Financing within the Precious Stone Industry
Here we examine the financing of precious stones or gemstones from mining to markets. However, before we start, what is the difference between precious stones and semi-precious stones? The distinction between precious and semi-precious goes back to ancient Greece and today precious stones are recognised as diamonds, sapphires, rubies and emeralds. All other gemstones are recognised as semi-precious.
Financing Precious Stones
Many of the larger mining companies can self-finance their mining operations, such as De Beers and Rio Tinto. Operations are financed from their own balance sheets or from banks and other traditional financiers.
In the diamond industry banks have been providing more than USD12 billion to the diamond midstream. This post-mining finance is made available from rough diamonds through to cutting, polishing and onto jewellery wholesaling. Thus, the whole supply chain is financed from mining to the shop window. Similar finance can be found in other mineral markets.
But what about the start-ups and the smaller miners known as junior miners? Most banks and traditional financiers risk models and compliance will negate any lending to these companies, who must search for alternative finance.
However, there are specialist funds that now look at investing in these miners, as well as several hedge funds or private-equity funds. These alternative lenders are likely to engage with the mining company if they are in possession of approved documentation showing that valuable deposits of precious stones are held within their concessions.
- Junior Miners – These companies may already have a mine ready to go with proof that precious stones are in abundance within their concession. There are a few options available. The most common is a joint venture, usually with a reputable miner where there will be a division of profits.
- Mid Cap Miners – Some of these companies may already be mining precious stones and need capital to expand their operations. Again, there are a few options available through alternative finance options.
- Streaming and NSR’s (net smelter returns) – Funding can be made available through the sale of part or all the future mine production. Future production is sold at a discounted rate in exchange for a percentage of future profits and in return, the miner will receive an up-front payment.
- Net Profits Interest (NPI) – This is where miners can receive an up-front payment by selling a fixed percentage of mining profits. The particular form of finance is usually available after capital costs have been paid.
So, what happens if no finance is made available to the smaller miner? Do they pack up and go home? Many miners in the past have done exactly that. However, this is where IntaCapital Swiss can help. We have enabled access to finance for many companies on a worldwide scale – who have been denied access to investment, loans, and lines of credit.
IntaCapital Swiss have been providing access to investment and credit facilities for over a decade. Based in the financial district of Geneva Switzerland, we are Europe’s leading exponents of Collateral Transfer. Many companies who have been unable to secure finance for their business plans have, through the expertise of IntaCapital Swiss, been able to secure capital investment and credit facilities.
Many companies may not have heard of Collateral Transfer, probably because it is incorrectly referred to as Leased Bank Guarantees. However, as the name suggests this is the transfer of assets from one company to another. IntaCapital Swiss offer their highly popular Collateral Transfer Facility which utilises Demand Bank Guarantees, which enable the recipients of this asset to obtain financing.
IntaCapital Swiss have a database of companies, referred to as Providers, who offer Demand Bank Guarantees to the Collateral Transfer market. Companies looking to raise capital finance will sign a contract with the Provider, a Collateral Transfer Agreement, to receive a Demand Bank Guarantee. These companies are referred to as the Beneficiary and they will pay a fee to the Provider, referred to as a Collateral Transfer Fee for the use of the Demand Bank Guarantee
Monetising Demand Bank Guarantees
Once the beneficiary has signed the Collateral Transfer Agreement and paid the Collateral Transfer Fee the Provider will instruct their bank to transfer the Demand Bank Guarantee to the account of the Beneficiary.
The Beneficiary now has first-class security sitting on their account. The Beneficiary can now apply to their bank for a loan or a line of credit offering the Demand Bank Guarantee as security or collateral. In this case, the bank will be happy to lend against this asset as they know they are 100% covered should the Beneficiary/borrower default on their fiduciary duties.
Why Demand Bank Guarantees?
Demand Bank Guarantees are one of the few financial instruments that can be monetised. This is because the verbiage contained within a Demand Bank Guarantee controls the end-use of the instrument. For example, a Customs Guarantee is a Demand Bank Guarantee and
Customs will know they will be paid should a customer default on paying the revenue owed.
Similarly, a Demand Bank Guarantee that will be monetised is written in such a way that any lender will understand that they are totally covered should the borrower default on repayment. It is important to note that Demand Bank Guarantees are governed by ICC Uniform Rules for Demand Guarantees, (URDG), 758 and are payable on first demand. The ICC stands for International Chamber of Commerce and all banks abide and adhere to their rules and regulations which include Demand Bank Guarantees.
Any precious stone mining company that has an operational mine and are struggling to obtain finance should look no further than IntaCapital Swiss. They are assisting companies all over the world to obtain finance where finance has been denied by the more traditional financiers and the alternative finance options.
In the world of mining precious stones, finance and investment in this market have been declining over the last decade. Therefore, those precious stone miners outside of the recognised Big Miners – who have little difficulty in securing finance, who struggle to obtain the necessary finance for their business plans, should look no further than IntaCapital Swiss.