There are several ways a mine project can be financed. Debt, equity and a combination of debt and equity are all viable options. Investors are often willing to accept cash flows from operations to pay down debt, and will also set up purchase agreements with the borrower to purchase gold, oil, coal, etc. at a reduced price for a specified amount of time. The terms of the financing depend on the individual project and are set after discussion and negotiation between the lender and the borrower.
The financial position of the borrower has a lot to do with the terms of the deal and its potential to close. Projects and borrowers with liquidity are more attractive to investors and because of this are often faster to close. Depending on your timeline and your financial position, the following options are available:
10% Liquidity with Proof of Funds
Borrowers that have liquidity and are able to show 10% proof of funds are considered to be strong applicants by both private investors and funds. These projects are looked at first and are given consideration over projects with less or no liquidity. Investors want to know that they are not the only ones at risk in a transaction. They want to know that a borrower has skin in the game and the ability to make a deal work. Projects with liquidity fund quickly and with the most favorable terms to the borrower.
1 – 2% Liquidity for Due Diligence
While all investors like to see that borrowers have skin in the game and the ability to help put a deal together, not all investors require 10% liquidity from the borrower. Some will require 1 to 2% of the total funding request from the borrower to be used to cover due diligence costs. These funds are accounted for and are reimbursed to the borrower at closing. Borrowers that are willing to put up funds to cover diligence expenses will be fast tracked with many of our private investors.
This option is popular among borrowers, especially mine owners who have already put all of their capital into their projects. In order for an investor to offer 100% financing on any deal, a third party will have to be involved, usually a hard money lender. The main investor initially commits up to 90% of the requested amount, and the remaining 10% will come from a third party investor. Once diligence is complete and a deal funds, the third party investor is paid off with closing funds and the initial investor is the only one left in the deal.
There are obvious benefits to this type of financing to the borrower, especially when cash is short or non-existent due to unforeseen issues. The downside is this route usually takes much longer than other financing options. It takes additional time to line up a third party investor, and often more documentation is required from the borrower. There are also many 100% financing requests on every investor’s desk, so often your project waits in a long line before being reviewed.