The Anatomy of a Mine - Mining and the Environment: From Ore to Metal - page 195

i nancing considerations should be highlighted and carefully considered throughout the
feasibility study. It is the proper marriage of both technical and i nancial considerations
that gives rise to a viable project.

Financing

One of the features that distinguishes a mining project from most other businesses is that
during production, the company's asset, the ore, is progressively consumed. At some point
in the future the project's main asset will be gone, which is the reason a mine is referred to
as a wasting asset. This has important implications for i nancing and for the justii cation
of allocating capital to any new mining project. Financing, always an important considera-
tion in resource development, has reached the point where it may well be the controlling
element in bringing an ore body into production. Adequate i nancing may be the differ-
ence between success and failure.
The following text on mine i nancing is based in part on Ulatowski (1978), Ulatowski
et al . (1977), and Vickers (2006). Due to the large scale and the high upfront capital invest-
ment of modern mining projects, the role of the mining company has shifted from its clas-
sic position of organizer and provider of funds to that of a sponsor, providing upfront risk
money and managing the project. In this environment, new partnerships are forged: involve-
ment of lenders; joining together of more than one mining company; offering host country
participation; use of contract mining and infrastructure outsourcing arrangements; and, due
to the heavy reliance on sales contracts, often involving the purchaser of the product.
The partnership character is partly the reason why a new mining project emerges as a sep-
arate entity, a new mining company in other words, relying heavily on its intrinsic worth to
attract the capital needed to bring it into production. Financing costs of this new venture are
signii cant, often equal to or exceeding all of the other operating costs put together (Vickers
2006). These costs are real and place high demands on the future cash l ow of the mine.
Financing and technical considerations are not independent. Mine and i nance planners
must work closely every step of the way, from the beginning to the completion of a feasibility
study, to ensure i nancial success. Mine planning must not only focus on the characteristics of
the ore body in the development of an optimal exploitation system, but must equally consider
the implications of mine design on the i nancing of the ore body. Mine design characteristics
include scale of operation, cutoff grades, and timing of both the construction and production.
Each of these factors signii cantly affects the i nancing requirements, and the credit strength
that the deposit can convey to the suppliers of capital.
Environmental approval of the mining project can, at this point, become a barrier on
the critical path to project i nancing, with wide-reaching i nancial implications if approval
deadlines are not met (see Chapter Two). Depending on the partners involved in the new
venture, additional environmental conditions may apply that exceed the requirements
of the host country. For example, lenders may choose to apply the Equator Principles, or
joint venture partners may have adopted selected environmental performance standards of
specii c industry organizations, thereby potentially increasing costs.

Adequate fi nancing may be the
difference between success and
failure.

Environmental approval of the
mining project can become a
barrier on the critical path to
project fi nancing, with wide-
reaching fi nancial implications if
approval deadlines are not met.

Postponing Mine Development

Sometimes, after the excitement of the original exploration drilling and feasibility stud-
ies, work on mining development is halted. The reasons why a company cannot put the
property into operation immediately are many and varied, and some of the more critical