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Mineral project financing and risk: some alternative sources

9 May 2017 - by Richard Lloyd ARSM MIMM

Despite a rebound in commodity prices and a recovery in share prices the financing of mining projects is still a long and tricky process. CEO’s and boards have to be ever more nimble in the sources of finance, the storm clouds are clearing and according to the “Investec Mining Clock” we should expect a dearth of investment opportunities.

For juniors convertible bonds are becoming more prevalent in early stage development. For those looking at DFS stage and project development the royalty streamers are becoming ever more important and are looking at earlier investments in a project lifecycle in order to lock in long term returns. The PE funds still have a great deal of money to deploy and new funds are being raised, but they remain slow coming to the financing table - although RCF and Orion in particular are opening the cheque books.

The due diligence requirements and risk analysis however remains paramount. Early consideration is key - in tougher times sensible risk transfer is a balance sheet protection.

Price Forbes’ mining team have been engaging with all forms of financier recently and hope to assist in unlocking the door to these institutions by analysing and presenting the risk mitigants early to prospective finance parties.

Staging payments from royalty streamers from early on in a project’s development helps in mitigating these risks as the project grows. It should also not prohibit the company raising traditional project or corporate debt financing later on in the development phase – a royalty stream or NSR can be easily modelled into final DCF model and should satisfy those few banks who remain in London and Toronto, for example, that are still willing to provide project finance.

Rule 1: plan your financing needs early and consider the options for the entire Life of Mine (including rehabilitation and environmental bonding).

All forms of financier are paying closer attention to environmental sustainability and the adaptation to climate change as they consider natural resource management. Indeed when involving institutions such as the IFC or EIB acute focus on the above is imperative. Environmental management plans as well as the original environmental baseline study are now common place.