Debt Finance: The Technical Factors

The key to the successful debt funding of a new mining project, whether in economically established or developing nations, is the submission of a comprehensive feasibility study. The feasibility study forms the basis from which the resource banker can construct financial models which govern the amount of available funds, the conditions which control the supply of such funds and the time period over which the loan may be repaid. The bank will wish to ensure that the feasibility study is the best representation and confirmation of reality possible because this model is the basis of the loan security package. Thus the study will be vigorously interrogated by independent experts in all its elements including the ore reserve, mineability, metallurgy, operating and capital cost profile, environmental factors and management. A well constructed feasibility study, undertaken by well recognised and respected independent consultants can save the client company a great deal of real and opportunity costs especially in relation to project timing. Once constructed and operating, the mining project may face one or more completion tests in relation to the loans provided. The genetics of such tests often relate to either the ability of the operating company to become solely responsible for the repayment of the loan or to be rewarded by lower interest rates or some other mechanism. Strong professionalism, accessible records, good checking procedures and high quality, competent site management will greatly assist the client company passing these tests. A record of well established technical competence with its bankers may well assist a company in the establishment of a mezzanine loan for the early development of its next project, thus allowing an earlier return of dividends to shareholders.