A quiet revolution is underway in mine finance. As traditional lenders grow more cautious, new capital avenues are emerging.
One of these alternative options is bond financing, which is more common in the North American market, but is now growing in popularity in Australia and proving to be much faster and more cost effective than traditional financing methods.
A company will issue a bond that accrues interest and has to be paid back by an agreed date, but unlike other financing avenues it does not provide the bondholder with any financial benefit from the growth of the company.
In July, Larvotto Resources (ASX:LRV) raised US$105 million ($162.4 million) from a bond issue led by Clarksons Securities to fund its Hillgrove Antimony and Gold Project in New South Wales.
Managing Director Ron Heeks tells Mining.com.au that the bond financing deal emerged from one of several meetings Larvotto had at Mining Indaba in Cape Town earlier this year.
“We had seven different options to look at. They were very slick. It was a very clean deal. It was very fast,” he explains.
“We did it eight weeks after we put the Definitive Feasibility Study out, which has got to be a record, I think. I’ve been doing this for a long time, I’ve done a few of these and I don’t think I’ve ever done it in under nine months.”
Clarksons Securities, which specialises in cyclical industries, has raised over US$56 billion in capital and advised on more than US$20 billion in mergers and acquisitions across its core industries of shipping, metals and minerals and energy.
The investment bank has supported miners and developers for over a decade, raising more than US$6 billion since 2020. Clarksons Securities has executed transactions across a wide range of commodities, including iron ore, metallurgical coal, copper, nickel, lithium, and specialty minerals such as rutile and garnet.
Larvotto’s financing deal comprised a Nordic bond, which is a straight debt instrument that does not interfere with equity like most other debt-type structures such as royalties/streams or direct-lending with warrants.
Financing without dilution
Clarksons Securities believes that a Nordic bond is the optimal way to finance the restart and expansion of the Hillgrove Project.
Morten Lien, director metals and minerals for Clarksons Securities, tells Mining.com.au that by utilising a straight-debt instrument, management can repay or refinance the debt in full, leaving no trace of its existence – unlike a royalty, which a company – in most cases – will struggle to pay back more than half.
“Compared to a bank loan, few market-based debt instruments can compete on interest cost alone, but if you factor in time spent on the process, covenants (likely more stringent), and the ability to adapt to the project, this has been viewed by our clients as an optimal way to secure funds for mine development.
“A project like Larvotto could be financed by equity in its entirety, but why would you want to dilute the shareholder base before you go into production and become profitable?
“Straight equity will be the safest option for financing a project development, as it incurs no ongoing costs, but it is highly dilutive to the existing holders once the company turns profitable, and this becomes reflected in the market value.”
In the past 10 years there has been only a handful of Australian companies using bond financing.
Mineral Deposits, which was eventually taken over by French mining giant Eramet (EPA:ERA), secured bond financing for its mineral sands project in Senegal.
In 2017, Pilbara Minerals (ASX:PLS) locked in a US$100 million senior secured bond for its Pilgangoora Lithium-Tantalum Project in Western Australia’s Pilbara region.
More recently, Pembroke Resources raised US$550 million via bond financing for its Olive Downs Coking Coal Project in Queensland’s Bowen Basin.
Hans-Arne L’orange, head of investment banking for Clarksons Securities, says the Nordic bond market has been developed by traditional capital intensive industries like shipping, mining and offshore energy, often in pre-revenue phases of the projects.
“It is fast, standardised and cost efficient allowing for sizing from US$75 million up towards US$1 billion before the US 144A market comes in as a competing market,” L’orange says.
A 144A issue allows companies to sell shares via a private placement to qualified institutional buyers without registration with the US Securities and Exchange Commission.
It is used by domestic and foreign companies to raise funds in the global capital markets.
Miners embracing bond strategy
L’orange says Clarksons Securities is seeing more and more international borrowers using the bond market to access international capital through the Nordic documented market.
“Bond financing is often looked at as more expensive than traditional project financings from banks and direct lenders but has over the last three years proven to be more competitive on process, time and pricing, as well as not being dilutive to the equity holders,” he says.
“The only risk associated with bond issuance is that the borrower does not necessarily know their lenders, and they can change, if the development of the company or project takes an unexpected direction,” he explains.
“But the well-stabilised Nordic Trustee has over time proven to mitigate such risks, building market credibility.”
Nordic Trustee, a bond trustee and loan agency in northern Europe, witnessed a turnaround in the Nordic corporate bond market last year following two years of consecutive decline.
The company says the market reached €120 billion ($214.4 billion) in total outstanding volume, marking 6.5% growth compared to 2023.
Nordic new issuance volume jumped 60% year over year, with Norway and Sweden remaining the largest bond markets in the Nordics.
Larvotto did things a little differently to most, engaging independent technical experts (ITE) to prepare a report in parallel with the DFS, which was a significant step in helping speed up the financing process.
“The independent technical expert’s report was out two weeks after the DFS,” Heeks explains.
“What normally happens is you put your DFS out, then you go hunting for financiers, and then they bring in independent technical experts.
“We had the ITE team on site and involved long before the DFS came out to make sure that they were going to be happy with what we put in the DFS.”
Heeks likens bond financing to a car loan – short-term, set interest rate, no payback for two years, amortisation and a bullet payment.
Also known as a balloon payment, a bullet payment is a single, large repayment of the principal on a loan or bond at the end of its term.
“They’re a tradable bond, so we can buy the bonds back on market at the prevailing market price,” Heeks notes.
“Additionally, we have the option to redeem the bonds early at fixed call prices, depending on when we do it, at a premium of somewhere between 6% and 1%, or repay without any premium nearing maturity. What it doesn’t have is a requirement for hedge, an offtake or a marketing arrangement.”
Favourable financing without a hedge
Heeks says if Larvotto hedged at the time it secured financing, the company would be “out of the money already” given the continued rise in gold price.
Clarksons Securities expects to see more resources companies pursue bond financing as an alternative to traditional financing options.
“We are of the opinion that resource companies in the next five years would like to see debt financing that is clean and fully refinanceable, takes less than three months (allowing them to leverage the market cycle) and that does not require hedging on production,” Lien tells this news service.
“In essence, that is a Nordic Bond, which we are looking forward to providing to more mining projects in the future.”
There are not many antimony projects heading towards production. Larvotto is the closest, having just given the green light to the Hillgrove development after completing the bond financing and a $60 million equity raising.
Zeus Resources (ASX:ZEU) recently kicked off a geophysical program at its Casablanca Antimony Project in Morocco to pave the way for drilling. The junior explorer also listed on the Frankfurt Stock Exchange last month in a bid to attract global investors.
The Casablanca project is covered by six exploration licences spanning 79km2 and is host to several historical and recent artisanal mine workings. Historical rock chip results show high antimony grades of up to 61.9%, with multiple samples grading over 40%.
Dart Mining (ASX:DTM) has antimony in its portfolio alongside gold at its projects. In June, the company finalised a farm-in deal for Great Divide Mining’s (ASX:GDM) Coonambula Antimony-Gold Project in Queensland.
The Coonambula project is located 130km from Dart’s Triumph Gold Project, which the company discovered had an overlooked past producing antimony mine.
The Coonambula antimony-gold mineralisation is interpreted to be similar to the style represented at Larvotto’s Hillgrove Antimony-Gold Project, which is also hosted within the New England Orogen but on the New South Wales side of the border.
The project area encompasses the historical Banshee Antimony Mine, where previous drilling intersected “high-grade” antimony and gold mineralisation, including 3m @ 9.18% antimony and 6m @ 5.12% antimony with 1.55 grams per tonne gold.
Dart Mining non-executive director Terry Bates says the antimony uncovered so far is “very high grade”.
“There’s no end of samples at 40-50% antimony. It’s basically stibnite, the shoots are virtually pure, it’s very high grade, which is why it is direct shipping ore. They didn’t process it, there was no need,” he tells Mining.com.au.
“There’s not many direct shipping ore antimony projects around. As recently as 1983, they were taking direct shipping ore out of there.
“Our intention is to infill drill and declare a JORC resource on antimony as quickly as possible.”
Meanwhile, Vancouver-based Military Metals (CSE:MILI) recently reported grades of up to 40.6% antimony and 106.5g/t gold from historical samples at its West Gore Project in Nova Scotia, Canada.
West Gore historically produced 7,000 tonnes of antimony @ 46% and 6,861 ounces of gold. The company plans to start drilling soon at the project.
Write to Angela East at Mining.com.au
Images: iStock & Larvotto Resources
