AS traditional bank financing becomes increasingly elusive for mining projects across Africa, industry leaders are turning to alternative funding mechanisms like streaming to fuel growth and development.
At a high-profile panel discussion hosted by Alchemy during the 31st Investing in African Mining Indaba, experts dissected the evolving landscape of mining finance, emphasising the need for flexibility, innovation, and strategic planning in securing capital.
The event brought together a powerhouse panel of industry veterans, including Nedbank’s Arnold van Graan, Absa’s Mpho Mofokeng, Triple Flag Precious Metals’s James Dendle, and Traxys’s William De Landtsheer. Moderated by Alchemy partner Wildu du Plessis, the discussion centered on the challenges of traditional financing and the rise of alternative models like streaming, royalty financing, and prepaids.
The panel opened with a stark reality check: equity, while fundamental to mining projects, is increasingly difficult to secure, especially for smaller companies. James Dendle, chief operating officer of Triple Flag Precious Metals, highlighted the pitfalls of traditional equity financing, noting that the pressure to deliver short-term results often leads to optimal decisions. “The treadmill to deliver news and exciting results in the short term often results in companies taking shortcuts,” Dendle said. “It drives the wrong results.”
For smaller, listed companies, raising equity has become a significant stumbling block, with many projects stalling before they even begin. The panel agreed that while equity remains a necessity, the providers and dynamics of equity financing have shifted dramatically in Africa.
Speaking to the Sunday Independent, Wildu du Plessis emphasised the importance of flexibility in funding strategies, saying: “The most important thing to consider is flexibility—no project remains static, and that goes for the funding needs too. Your funding needs will change over time, so make sure that whenever you bring funding on board, you do not do so in a manner that will preclude you from taking on other types of funding in the future.”
He further said that efficiency was equally critical, advising miners to align funding availability with project spending timelines to avoid unnecessary interest costs. “It is very inefficient if you end up sitting on cash funding that you are paying interest on but have not spent it on, for example, project development,” he said.
Streaming, once considered a financing option of last resort, has emerged as a sophisticated and complementary tool for miners. Under this model, a company provides upfront capital to a miner in exchange for a percentage of future production at a predetermined price. This allows miners to access capital without diluting equity or increasing debt. However, the panel cautioned that streaming was not a one-size-fits-all solution.
“Streaming is not the right fit for every situation,” Dendle emphasised. Successful streaming transactions typically focus on by-products rather than core commodities, ensuring miners can secure upfront capital without significantly diluting their primary revenue stream. However, if a stream consumes too much cash flow, it can alter mine plans, sterilise economics, and disincentivize operators.
Arnold van Graan of Nedbank noted that while streaming offers long-term benefits, its extended tenure can be a drawback. “As a streamer, you don’t have to set volumes, so you’re taking on some of the production risk,” he said. “And as an operator, you’re hedging against the commodity price.”
Du Plessis addressed common misconceptions about streaming, clarifying that it was not inherently incompatible with traditional debt. “There is a perception out there that streaming is somehow competing with traditional debt funding and that the two are incompatible. But that is of course not really the case—the two can sit alongside one another if properly planned upfront,” he said. He also dispelled the notion that streaming diminishes shareholder value, arguing that “it enhances value for shareholders”.
From a banking perspective, streaming offers unique advantages. Mpho Mofokeng of Absa pointed out that streaming doesn’t count toward a company’s indebtedness and has a minimal impact on earnings before interest, taxes, depreciation, and amortisation (Edbitda). “A stream cleans up the balance sheet, so from a bank’s perspective, it looks better,” he said. This makes streaming an attractive option for diversifying the capital stack and managing risk effectively.
However, the panel warned against over-reliance on streaming, as it could overburden a project’s cash flow and deter future lenders. “The ideal stream is a small slice of a big pie,” Dendle said, underscoring the importance of balancing streaming with other funding mechanisms.
Du Plessis highlighted the importance of upfront planning and legal advice when structuring streaming agreements. “Make sure that you get appropriate advice from your lawyers on how restrictive any funding package is,” he said. “It is sometimes relatively easy to bring in more flexibility into a funding document if you ask for it, but if you never ask.”
Not all commodities are suited to streaming, the panel noted. Products like diamonds, which lack a confirmed market price, are difficult to stream, while contract-based commodities and coal present additional challenges. Precious metals like gold, copper, and platinum group metals (PGMs) remain the most viable candidates for streaming.
Du Plessis said: “A streamer would be willing to fund a commodity that is traded with a transparent listed market price and where there is ample liquidity in the relevant commodity market.” He further said that while streaming is common for gold and PGMs, it is rare for commodities like iron ore, coal, or diamonds due to pricing and liquidity challenges.
On the tax front, the panel agreed that alternative financing structures like prepaids and royalties were relatively straightforward. “A prepaid is just an advance on future deliveries,” said William De Landtsheer of Traxys. “So they will just pay corporate tax on physical deliveries.” Similarly, royalties are taxable upon receipt, offering miners a clear financial pathway.
The panel concluded with a resounding message: mining finance is not a one-time decision but a dynamic, evolving process. “Your funding requirements are not static—they change over time,” Du Plessis said. Miners must remain adaptable, tailoring their financing strategies to align with project development, market conditions, and operational needs.
Du Plessis stressed the importance of understanding the long-term impact of streaming agreements on cash flow and profitability. “If you are not entirely clear on the economics of a stream, rather get proper advice from a suitable professional,” he said. He also highlighted the evolution of streaming, noting: “Traditional banks, especially in South Africa and elsewhere on the continent, are becoming more willing to look at sensible intercreditor arrangements with streamers.”
Key takeaways from the discussion included:
- Flexibility is crucial: Funding requirements evolve, and miners must be prepared to adjust their strategies accordingly.
- Expert advice is essential: Navigating the complexities of mining finance requires independent, bespoke guidance.
- Streaming has its place: While not a universal solution, streaming has become a sophisticated tool for diversifying funding and managing risk.
- Plan for the future: Miners must consider the long-term implications of their financing choices, particularly on future transactions like mergers and acquisitions.
Du Plessis also weighed in on the broader landscape of alternative funding methods, emphasising that miners should not view streaming, royalties, and prepaids as mutually exclusive. “The trick is not to have to choose one above the other but to make sure that you can access all different types of funding and not be excluded from one because you have previously gone with the other,” he said.
He also addressed the role of Export Credit Agency (ECA) finance, Development Finance Institutions, and sustainability funding, noting that these options are designed to complement traditional debt and streaming. “These types of funding are designed to be complimentary to other funding, whether that other funding is traditional debt funding or streaming,” he said. “What these specialised funders do is to provide an alternative, usually more cost-effective, to bank debt as long as the project and the participants in the project meet certain requirements.”
As the African mining sector continues to grow, alternative financing structures like streaming will play an increasingly vital role in unlocking capital and driving development. The ability to mix and match funding options—from equity and debt to streams, royalties, and prepaids—will be critical for miners navigating the challenges of a high-risk, high-reward industry.
“Why are banks losing out to streams?” Arnold van Graan’s closing question lingered in the air, leaving attendees with much to ponder. As miners look to the future, one thing is clear: the path to success lies in strategic, adaptable, and well-informed financing decisions.
To stream or not to stream? The answer, as the panel demonstrated, lies in the details, the timing, and the strategic fit.