Two big deals emerged in the mining space this week, both illustrating a critical shift happening to project investment across the industry.
Both cases involved established mining firms selling assets to financial groups -- the kind of investors who are increasingly becoming the major source of capital for mining operations globally.
The first deal came in Africa. Where BHP Billiton announced it is selling its Liberia iron ore assets to Jonah Capital, the investment vehicle of Ghana billionaire Sam Jonah. Related: Canada’s Oil Sector Cautiously Optimistic About Late 2016 Recovery
The flagship project here is a defined deposit containing 1.9 billion tonnes of iron mineralization, including a core of 132 million tonnes of direct shipping ore grading 57 percent Fe. BHP has already put the deposit through a scoping study, which shows 5 million tonnes of annual production can be achieved at a capital cost of $230 million or less.
That's a pretty good asset. But one that BHP has decided to pull back from -- as the major focuses its finances on iron ore in its core operating area of Australia. Related: Obama Admin Throws Alaska An Oil Lifeline
Jonah Capital -- a private investment company -- is stepping in to fill the void left here by traditional mining companies. The fund does have mining experience -- with founder Sam Jonah formerly having run major African gold producer Ashanti Goldfields. But it's far from a traditional player in the mining space.
At the same time, two other finance groups announced they are buying one of Eastern Europe's most historic zinc and lead mines -- the Sasa operation in Macedonia. Related: Only 1 Percent Of Bakken Shale Is Profitable At These Prices
Orion Mine Finance and Swiss-based Fusion Capital said this week they have struck a deal to buy the mine from the current owners, Russian-backed mining group Solway. Details on the operation -- which dates back to the 1960s -- are scarce, but reports suggest it could be capable of processing up to 1 million tonnes of ore yearly.
This is another example where investment firms are stepping in to buy mines. And the deal looks to be a good one -- with Orion and Fusion noting that Sasa comes with "first quartile cash costs," which should mean solid profits here.
The fact that investors, and not miners, are buying these kind of quality assets shows we're at a new juncture in the mining business. For project developers -- and sellers of projects -- this trend could be critical to making money going forward.
Here's to following the money,
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Dave Forest
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