solid evidence of the area's high potential, even if obtained through a simple area mapping and based on reliable information and third parties (such as neighbors, DNPM, among others). It is always worth highlighting the importance of the NI 43-101 and JORC standards, following them is essential to bring more credibility to the project.

Foreign Investment in the Brazilian Mineral Exploration Market

Today, with the success of various national and international players in the Lithium Valley, such as Latin Resources, Lithium Ionic, Sigma Lithium, and rare earth projects like Meteoric and Virids, foreign investors have opened up to the possibility of buying, supporting, and investing in embryonic-stage mineral exploration projects here in Brazil. Projects in promising regions, near known deposits, with strong evidence of high potential, even without drilling already performed, have become sought after by foreign buyers. In addition to initial projects, there is also a great search for more advanced projects still in the geological exploration phase or even close to entering operation. The main focus of foreign investment is strategic minerals crucial for the energy transition such as lithium, tin, rare earth elements, nickel, copper, cobalt, zinc, among others.

BNDES and MME Launch R$ 1 Billion Fund for Strategic Mineral Projects

Recently, BNDES and MME announced the launch of the Strategic Minerals Investment Fund (FIP), aimed at financing junior and medium-sized companies in the research, development, and deployment of new strategic mineral mines. This fund, expected to mobilize up to R$ 1 billion to invest in 15 to 20 companies with promising projects in the area of mineral research and development of new mines in Brazil, is a pioneering initiative to leverage the strategic minerals sector in Brazil, focusing on minerals crucial for the energy transition and sustainability such as cobalt, copper, tin, graphite, lithium, among others, as well as minerals essential for soil fertility, like phosphate and potassium.

The Role of Silveira Capital

Silveira Capital, a specialist in business development and M&A, is ready to assist companies interested in accessing the Strategic Minerals Investment Fund. The consultancy can help in structuring and writing projects for submission to BNDES, maximizing approval chances. Silveira Capital also has an active client base looking for opportunities in Brazil, with high demand, there are not enough interesting projects for the international market at any stage of development, as long as it has high potential and focuses on minerals crucial for the energy transition. With vast experience in the mining sector and an extensive network of contacts, Silveira Capital is the ideal partner for companies seeking capital for geological exploration.

Conclusion

Raising capital is one of the greatest challenges for geological exploration companies, but it is also an opportunity to boost innovative and sustainable projects. With initiatives like the Strategic Minerals Investment Fund and the support of specialized consultancies like Silveira Capital, the Brazilian mining sector is well-positioned to explore its geological potential responsibly and effectively.