It is perhaps ironic that as the world moves toward a cleaner future, more mining is projected to take place to facilitate the "Just Energy Transition". The Just Energy Transition is a fundamental shift in how the world generates power and continues to be a major disruptor in the mining and metals sector. While the world’s energy mix is changing, there is broad acceptance that a green energy future relies on minerals to deliver it. Batteries, solar power, and other pillars of clean energy technology are not possible without rare earth metals (and some of the old favourites) to manufacture them, while the likes of coal and oil continue to power human society with the transition underway. According to Guillaume Pitron, author of The Rare Metals War, more mineral ores will be mined in the next 30 years than the last 70,000 for humanity to meet the exponential demand for minerals crucial to the energy transition. Resource exhaustion at current mines will therefore drive increased exploration and the opening of new operations.
As the mining industry grapples with this changing reality, a question that has been simmering under the surface of the transition and is on the minds of mining companies worldwide – “How do we finance the future?"
Based on detailed conversations with clients in the mining industry and considering how the world of mining finance is changing, gone are the days when raising money simply needed equity and bank debt. In today's world the industry has the added challenges of balancing product demand, capital cost, investor needs, and environmental, social and governance (ESG) concerns and it is now far more common place for mining companies needing different routes to access finance to bankroll their future operations, which needs to grow exponentially given the sheer scale and size of the exploration and operations required to support the energy transition demands. It is very common today to see at a minimum six avenues of fundraising in entities engaged in the industry.
Traditional finance combined with newer and alternative funding arrangements
Given the significant capital required for exploration, development, and operations, the question is always what source to obtain and what will result in the best cost to benefit yield.
Today's mining business world requires far more novelty and regularly sees combinations of funding being sought from private equity and venture capital, joint ventures and strategic partnerships, asset backed lending, project financing, bonds, trade finance, cryptocurrency and blockchain financing and even in instances, crowdfunding and peer-to-peer lending. It is clearly no longer business as usual.
With so many possible permutations, advisors are called upon to assist in setting up structures to deal with the requirements of each. However, in recent times, royalties, streaming, and prepayments are becoming common place.
Royalties, streaming, and prepayments have been ubiquitous in the global mining industry for many years (especially in the Americas) with a resurgence now underway in South Africa and Sub-Saharan Africa.
So why stream? We very often see mining companies being forced into accepting incredibly expensive funding just to be able to get off the ground. It is of course correct that the pricing matches the risk, but we equally see businesses then frustrated in their growth and expansion ambitions by needing to allocate funds that could have been spent on CAPEX being used to service (expensive) debt.
Streaming is a means to obtaining the cash from a sale of commodity today and then only have the obligation to deliver some way down the track. It all seems perfect except that sales attract taxes, which then erodes significant amounts from the pot. Recent successes in the SA market in obtaining rulings for the deferral of the payment of taxes on streaming arrangements, has resulted in this structure becoming a far more useful means of raising cash, whist simultaneously ensuring no erosion through equity and immediate taxes and at the same time allowing for a blend of ordinary debt and other options. There is greater traction to utilise combinations of royalties and streams to club the proceeds of these funds with seed money from development finance institutions and initial equity to get projects off the ground in the greenfield space.
Mergers and changing management profile at an executive level
One other area which has been interesting to observe as routes to finance shift is the changing executive profile at a C-suite level. These changes, much like the industry, could be tiered with junior and mid-tier miners more likely to be led by CEOs with a bias towards the technical aspects of mining, however, at seniors and multinational mining level, as is already the case, CEOs will have profiles that emphasise financial expertise as much as the engineering of mining, which allows them to remain for more agile when raising finance.
Given this differential in scale and availability of in-house expertise, the growing demand for energy transition metals will also, in our view, drive more mergers and acquisitions (M&A) within the industry especially at the junior miner level. It accords that larger operators gain the benefit of economies of scale from an operations and finance/funding raising perspective, with it being easier for larger companies to access the finance and funds they need based on their combined track record and balance sheet. For the junior and mid-tier miners to make the best of the race for rare earth metals, it would make sense to align with other companies in similar positions to ensure that they have the necessary skills at a leadership level so they can scale with the necessary speed in relation to their competitors.
The surging demand for energy transition presents various other challenges for mining companies, however, securing financing and being intentionally very innovative in this regard and fostering collaborative partnerships together with the guidance of strategic and experienced advisors is fast becoming a necessity for large, mid-tier and junior mining houses alike. This is crucial for sustainable growth in this evolving landscape and the 2025 Mining Indaba, themed "Futureproofing African Mining, Today," will once again serve as a critical platform for key stakeholders to collectively shape a resilient and sustainable mining future that fuels the global transition to clean energy.
