Bankers' perspective of mining project finance

摘要

Since the dismal performance of the Rand Mines management was called to account by its shareholders in 1994, the waves of change have continued to ripple across the South African ruining industry. The number of listings on the gold board of the Johannesburg Stock Exchange, that once numbered 40 or 50-odd, have now dwindled to no more than a handful as unprecedented restructuring has taken place. The redefining of the industry has not been limited to the gold sector, but across the base metal, coal, diamond, platinum and industrial mineral sectors as well.At the same time the Mining Houses began to reconsider their funding strategies. Originally established in the early part of the century to ensure the long-term sustainability of their group mining operations by providing substantial financial muscle and technical support, the Mining Houses were faced with a rapidly changing political environment, which proved to be a critical catalyst in giving momentum to the change. Furthermore, the significant development costs and increasing risk profile for new projects, coupled with pressure from shareholders demanding respectable returns, opened the door to opportunities for banks to begin providing external debt by the way of project finance. However, the provision of long-term debt to the South African mining industry had generally not been common since mining companies had financed new projects with equity, or with the cash flows from existing operations.Those banks that had the appetite for exposure to the perceived high risks of the mining sector rapidly built up specialist resource banking divisions capable of addressing the increasing demands of the industry. The application of project finance, the principles of which were developed in the 1970s specifically for infrastructure projects and privatization, is now commonly applied in the financing of greenfield and brownfield mining projects.This paper outlines the approach that lending banks would typically adopt when arranging or providing ruining project finance, their usual areas of concern and the way in which the finance is structured to mitigate the many inherent risks.