In pre-feasibility and feasibility stages, founders typically fund much of the activity. As projects progress, specialist mining funds (including private equity houses) invest in equity. And as construction nears, financial institutions offer loans.
The earlier in the project, the higher the risk, and the more generous the likely deal. Banks currently expect equity: debt ratios of 50:50 or more, making it harder to bring in additional equity investors.
Stepping through the minefield
Larger projects require huge investments, and owners may spread risk through equity partnerships or joint ventures with steel companies or trading houses. ‘Offtake’ agreements (where equity partners receive a proportion of product at fixed prices) give security of supply to buyers and certainty of sales to mine owners, making them attractive to banks and other investors. The presence of involved, equity partners bring more stability to the funding.
If owners assume substantial debt too soon, then development delays could hinder their ability to repay fixed costs. Banks entering earlier in the life cycle may also impose higher interest rates or fixed commodity prices, meaning owners lose out if values rise significantly.
KPMG has a strong network of member firms in every continent, and excellent relationships with potential investors. We help clients position themselves effectively, to attract interest. Most importantly, we remain independent throughout the mining lifecycle, helping achieve the most appropriate funding solution.