Australia's junior sector turns to crowdfunding

Australian junior miners have decided to battle the capital drought afflicting the sector by turning to the Internet to raise funds.

The growing practice, known as crowdfunding, consists on soliciting small amounts of money from a large number of people in order to fund a project or venture. But small miners and explorers have been somehow deprived of the innovative method in Australia due to some legal limitations.

Cameron McLean and Joe Treacy are hoping the legal barriers will soon come down, under the new government of Malcolm Turnbull, The Australian reports:

"If and when that happens, Mr McLean and Mr Treacy plan to introduce crowd-funding as a means by which junior exploration companies could source seed capital.

"Early-stage explorers typically tap networks of industry insiders and connections for their initial funding, with those entry-level investments often enjoying significant returns if those ventures ever make it to the Australian stock exchange."

The alternative source of funding would be more than welcome not only by the junior sector, but by the industry in general. This, as the Reserve Bank of Australia's latest report, published last month, shows that most small miners are on the brink of bankruptcy as the share of companies at serious risk has risen to levels last seen during the financial crisis.

According to the RBA, the general level of financial health in the sector was weakening quickly as commodity prices remained low and firms started to run through cash they built up during the boom years.

Several junior iron ore miners closed shop last year after the beginning of a sharp dive in prices, including Termite Resources, Western Desert Resources and Pluto Resources. Meanwhile, Atlas Iron (ASX:AGO) is surviving by means of a profit-sharing agreement struck with its contractors.