Partner Michael Pickersgill Discusses Emerging Trends in Mining Finance

June 03, 2015

The downturn in global metal prices since 2011 has routed a significant amount of investment capital away from the mining industry. The demand for investment capital, once supplied by retail and institutional investors, is being increasingly filled by so-called "alternative financing" structures such as those provided by streaming and royalty firms. Typically known for extending final-stage capital to mining operations, these niche investors are evolving to serve wider stages of project development. In a Lexpert survey of trends within mining finance, partner and co-head of Torys' Mining and Metal practice Michael Pickersgill shared his experience with emerging financing structures. Below is an excerpt of the article.

These forms of once-fringy “alternative financing” were, until three or four years ago, something most mine outfits tried to avoid because they eat deeply into profits. Now they’re the main strand in what few lifelines are still available to mine companies. They no longer qualify for the word “alternative.” And even they are being adapted in order to get deals done now in the current environment, says Michael Pickersgill, a Toronto lawyer who co-leads Torys LLP’s mining and metals practice.

“What’s new is that miners and their advisors and financers have really had to put on their creative deal-making hats,” says Pickersgill. He recently advised Orion Mine Finance – one of a relatively new and still rare breed of private-equity firms focused on mining – in a complex and novel $944-million deal in April 2014. In that one Orion, along with Investissement Québec and the Caisse de dépôt et placement du Québec, financed construction of Stornoway Diamond Corporation’s Renard project, which will become Québec’s first diamond mine. That deal included a unique combination of equity and debt financing, along with a diamond stream agreement; the first streaming agreement ever for that sparkling gemstone.

“Diamonds aren’t like gold and silver,” says Pickersgill. “As the Birks ads tell us, every diamond is unique. So in order to figure out pricing and other matters, you had to think a little bit outside the box in terms of how you construct the stream transaction.” Those who cobbled the transaction together had to consider how diamonds get mined and sold — a much different process than gold or silver. As well, a lot of different types of players were brought together at the same time to make the deal. “That led to a lot of very interesting legal issues around the interrelationships of the agreements and the actual execution of the transaction,” says Pickersgill.

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