Lecture: Mining Project Finance
Introduction
- Focus on mining project finance as opposed to traditional infrastructure finance.
- Importance of mining finance in places like Perth, the home of mining.
- The lecture aims to fill the gap by providing insights into mining project finance.
Key Concepts in Project Finance
- Project finance focuses on the cash flows from the project rather than asset financing or leveraging the sponsor's balance sheet.
- Non-recourse financing: Lenders' only security is the project and its cash flows.
- Sponsors need to invest equity and cover cost overruns.
Characteristics of Project Finance
- Used for project development, not acquisitions or working capital.
- High leverage is possible, often 60-40 debt-equity ratio.
- Control policies and cash flow waterfalls dictate when dividends can be paid.
- Involvement of multiple participants, including lawyers, consultants, and advisors.
Comparing Finance Options
- Project Finance vs. Equity Finance vs. Traditional Debt Facilities.
- Differences in recourse, balance sheet impact, and due diligence.
Contracts and Participants
- Various contracts like power, accommodation, and permits are essential to de-risk financing.
- SPVs are used to isolate and manage project-specific risks.
Due Diligence and Risks
- Includes technical, legal, environmental, and market due diligence.
- Risks include commodity price, construction, and political risks.
- Importance of de-risking through appropriate contracts and agreements.
Financial Modeling
- Financial models help in analyzing project feasibility.
- Models include cash flow waterfalls, debt repayment profiles, and sensitivity analyses.
Debt Sizing
- Debt sizing involves calculating the debt capacity of a project considering various financial metrics and covenants.
- Uses assumptions like funding requirements, debt terms, and lenders' price decks.
Worked Example: Panther's Claw Project
- A case study involving fictitious company Vibranium Minerals.
- Demonstrates project financing from feasibility studies to debt sizing and covenant compliance.
- Example outlines assumptions, financial modeling, and debt sculpting techniques.
Conclusion
- Project finance is crucial for mining projects but involves complex structuring and risk management.
- The importance of early engagement with advisors to ensure successful financing.
- Availability of tools and resources to aid in understanding and applying project finance principles.
This lecture provides a comprehensive overview of mining project finance, focusing on the practicalities, risks, and complexities involved in securing financing for mining projects.