STRICT CRITERIA Mining companies’ forecast cash flows need to be supported by scientific economic analysis that complies to a regulated standard
Investment banking services provider Nedbank Corporate and Investment Banking (CIB) is providing the African mining industry with about $7-billion in debt financing products and says it remains open for business opportunities across the continent.
Nedbank CIB mining finance principal Paul Miller comments that the bank is mainly interested in primary project financings and in providing financial facilities for smaller and midtier producers. Nonetheless, he highlights that the bank also has global mining majors, such as First Quantum Minerals (FQM), Harmony Gold, Sibanye, Gold Fields, AngloGold Ashanti and Anglo American Platinum, among its clients.
Miller tells Mining Weekly that the bank’s involvement in projects generally occurs at about the prefeasibility stage, during which the bank will engage closely with companies’ management teams. The bank will usually start providing companies with financial assistance only after a definitive feasibility study (DFS) has been published.
Hence, as a senior debt provider, the bank is “a lender to mining projects, not an early-stage exploration financier”, emphasises Nedbank international mining finance head Nivaash Singh, adding that the bank provides debt financing, not equity, for mining companies.
He elaborates that the bank generally advances 50% to 60% of a project’s capital expenditure (capex). Therefore, the rest of the capex needs to take the form of equity finance, subordinated securities, mezzanine financing and other similar types of financing models, Singh states.
Miller says that mining companies’ forecast cash flows need to be supported by scientific economic analysis that complies to a regulated standard such as the Australasian Joint Ore Reserves Committee, the Canadian National Instrument 43-101 standards or the South African Mineral Resources and South African Mineral Valuation codes.
Mining companies also need to have all their permitting in place before the bank will advance the money; this includes the completed DFS, regulatory approvals and their social- and environmental-impact plans, he says.
Financing Strategy
The bank, on average, provides financing of between $30-million and $60-million for projects, but has provided more for larger producers, such as for Canadian base metals producer FQM’s mines in Zambia, with financing of about $150-million over the past five years.
Singh notes that Nedbank, through its strategic partnership with pan-African bank Ecobank Transnational Incorporated (ETI) – in which it has a 20% shareholding – has greatly assisted the bank in deepening its understanding of various African jurisdictions. ETI has about 2 000 branches in 36 countries across the continent.
ETI does not directly provide mines with development financing, but provides in-country banking services for mining companies to which Nedbank lends money.
Singh says the bank takes great care to mitigate its risk by working with other banks, development finance institutions and/or export credit agencies as cover for its loans. Other risk mitigation methods include taking out commercial insurance, commodity-price hedging and/or securing guaranteed offtake agreements to support revenue lines.
“This assists the bank in navigating associated market, price, political and other risk factors to ensure that we can secure deals in some of the toughest operating jurisdictions in Africa.”
Singh stresses that the bank is also very cognisant of ensuring it is working with genuine project developers and not speculators looking to “make a quick buck”.
“We come across many speculators that do not understand commodities but can raise capital and do some basic exploration work, and then try to promote their project/s as viable opportunities when they are certainly not so,” he states.
Green Shoots?
Miller comments that mining projects generally come to the market for debt financing three years after being active in the equity financing sector. Therefore, there needs to be some buoyancy in the equity market to ensure that the bank can participate at a later stage in the provision of debt financing, he highlights.
He says the situation is “looking positive”, as about $5-billion has been raised in equity in more than 600 raisings in the past eight months across the TSX, the LSE, the ASX, the JSE and other stock exchanges.
“This is a clear indication that at least some interest has returned to the global equity markets for mining and metals,” says Miller. He highlights that Nedbank has benefited by continuing to be involved in the sector through the commodity cycle and is looking forward to offering debt financing to other projects, as it is “very important” for the bank to be a steady, consistent player through the cycle.
Commodity Trends
Miller has observed a significant recent market interest in providing finance for potash, phosphate, mineral sands, gold and copper projects.
He believes there are also many investors chasing investment opportunities in the lithium-ion battery sector entailing investment in lithium, graphite, cobalt, vanadium and manganese.
Miller concludes that there has simultaneously been something of a retreat from bulk minerals, such as coal and iron-ore, owing to lower prices and the high infrastructure costs associated with such projects.