Unlocking Financing for African Mining Projects: Progress, Opportunities, and the Copper Investment Thesis

By: Pangaea Metals & Mining Team

Introduction

Unlocking financing for African mining projects is crucial to capitalising on the continent’s immense mineral wealth. Despite producing 30% of the world’s minerals, Africa receives only 5% of global capital investment in mining. The shift from traditional merchant bank financing due to Basel III (BIII) regulations has created a need for specialist capital, especially for junior miners. The focus is now on innovative funding methods and alternative capital pools to drive African mining forward, particularly in the copper sector, which holds immense investment potential.

Progress So Far

Over the past 18 months, we had made significant strides in engaging European and global institutions to channel capital into African mining. The EU Commission has offered EUR 250 million in first-loss guarantees for pillar-assessed development finance institutions (DFIs). However, European DFIs have hesitated, citing perceived African risks.

The mining sector is evolving, particularly with a focus on smaller projects. As global players have underinvested in exploration over the last decade, interest in Africa’s untapped reserves is growing. While recognising the importance of securing critical minerals, European industrial players have not yet fully committed to a cohesive strategy for procuring these resources for the future. This underscores the need for more strategic capital initiatives that align with global energy transition goals​.

The Road Ahead

Discussions with the World Bank Group and American investors aim to establish a capital pool that can support early-stage exploration projects in Africa. These funds will focus on smaller-scale investments (USD 5 million per project) to finance drilling and resource reports, providing a strong foundation for future financing rounds. With such a capital pool in place, there is potential for significant value appreciation over three years, allowing further fundraising at higher valuations.

This effort is part of a broader strategy to raise the profile of African mining, especially copper, and increase funding for non-tier one deposits that hold immense potential​.

Copper Investment Thesis

Copper is essential for the global energy transition, making it an attractive long-term investment. As Robert Friedland aptly put it, “You can’t have a portfolio without copper in it.” Copper plays a vital role in electrification, renewable energy, and electric vehicles, driving global demand.

One of the key case studies is the Khoemacau Copper Mine in Botswana. Initially acquired for USD 35 million, this project was held for eight years and eventually sold to Chinese buyers for USD 2 billion, demonstrating the potential for value creation in African copper projects. Zambia’s goal to increase copper production to three million tonnes annually, with a significant contribution from non-tier one deposits, further highlights the region’s opportunities.​

Emerging Opportunities in African Copper Mining

Several copper projects in Zambia and beyond are ripe for development:

• Luswishi: Exploration has identified copper mineralisation in lower and upper Roan rocks.
• Ndola/Mwekera: Geochemical surveys indicate promising concentrations of copper similar to known deposits in the Copperbelt.
• Mpongwe/Lufwanyama: Early exploration work, supported by reconnaissance and geochemical sampling, has shown potential for base metal discoveries​.

The Copper Macros Thesis

Copper’s future supply-demand dynamics presents a compelling investment case. Global demand is set to outstrip supply, especially as the energy transition accelerates. However, new discoveries are becoming rarer, and existing copper grades are declining. The capital expenditure (capex) intensity required for new projects is expected to rise significantly, particularly for low-grade deposits. This will increase the cost of production, pushing copper prices higher over the long term.

Additionally, copper recycling, which currently accounts for 30% of supply, will play a critical role in meeting future demand. However, substitution threats remain limited due to copper’s unmatched conductivity​.

Financing Challenges and Solutions

Traditional sources of finance, such as merchant banks, have retreated from mining projects due to the high-risk nature of early-stage ventures. Miners, OEMs, and trading houses are more willing to provide offtake agreements but not early-stage financing. This underscores the urgent need for new pools of specialist capital, especially in Africa. The African Finance Corporation (AFC) and other innovative funding platforms are stepping in to fill this gap, providing much-needed capital for junior miners and smaller projects.

Aligning Investors and Industry

Contrary to popular belief, financial investors and industry players have aligned interests in mining projects. By structuring deals that allow financial investors to monetise offtake rights while securing long-term supply for industrial players, both parties can benefit from the project’s success. This partnership model is essential for de-risking mining ventures and unlocking capital for African projects​.

Conclusion

The journey to unlock financing for African mining projects is ongoing, but the opportunities are vast. Copper, in particular, offers unique value for investors as global demand rises in response to the energy transition. With innovative financing solutions and collaboration between public and private sectors, Africa is poised to become a central player in the global mining industry. The potential for significant value creation in African mining, particularly in the copper sector, should be considered.