Net profits earned by the world’s 40 biggest mining companies sunk by 44% in 2023 compared with 2022. With financing hard to come by, junior explorers have sought new avenues for capital.
Surging interest rates and a lack of investment from a market that is sceptical of the sector has resulted in difficulties in raising capital for mining projects, many of which will be required to meet the demand for green transition minerals. Research from McKinsey & Company forecasts that, by 2030, there is likely to be supply shortfalls of 20 to 50 per cent across some of the metals and minerals that are vital for renewable energy, power grids and electric vehicle batteries.
In recent cycles, according to McKinsey, “investors have favoured other sectors such as technology and healthcare”. Therefore, with traditional investment proving challenging, some mining companies have been forced to get creative in order to raise funds.
Phoenix Copper
In May 2024, Phoenix Copper, the UK-based, but US-operating emerging producer and explorer, secured an investment that could be crucial in helping it to complete construction of its flagship operation, the Empire copper, gold and silver mine in Idaho. The significance of this investment is exacerbated by the looming deficit in copper supply, with the metal being used heavily in the fast-developing electric vehicle and renewable energy industries. According to the International Copper Association, global copper demand is forecast to grow from 28.3 million tonnes in 2020 to 40.9 million tonnes in 2040.
The deal is structured as a subscription agreement with NIU Invest SE, a European private equity investment firm. NIU subscribed for $80 million worth of copper bonds from Phoenix, which will be drawn down in tranches.
In drawing up the bond agreement, Phoenix took a couple of innovative measures. For one, the bonds issued were not convertible, providing protection against large-scale shareholder dilution in the future. Furthermore, they linked the coupon of the bonds to the price of copper, protecting them from a price surge. If the coupon increases, it means the copper price will also have increased, which, naturally, benefits Phoenix. These measures were described by AIM Journal as “a now-rare instance of a financial innovation generated in London”.
This sentiment is understandably echoed by Phoenix’s management team, who are now “hopeful that our stars are finally aligning”. The Empire mine is currently in the development stage, and the additional funds are likely to bring forward the timeline to production.
The success of Empire would not only be momentous for Phoenix, but would also contribute to the US’ national effort to secure domestic critical mineral supply chains. Speaking earlier this year, President Biden emphasised that “we can’t build a future that’s made in America if we ourselves are dependent on China for the materials that power the products of today and tomorrow” – a topic that is unlikely to be subject to the whims of post-election policy changes.
Power Metal Resources
Power Metal Resources has also been inspired to explore new avenues for funding, drawing on a key aspect of the company’s fabric; to deliver forward-thinking approaches to metals exploration. Power Metal utilises a project incubator model, whereby it acquires a portfolio of early-stage assets at a low cost, develops them to increase their value, and either sells them on for profit, or enters into a joint venture to carry them through to production.
As part of its global portfolio, the company has a huge landholding in the Athabasca Basin in Canada – the most prospective region for uranium in the world. Uranium is the fuel most widely used by nuclear plants for fission, which could place the metal in a central position to energy transition efforts. The growing interest in nuclear energy caused uranium prices to surge in 2023 – one of the only commodities to do so. Power Metal has identified the uranium portion of its business as a key driver for growth and has been able to capitalise on the growing interest in the element through a strategic financing agreement and joint venture.
In June 2024, a subscription agreement was initiated with natural resources investor ACAM LP, whereby ACAM will invest £2 million through a loan note. The partnership comes with the intention of forming a joint venture involving Power Metal’s entire portfolio of uranium licences. ACAM’s willingness to invest across the entire portfolio puts weight behind the prospectivity of the licences. Pursuant to the proposed joint venture, the arrangement could even extend to a £10 million initial equity investment in return for a 70 per cent stake in Power Metal’s Canadian subsidiary.
Geological analysis conducted by the company has already indicated the presence of high-grade uranium across a range of licence areas, and bringing in a partner to expedite exploration will ensure that this potential is realised in the context of a rapidly growing market, whilst ACAM’s expertise as a natural resources specialist will prove invaluable.
Power Metal is proof that sometimes different is better; indeed, Mining Journal has hailed the company as “a rare success story on London’s junior market”, with its uranium portfolio as its “most exciting” asset.
Oriole Resources
The dream scenario for a small to mid-cap mining company is to have first-mover advantage in a new, highly prospective region. This is exactly the situation that Oriole Resources finds itself in; the gold and base metal explorer possesses numerous permits in Cameroon and delivered the country’s first JORC-compliant gold resource in December 2022.
Like Phoenix and Power Metal, Oriole has counteracted the tough market conditions by implementing an intuitive financing arrangement. Keen to capitalise on its advantageous position, Oriole reached a deal in November 2023 with Ghana-based mining and civil contractor BCM International. The deal concerns the highly prospective gold projects Bibemi, located in the north-east of Cameroon, and Mbe, one of the licences within Oriole’s Central License Package.
BCM will earn up to a 50 per cent interest in the Mbe licence in return for a $1 million initial signature payment, followed by $4 million in exploration expenditure. Oriole is also eligible for further JORC resource-based success payments. The deal for the Bibemi project follows a similar structure, with BCM acquiring 50 per cent, albeit with an initial signature payment of $500,000.
At Mbe, the investment will largely go towards defining the available resources, whilst at Bibemi, it will go towards undertaking resource-expansion drilling. The high cost of gold exploration means that any asset-level financing can prove to be crucial. This investment is an endorsement of Oriole’s progress to date and the prospectivity of its licences, maximising the scale of the resources and fast-tracking the pathway to development. For the foreseeable future, the projects will no longer require any financial input from Oriole, whilst BCM’s decades worth of experience in mining in West Africa and capacity for drilling will provide invaluable assistance.
The deal has huge upside potential for both parties and should enable Oriole to capitalise on their first mover advantage and spearhead the growth of a new gold frontier in Cameroon. Between January and June 2024, both Oriole’s share price and market cap doubled, evidence of a thriving company in a tricky market.
Los Andes Copper
Los Andes Copper has taken a different approach again to maximising the value of its asset. It wholly owns the Vizcachitas copper project in Chile, which it is confident will become the South American nation’s next major copper mine.
Los Andes entered into a royalty agreement with Ecora Resources in August 2023. In return for a $20 million investment, Ecora will receive royalties on minerals sold from open pit and underground operations. The investment allowed Los Andes Copper to accelerate the optimisations identified by the pre-feasibility study. A project of this scale and at this stage of development is also likely to see interest from larger mining companies that are looking for future copper production.
To generate this interest, much of the work to date has centred around demonstrating the value and prospectivity of the project, expanding on the exploration completed to date. The initial ‘proven and probable’ mineral reserves for the project are a massive 10.889 billion lbs of copper-equivalent, contained within a 26-year mine life and, once in production, Vizcachitas is expected to produce 180 000 metric tonnes of copper per year, with further underground potential beyond that.
A resource of this size will be attractive to larger mining companies looking to help meet the burgeoning global demand for copper whilst ensuring that there is a steady supply of the metal for rapidly advancing green technologies.
These four mining companies demonstrate the creative solutions that have been necessary to secure financing in a tough market. The variety in each source of growth illustrates that, at least in this environment, there is no set method for generating capital. Junior companies have little protection against tough market conditions, so forward-thinking ingenuity is vital.
Across the breadth of the industry, we see examples of corporate Darwinism; those that adapt, improvise, and perhaps thrive, and those that stagnate without ever realising the full potential of their assets. Phoenix Copper, Power Metal Resources, Oriole Resources and Los Andes Copper appear to be on the right track, even if sometimes it is the road less travelled.
