· Mining companies are considering new funding sources and models in the current circumstances. Foreign direct investments are becoming increasingly popular. Mining investors should pay more attention to undervalued mining assets and companies.
· With the current commodity prices, innovation is the key to success for junior mining companies. Mining companies that manage to integrate new practices and find new financial models will be the winners and thrive in tomorrow’s mining industry.
In recent years, the mining sector has seen an overall decline in metal prices, an increase in production and processing costs, and an ever more limited access to financing. Faced with such complex challenges, mining companies must now innovate, redefine their approach and adapt to this new reality.
In the years to come, growth, productivity, access to alternative funding sources and transparency will be the four major change drivers.
While there continue to be significant drops in the price of raw materials, operating costs still remain on the rise. Given the context, more and more mining companies are deciding to simplify their mining resource or property portfolios, or to form partnerships with other mining companies in order to reach a satisfactory productivity level and insure long-term growth.
In order to grow and maintain their appeal, mining companies need to bank on new technologies and be innovative.Innovation is proving to be a necessity in dealing with the depletion of mineral reserves, the increase of regulatory standards and the rise in production costs. In the current circumstances, operational efficiency is also essential to ensure and maintain competitive cost to production ratio.
Alternatives sources of finance
In order to make up for investors becoming more risk averse, mining companies must consider new funding sources and models. Alternative funding sources are critical in allowing junior mining companies to attract investments. For this reason, private placements, investment funds, foreign direct investments, and agreements between mining companies are becoming increasingly popular. Resorting to companies specialized in streaming deals, i.e. businesses that purchase all or part of the production at a reduced price in exchange for exploration funds, has also become an avenue of choice for funding mining projects.
At the same time, mining companies must also expand their horizons and consider foreign markets, including the Middle-East and Asia especially China as a key market, to be potential funding sources.
Transparency and disclosure
Furthermore, the mining sector is now subject to new regulatory standards for compliance and transparency. In Canada, the Extractive Sector Transparency Measures Act1 (the “Act”), effective since June 1, 2015, now requires extractive companies to publicly report any payment exceeding $100,000 made to a provincial, federal or foreign government, or to a local community.
Under the Act, these annual reporting requirements apply to companies listed on a Canadian stock exchange or having a place of business in Canada if they meet at least two of the three following conditions: (i) own at least $20 million in assets; (ii) generate at least $40 million in revenue; (iii) employ an average of at least 250 workers. The Act applies to all companies involved in exploration, development, extraction activities or in the acquisition of mining titles.
For mining companies, these transparency and reporting measures mean they will need to develop a new awareness with regards to the information they are now required to share with the public.
The time has come for mining companies to focus their know-how on promising projects in the short and medium term in order to attract investors and ensure long term growth. Despite the challenging state of the industry, mining companies that manage to integrate new practices and find new financial models will be able to succeed and thrive in tomorrow’s industry.
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