Financing mining projects: investment loans and project finance viola-funding September 5, 2023

Financing mining projects: investment loans and project finance

Loans and Financing for mining projects
Loans and Financing for mining projects

Currently, the assets of the largest mining companies in the world exceed 1.1 trillion dollars, and their total operating expenses reach half a trillion dollars. This capital-intensive industry needs billions of dollars of investment every day to function effectively. Mining and processing of minerals throughout the history of mankind has remained the foundation of economic growth and technical progress. Loans and Financing for mining projects remains a formidable requisite in the long-term investment of the countries economy.

Not surprisingly, loans and financing for mining projects attracts the attention of numerous investment experts and businessmen.

Viola Funding Limited, a renowned channel island finance and loan company has brought together experienced professionals and underwritten teams who are ready to provide the best financing schemes for large projects in the field of mining and processing of minerals.

Financing mining projects, lending and loans basis

Any mining project consists of such stages as geological exploration and prospecting for mineral deposits, development of a deposit, operation and closure. Each of these stages requires significant financial resources, especially exploration. Moreover, initiators cannot guarantee investors adequate returns at an early stage, which means a certain level of risk.

Most mining companies in previous years felt the negative effects of the economic downturn, since key markets and commodity prices remained unstable.

For this reason, companies have significantly reduced their expenses, refusing geological exploration and postponing expansion plans.

At an early stage, it is critically important to choose the right structure and instruments for project financing.

In this sense, the forecast of profit that can be obtained from the exploitation of the field is decisive, since it will determine the financial needs of the project and the financing structure.

Main sources of financing and loans for mining projects

Attracting the necessary financial resources for the implementation of a mining project requires the active use of various sources, including loans, issuance of bonds, leasing, etc.

Below we have listed possible alternative financing options for mining and processing plants, noting some of their features, advantages and disadvantages:

Stream financing of mining projects.  This instrument entitles the buyer to purchase all or part of the minerals produced by the mine.

Bridge funding. This refers to the provision of available funds for a short period, which is used by the owner of a mining project to get out of a difficult financial situation until long-term financing is obtained.

Debt: debt financing. This type of financing opens up unlimited opportunities for companies to use the so-called financial leverage.

Stream financing of mining projects. This particular type of financing consists of the obligation of the mining company to sell resources in exchange for an upfront payment.

Possible sources of funding for mining and processing plants include the following:

1) International Finance Corporation and other specialized development agencies.
2) Free capital market (issue of bonds and other securities).
3) Banks and other lending institutions.
4) Insurance companies and pension funds.
5)Private investment funds.
6) Buyers of minerals, etc.

If you are looking for the best way to finance a mining project, contact Viola Funding Limited. We are to offer your company with a long-term loan.

We also provide comprehensive financial services for large businesses, including guarantees, financial modeling, investment engineering and consulting.

Alternative financing options for mining projects

These instruments can be used in combination with traditional corporate finance schemes or partially replace them in long-term capital-intensive projects.

The focus of this section is an overview of alternative financing mechanisms for projects in the mining industry.

Streaming finance for mining industry

The upfront payment is made in exchange for the right to receive in the future the amount of ore agreed upon by the parties. Regarding the payment methods, there can be aforementioned upfront payment, as well as fixed payments in installments or additional increments of the upfront payment.

In the streaming agreement, the buyer acquires rights on the future production of the mining facility, and not rights on a percentage of its income (as is the case with the so-called royalty agreement).

Financing mining using royalty agreements

This type of agreement includes the project owner (royalty payer) receiving from a third party an advance payment. The owner of the mining project obliged to pay part of the income of the project to the third party (beneficiary).

Private investment funds: 

Private equity funds work with contributions from individuals who invest personal capital for the sole purpose of maximizing returns.

Since these funds operate in specific investment areas, their management usually consists of experts who make better investment decisions with more information and knowledge.

Private investment funds invest in projects for a period of 5-10 years). This is a very convenient tool for alternative financing of mining projects when loans are unavailable.

Private placements and Earn-in agreements

There are also Earn-in agreements, referred to private placements, in which the capital provider commits to purchase shares in the owner of the mining project, paying for them over a specified period of time.

Private placements refer to financing mining projects through the purchase of shares of the companies developing the project.

Viola Funding Limited  provides professional services in the field of investment project financing, investment engineering.

We cooperate with large companies around the world, including Spain, the United States, the UK, Germany, Saudi Arabia, Vietnam, Brazil, Mexico, Chile, and more.

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