Investors moving into mine finance
From fund giant BlackRock to activist shareholder Julian Treger, mining investors seeking predictable returns and better cash flows are stepping into mine finance.
Mine developers often face funding gaps because of a shortage of bank finance and lacklustre public markets. This has left alternative sources of financing - royalty deals, stake sales or debt that converts into shares - accounting for an increasingly significant proportion.
Among the alternatives are mine royalty agreements, favoured by BlackRock and the focus of London-listed Anglo Pacific, which Treger is now running. These deals offer cash in exchange for a share of future revenues.
"The scarcity of capital today … has created a huge opportunity for non-traditional sources of finance," said Catherine Raw, portfolio manager for the BlackRock World Mining Trust.
For investors, a royalty deal means regular future payments and the ability to benefit from a rise in commodity prices, an increase in reserves or better production capacity. All with arguably less risk than a share investment and no exposure to poor dividends or cost inflation.
For miners, the advantage is a source of upfront cash with less dilution than selling shares at depressed prices.
North American firms like Franco Nevada or Silver Wheaton have long struck streaming deals, providing cash for future production in return for exposure to by-products. These deals have been for precious metals, particularly when they are produced as a by-product by big miners focused on base metals or bulk commodities.