Opinion: The mining executive order needs creative financial support to achieve its goals

The Trump Administration’s recently released executive order (EO) “Immediate Measures to Increase American Mineral Production” directs federal agencies to take steps to speed up and support new mining and processing development projects. Although these are largely focused on asserting the executive branch’s authority to streamline permitting and to use Federal lands for mining, the EO also sets the basis for the use of public funding to support projects.The call for public financial support speaks to the very real financial challenges (and risks) that domestic mining faces given China’s dominant position across many key minerals. Yet to be effective as well as cost efficient, such funding needs to be well targeted and to enable private lenders and investors to do most of the “work”.Barriers to financing new mining projectsThere has been much attention paid to how long it takes for a mining project to progress from discovery to operation, with studies pointing to nearly 30 years on average in the US. Project permitting has proven to be particularly arduous, lengthy and subject to uncertainty, particularly given legal challenges.Securing financing is a separate challenge, although it is made more difficult by the uncertainty related to getting a permit. Investors and banks are wary of the uncertainty of the future value (price) of the mineral, particularly as critical mineral pricing has been very volatile over the last few years. Finally, a “hollowing-out” of investment managers that traditionally provided money for new developments (the mining investor “ecosystem”) has left fewer institutions able to evaluate mining projects.Financial support in the mining EOThe EO directs a number of procedural changes and new structures to ease access to capital for mining projects. Among them, it directs all federal agencies that provide capital to businesses to offer favorable terms and conditions; and it invokes the Defense Production Act, pursuant to an earlier executive order that declared a National Energy Emergency, to waive requirements to obtain approval from Congress for loans or other government funding if such funding exceeds $50 million. The EO also seeks to facilitate imports of minerals from other countries for domestic processing — the Export-Import Bank, for example, is directed to offer (more) program guidance for accessing support under its Supply Chain Resiliency Initiative.Further, the order calls for the Development Finance Corporation (DFC) to create fund to invest in domestic mineral production. This is notable as it suggests the fund is open to equity-type investments (co-investing with private companies) consistent with the DFC/s authority; it also suggests that the White House will encourage that the DFC mandate be broadened to include domestic investments, vs. its non-US focus currently, when it is to be reauthorized later this year.Forms of potential interventionAs the newly formed National Energy Dominance Council and other government agencies work to encourage mining and new development projects, their focus should be on enabling private sources of capital to participate. This is best done using various financial mechanisms that can mitigate new project risks (while often also offering a path to recover the investment or defray the cost). Some examples include:Equity support for junior mining companies. Junior, or early-stage, mining companies have historically played a pivotal role in discovery of resources and assuming early risks of development. These companies, or their mining projects, are often then bought by larger companies that can support large-scale development. Providing equity support for junior miners is therefore an important enabler, while also offering government a path to recover its investment. One current example of a government program is the European Bank for Reconstruction and Development’s (EBRD) Junior Mining Programme (JUMP). JUMP is a €150 Million framework facility to make equity and quasi-equity investments in early-stage mining companies for exploration and development of “critical and strategic” raw materials.Structured financing to bridge the pre-construction gap. Federal financial institutions, such as the US Export-Import (EXIM) Bank and the Department of Energy’s Loan Programs Office, offer lending facilities to provide bridging capital for mining projects as they make their way through feasibility studies and obtaining permit approvals. Although the objective of the EO is to shorten permitting times, these important steps will continue to require time and (financial) resources. This bridge financing would be expected to be replaced by permanent (private) financing.Demand/price stabilization mechanisms. The federal government can play an active role in underwriting demand certainty for critical minerals. It can enter into long-term purchasing agreements with domestic producers, for example; these agreements can be structured such that the government buys only when there is (apparent) excess supply in the market so as not to compete with market demand. Or instead of buying product, the government can stabilize price. In a Contracts for Differences (CfD) mechanism, for example, the government “tops up” market prices to an agreed upon level. CfDs can also be structured such that upside revenue earned when market pricing is very strong is shared with the government.Commodity market support. Marketplaces and (futures) exchanges offers sellers and buyers price transparency and the ability to lock in future pricing, which can provide comfort to capital providers. Yet developing formal products for minerals (e.g., futures contracts on exchanges), particularly if trades are to be physically settled, can be hampered by set-up and administrative costs. Government financial support can take several forms, including providing seed funding for companies to establish physical stockpiles; the key point is that it can provide resources to trading ecosystems that may be unwilling to undertake the necessary infrastructure investment.The United States stands at a pivotal moment in reshaping its mineral value and supply chains. It will take years and consistent investment for these chains to develop. But by deploying targeted financial instruments, our country can unlock private capital, expedite project development, and bring more control over these critical materials back to this country.*Brad Handler is the program manager for the Payne Institute’s Energy Finance Lab.*Morgan Bazilian is the director of the Payne Institute and a professor of public policy at the Colorado School of Mines.Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com