Financing for mining needs innovative thinking
The mining sector will need to consider innovative funding structures in 2014 as equity markets spurn new resource ventures amid continuing uncertainty in the commodity price outlook, spurred in part by the Federal Reserve’s decision to begin withdrawing its unprecedented monetary stimulus.
Rajat Kohli, the London-based global head of mining and metals at Standard Bank, said: “Equity valuations for mining companies remain depressed and if you can’t raise enough capital in the share market it’s going to be even harder to raise debt finance for all but the most established miners.
“In that context mining companies are going to have to make use of more creative financing solutions to access project gearing.
“We may see a combination of debt and equity financing as well as hybrid structures involving mezzanine debt, subordinated debt or convertible arrangements.”
“Standard Bank estimates that net financial outflows of investments (e.g. ETF’s and commodity index swaps), in 2013 was $USD35bn, the majority of this coming in gold. But, ex-precious metals, the picture was more stable.”
Kohli said mining houses can access alternative sources of capital with sovereign wealth funds, private equity, hedge funds, high net worth families, and commodity trading firms the most likely sources of new capital.
“Because equity markets have dried up we have seen some influence from these sources but they haven’t filled the equity gap entirely,” said Kohli. “There’s still some scope for them to increase their exposure to financing mining exploration and extraction.”
Kohli says 2014 will also see innovative new funding structures become more prominent in the mining sector, such as the streaming agreement between Teranga Gold Corporation and Franco-Nevada, which helped fund the acquisition of the remaining interest in Oromin Joint Venture Group.
The agreement saw Franco-Nevada advance cash to Teranga to help fund the transaction in exchange for a supply of future gold at a discount to the spot price.
“We’re likely to see a lot more examples of this sort of funding arrangement in 2014 and beyond,” said Kohli. “Everyone is looking to fill the equity, and indeed debt, gap, and this is an innovative example of how to achieve that.”
The Federal Reserve’s decision to cut its monthly bond purchases to $75 billion from $85 billion as part of a decision to unwind the monetary stimulus mechanisms that were implemented in the wake of the 2008 financial crisis has had a major impact on the gold price, prompting a 15 percent decline in the precious metal last year.
While gold’s status as an alternative store of value to the dollar makes it the most vulnerable asset to the Fed’s so-called monetary tapering, Kohli believes other commodities will not be immune to the reversal of cheap US central bank funding.
“Tapering will undoubtedly suck a bit of froth out of base metals although it won’t be as dramatic as gold,” said Kohli. “Last year was a difficult one for commodities as the negative impact of tapering was priced in, along with question marks about Chinese growth, and we think that will keep investors relatively cautious on commodities well into 2014.”
Kohli said Africa continues to offer considerable development potential with West Africa’s gold and iron ore deposits, the central African Copper belt and fertiliser raw materials such as phosphate and potash being prime examples.
Nevertheless, financing will remain a challenge given the uncertain outlook for commodity prices.
“Africa remains an attractive mining destination due to its ability to offer assets at relatively attractive prices compared to other jurisdictions,” said Kohli.
“Political and regulatory stability is improving. The only question is what sort of funding will be forthcoming.”
5 minutes with... Janthana Kaenprakhamroy, CEO, Tapoly
Founder and CEO of award-winning insurtech firm Tapoly, Janthana Kaenprakhamroy heads up Europe’s first on-demand insurance platform for the gig economy, winning industry awards, innovating in the digital insurance space, and leading with inclusivity.
Here, Business Chief talks to Janthana about her leadership style and skills.
What do you do, in a nutshell?
I’m founder and CEO of Tapoly, a digital MGA providing a full stack of commercial lines insurance specifically for SMEs and freelancers, as well as a SaaS solution to connect insurers with their distribution partners. We build bespoke, end-to-end platforms encompassing the whole customer journey, but can also integrate our APIs within existing systems. We were proud to win Insurance Provider of the Year at the British Small Business Awards 2018 and receive silver in the Insurtech category at the Efma & Accenture Innovation in Insurance Awards 2019.
How would you describe your leadership style?
I try to be as inclusive a leader as possible. I’m committed to creating space for everyone to shine. Many of the roles at Tapoly are performed by women and I speak at industry events to encourage more people to get involved in insurance/insurtech. Similarly, I always try to maintain a growth mindset. I think it’s important to retain values to support learning and development, like reliability, working hard and punctuality.
What’s the best leadership advice you’ve received?
Build your network and seek advice. As a leader, you need smart people around you to help you grow your business. It’s not about personally being the best, but being able to find resources and get help where needed.
How do you see leadership changing in a COVID world?
I think the pandemic has proven the importance of inclusive leadership so that everyone feels supported and valued. It’s also shown the importance of being flexible as a leader. We’ve had to remain adaptable to continue delivering high levels of customer service. This flexibility has also been important when supporting employees as everyone has had individual pressures to deal with during this time. Leaders should continue to embed this flexibility within their organisations moving forward.
They say ‘from every crisis comes opportunity’, what opportunities do you see?
The past year has been challenging, but it has also proven the importance of digital transformation in insurance. When working from home was required, it was much harder for insurers to adjust who had not embedded technology within their operating processes because they did not have data stored in the cloud and it caused communication delays with concerned customers at a time when this communication should have been a priority, which ultimately impacts the level of customer satisfaction. This demonstrates the importance of what we are trying to achieve at Tapoly in driving digitalisation in insurance and making communication between insurers and distribution partners seamless.
What advice would you give to your younger self just starting out in the industry?
Start sooner, don’t be afraid to take (calculated) risks and make sure you raise enough money to get you through the initial seed stage.