| Work Detail |
Economic uncertainty, shrinking traditional funding sources, and geopolitical shifts are pushing mining companies to rethink how they secure capital
The mining industry is redefining its financing strategies to meet the growing demand for critical minerals amid tightening traditional funding sources, economic uncertainty, and geopolitical challenges.
New strategies, including private equity, royalty agreements, offtake deals, and sovereign funding, are emerging as alternatives to conventional equity markets, according to industry experts speaking at a mining event in Dubai last week.
Junior mining companies, traditionally reliant on early-stage equity financing and major buyouts, are now pursuing large-scale projects independently or through mid-tier mergers.
Errol Smart, CEO of Australia-based Orion Minerals, highlighted rising interest in private equity and private ownership. "Youre looking at long-term investors, so the listed equity is becoming less important," he said during a fireside chat at The Mining Show.
Top-line financing, such as offtake agreements, prepayments, and royalties—where funds are secured based on future revenues or production—is often easier to negotiate than equity-based arrangements, according to Michel Labrousse, Managing Partner at Hong Kong-based Mazarin Capital.
Mandatory general offer regulations, low valuations, and dilution risks make it very difficult for juniors to entertain any financing at the equity level, he observed.
"You have to find a way to convince them at the project level or through streams or royalties," he said during the fireside chat moderated by Katharina Loeckinger, Senior Vice President, DGWA.
Bank financing challenges
Traditional debt financing is also being influenced by market volatility and demand uncertainty. An example is Chinas recent 30 percent reduction in zinc smelting capacity due to concentrate shortages. This unforeseen development has not only driven up metal prices but also created downstream bottlenecks in smelting and refining.
"Suddenly, your bankers are turning to you and asking, where are you going to get the smelters because theres now a shortage of smelting capacity," said Smart. "Market volatility is a frustration in the whole debt financing part because it impacts your debt servicing capacity with senior lenders, typically from Europe and global North."
While banks, historically, have been cautious about financing commodities and mining, the uncertainty surrounding Chinas future demand has created significant hesitation in allocating capital, according to Labrousse.
Once dominant in the sector, European banks have scaled back due to regulatory pressures and a pivot toward sustainability. Chinese banks have stepped in but primarily focus on projects serving Chinas resource needs.
"There is a bit of a gap in the financing here for larger projects, but I dont think its a matter of volatility," stated Labrousse. "Its a matter of regulatory capital for the banks and their capital allocation, as other businesses are much better."
Long-term offtakes
In recent years, offtakes (with prepayment) have gained popularity as companies seek to secure long-term supply chains.
"They are prepared to use their balance sheet and cheque books to help facilitate early and rapid mine development, and they want to be certain that theyre going to get the product for 10, 15, 20 years," explained Smart.
However, for mining developers, such agreements—committing to a life-of-mine offtake with a single buyer—can become a liability rather than a guarantee of demand if geopolitical or market conditions shift during the projects life.
Host governments and local communities often view foreign investments cautiously, particularly when perceiving geopolitical or economic risks.
"If a Chinese financier is willing to fund a challenging project, but the host government opposes Chinese involvement, it creates a significant challenge," observed Smart. "Equally, for the West and the global North wanting to finance projects, a lot of Africa, and in particular South America, are becoming less welcoming of these financing sources."
Geopolitical influence
In fact, geopolitical considerations and the emergence of sovereign players are increasingly influencing mining financing decisions. China, which has dominated the headlines when it comes to critical minerals, is facing competition from the US and Europe, who have introduced initiatives like the Minerals Security Partnership (MSP) and European Raw Materials Initiative (RMI), respectively, to secure their supply chains.
In recent years, the Middle East has emerged as the fourth player, with countries like Saudi Arabia and the UAE committing significant capital via sovereign wealth funds into mining and smelting projects at home and abroad within their economic diversification goals.
These trends have meant that financing deals have become highly complex, requiring consideration of the entire supply chain, from machinery and technology to offtake agreements, refineries, and end users.
Smart said financing is no longer just about raising equity, making a discovery, and partnering with a major.
"Now we have four big players, a whole lot more complex game, but it does open up a whole lot more financing opportunities," he said.
Highlighting the increasing challenge faced by the mining sector in attracting capital, Labrousse noted that geopolitics has curtailed the once plentiful Chinese capital, financial instruments available to fund viable projects have become more limited and marginal projects that would have secured financing during the period of easy funding are now effectively shut out from accessing capital.
"If you are looking at the number of deposits, which could replace the current depletion of the mines, particularly in copper or some strategic minerals, it is going to be quite difficult," he cautioned.
Minerals that matter
Both Smart and Labrousse concurred that copper is currently the commodity most likely to secure project financing with relative ease.
"Copper will suffer a significant shortage going forward unless more recycling comes into place," explained Labrousse. "But so far, recycling is more expensive than or as expensive as production."
Smart highlighted that China has capialised on the decline in lithium and nickel prices to acquire projects in both sectors, showcasing a long-term and opportunistic approach to securing future assets.
Labrousse, however, offered a contrarian perspective on lithium, emphasising that the battery industry is still in its early stages.
"Lithium, which is difficult and expensive to extract and process, may not be the winner of the game going forward," he said. "Personally, I would be very nervous about owning lithium assets because over 20 years, it is not sure that they will still be around."
According to Smart, China has also been buying into sulphide nickel deposits worldwide as these often come with valuable byproducts such as copper, cobalt, platinum, and gold that could constitute up to 50 per cent of the ores value.
"New processing technologies are unlocking a greater extraction of value from every tonne of ore that is mined," he said, adding that byproducts and coproducts now significantly influence mining project viability. He also underlined that materials that were once considered waste, like magnetite, now command premiums.
Chinas leadership and Western lag
While Europe, the US, China, and the Middle East are the primary sources of funding in the critical minerals sector, both Smart and Labrousse emphasised that Chinas agile deal-making and strategic long-term investments have positioned it far ahead of the competition.
"Its going to be very difficult for Western countries to catch up properly and be economical in that space," said Labrousse. "I think the leadership of China is there to stay for quite a time in a number of minerals."
Smart added: "You can criticise the Chinese, but in the time that it takes to do one mining financing deal with Europe, the Chinese will move in, build a railway line and a port, fund a mine, and be in production and change the whole socio-economic structure of a region."
And as a relatively new player, the Middle East is going to have to learn to compete with that, he noted.
"The Middle East is playing in a new field... and they are watching whats going on from both sides." he said.
Labrousse highlighted that Europe is lagging considerably behind China and even the US, as it has become inefficient in disbursing money for investments.
“The US has done a bit to clean up their act of what are the strategic minerals and how they should approach it. Europe obviously is lagging behind, and China is a lot choosier,” he said.
Smart said ESG audits, sustainability requirements, and compliance have slowed down funding decisions in Europe.
He also noted that the uncertainty around policy directions of the incoming Trump administration could impact funding coming from the US.
"Ford rushed into Indonesia and was looking at nickel processing there because they were going to get subsidy funding out of the US. Lets see what happens after 20th of January [2025]; Are they going to get that funding?"
Smart emphasised that any shift in competitive dynamics will depend on how the investment funds are deployed.
"If theres going to be a change in competitive play, the speed of deployment of funding and the strategic deployment of funding is going to be critical," he concluded. |
