Alternative financing in mining (2022)

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Alternative financing has grown significantly over the past decade and today represents more than $8 trillion in total assets under management. 1 Mining, however, remains underpenetrated, representing less than 1 percent of total global alternative financing. 2

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(Video) Mine finance panel: Successful alternative financing solutions and their growing adoption

Leading miners use the full range of financial levers to manage capital and returns through the cycle, including both traditional and alternative financing, within a sustainable leverage ratio. 3 By diversifying the financial portfolio, miners can better maintain long-term-investment plans, ensure stronger balance sheets, and likely see more consistent returns and valuations.

(Video) Alternative financing is an opportunity for mining investment - Johan Nalliah, SMBC

We estimate that three of the highest-potential alternative financing options could represent approximately $800 billion in financing over the next ten years for the mining industry. 4

The current alternative financing market, and future potential

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Institutional investors, looking for higher returns, have increased their allocations to alternative classes over the past decade. Globally, some $8 trillion in assets under management are now dedicated to alternative financing. 5

Of this total, mining is a mere fraction, with alternative financing comprising $10 billion to $15 billion in annual mine financing, or less than 1percent of the global alternative financing total. This suggests potential for mining to raise alternative financing allocations.

The success of specialized alternative investment firms suggests that there are significant benefits for these investors: for example, 13 percent annual growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the major streamers since 2014. 6 There is also significant potential benefit for mining companies: using publicly available data, we estimate that the total alternative financing potential in mining is as much as $800 billion over the next ten years, from three prioritized structures.

The range of alternative financing options

The range of equity, debt, and hybrid financing options available to mines is broad (Exhibit 1).

(Video) Financing Options In The Mining Industry

Alternative financing in mining (1)

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We highlight three alternative financing options that may be of particular interest, especially if not structured as fixed commitments (in which case they are more likely to accrue as debt, increasing leverage). Nondebt and debt-like structures with a variable payback can reduce the stress on the balance sheet during downturns, when commodity prices fall but traditional debt obligations remain constant. In particular, we highlight the following options:

  • Streaming and net smelter returns (NSRs)—the sale of all or part of the future production of a mine at a discounted market price, and the sale of a right to a percentage of future revenues of a mine for an up-front payment, respectively. Streaming deals are typically larger (more than $100 million) and focused on secondary production, while NSRs are generally smaller (less than $50 million) and commodity agnostic. This alternative funding option presents many advantages over traditional debt. It leaves more leeway for sellers, as they are not committed to cash but to a percentage of future sales or production. Moreover, these deals are typically structured so that the lender does not require any restriction on the use of cash obtained. Due diligence is generally quicker (two to six weeks) than in project financing, and risks are shared with the lender.
  • Net profits interest (NPI)—the purchase of a fixed percentage of mine profits in return for an up-front payment, typically after capital costs have been paid. Although most commonly used in oil and gas (where oilfield operators pay a share of profits to exploration rights owners), this is beginning to be seen in mining. For example, a leading streaming and royalty company has recently acquired multiple NPI royalties in several countries, including Canada, Chile, and Turkey. The advantages of this option are similar to streaming and NSR.
  • Asset monetization: tolling or joint ventures (JVs)—the sale of a portion of the value of an existing or new asset in exchange for a revenue stream (toll or dividend). Infrastructure assets show the most promise, with several examples in mining, especially in Australia’s Pilbara region. In the Pilbara, investment funds have notably taken stakes in rail-freight operations, among other assets. Deals can also be constructed as an outsourcing arrangement, but these are not explored in this article. The main advantage of asset monetization is that it allows companies to obtain funds without increasing their debt ratios (net debt, EBITDA), thereby minimizing impact on market capitalization or debt covenants.

These three financing options account for approximately 15 percent of total financing for the mining industry, but this share is likely to rise as COVID-19-related risk increases corporate bond spreads, and as many mining companies (especially juniors) seek alternative financing. 7

Potential from three priority alternative financing structures

Taking an outside-in view, we estimate a potential in total alternative financing of up to $800 billion over the next ten years, drawing on ten-year anticipated revenues and spending, as well as potential tolls. This is equivalent to approximately 40 percent of the industry’s estimated capital-investment needs over the next ten years (Exhibit 2).

Alternative financing in mining (2)
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Streaming/NSRs

The 12 by-products with the greatest potential for streaming could yield up to $1.4 trillion in secondary revenues over the next ten years. 8 Accounting for feasibility considerations 9 and discounting, 10 this implies a ten-year potential global by-product stream value of up to $380 billion, of which gold (approximately $175 billion), copper (approximately $90 billion), and silver (approximately $26 billion) form the lion’s share.

Net profits interest

We estimate industry-wide EBITDA of approximately $7 trillion over the next ten years—approximately $5 trillion when factoring in discounting. 11 Typical NPI agreements will not exceed around 10 percent of total profits: this suggests a discounted ten-year potential mining NPI value of up to $340 billion, 12 after accounting for streaming potential (that is, deduplicated value) and accounting for the same set of commodities considered to have streaming potential.

Asset monetization via tolling or JV/sale of noncore assets

Ports, rail, and power are the most obvious assets for potential tolling in mining. Considering only those privately held assets that might qualify for nondebt financing, 13 we estimate up to $55 billion in discounted ten-year toll values from ports and rail. 14 We estimate a further $15 billion in financing potential for alternative energy projects (primarily solar power), 15 for a total of some $70 billion. This could represent a considerable opportunity for infrastructure investors looking for lower-risk assets in the sector.

Falling prices, as well as turbulence in the debt and public-equity markets, are endangering capital-expansion programs—for majors as well as junior miners. Alternative financing, especially if not structured as fixed commitments, has the potential to help many players maintain their investment plans during this period, thereby avoiding the boom-and-bust cycle typically seen in the industry. Using the full range of financing options, including variable-payment alternative financing, could contribute to a more diverse and stable investor base, improved valuations, stronger balance sheets, and up to $800billion in new financing over the next ten years.

Capturing the opportunity will require work. Companies should make efforts to identify the “right” long-term investors and counterparties for them, with the right risk profile. The structuring and management of such agreements is also complex, involving sophisticated forecasting (such as predictive pricing and determining future production of a mine for streaming agreements). However, for companies that are able to take action to shore up their financing and maintain through-cycle investments, there are likely to be considerable gains.

(Video) Mine finance panel: Sourcing pools of development capital – A look at the alternatives

FAQs

How can we solve the problem of mining? ›

Top 10 Ways to Make Mines More Environmentally Friendly
  1. Closing illegal and unregulated mines. ...
  2. Scrap mining and recycling. ...
  3. Better legislation and regulations. ...
  4. Improving environmental performance. ...
  5. Accurate tallying of toxic mining waste. ...
  6. Building from reusable waste. ...
  7. Closing and reclaiming sites of shut-down mines.
29 Apr 2014

How can mining operations be improved? ›

Strengthen mine planning

Refocus on high quality production by increasing cut off grades. Reduce capital expenditures in properties with lower production potential and shorter mine lives. Consider the benefits (and potential risks) of reducing reserves. Optimize mine sites through enhanced sequencing.

What are four solutions for mining? ›

There are four main methods of mining: underground, surface, placer and in-situ. The type of mining method used depends on the kind of resource that is being targeted for extraction, the deposit's location below or on the Earth's surface and the capacity of each method to profitably extract the resource.

How can problems in the mining sector be improved? ›

Lower-Impact Mining

Modern, energy-efficient, low-impact mining methods, such as in-situ leaching, can help mining companies reduce environmental risk. Companies can limit surface disturbance at mining sites, reduce soil erosion, and transport less material that needs to be backfilled using many of these strategies.

How can we prevent irresponsible mining? ›

To curb illegal mining, governments must ensure proper closure and security of all closed mines. In addition to financial guarantees, governments must insist that mining companies provide mine closure plans before granting permits.

What challenges are faced by the mining industry in order to remain sustainable? ›

Major environmental issues facing modern mining include water resources risks & impacts, air pollution, greenhouse gas emissions & climate change, acid mine drainage, rehabilitation, growing energy needs, etc …

What is your issue regarding mining? ›

Across the world, mining contributes to erosion, sinkholes, deforestation, loss of biodiversity, significant use of water resources, dammed rivers and ponded waters, wastewater disposal issues, acid mine drainage and contamination of soil, ground and surface water, all of which can lead to health issues in local ...

What are new trends in mining industry? ›

Remote operations and commissioning, health and safety, collaboration, decarbonization. Four key trends that will further drive the mining industry forward, helping it to reach productivity goals, remain competitive and grow with technology in 2022 and beyond.

What can be done to improve the income of miners? ›

5 Ways Miners can Increase Profits
  • Throw away less ore and process less dilution. ...
  • Appoint an external productivity coach to sit at the face to improve the loader and truck interface.
  • Mine the best part of the resource first. ...
  • Optimise dumping and haulage. ...
  • Conduct regular process plant audits.
19 Jan 2017

What is sustainable development in mining? ›

SUSTAINABLE DEVELOPMENT meets the needs of the present without compromising the needs of future generations. Sustainable development of mineral resources seeks to attain a balance between economic development, environmental protection, community benefits, and government responsibilities.

Why is sustainable mining important? ›

Sustainable mining becomes an essential element—not only in recovering from the latest mining slump but also for the industry's long-term survival. Sustainability also drives long-term cash benefits for new mines and those that are already operational, including providing immediate cash improvements.

What are the 5 methods of mining? ›

There are five recognized types of surface mining, each with specific variations depending on the minerals being extracted. These include strip mining, open-pit mining, mountaintop removal, dredging and highwall mining.

Which three methods are used for mining? ›

Open-pit, underwater, and underground mining. These are the three main methods of mining we use to extract our products from the ground.

What are the causes and impact due to mining? ›

Mine exploration, construction, operation, and maintenance may result in land-use change, and may have associated negative impacts on environments, including deforestation, erosion, contamination and alteration of soil profiles, contamination of local streams and wetlands, and an increase in noise level, dust and ...

How does mining improve the economy? ›

By creating high-paying jobs and providing the raw materials essential to every sector of our economy, minerals mining helps stimulate economic growth. The U.S. minerals mining industry supports nearly 1.0 million jobs.

How do you promote responsible mining? ›

Responsible mining companies should develop meaningful social objectives, understand the ways in which social outcomes intersect with and support their business goals, implement a social continuous improvement process, and communicate outcomes in a clear and transparent way.

How can mining contribute to the sustainable development goals? ›

Sustainable Development Goals (SDGs)

Mining can foster economic development by providing opportunities for decent employment, manufacturing, increased fiscal revenues, and infrastructure linkages.

What are the impact of mining on the environment? ›

The extraction of minerals from nature often creates imbalances, which adversely affect the environment. The key environmental impacts of mining are on wildlife and fishery habitats, the water balance, local climates & the pattern of rainfall,sedimentation, the depletion of forests and the disruption of the ecology.

Is sustainable mining possible? ›

Sustainable mining is possible and we're doing it right now. Resources companies are working to prioritise sustainable practices across their mines. This involves a focus on safety, economy, resource efficiency, the environment, and the community.

What is your idea about sustainable mining essay? ›

The term sustainable mining is used loosely by governments and NGOs. Minerals are a finite resource with an uneven distribution on the earth crust, for a resource to be sustainable it has to be replenished, regenerative or renewable in its essence with no environmental impacts (D'Souza, 2012).

What is your idea about sustainable mining Can you list down? ›

Measures like reducing energy and water consumption, limiting waste production and minimising land disturbances, preventing pollution on sites (including air, water and soil pollutions) and ensuring the efforts on closures and reclamations of sites is carried out to the highest levels.

Does responsible mining support the concept of sustainable development? ›

sustainable development

There is a growing recognition not only that responsible mining unleashes benefits well beyond min- ing – providing a positive legacy on a local scale – but that this proliferation of progress can only occur when inves- tors, governments and civil society work together.

What are the impacts of mining on the economy? ›

Mining also has a positive impact on the economy of many countries. Another impact of mining can be measured in terms of employment opportunities and income generation. Commercial scale mining provides employment and skills transfer to more than 2 million workers.

What are the risks of mining? ›

Cave-ins, explosions, toxic air, and extreme temperatures are some of the most perilous hazards observed to take place in underground mining. Valuable minerals are found all over the world.

What benefits does society get from mining? ›

These benefits include low-cost, reliable electricity and the materials necessary to build our homes, schools, hospitals, roads, highways, bridges and airports.

What is the future of mining? ›

Automation and digitalization will result in more targeted and efficient mining, which could further be enhanced through technological breakthroughs in areas such as in-situ leaching (a mining process used to recover minerals such as copper and uranium through boreholes drilled into a deposit), block caving (an ...

What is the future of mineral mining? ›

Artificial intelligence will be commonplace in mining operations, as miners use it to interpret data from smart sensors and machine interconnection, and to improve operational safety and efficiency through unmanned, AI-enabled technologies. This will transform mining into one of the safest occupations of its kind.

What are the problems caused by the mining company in the community? ›

Mining often uses large amounts of water and can pollute rivers, streams, groundwater and other sources of water for the community. Mining may also make it difficult for a community to produce its own food by taking up agricultural or grazing land or by polluting the soil or air.

How can I be a good miner? ›

Personal requirements for a Miner
  1. Enjoy practical and manual activities.
  2. Aptitude for mechanical equipment operation.
  3. Able to tolerate physically demanding work, including shiftwork.
  4. Willing to work in accordance with occupational health and safety rules.
  5. Meet age restrictions, if applicable.

How much does mining contribute to the world economy? ›

In 2016, the total global value of mine production at the mine stage including coal was around 1000 billion USD. Coal contributed 470 billion USD, and iron ore 125 billion USD. The change over time in the total global value of mineral production follows the general metal/mineral prices developments.

How can mining be sustainable in a country? ›

These practices include measures such as reducing water and energy consumption, minimizing land disturbance and waste production, preventing soil, water, and air pollution at mine sites, and conducting successful mine closure and reclamation activities.

What is sustainable mining in simple words? ›

Sustainable mining is the minimization of negative environmental, social, and economic impacts associated with mining and processing activities while limiting extraction to rates that do not exceed capabilities to establish new sources, substitutes, or recycle any particular material so as to not compromise potential ...

What is environmentally sustainable mining? ›

By diverting surface water and pumping groundwater, mines can reduce both the quantity and quality of water available downstream for aquatic ecosystems and other use. With regard to energy, a mining company can look into alternative energy sources such as solar or wind power.

How can we promote responsible mining of minerals? ›

Responsible mining companies should develop meaningful social objectives, understand the ways in which social outcomes intersect with and support their business goals, implement a social continuous improvement process, and communicate outcomes in a clear and transparent way.

How can we prevent air pollution from mining? ›

Modifying or shutting down mine operations during extreme weather, including windy and dry conditions. Covering coal conveyors and keeping stockpiles damp. Stabilising exposed areas through various techniques including aerial seeding. Rehabilitating mined land as soon as possible to reduce exposed areas.

What are the solutions to galamsey? ›

The government should resource the MMDAs to enable them to embark on projects without depending on funds from the galamsey people. The arms of government should work as a team towards fighting galamsey. This can be achieved by enforcing the laws prohibiting galamsey.

How do you think you can help the environment even if you were an owner of a mining company? ›

Proper waste disposal

Mining companies should aim to reuse and recycle water as much as possible, and be sure that all unusable water is disposed of safely and responsibly. Scrap materials can be recycled or sold to companies who can reuse them in order to reduce the amount of waste produced on site.

Why is it important to control the mining activities? ›

Our global economy relies upon natural resources extracted from the Earth, but removing them can cause erosion, pollution, deforestation and species loss, not to mention the climate impact of burning fossil fuels once they're out of the ground.

Why we should be responsible in mining? ›

Responsible mining can ensure the economic and sustainable future of local communities. Big companies sourcing near small communities can, in fact, benefit them by producing jobs and bringing business to the area. This relies on the fact that workers are engaged in safe, ethical, paid labour.

What is the responsibility of mining companies to the people and the environment? ›

While mining entails extracting resources in areas near communities, mining companies must ensure essential resources like water and food, are not affected by their operations. The welfare of people must take priority above everything else.

Is sustainable mining possible? ›

Sustainable mining is possible and we're doing it right now. Resources companies are working to prioritise sustainable practices across their mines. This involves a focus on safety, economy, resource efficiency, the environment, and the community.

What effects does mining have on the environment? ›

Mine exploration, construction, operation, and maintenance may result in land-use change, and may have associated negative impacts on environments, including deforestation, erosion, contamination and alteration of soil profiles, contamination of local streams and wetlands, and an increase in noise level, dust and ...

What are the social impacts of mining? ›

Economically, they contribute to government revenue and employ a significant number of people. There are however some social negative impacts associated with mining including violence, child labour, escalation of gender inequalities, health and environmental effects including deforestation and pollution.

What is the causes and effect of illegal mining? ›

Illegal mining activities were identified as the cause of environmental problems such as water pollution, deforestation, poor soil fertility and limited access to land for agriculture productivity.

What are some causes of illegal mining? ›

Spurred by widespread poverty and a lack of alternative income-earning opportunities, illegal artisanal mining is a well-documented phenomenon in sub-Saharan Africa.

Can you recommend two ways to make individuals more responsible for the environment? ›

A good way would be to start with conserving water, driving less and walking more, consuming less energy, buying recycled products, eating locally grown vegetables, joining environmental groups to combat air pollution, creating less waste, planting more trees, and many more.

What are the problems caused by the mining company in the community? ›

Mining often uses large amounts of water and can pollute rivers, streams, groundwater and other sources of water for the community. Mining may also make it difficult for a community to produce its own food by taking up agricultural or grazing land or by polluting the soil or air.

What and who will be affected if mining will be stopped? ›

Automobiles, both gas and electric would disappear. 27 States would lose 25% of their electricity output. No nails to hammer projects home. No more high rises, bridges, airplanes, trains, or space exploration.

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