Project Financing For International Mining Ventures

In the recent past, there have been numerous projections of the capital requirements for additional mine and processing capacities required to meet projected non-Communist World demand for minerals during the next 15 years. A consensus judgment would place this currently at $14 billion per year, with the largest expenditures required for increases in aluminum and copper production. Until the early 1960's, internally-generated funds were used to finance nearly all of the large mining companies' capital requirements. Since that time, however, the enormous rise in capital costs per ton of capacity, accompanied by a relative stagnation in the financial condition of many of the major mining companies, have caused the industry to begin to rely on external sources for financing expansion, most notably, project financing from commercial banks and institutional lenders. Seven years ago, it was estimated that, in the five-year period 1972-1976,75% of the total capital requirements of $10 billion per year would come from internally-generated funds, with the balance to be provided by external sources. l There is little doubt that, in the coming decade, the percentage provided by external sources will increase. There should be little difficulty in attracting the necessary investment within the U.S., particularly in view of the expected continuation of companies in diverse industries seeking mineral investment opportunities. The more serious question lies in the availability of internal and external sources of funds for the expansion of mine and smelting capacity in the developing countries. Recently, R. F. Mikesell projected an average annual investment of $4.7 billion (in 1977 prices) over the 1977-1990 period would be required from foreign sources to expand metal producing capacity in developing countries. Mikesell concluded that external financing of mining projects in the developing world has averaged less than $1 billion per year over the past five years, thereby requiring more than a quadru1ling of this financing over the next decade.