JOHANNESBURG (miningweekly.com) – Market research multinational BMI Research reported on Thursday that there would be a shift in the status quo of mining finance sources, as mineral prices stabilise and edge higher over the coming years.
“Majors will continue to rely on equity and debt financing. Mid-cap and small-cap companies, as well as those looking at higher-risk exploration projects, will benefit from new players taking a greater stake in the sector, including private equity and sovereign wealth funds,” BMI said in its latest ‘Mining Finance Industry Trend Analysis’ report.
Alternative forms of funding, including private equity and royalty and stream financing, gained in popularity during 2015 to 2016, mostly among junior players who found it difficult to raise funding through traditional equity or debt markets.
The bottoming out of metal prices over 2015/16 and most mining companies returning to profits in 2016 would, however, ensure that traditional forms of finance, including equity and debt financing hold centre-stage as sources of mining finance over the coming years.
“As prices have started their modest recovery, we expect traditional financing sources to become less constrained and more available to a wider range of miners. Simultaneously, alternative funding sources will continue to gain ground owing to the lower risks associated with them, while joint ventures, development finance institutions and State-backed funding will form the basis of riskier projects going forward.”
Deals made this year and beyond, however, will be fewer in number compared with the past five years, as lower company debts and better liquidity will enable miners to fund their own projects in the coming years.
The size of transactions will become smaller and the number of financing deals is expected to decrease over the coming years as more miners are able to fund their own projects as a result of increasing prices.
Equity and debt markets will become less constrained and supply of these funds will be freed up as demand falls.
“Companies that have management teams with a history of making profits for their shareholders will still find it easier to raise funding, along with projects with quality assets but modest capital expenditure and low execution risk. Companies with strong relationships with local governments will also fare better in raising money, as would projects in the production stage that already have access to cash flows.”
For companies with an investment-grade credit rating, the availability of low-cost, long-maturity debt has increased substantially since the bottoming of commodity prices in 2015/16. Nevertheless, investment-grade majors have continued to place bond issues at competitive rates instead of relying solely on commercial loans.