Digging Deeper: Refinancing’s Golden Opportunities For Mining Financial Landscape
31 de oct de 2023
It requires money to make money: a truism that is even truer for mining operations. In the vast world of precious metals mining financing, there's a behind-the-scenes play reshaping the industry's narratives - refinancing.
Everyone who practices intense physical activity for a long period knows the relevance of proper nutrition. But there comes a time when the body cannot sustain itself any longer on its own. Neither adequate sleep nor an adequate diet suffice. One needs nutritional supplements to give the body what it needs to sustain the intensity and reach the next level.
This is what refinancing is about for mining operations.
Mining is among the most capital-intensive industries in the world. Heavy money is required for prospection, to find the best places within a region to explore. Heavy money is required to set up the facilities and start drilling. Heavy money is required to set up industrial facilities to transform the ore into a gold byproduct. Heavy money is required for logistics and transportation. Not to mention the heavy money required for security, compliance, and the fundamental mitigation of the environmental impact of the operations.
With so much heavy money required, one must bear incredible financial muscles to sustain such operations. And even then, it might not be enough.
Just imagine the difference in the cash-flow cycle: it takes several years of upfront investment for a mining operation just to start generating revenue.
This is where refinancing enters the landscape, as alternatives are required to leverage the money invested in the operations. Refinancing involves securing a new loan or financial structure to optimize mining project costs. In the mining industry, refinancing operations often involve the provision of collateral related to the underlying asset. The financing then becomes linked both with the mine itself, or its produce.
Mining offers some particularities that make it a particularly appealing industry for refinancing operations:
Asset-backed financing: a common loan backed by the underlying resource as collateral. The value of the collateral fluctuates based on exploration data, market prices, etc. As the value changes, the terms of the refinancing can be adjusted.
Project lifecycle refinancing: A refinancing operation occurs when the project progresses through its lifecycle, from exploration to production. As the project progresses towards development and production, its risk reduces, thus refinancing operations can help secure better financing terms.
Risk-adjusted refinancing: with a similar rationale to project lifecycle refinancing, but here the risks come from other factors than the lifecycle itself, such as market conditions, geopolitical issues, or operational challenges.
Cash-flow based refinancing: as the project reaches production, it starts generating revenue through the sale of its produce. With steady produce comes predictability cash flows, that can be used as a basis for refinancing.
Royalty financing: upfront capital is provided to a mining project, and is repaid as a percentage of the revenue or the profit from production (a “royalty”). Typically, royalties are a fixed percentage, applied regardless of the prevailing market or operational conditions. The duration of the payback period can vary, lasting from the life of the mine, or until a certain amount of money has been paid.
Stream financing: upfront capital is provided in exchange for the right to purchase a percentage of the mine’s future production at a fixed, predetermined price. Payment structure and duration might vary.
What becomes clear through this analysis is that refinancing can be performed by traditional financial institutions. However, the intricacies of some of the operations require extensive domain knowledge to adequately measure risk and set up the best operations, for all parties involved, be they the project and its shareholders, the financiers, or their investors.
This is the specialty of Sun Valley Investment. Leveraging the expertise of over twenty experts in our faculty and the decades-long experience in leading industry players of our board members, we aim to seize the most value out of mining. This is why we have invested in creating our own refinancing operator, Goldlogic.
By mixing our domain knowledge and experience, both in mining and in finance, with our financial resources, we are able to set up refinancing operations that are best suited to bring the most value to all parties involved. Also, leveraging on our network of portfolio companies and partnerships, we are thereby prepared to seize the best opportunities that cross our path, either exploring them directly or getting exposure to them through financing vehicles such as this.
Just as protein and other nutritional supplements allow the body to leverage its abilities to achieve higher physical goals, so does refinancing for getting the best value out of mining.
About Sun Valley
Sun Valley is a private equity firm focussed on the precious metals industry with portfolio companies and branch offices in the Americas, Europe and Asia. Sun Valley seeks to invest in sustainable development projects and operations with growth potential, low cash costs of production, or the operating flexibility to insulate against volatility in the commodity markets.
The information contained or referenced herein is for information purposes only in order to provide the views of Sun Valley and the matters which Sun Valley believes to be of concern to shareholders described herein. The information is not tailored to specific investment objectives, the financial situations, suitability, or particular need of any specific person(s) who may receive the information, and should not be taken as advice in considering the merits of any investment decision. The views expressed herein represent the views and opinions of Sun Valley, whose opinions may change at any time and which are based on analyses of Sun Valley and its advisors.
Partner / VP Business Development