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From exploration to production: structured credit solutions for mining projects

By 7th March 2022March 10th, 2022No Comments
Structured credit solutions for mining projects

Globally, there are thousands of potential mines at various stages of development, ranging from early-stage explorers only just beginning to delineate promising geological trends, to advanced-stage developers with shovel-ready projects.

With so many projects vying for a limited investor attention span and an even more limited supply of capital, project owners all face the same question: how can we advance our project through to production at the most competitive terms possible?

Forms of mining financing

Financing for mining projects typically takes the form of:

  • Equity (common, preferred)
  • Asset-linked products (royalties, streams, net profits interest)
  • Debt (corporate bonds, bank loans, project finance facilities, equipment financing, working
    capital financing)

Not all sources of capital are created equal, and the availability and terms of these financing solutions are dependent on the stage of a project’s development and risk profile.

Figure 1: Available financing through the mine development cycle

Available Mining Finance

Note:  PEA = Preliminary Economic Assessment; DFS = Definitive Feasibility Study

 

Mining project valuations are lowest in the earliest stages of their development, reflecting the inherently higher risk, and are typically limited to raising capital through equity offerings. Early-stage equity raises are the most dilutive and expensive, reflecting the higher level of project risk that translates into a lower implied project valuation. As mining projects advance up the development curve, the inherent risk is reduced through technical and economic studies, resulting in higher valuations and unlocking a broader range of capital sources. For example, asset-linked products such as royalties and streams typically become available following the definition of a resource and initial economic studies, providing access to non-dilutive capital through the sale of an economic interest in the project’s future production.

Only as projects approach the completion of a Definitive Feasibility Study does the cheapest source of capital, debt, typically become accessible. However, following the last mining super-cycle in 2012, many traditional lenders (typically banks) have not resumed lending to mining projects, due in part to the highly technical nature of mining which makes it challenging to adequately assess key project risks. Debt-financing options for projects being developed by pre-revenue, middle-market mining companies are particularly limited, with the rigidity of traditional bank project finance structures and covenants ill-suited for many companies. To help fill this need, Appian provides creative, flexible, capital solutions to mining companies in the form of loan facilities and asset-linked royalties and streams that allow owners to expedite their projects into production.

Figure 2:  Lender comparison

 Traditional lendersAppian Credit & Royalty financingAppian value-add
Investment typeBank DebtDirect Debt, Royalties, Streams- Innovative, flexible investment structures;
- More comprehensive financing solution
Project stageDefinitive Feasibility Study through productionPEA through productionIn-house technical team enables underwriting projects at an earlier stage
Speed of execution / responsivenessSlowerExpeditedFaster and more cost-efficient execution
Loan-to-valueLowerHigherIn-house technical work and underwriting can deliver greater project certainty
AmortizationFixedFlexible / customizedCustomized repayment profile to best fit a borrower’s business plan
Financial & operational covenantsStrict / GenericLess restrictive /
customized to project
Financial and operational covenants optimally sculpted for each project with attractive flexibility for borrowers
Restrictions on growth / investmentTraditionally not interested in funding additional capital post-closingAccess to additional capital for M&A / growthAlignment with borrowers incentivizes Appian to support accretive growth opportunities
Partnership approachTraditional Lender /
Borrower relationship
with bankers supported
by external consultants
Value-add approach from in-house technical team to actively seek ways of enhancing project value (miners talking to miners)Full alignment of interests of all parties;
Value accretive to owners:
- Support across all aspects and stages of development process;
- Deep technical and operational expertise and support available on call
Appian as your financing partner

Appian is uniquely positioned as a financier for miners seeking to develop their projects, combining creative capital solutions with deep mining technical, development, and operational experience that borrowers can leverage to maximize the value of their projects. Appian’s Investment Team has nearly 500 years of collective mining experience, having been involved in over 60 mine builds, and advised on over US$200bn of mining transactions. The team represents a full spectrum of technical disciplines. Appian takes a ‘partnership approach’, providing borrowers with full access to its in-house resources and expertise through development and production.

Partnership with Appian includes support across:

  • Geology, geostatistics, and resource estimation
  • Introductions and negotiations with consultants, contractors, and technical providers
  • Open pit / underground mine design and optimization
  • Metallurgical engineering and plant design
  • Project development, including EPCM, construction, and commissioning
  • Marketing of intermediate and refined mineral products
  • Corporate governance advice
  • Capital markets strategy including introductions to banking relationships and equity research
  • Permitting advice
  • Country and political risk assessments
  • Environmental, health & safety, and social best practices

Appian’s technical experience enables it to evaluate each project’s specific merits and complexities, identify value accretive optimizations, and lower project risk by recognizing areas requiring further definition or technical support. Appian works alongside borrowers to develop flexible structures that enhance value for all parties.

You can download this Appian Insights PDF here
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