With lending tight, miners look to swap cash for royalties

Thu Nov 12, 2015 4:00pm EST
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By James Regan

SYDNEY Nov 13 (Reuters) - A slump in mineral prices that's making it tough for miners to borrow is providing more opportunities for companies such as Anglo Pacific Group Ltd , whose business is exchanging cash for production royalties on commodities out of favour with lenders.

Banks are becoming increasingly wary of lending to fund exploration and development work as profit margins shrink or outright disappear. This is driving miners to find other avenues to raise cash.

"At the end of the day we are a shadow lender to a distressed sector," said Julian Treger chief executive of Anglo Pacific.

Given a lack of access to traditional sources of funding, many companies are exploring alternatives, according to a report prepared by Deloitte.

These include getting cash for royalties, guarantees to purchase output, equipment financing and high-yield debt, it said.

Royalty contracts can also hold appeal for some mining companies looking to avoid debt after years of financing new projects through traditional lenders.

Anglo Pacific extends cash to companies looking to develop mines. Once the mines are running a portion of the proceeds flow back to Anglo Pacific.

"We are talking with people to give them up to $1 billion, but we would do that with co-investors," Treger told Reuters.   Continued...