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Mining projects can consider private debt financing as cost gap is closing

Mining projects can consider private debt financing as cost gap is closing

Are the benefits of Private Debt worth the cost as a financing model for new mines, an investment manager asked his audience in his presentation on the first day of the three-day Paydirt Africa Down Under mining conference in Perth, Australia.

Explaining the pros and cons of private debt as an alternative financing mechanims for mines, the Managing Director of Northcott Capital, Mr Nick Martin said this is the “new” new thing in mine finance for projects in Africa.

Whereas up to around 2010, the gap between bank finance and private finance was considerable, Martin argued that the gap is closing fast with the upfront cost of private debt now only 3% more expensive over bank loans.

“The gap between project finance and private debt is closing but it’s not the silver bullet,” he cautioned.

Calculated as a factor of lender’s return, private debt is just 3% more expensive. Furthermore, it allows flexible terms, no mandatory hedging like a bank loan and it allows early cash distributions.

Using a typical $250 million financing structure as an example, Martin said a private debt facility will look very similar to a bank loan. It will have a five to seven year loan life with a senior secured bond over assets. Just as a bank loan, there are fees and debt equity ratios to consider and the funding will require a due diligence.

But the differences between bank and private debt are what provide the mine operator with the real benefits. Private debt allows for more cash control flexibility. It makes provision for a longer grace period and there is no mandatory hedging. It allows early dividends and it usually provides a bigger ticker size.

Since the global financial crisis global lending flows have slowed and this has impacted the available financing for mining projects. Against the background of stricter capital adequacy and accounting rules, banks tend to retreat to their home turf, said Marting adding that the downturn in commodity prices and the growing value of distressed mining debt, leave lenders with considerably lower expectations for returns on mining investments.

Furthermore, there is community pressure for instance against thermal coal.

Institutional demand after the financial crisis have changed since traditional assets only offer low yields coupled with unpredictable volatility. As institutional investors have started diversifying, there is low correlation with traditional assets. One of the ways to overcome low yields is to follow a hybrid financing model where returns are amplified by a so-called “equity kicker.”

Investors are also now placing more weight on the defensive structure of private debt demanding a properly structured vehicle with sufficient security.

Still with his $250 million example, Martin said under a conventional bank finance model, the ultimate liability will amount to $318 million while financing the project with private debt will eventually cost the mine $373 million.

His final advise to mining investors is “Make sure you understand what you are buying. What is the true cost? What are the tangible and intangible benefits? Make sure you run a competitive process and get good advice.”


 

 

About The Author

Daniel Steinmann

Brief CV of Daniel Steinmann. Born 24 February 1961, Johannesburg. Educated at the University of Pretoria: BA, BA(hons), BD. Postgraduate degrees are in Philosophy and Divinity. Editor of the Namibia Economist since 1991. Daniel Steinmann has steered the Economist as editor for the past 29 years. The Economist started as a monthly free-sheet, then moved to a weekly paper edition (1996 to 2016), and on 01 December 2016 to a daily digital newspaper at www.economist.com.na. It is the first Namibian newspaper to go fully digital. Daniel Steinmann is an authority on macro-economics having established a sound record of budget analysis, strategic planning and assessing the impact of policy formulation. For eight years, he hosted a weekly talk-show on NBC Radio, explaining complex economic concepts to a lay audience in a relaxed, conversational manner. He was a founding member of the Editors' Forum of Namibia. Over the years, he has mentored hundreds of journalism students as interns and as young professional jourlists. He regularly helps economics students, both graduate and post-graduate, to prepare for examinations and moderator reviews. He is the Namibian respondent for the World Economic Survey conducted every quarter for the Ifo Center for Business Cycle Analysis and Surveys at the University of Munich in Germany. He is frequently consulted by NGOs and international analysts on local economic trends and developments. Send comments to daniel@economist.com.na

Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.