Australia’s Struggle to Fund New Mines for Critical Minerals
A Growing Dilemma
A consistent contradiction in Australia’s mining sector is the pressing need for new mines to provide raw materials for the energy transition. However, the capital to develop these mines is hard to find.
The Financing Challenge
While obtaining an exploration permit and proving up a resource is relatively easy, raising the finance to develop the mine from exploration to production is the real challenge.
Struggles for Junior Mining Companies
Despite the strong demand for critical minerals like lithium, cobalt, and rare earths, junior mining companies are facing difficulties in raising equity and debt financing.
Barriers to Traditional Financing
Higher debt costs, investor preferences for mines close to production, and uncertainty regarding future commodity prices are some of the major barriers to traditional financing for mining projects.
Decline in Project Investments
Australian government data shows a decline in the value of committed and completed projects in the country, with the bulk of the money being invested in oil and gas rather than critical minerals.
Potential Solution: Royalties and Streaming
Royalties, a form of financing successful in North America, may offer a solution. This allows a miner to access capital up front in return for granting the provider a royalty of a certain percentage of the revenue from sales once production commences.
Deterra Royalties’ Efforts
Australia’s Deterra Royalties is aiming to invest in critical and other minerals, seeking to introduce the concept of streaming in the Australian market.
Challenges and Opportunities
Deterra Royalties faces the challenge of educating junior mining executives and investors about the benefits of royalty financing, emphasizing its focus on the life of the mine and expected production.
The Role of Royalty Financing
Royalty investing can complement traditional financing and may be particularly relevant given the current economic environment.
The opinions expressed here are those of the author, a columnist for Reuters.
