Critical Minerals (Part 5 – 30/Sep) Financing Mining Projects – What Does It Mean? 

By Tshepo Magagane

Critical Minerals – Financing Mining projects – what does it mean? 

What is the underlying/common theme in these announcements?

Up to and including the Project Finance stage, you need “equity or equity-like” capital. Even at the PF stage, you need to anchor the PF facility with 50% equity (including COF and potential equity cures).

Debt or debt-like instruments will only come into play when you are 18 months away from the first production – so in a typical project development, after about 8 years of project development!

What I always say “there are project finance facilities and capabilities out there; what you need is ‘risk-unlock’ capital to bring projects Bankability”!

And when it comes to PF, we will run into issues around tenors soon with Banking solutions – B III and IV; Private Credit will then have to play a role (very limited solutions – which are actually better than Banking solutions hence Capital needs to find its way into them e.g. sweeps, covenants, hedging, DD, etc)!

To recap:

6. Financing Sources

• Merchant Banks – traditional source for risk unlocking mining projects – verdict: BII resulted in teams being disbanded

• Miners – they form part of the financing ecosystem by buying projects that are Tier 1 and already derisked – verdict: small part of the solution

• Industry / OEM – will only consider offtake for Bankable Stage Project – verdict: does not increase financing sources just structuring flexibility at Project Finance Stage

• Trading Houses – will only consider offtake for Bankable Stage Project – verdict: does not increase financing sources, just structuring flexibility at Project Finance Stage

• Specialist Funds – AuM just not sufficient (less than 5% focuses on Africa)

• Listed Equities – not suitable to risk unlock mining projects

Hence there is a dire need for new Capital Pools (especially for Africa)