Breaking new ground by crowd funding mining exploration
Western Australian startup Greenfields Exploration is not only a young mining company, but an incubator whose aim is to put adventure back into exploration.
They have a clean, ethical and progressive business model targeting new territories that gives investors access to exploration projects at their inception before the stage at which they are normally offered to the public.
Unearthed Marketing Communications Lead Hannah Frankish recently caught up with Greenfields seed investor and In-House Advisor Ahmad Saleem to find out more about their exciting first exploration territory, the Greenland Frontier Project, their startup journey, his insights into innovation and entrepreneurship in the mining industry, and their equity crowdfunding campaign. Here’s what Ahmad had to say:
How did Greenfields Exploration first come about? What was your motivation to embark on the incubator approach to frontier exploration?
There are two parts to the story of how our company came about. The first relates to how Greenland came about. It all started with Jonathan Bell (our Managing Director and Founder) in 2016. It was the bottom of the commodity cycle, and Jon had been looking at ways to start his own company for a while by this point. But he was struggling to find a suitable flagship project to build the company around. It just so happened that the Greenland Government came to Perth for an open day to talk about the potential in their neck of the woods. Jon was at this presentation and really liked what he saw. It was a frontier region of the world with the right geology, but had largely been ignored by other explorers, meaning competition would be low, but potential could be very high. It is rare for a small exploration company to stumble upon a project like this. So, it really was a no-brainer opportunity to start in Greenland.
The second part of the story relates to how the business model came about. Having worked with, followed and invested in several mineral exploration companies, Jon noticed that a lot of junior exploration companies were struggling to find new deposits because of some fundamental restrictions. The main issue was around investment. Investors seemed to only want to invest in exploration companies that looked likely to provide a return in the short term. So, this was forcing companies to look more towards mature areas even though there was a chance of a big discovery somewhere else. The result is that a lot of money is being spent ‘whittling away at the same piece of wood’, with lower chances of discovery and ultimately yielding smaller, lower-quality results. This was probably causing another derivative problem: forcing the few successful explorers to become miners.
To be good at exploration requires a completely different skill set than being good at developing and running a mine.
Therefore, this would most likely not benefit these small companies in the long term. All of these company behaviours made sense within the overall industry trend of mineral exploration discovery rates dropping drastically in the last decade or so. Jon realised that there was an opportunity here: for a company built around early stage exploration that focused on how to do exploration better without worrying about becoming a miner.
This is where the incubator business model came about. In a nutshell, we aim to be the Airbnb of early stage exploration. We want to benefit from earning potential, while not becoming overburdened with asset maintenance.
We will find frontier regions of the world to explore, take on the risk of exploring these areas, develop exploration projects, and when it comes time to aggressively test these areas, we will partner with another company that is better suited to this type of exploration, retain an interest in the project and move on to finding the next project to work on.
We are not completely unique in using this business model. There are a few Canadian companies that are using it, and you could argue that Australia’s most successful explorer, Mark Creasy, operates using this model. What sets us apart is that we are marrying the incubator model with a strong intention of using the power of the crowd. We are using crowdfunding to get up and running, by passing the established and restricted funding avenues that prefer the norm rather than the innovative opportunities. Greenfields also aims to run crowdsource competitions. We are cognisant that we are a small company and do not want to be limited by what we know or can do. So, we wanted to build a business model around using the expertise that sits out there in the wider industry and community.
How did the Greenfields team meet? What were your career backgrounds before getting involved?
The main characteristic that binds us together is that we are all motivated by trying to do something different in this industry. As Founder, Jon was instrumental in putting the vision behind the company together. Lindsay Dick is a lawyer but wanted to get more involved in the startup space. And Lindsay met Jon through his brother, who is a geologist. Mat (Chairperson Mathew Longworth) previously worked with Jon and having been involved with a few mineral exploration companies before, liked the opportunity of working for a company that wanted to take the road less travelled. My involvement started as a seed investor early on, as I really wanted to back Jon with his ideas and what he was trying to do. I then became further involved by helping the Greenfields team plan and execute the field programs that need to be carried out in Greenland. In summary, we are all here for the right reasons, which makes it easy to get along.
Has launching Greenfields changed the way you think about innovation and entrepreneurship in the mining industry? Do you think startups should “dig” the resources sector?
Yes. There is no denying that it has been a challenge on many fronts. Even though we had extensive validation about our geological concepts by some of the smartest people in the game, we found that funding for new ideas and projects is incredibly hard. If we had stuck to the status quo, simply pegged a small area in one of the usual well-worn locations, and yelled a hot commodity, financing would have been much easier. Although funding a small brownfield project is less of a challenge, the trade-off is that the probability of a major discovery is much lower.
There is a quote by Adam Grant, a psychologist at Wharton, who said that “currently we do not have a lack of novel ideas. We have a lack of people willing to back the right novel ideas.” And that is what we have found; a real aversion to backing new and novel ideas.
Consequently, there does seem to be a disconnect between the risks people are willing to take and the rewards that they are asking for. No one wants to fund the behaviour that will lead to fundamental value generation in this industry. Whereas, you look outside the industry, like the risk tolerance in the ICO universe, or the entrepreneurial spirit of Silicon Valley, and you can see that there is an appetite out there for true entrepreneurial endeavours, especially with a potentially disruptive business model. So, we realised very early on that we had to embrace other industries and people as much as, or more, than our own.
Can you describe the opportunity that Greenfields Exploration is chasing and the size of the prize?
I’d get thrown in jail if I stated dollar figures — and quite rightly so. But at the end of the day, exploration is an inherently risky enterprise, so we can’t make any promises whatsoever. That said, we are a junior targeting an opportunity that would be fit for a major mining company.
This is the benefit of working in a frontier region. You have the opportunity of discovering a giant deposit, something that could be world class.
To give you an example, our Greenland project is prospective for copper deposits that you see in the Central African Copperbelt and the European Kupferschiefer belt in Poland and Germany. A lot of the world’s copper supply comes from these two areas. We have similar geology on our project, according to our technical analyses and independent reviews. The project is also located in a similar location to the world’s greatest nickel deposit. But while this potential is much more conceptual, it is something that gets our blood flowing as well.
That does not mean we will definitely find something — but the potential is there, and it is largely untested. And that is what excites us. We don’t know how many places on Earth tick these boxes, but it may be less than the number of fingers on a hand. The nice thing about exploring for the big stuff is that all sorts of smaller targets will fall out of the tree. We know there is potential for nickel, zinc, lead, tungsten gold and more, but for the moment, we are focusing on the elephants in the room: copper cobalt and nickel.
How is Greenfields Exploration a superior solution to the status quo?
Our business model is built around aiming to do one thing and do it well: be a frontier explorer. We are not interested in developing a mine.
We plan to do low-cost, easily executable exploration work that substantially lifts the knowledge bar and the understanding of an area, before joint-venturing or spinning-out the projects into different companies.
This allows us to retain exposure to a mine (and potential cash flow) and build a portfolio of minority interests. But it also helps other companies by technically de-risking projects or areas to explore. Within Greenfields, we will diversify the risk through a portfolio holding, while having dedicated teams focus on each project. This is opposed to the classic model where you have one hero project in a mature location, and the others in the company languish. This approach minimises the downside risk, while maintaining exposure to the upside. We think it is a safer, smart and more efficient way to explore.
How does Greenfields envisage handing over projects to mining companies?
Conventional joint-ventures over the entire project, or selective mineral rights. This will primarily involve in-ground expenditure, and depending on the situation, additional cash or shares.
Our primary focus is to retain a minority interest in the asset. To make sure we don’t get held hostage to a buyers’ market, we may also spin-out the assets into a separate company and allow that company to focus on a different skill set.
At the end of the day, each partner and asset will dictate the nature of the transaction, so we’re quite flexible on how things may proceed. We are open to trying different ways of getting a deal done.
How engaged do you think the mining industry is with local startups and entrepreneurs in WA? How do you think the engagement could be improved?
For true entrepreneurial pursuits, I think the engagement is low. For ideas or solutions providing incremental change, it is palatable. To be fair, most industries are resistant to new concepts or places, as it is a behaviour that is inherent in most humans.
Seeing the appearance of shared work spaces such as CORE Innovation Hub is a step in the right direction. Perhaps a way the government can help is by extending the government Early Stage Innovation Company tax incentives to early-stage explorers.
At the moment our seed investors do not have the tax offset benefits that they could get in other innovation sectors. Similarly, the state government tips in dollar for dollar into programs such as the Exploration Incentive Scheme that largely go towards supporting drilling. However, drilling is a very precise method that is appropriate for relatively mature projects. Having funds for geophysics and other sensing methods, or techniques used as reconnaissance methods as opposed to direct testing through drilling, would help a lot as well.
It is well-known that founding a startup is no easy feat. What are the major challenges that you have faced or foresee facing? How will you overcome them? Any advice for resources sector startups?
Crowdfunding! The beauty here is that if you have a solid vision of a good opportunity, you can by-pass the traditional gate-keepers. In an odd quirk of the market, what often happens is that funds sit on the sidelines to see if the retail (mum and dad) investors like the story, before moving in and mopping up the shares.
Crowdfunding helps demonstrate this appetite to the funds, something that previously was not possible in Australia.
Greenfields Exploration has recently launched an equity crowdfunding campaign. Why have you chosen to do this?
We think that the type of person that gets involved in crowdfunding has the risk tolerance for progressive, alternative companies like our own.
Conventional markets may be conservative, but ICO investors are extremely risk-tolerant. We see crowdfunding as a good middle ground.
Of course, being first helps with getting attention. The downside is that the attention is on the funding novelty, potentially to the detriment of the commercial underpinnings.
Are there any other exciting developments on the horizon for Greenfields that you can share?
We are doing so much it is hard to get it all out in one message! On the immediate horizon, we are getting ready for the work that we plan to do in Greenland in a few months. We are also talking to other startups, both within mining and outside, to see whether they can help us explore better or utilise our datasets better. But probably the most pertinent, and the reason we are here talking to Unearthed, is that we plan to run some crowd competitions in the near future. As we mentioned earlier, we do not want to be limited by what we know.
It just makes sense to get as much input from others outside of our company to help interpret our data and define exploration targets for us. It is our point of difference and a cornerstone to how we want to operate.
We also hope to develop in-house expertise on not only running crowd competitions but knowing what to do with the results. We hope this will become another competitive advantage for us.
Thank you to Ahmad Saleem for taking the time to share the Greenfields Exploration startup journey and details of their progressive business model and crowdfunding campaign.
We wish the Greenfields team every success in their future adventures giving investors access to exploration projects at their inception.
To find out more about Greenfields Exploration, visit: https://www.gexpl.com, or if you are interested in investing in the Greenfields Exploration crowd-sourced funding campaign, visit: https://billfolda.com/offer-detail/105-greenfields-exploration-limited.
For more information about upcoming Unearthed events and competitions, visit: https://portal.unearthed.solutions/.
