METALS STREAMING SET TO SECURE AFRICA’S MINING FUTURE

Growth in emerging markets is creating demand for special metals and similar commodities. And with steady recovery in the mining industry over the past few years and a significant uptick in the commodity price market, there is an increased need for capital to fund these advances.

It is, however, increasingly di icult for mining companies to obtain traditional forms of lending from banks and equity financing. This is especially the case when political, economic and environmental risks are challenging and attract higher debt rates.

Coupled with this demand is the expected transition of large populations out of poverty and underdeveloped economies to become the next international trade leaders. This is where alternative financing mechanisms such as metals streaming and royalties provide feasible and attractive options for companies to fund new projects, and expand existing ones.

Alchemy Law Partner

In the past decade, these financing mechanisms have grown from US$2.1-billion to more than US$15bn, and are attractive to investors as they provide commodity price leverage and exposure to preexisting product and price movements. At the same time, delivery payments are predetermined and made only when they occur.

Financing in these instances is only applied to a single asset or “stream”. Further advantages of streaming are that it is scalable, financial systems are not needed, and it can be listed separately.

Bespoke Financing

Metals streaming, in particular, has expanded rapidly in Australia, Canada and North America and is fast gaining traction in Africa in the junior mining sector where funding is needed to bring new products into the market.

For mining companies throughout Africa, these bespoke financing transactions are at the top of the agenda and create unique opportunities whereby the needs of both investors and mine operators are met. Both parties are able to achieve higher returns and continued growth, securing the future of the industry. Streamers also have an indepth knowledge of the industry and its challenges and through their type of transactions, they don’t get embroiled in a miner’s operational risks.

These types of contracts sell future production or revenue in return for an upfront cash payment, and are changing the face of the industry globally by increasing available capital resources and promoting further production to meet growing demand.

Decision makers and business owners in the smaller mines need to start considering their options – not only for themselves but for the growth of the sector and continued support of the economy. They need to find the interplay between their equity, their stream and their lending mechanism.

If you’re a licensed junior miner and thinking about new opportunities – starting to break ground or building a new processing plant for example – consider streaming as a possible and credible funding option to get mining, or to expand.

These revolutionary financing mechanisms will undoubtedly play a pivotal role in shaping the future of the mining industry and bringing sustainable economic reform to the continent.

Alchemy Law, with its proven track record of providing exceptional legal advice to the mining industry and experience in metals’ streaming transactions, is well positioned to help smaller industry players navigate and set up the legal instruments for much-needed alternative funding to bring metal-streaming into the market. In partnership with financial doyens, the company can advise on these types of transactions in this increasingly competitive field.

WHAT ARE THESE ALTERNATIVE FINANCING MECHANISMS?

Under streaming agreements, investors purchase a portion of a mining company’s future production at a fixed price below market value and deals are settled by the physical transfer of metal. Companies that are diversified have a lean operating structure and acquire undervalued projects, have the potential to achieve higher returns, minimise regional, political and economic risks, capitalise on opportunities, and reduce waste. All of these create continuous improvement in operating e iciency.

Royalty transactions involve a cash payment from an operator for a portion of the generated project revenue of minerals sold from production of the property to which the royalty relates.

Streaming and royalty agreements o er a number of advantages when compared to traditional financing arrangements. They apply to a single asset, are scalable, typically have longer payment periods, do not require fixed cash obligations thus incurring lower risk, have greater flexibility, and share production and operational risks across the value chain.