Rare earths

Australian resources companies targeting new financing sources as banks fly the coop

Australian mining companies are increasingly being forced to seek project funding for development projects away from traditional banks, as offtake deals, equity raisings, and government lending agencies emerge as more reliable sources of capital.

According to Bridgend Capital Advisory, since peaking in 2015 aggregate exposure to resources by the ‘Big 4 banks’ in Australia has declined steadily to $40.4 billion in 2022, nearly $25 billion (37%) below the peak to levels not seen since 2013.

Bridgend Capital says this decline has occurred despite strong overall balance sheet growth by banks. Resources exposure has declined as a proportion of total bank exposure from 1.7% in 2015 to 0.8% in 2022.

The firm notes worse still, the gap is widening.

Earlier this week, Arafura Rare Earths (ASX:ARU) Managing Director Gavin Lockyer was reported as saying his company is looking offshore to finance its $1.6 billion open-pit Nolans Project in the Northern Territory.

Lockyer was quoted as being critical that Australian banks have been reluctant to lend to rare earths projects in particular, meaning critical minerals developers have sought out overseas export credit agencies, or government bank money as a result. Arafura is engaging government-backed credit agencies in Europe, North America, as well as Asia.

One of the reasons for the reluctance to fund these projects, he says, is a lack of onshore processing and manufacturing of materials made using REEs. This is despite rare earths being required to manufacture electric vehicles (EVs), wind turbines, and other electronic devices needed for decarbonisation.

iTech Minerals Rare Earths

Australian banks withdraw at critical time

Managing Director of emerging rare earths exploration company OD6 (ASX:OD6) Brett Hazelden agrees that when it comes to backing emerging commodities and innovative development projects, Australian banks have dropped the ball.

Hazelden tells Mining.com.au this position of domestic banks forces the hand of companies developing critical minerals assets to look abroad or seek government bank money.

“To date, Australian banks have been rarely seen backing new commodities and new development projects until after the construction risk has passed and it is operational, producing to design capacity. This is really a failure of Australian banks to back Australian companies and innovators.

“This is really a failure of Australian banks to back Australian companies and innovators”

Having been through the development and funding process in the past myself and observing more recent financing deals most companies are now reliant on overseas banks and investors or looking to use overseas export credit agencies (government bank money) or Australia government money.”

Hazelden notes such agencies include EFA, previously known as the Export Finance and Insurance Corporation, the Clean Energy Finance Corporation (CEFC), and Northern Australia Infrastructure Facility (NAIF).

“The large Australian superfunds are probably another potential financier and investor that could do more in this space too.”

Chief Project & Structured Finance Officer at Export Finance Australia (EFA), Amanda Copping, will be speaking at Mines and Money Connect Melbourne on 14-15 June. She will be joined by Frank van Rooyen, Senior Director at NAIF who has 30 years’ experience in mining, equities, and debt financing.

Bridgend Capital Advisory co-founder and Managing Director Nick Rees is also slated to present at the conference.

Earlier this month, the EFA and Export-Import Bank of the United States (EXIM Bank) expanded their bilateral relationship by signing an updated reinsurance agreement. The reinsurance agreement reflects the commitment of EFA and EXIM Bank to working together in sectors such as climate and energy security, Indo-Pacific infrastructure, critical minerals, and other sectors of strategic importance.

While the addition of Copping and van Rooyen to the Mines and Money Connect Melbourne lineup is indicative of the current times, export credit agencies have been around for some time.

An early example of mining companies seeking financing from these non-traditional lenders is  Australian lithium developer Pilbara Minerals (ASX:PLS), which in mid-2017 tapped the Nordic bond market to raise US$100 million to fund its Pilgangoora Lithium-Tantalum Project in Western Australia.

Six years on, the now lithium producer in February 2023 reported it has executed a 10-year $250 million debt facility with the Australian government through EFA and the NAIF. The CEFC, which was an existing lender, decided not to participate in Pilbara Minerals’ refinancing of the existing debt facility to facilitate the increased participation of commercial lenders.

In another example, in February 2022 Hastings Technology Metals (ASX:HAS) secured $140 million loan to construct the Yangibana Rare Earths Project in Western Australia from the federal government’s NAIF.

Not all projects are created equal

However, not all critical minerals or rare earths projects are created equal. While many factors come into play, including the amount of capex required, not all would be considered by Australian banks to be ‘outside their comfort zone’.

Speaking to Mining.com.au on the sidelines of the Resources Rising Stars conference on the Gold Coast last week, ABx Group (ASX:ABX) Managing Director and CEO Mark Cooksey detailed how Ionic Adsorption Clay (IAC) rare earths projects tend to a have lower capex than hard rock REE projects.

Cooksey notes that IAC deposits, which the company has within its portfolio, are a less common source of rare earths but have a major advantage in that they can be extracted from the clay via a low-cost desorption process. Another advantage is IACs often exist at shallow depth, meaning a project can be developed rapidly and at a much lower capex.

ABx recently announced its Mineral Resource Estimate (MRE) exceeds the 20 million tonne resource milestone REE deposit at the Deep Leads – Rubble Mound Project in northern Tasmania.

These lower cost projects are of course a more attractive investment proposition for a bank considering financing the project.

Comparatively, Arafura is seeking $1.6 billion to fund its Nolan Project, which could be 10 times the capex an IAC rare earths project requires. Arafura has to date received non-binding in-principle support from NAIF to increase its tranche of project finance debt from $100 million to $150 million, which is subject to a financial investment decision.

Another IAC player, Ionic Rare Earths (ASX:IXR), also has a unique deposit and is one of only a handful of Western IACs – a major source of low-cost critical and heavy rare earths to fill the void in pending global supply shortages.

Mining.com.au reported today (24 May 2023) that the company has begun a phase five drill program for 4,380m across its Makuutu Rare Earths Project in Uganda. The company, which is scheduled to attend the Mines and Money Connect Melbourne in June, reiterates Cooksey’s position that IAC ores require much lower capex intensity to produce refined REO.

In a company presentation, Ionic says IACs experience none of the radionuclide issues that plague hard rock LREO projects while also IAC products achieve about “double the payability”.

As more rare earths and critical minerals deposits are developed into mines to meet surging global demand, juniors in the space whether they own IAC deposits or other minerals, could be a new generation of companies to bypass seeking funding from Australian banks altogether.

Bridgend Capital Advisory says what this means for resources companies and project sponsors is an increasing need to target new sources of capital and a wider range of markets in order to finance operations, meet project funding requirements, and sustain growth.

Bridgend Capital Advisory notes the capital landscape is now more complex and the interplay between different sources and classes of capital requires careful navigation.

“The availability and cost of capital for mining companies may yet become a key challenge in Australia realising the full potential of this new era of commodity demand and supporting global energy transition,” the firm says.

“The availability and cost of capital for mining companies may yet become a key challenge in Australia realising the full potential of this new era of commodity demand and supporting global energy transition”

In the meantime, the federal government has launched the Critical Minerals Development Program, which provides funding to help progress early to mid-stage critical minerals projects towards financing and production. Projects will target critical minerals as listed in Australia’s Critical Minerals Strategy.

Australian critical minerals companies undertaking projects that support Australia’s Critical Minerals Strategy and long-term sustainable growth are eligible to up to $30 million of funding.

The Critical Minerals Strategy 2022 was formulated to grow Australia’s critical minerals sector, expand downstream processing, and help meet future global demand.

To register for Mines and Money Connect Melbourne held on 14-15 June 2023 click here.

Write to Adam Orlando at Mining.com.au

Images: iStock
Author Image
Written By Adam Orlando
Mining.com.au Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.