Money that matters
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Nedbank, through its Corporate and Investment Banking division, is financing lucrative projects as well as sustainability and clean-energy solutions in the African mining industry.
"Africa remains significantly underexplored from a mining point of view and underdeveloped from an operating point of view." Nedbank is the only bank in South Africa to have concluded large sustainability-linked and green loan deals in the mining sector.
Nedbank Corporate and Investment Banking (CIB) is a division of Nedbank, a leading African bank that provides global markets, transactional, corporate and investment banking services. Its client base includes leading corporations, financial institutions, state-owned entities and governments in South Africa, as well as across the continent.
Nedbank CIB is more than just a product provider; it is a strategic financial partner with a focused objective to help clients achieve their business vision and expand their opportunities. It offers products to entities in numerous business sectors such as energy, infrastructure, property, oil & gas, and mining & resources, among others. African Mining News spoke with Nivaash Singh, co-head of Mining & Resources Finance, to find out what Nedbank CIB is doing to aid the mining industry.
Not all bad news
There has been much negativity surrounding the South African mining sector: from regulatory uncertainty and poor rate cards at the Department of Mineral Resources & Energy (DMRE), to a licensing system that is not transparent and slow responses from DMRE officials leading to a huge backlog in the issuance of new exploration licences—which, in turn, means the capital is not flowing into our country, says Singh.
"But against all that bad news, let me tell you the good news that you won't see getting reported," he shares, mentioning a massive investment in the platinum-group metals space by Canada's Ivanhoe Mines for the Ivanplats Platreef Project, worth US$1,5 billion. More than 50% of that capital has already been spent in South Africa. "Nedbank has been mandated alongside Société Générale as the commercial debt providers to this project. Obviously, there was a lot of capital goods and services that the company imported, but there are many local suppliers that have made a contribution to construction works."
Another success story worth mentioning is Black Mountain Mining, owned by Vedanta Resources—an Indian company headquartered in India, which owns and operates the Black Mountain and Gamsberg mine complex in the Northern Cape. Black Mountain Mining is investing up to US$500 million of capital into their expansion project.
"So I've already accounted for roughly US$2.0 billion of new capital investment going into the South African mining sector. Now, if you convert that into rands, that's a lot!"
"So, SA mining CEOs have every reason to be bullish and upbeat about the SA, because capital is flowing into the mining industry," says Singh. "But here's the punchline: We could do much better as a nation if Government created an investable climate with proper systems, policy and regulatory certainty, and if it prioritised the issuance of exploration licences to ease the backlog."
Another sore point is the state of our country's rail and port infrastructure. Mining companies are struggling to rail their ore to the ports, which means they continue stockpiling ore and losing revenue. "Bulk commodities—iron ore, coal, manganese, ferrochrome—require an efficient rail system and port capacity. We could do so much better if Transnet was efficient," Singh adds.
Investment flows into continental Africa
The outlook for 2023 seems to be one of prosperity for mining in Africa. "Africa remains significantly underexplored from a mining point of view and underdeveloped from an operating point of view. We still see a great deal of Australian, Canadian and European equity money flowing into the African continent for the purpose of establishing new mines," says Singh.
"We are also seeing a lot of gold investment, or investment in gold counters. Because gold is an orphaned commodity. No one knows what drives up the gold price, but the fact is that as long as there's geopolitical risk or economic uncertainty in the world, the price of gold will increase. Many people are saying that gold is likely to cross the $2 000-per-ounce mark, so there's still a demand for a safe-haven investment. While the rest of the world is not in a good space economically, I'm still of the view that 2023 will present enormous opportunity for African miners."
Furthermore, the demand for battery minerals is probably at its highest ever. Key battery mineral ingredients are manganese, cobalt, lithium, copper and vanadium. Tin could also be added to that list, and there are large tin deposits in Rwanda and in the eastern part of the Democratic Republic of Congo.
Singh comments, "Lithium-ion batteries go into laptops, cellphones, tablets, electric vehicles and so on. Therefore, lithium is a high-demand commodity for African miners. The reason for this is the green energy transition that everyone is talking about. It's essentially about transitioning from carbon-emitting fuels to cleaner renewable resources, and to achieve this you need effective and efficient battery storage solutions and for battery storage solutions, you need specific commodities that go into the manufacture of these batteries, and those are the commodities that we see as being in high demand."
Overcoming challenges
There are, however, huge challenges facing African miners today. Singh counts the top 3 as being terrorism, disease and resource nationalism.
"Regarding terrorism, it is well documented that in Africa, you have religious fault lines: the Muslim north and the Christian south. Furthermore, if you draw a vertical line in the middle of the continent, you have the French-speaking west and the English-speaking east. So, you have a very fragmented continent in terms of religion and language. There's a lot of terrorism, militancy, insurgency in the Sahel region at present—basically the northern Sahara Desert region—spanning West Africa across to the Arabian-Nubian Shield, and reaching the east. As a result, miners have found it incredibly challenging to open up new mines in these conflict regions.
The second challenge is disease. "Before the COVID-19 pandemic, certain parts of West Africa were impacted by the Ebola virus. It originated from the Ebola River in the DRC many years ago but spread rapidly into West Africa —the countries impacted were Sierra Leone, Guinea (Conakry) and Liberia. It was successfully controlled through interventions by the World Health Organisation. Now that COVID-19 is relatively under control, Ebola has resurfaced. The disease has, for many years, been a challenge for African miners, but they find ways and means to manage and overcome it."
The third challenge is resource nationalism, based on the principle that the host country that owns the mineral deposit in the ground should be entitled to its fair share in the form of royalties, taxes and fiscal benefits. "There's no magic formula or 'secret sauce' as to how you deal with resource nationalism," says Singh. "When companies open up new mining operations in Africa, it's critically important that their relationship with the host government is seen as a partnership. If you embrace that partnership, and you set up roles and responsibilities, and you have the patience and the energy to negotiate a mining concession, that relationship becomes a marriage—a marriage for the sake of the country to increase foreign direct investment, and to give that host country its fair share."
Decarbonising the industry
The United Nations' Intergovernmental Panel on Climate Change has issued a stark warning: The world must cut its coal use by 95% within the next 28 years to avoid climate chaos. Singh says investment banks worldwide have been working with mining companies to help decarbonise the industry by providing specialised debt solutions in the form of 'green loans', sustainability-linked loans, and transition finance. "These are specialised structured loans that we make available to mining companies to essentially deploy for purposes of transitioning their business into more carbon-free operations. We have done this successfully at Nedbank CIB."
The bank offers mining companies advisory services on how to structure a sustainability-linked framework, looking at their baseline data and helping them structure key performance indicators (KPIs) or sustainability performance targets (SPTs) in their operations, for example: reducing greenhouse gas emissions, reducing diesel consumption, lowering nitrate levels in the water—even increasing gender diversity on companies' boards, he says.
Today, mining companies are accelerating investments into renewable energy to meet their environmental, social and governance (ESG) requirements—and they require finance for these projects.
There are essentially three levels of finance available to mining companies, explains Singh. The first is transition finance—finance made available to mining companies that prefer to initiate a transition process. Secondly, green loans are specifically designed around use of proceeds. "For example, if you want to build a solar plant on your property to power up your mine during the day, and you need to raise funding specifically for that purpose, then you are looking for a green loan or green finance, which would be a specific use-of-proceeds facility."
Thirdly, sustainability-linked loans are either term loans or revolving credit facilities. "We sit down with the company and agree a set of KPIs or SPTs, and we write these into the loan agreement. If you meet your targets on an annual basis, you will qualify for a margin reduction or margin discount. But if you fail to meet your targets and you regress, there will be a margin penalty. The condition is that those performance targets cannot be business as usual, or things you would have done anyway. They have to be absolutely ambitious targets—stretch targets—so there's no manipulation of the market. There should be a genuine desire to go above and beyond."
Nedbank is the only bank in South Africa to have concluded large sustainability-linked and green loan deals in the mining sector, including one with top mining company, Harmony Gold.
"Harmony Gold's sustainable finance transaction was a R10-billion transaction that Nedbank led as a co-arranger, co-sustainability co-ordinator, and a co-funder alongside another bank. That is a good example where we implemented a multi-currency facility: rands and US dollars.
"R1.5 billion was a green loan, to be used by Harmony Gold to construct and commission phase 2 of its solar PV plants to generate over 137 megawatts of power. This is part of Harmony Gold's decarbonisation strategy, and the target—to be met fully by 2027—is to allow up to 30% of renewable energy to fund their operations. That free up lots of spare generation capacity for Eskom," says Singh.
There is also dollar-denominated sustainability-linked facilities that will enable Harmony Gold to embed its climate, energy and water-use related sustainability ambitions and performance into its facilities.
Optimistic outlook
Nedbank CIB has an established track record in the African mining sector, providing debt facilities to clients in the mature mining regions of Ghana, Cote' d'Ivoire, Tanzania, Guinea and Zambia, among others. "We run quite an established and successful Mining & Resources debt team," comments Singh. "Regardless of whether we're in a super cycle or a down cycle, we have consistently serviced our clients during the recessionary times and during the boom times.
"If I look at the last 12 months, we've closed a number of financings in Africa. The most notable being Sandfire Resources' Motheo Copper Project Financing in the Kalahari CopperBelt region of Botswana. Nedbank and SocGen jointly arranged, structured and funded a US$140-million project finance facility for seven years for Sandfire Resources to open up a new copper mine, supplying copper into the downstream markets."
As long as the world demands all these minerals, there is always going to be an optimistic outlook for mining, says Singh. "The demand for battery minerals and other commodities that are critical for the sustainability agenda that the whole world is driving right now—as well as general manufacturing needs—means there's going to be opportunities going forward."
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