Random Reading

Having just read the Global Mining Finance Guide from 2014, I have some interesting insights on why Kibaran's financing may be taking so long:

The Guide states that Development Finance Institutions (DFI's) like KfW-IPEX Bank:

"... will accept higher project and country risk than commercial banks, provided that the borrower demonstrates commitment to benefiting the host nation and complies with stringent environmental and social standards (i.e. labour, social security and protection of indigenous peoples).

DFIs will therefore be particularly concerned with the representations, covenants and warranties in relation to performance and labour standards, environmental laws and practices, anti-corruption, social law and exclusion of activities against public morals (e.g. child labour). They may require periodic monitoring reports covering such topics to be completed by the borrower. During the due diligence phase, DFIs will be particularly concerned with the history of the project, the shareholders and how they obtained their shareholdings, the mining licence(s) (including how these were obtained), as well as reputational and anti-bribery matters." (pages 20-21)

On top of this, as Andrew Spinks referenced in the last financing update, the project has to comply with the Equator Principles:



Apparently each company is given an Equator Principles ranking which places you in Category A, B or C:



Projects in Category C are in the clear, but:

"Those in categories A or B may be required to comply with provisions such as developing (or maintaining) an environmental and social management system and consulting with ‘affected communities’ in a ‘structured and culturally appropriate manner’. They will also have to comply with specific loan covenants including to:

• materially comply with its environmental and social management plan and
  equator principles action plan (both of which must be developed if not already
  in place) during the construction and operation of the project;
• provide periodic reports documenting compliance with the above; and
• prepare (and in the event that a project is decommissioned, comply with) an
  appropriate decommissioning plan." (pages 21-23)

Poor Spinks and Hodby, this sounds like an administrative/bureaucratic nightmare, no wonder the process is taking its time.

We can take heart from the following quote though about the DFI due diligence process:

"this can reduce the cost of future capital and the process to attain it, as investors are likely to have greater confidence in the project in the knowledge that it has already been subject to such scrutiny." (page 19).

The section about offtakes was good too:

"Offtake agreements are payment agreements for a determined volume or percentage of production over a set timespan. They provide a guaranteed source of demand for the project, which can help to secure other sources of finance.

Lenders financing a project will generally want the project to be underpinned by long-term sale contracts so as to ensure the debt can be adequately serviced. If there are multiple offtakers this will spread credit risk (and improve bankability of the project). The end-buyer of the relevant commodity may itself be willing to offer a loan to finance the project or a pre-payment for delivery of the commodities produced (in the latter example the loan and interest would be repaid by delivering the goods)." (Page 24)

Offtake financing examples:

- "A recent example is Tiger Resources Ltd’s copper cathode offtake agreement with trader Gerald Metals, which included a US$50 million advance payment facility, repayable in 12 equal monthly installments plus interest.

- Another example is Amara Mining plc’s 2012 strategic partnership with Samsung C&T, the construction and trading division of South Korea’s Samsung Group. Sam- sung provided Amara with a US$20 million loan facility, which is repayable over a 22 month term plus interest, in return for the right to purchase a fixed amount of gold production at a 2.25% discount to spot." (Page 65)

And finally, here's a good chart from page 87 showing the many alternative ways to generate finance, some of which will build our mine: