Copper King Mining Company: A Case Study In Using Loans And Equity To Finance A Start-Up

Abstract

The proposed Copper King mine in south central Utah was expected to produce millions of dollars in copper, gold and silver. A nearby struggling town and thousands of speculators and large banks seized upon this promise. They all were willing to invest in developing the mine. Copper King tried a wide variety of financing approaches, one at a time, over a several year period during which a significant amount of funds were raised. The financing options employed allow a study of the technical financing requirements of each of the options (hard money loans, waterfall loans, private equity and public equity). Copper King Mining Company is a lesson in the difficulties of financing a start-up. Important theoretical concepts include the problem of banks dealing with asymmetric information and moral hazard, along with the tools they use to mitigate that risk. Asset valuation and the price of risk are also important lessons in this case.

This case is most appropriate for classes in corporate finance, money and banking, investing and entrepreneurship.