DMT Consulting Limited, United Kingdom
Globalisation of economies and technological advancements as well as the increased level of communication between the investors and project owners around the world has intensified the race to bring many existing and mining projects into the market place.
Prior to the 2008 financial crisis, the financing of the mining projects was less formal than today. However, the financial crisis has made Lenders and Financial institutions more alert to the perceived risks especially for complex mining projects.
Since the Lenders are not technical experts in mineral extraction, they leave the technical aspects and technical evaluation of the projects to reputable consulting engineers in the field.
However, anyone who may be interested in investing in a mining project should be aware of three fundamental questions (Arden & Lewis, 2014):
- Is the quantity and quality/grade of the raw commodity there in the ground?
- Can it be extractable?
- Is it worth extracting?
These questions seem to be very simple, but the underlying proof for the answers that will be sought in a bankable feasibility study by a large technical team made up of a number of engineers and technical experts in different disciplines, is painstakingly complex, expensive, long, and tedious and requires a level of expertise and accreditation that is not always available from the local market.
Once all these questions are answered positively in principle, then the fundamentals of the project can be said to be in place. When the project is proven to be technically and financially viable i.e. due diligence has been performed, it comes to the stage of financing/syndication.
It is possible that a number of lenders may decide to finance the project to reduce the risk exposure. It is up to these lenders and the borrower to negotiate the best deal for the project amongst themselves.
Although a bankable feasibility study may determine the project details to an acceptable accuracy level and establish the fundamentals and foundations of the project, the uncertainties and risks associated in winning the raw commodity as well as any deviation from the expected results defined at feasibility stage can still be influential in determining the final outcome.
It is also a well-known fact that the selection of contractors and suppliers for the project construction phase will have a huge impact on the project’s fate.
For these reasons alone, the Lenders will seek the assistance of the technical experts to ensure that the finance provided for the project will be utilised according to the protocol agreed with the Borrower. This is to assure that the project will reach the production stage from the beginning to the end as agreed between the interested parties.
Therefore, it is common place for Lenders (Commercial as well as Development banks and other funding agencies) to require Independent Lenders Engineers (ILE) to oversee the execution of Technical, Environmental and Social aspects of a project in order to provide security of the loans to reduce the risk exposure.
