Financing Mining & Metals Projects in Africa in 2023

Financing new mines is and always has been a risky business. Long project timelines, price volatility, navigating political conditions, ESG risks and more are now colliding with rising interest rates and fears of a global economic downturn. 

Yet, amid geopolitical crisis and economic uncertainty, mining companies across Africa continue to find financing for the development of their projects.

This article by Brickstone Africa reviews White & Case’s report on financing mining and metals in Africa in 2023.

Mining and Metals Projects in Africa

Mining and metals projects across Africa are benefiting from a sea change driven by the COVID-19 pandemic, acceleration of the energy transition and Russia’s invasion of Ukraine. Critical minerals and the mining sector more broadly have become part of energy security policies across developed markets. Industries buffeted by supply chain disruptions and ESG pressures also seek their own security, too, directly investing in or partnering with miners to secure supply.

Though the continent is home to as much as 30 percent of the world’s mineral reserves, as of 2022 it accounted for less than 10 percent of global mining exploration spending and less than 5 percent of the sector’s global revenue. Africa’s mineral wealth has therefore emerged as a key theatre in the race to secure the supplies needed to achieve decarbonization.

Capital that has traditionally flowed into African oil & gas projects is now being redirected into mining, as funders adapt their portfolios in response to the energy transition. 

In 2022, there’s been an uptick of interest in smaller mining projects that point to larger changes occurring across the sector and region. Junior miners in Africa typically struggle to finance new projects because of the risks involved. 

They hold few assets, their exposure to commodity prices is highly concentrated, it can be difficult to establish the value of early-stage projects and they’re often comparatively unproven to lenders and potential partners. But even with tightening financial conditions, capital providers seem eager for the return that smaller mining projects generate, especially those producing critical minerals or high-grade iron ore.

Some of the shift in risk appetite is structural. Major mining companies have not invested significantly in exploration and development for the past decade. Now they’re playing catch-up. Majors have begun participating in venture capital investments meant to accelerate the deployment of innovative technologies and finance exploration with junior miners. 

Promoting investment into the mining & metals sector on the continent provides jobs and revenues, and acts as a disincentive to migratory pressures.

Firms are returning to Africa because of its immense untapped exploration potential. BHP, which exited its African assets in 2014, has acquired a 17 percent interest in Kabanga Nickel, a subsidiary of Lifezone Metals, which owns the Kabanga project in Tanzania.

Given the relative retrenchment of major miners and the significant cost of large M&A transactions, the near certainty of rising demand for most minerals is pushing investors to proactively seek out nascent, smaller projects in Africa to develop. This includes surging interest from startups linked to the tech world looking to secure long-term supply for the energy transition, for example, KoBold Metals, which announced plans to commit US$150 million to develop the Mingomba copper-cobalt mine in Zambia at the US-Africa Leaders Summit last December. 

Industrial manufacturers and metals firms have every reason to invest directly into small projects alongside junior miners if it helps efforts to reduce emissions across the value chain and target higher-grade finds to source ores that require less energy to beneficiate and refine in the first place. 

And we are seeing them do so using an array of structures ranging from traditional equity to royalties and streams to pre-pay financing—all (of course) paired with a substantial long-term offtake.

Read the full report here.