Finance for Mining
Investing in Sustainable Mining
The International Finance Corporation (IFC), aids mining operations across the globe via various finance methods, focusing on mitigating social and environmental risk. It is hoped that come 2023 – 2024 that the amount of debt (bonds) and equity investment will increase in the mining sector, especially from green financing as they reduce their carbon emissions and adopt new technologies.
Start-up mining is the high end of risk in the mining sector, followed closely by junior miners. Some venture capital firms are looking at start-ups and junior miners who are offering more sustainable and environmentally friendly mining opportunities. The use of new technology such as data analytics combined with new sensor technology help understand the many variables a start-up or junior miner is confronting.
Raising Capital in the Mining Sector via ICS
At IntaCaptial Swiss we have provided many financial services and advice to our impressive list of clientele – ranging from bond issues, mergers and acquisitions, structured finance, IPO’s and acquisitions, as well as raising capital through the means of Collateral Transfer.
We demonstrate the ability to provide access to loans and lines of credit utilising our financial model, the Collateral Transfer Facility. Collateral Transfer as the name suggests is the transfer of collateral from one company to another. In this instance, to provide access to credit facilities, the collateral is a Demand Bank Guarantee.
Collateral Transfer and Mining
Many mining companies, big, small or aspiring may not have heard of the term Collateral Transfer. This is probably because the term used in everyday life is Leased Bank Guarantee, which is technically incorrect but has become embedded in the everyday global “financial speak” when referring to Collateral Transfer.
For a company to obtain a Demand Bank Guarantee they must sign a contract referred to as a Collateral Transfer Agreement with a Provider. Providers tend to be sovereign wealth funds or hedge funds, who because of the return, are happy to lend part of their balance sheet into the Collateral Transfer market.
IntaCapital Swiss work hand in hand with many providers and are therefore able to offer companies who are unable to find credit facilities access to Demand Bank Guarantees.
Over the years, IntaCapital Swiss has facilitated corporate loans for many mining ventures across the globe. The funding has benefited many aspects of mining, ranging from the discovery of precious metals to raising capital to purchase machinery for extraction processes and the infrastructure involved. We welcome companies seeking capital to grow their projects, whether that be expansion to another country or increasing operation, to get in touch. Our financial advisors will explain the requirements and the processes involved to raise the capital your project needs.
The mining industry as a whole is involved in the extraction of various geological materials such as iron ore, copper, gold, silver, aluminium, platinum, palladium, chromite, lead-zinc, coal, bauxite and various precious stones such as diamonds and emeralds. The three most-mined minerals in order are coal, iron ore and bauxite.
Mining finance will differ from mine to mine as there are five different types of mining. These types of mining are classified as Mountain Removal, Highwall Mining, Dredging, Open Pit Mining, Strip Mining and underground mining. We will deal with each individual type of mining, followed by an overview of global mining finance.
The Monetisation Process
To explain the monetisation process in further detail… In the world of Demand Bank Guarantees, the format or verbiage contained therein dictates the end use of the instrument. For example, it could be a customs guarantee where the verbiage confirms that customs duties will be paid in the event the applicant, (the company requiring the goods from customs and deferring duty to a later date) will be paid.
Therefore, when a Demand Bank Guarantee needs to be monetised it will contain verbiage that’s is absolutely precise so that lenders know they are 100% covered in the event of default by a borrower. All Demand Bank Guarantees are payable on first demand, which means in the event of a non-repayment, the lender can claim from the issuing bank, by producing the requisite documentation showing the lender is in default.
Hence, a company with a Demand Bank Guarantee on their account, can request credit facilities from their bank, offering the Demand Bank Guarantee as security for a loan or line of credit. It has been known for banks to refuse a loan application where a Demand Bank Guarantee is being offered as security.
On the odd occasion when a loan or credit line is refused, IntaCapital Swiss can make available third-party lenders. These lenders are happy to take the place of the beneficiary’s bank and make available credit facilities using the Demand Bank Guarantee as security.
Mountain Removal Mining
Mountain removal mining (MTR), also known as mountaintop mining (MTM), can be found at either the summit or the summit ridge of a mountain. The overburden is removed in order to access the mineral, in this case mostly coal, below. The overburden is referred to as material, rock etc that lies above what is known as an area that can be economically exploited. If the overburden cannot be replaced, it is moved to neighbouring valleys, which are referred to as valley fills or holier fills
The main source of finance for mountain removal mining came from banks. Many well-known banks financed this form of mining, Barclays Bank, BNP Paribas, Wells Fargo and JP Morgan to name but a few. However, strong pressure from environmentalists and harsher regulation in the mining industry stopped this controversial mining sector in 2015 as banks pulled finance and mining companies withdrew from mountain removal mining.
Highwall mining is where underground mining and surface mining are linked together by extracting minerals in open-pit mines from the exposed horizontal seams. This form of mining is achieved through a mobile system which utilises a continuous miner controlled by an operator. A retractable conveyor system is utilised together with a vertical conveyor that readies and stacks the coal for onward transportation.
Dredge mining or dredging is a process whereby placer deposits are excavated by utilising floating equipment. Placer deposits or placers are desirable and valuable minerals. They are usually formed during the sedimentary period from a source rock. Examples of dredging equipment that remove placer are the bucket-line or the bucket-ladder.
A bucket-ladder is the process of removing deposits from a riverbed or any waterbed by utilising a series of buckets that are mounted on an endless loop. They scoop up materials from the waterbed, which are accordingly deposited on a barge via a chute.
Open-pit mining, also referred to as opencast mining, is recognised as a surface mining technique. It is the process whereby minerals are extracted from an open pit in the ground. This type of mining is utilised when commercially viable mineral deposits are found close to the surface. To identify where the deposits are located, probes holes are drilled into the ground then their locations transferred to a map.
A typical version of an open-pit mine that can be seen in everyday life is a quarry. Many of the deposits are used as aggregate for construction purposes. The largest open-pit mine in the world is the Bingham Canyon Mine located in Salt Lake City, Utah, USA. This produces copper, and is over 1.2km deep, and about 4km wide.
Strip mining is the process whereby a thin strip of overburden located above a desirable deposit is moved and dumped behind the deposit. Once the deposit has been removed or mined, a similar second trip is created and that overburden is dumped into the first strip. This process continues until all the deposit has been mined.
All the above definitions of mining are related to above-ground mining. Underground mining is utilised when desirable deposits, (such as coal), are far too deep for surface mining techniques. In order to extract or mine the deposit miners open shafts or portals that will intercept deposits such as coal seams. The deposits are removed and conveyed to the surface by conveyor belt. The entry to an underground mine from the surface is usually via a tunnel referred to as a decline, adit or shaft.
Currently the deepest mine in the world can be found south-west of Johannesburg in South Africa and is known as the AngloGold Ashanti’s Mponeng gold mine. Currently the depth at which this mine has reached is in excess of 4km. The second deepest mine is also located in South Africa in Gauteng Province. Referred to as the Driefontein Mine, this mine has reached depths of 3.42km.
Mining finance is highly specialised and banks and other financial institutions dedicate whole departments or subsidiaries to financing this sector. Mining takes place all over the world from South America to Africa, to Canada, the USA and Australia. Therefore, approval committees for loans and investments into the mining industry will not only have to look at the borrower’s historicals, balance sheets and business plans, but for certain countries, they will analyse political risk and any other country factors that may impact the lending/investment process.
There are many investors and lenders in the mining industry. Such investors/lenders are banks, hedge funds, sovereign wealth funds, private equity funds, vulture funds and venture capital to mention but a few. Today, London remains the global centre for raising capital for investment in the mining industry, where there is easy access to both retail and institutional finance. The industry’s global representative body, the International Council on Mining and Metals (ICMM), is based in London, along with British firms Anglo American and Rio Tinto. Non-UK miners who also base themselves in London are the Swiss conglomerate Glencore, Polymetal (Russia), Antofagasta (Chile), and BHP (Australia).
These companies make up the biggest mining companies in the world and because of their size and balance sheets can raise capital direct from banks or bond issues in the capital markets. However, how do the smaller mining companies and start-ups obtain financing?
Financing Mining Start-ups and Junior Miners
Access to capital from banks by mining start-ups and junior miners is almost non-existent. Therefore, many of these miners have turned to those companies financing larger miners, hedge funds, sovereign wealth funds, state-owned agencies, export credit agencies and private equity. Also, since banks are not funding this sector, specialist mining funds have appeared, which like all funds have an internal hurdle that the client has to clear.
In order to clear this hurdle, the fund will offer debt and some alternative financing like royalty financing. Royalty financing is where the lender signs a contract with the miner, giving them in return for an up-front loan or payment, a percentage of the production or revenue stream. In essence it has replaced the debt/equity lending so favoured in the past.
There is a start-up fund in South Africa that is investing in local mining projects – The New African Mining Fund (NAMF), which is a closed fund with a 10-year life cycle. The first six years is the commitment period with returns being seen thereafter. The fund will accept up to USD 175 million. Once production has started, owners can look for expansion capital (if needed), from the above-mentioned sources.
For over a decade IntaCapital Swiss has been working hand in hand with providers so that companies who are being refused loans and lines of credit by their bankers and other financial institutions, can access credit facilities through the use of Demand Bank Guarantees
IntaCapital Swiss can proudly boast a high success rate with those companies that have passed due diligence. If you are a mining company that requires a capital injection or needs finance to start a new mine, and you have been refused credit facilities, contact us today. Remember, utilising Demand Bank Guarantees to access credit facilities does NOT dilute equity.