Financing From the Perspective of Mining Companies

CIM Montreal 2011
Abstract Raising capital by issuing debt or equity is necessary in almost every corporation. In the field of corporate finance, the raising of capital is a heavily-studied topic. However, some of what is studied on this topic in corporate finance is not applicable in the mining industry. There are also many financing options that were created for the mining industry such as flow-through shares, prepaid forwards, and royalty sales.
The mining industry’s cyclical nature makes the risk-return profile of financings more difficult to estimate. Additionally, the methods used to assess firm value are different than other industries, as the values of orebodies are not included on balance sheets. For precious metals companies, which are a hedge against most other securities, there are additional complications with determining investor expectations and cost of equity.
This thesis analyzes all major financing instruments available to mining companies. These concepts are then applied in case studies of four companies: BHP Billiton, Barrick Gold, Teck Resources, and Noront Resources. For each company, the overall choice of financing methods is analyzed, and the effect on the weighted average cost of capital (WACC) is calculated. The final section details case studies of major recent mine financing decisions.
Keywords: Financing, Equity, Debt, Barrick, BHP Billiton, Teck, Noront
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