Debt funding for African mining projects: issues, options and sources

Abstract

Securing adequate debt financing for mining projects is a difficult task in the best of environments. In Africa, the task is even more difficult on account of debt burdens, poor infrastructure, foreign exchange shortages and perceived political risk. These factors serve to limit the interest of international commercial banks, the main source of mining finance, in making long-term credit available for mining projects in the region. This paper examines issues related to the raising of debt funding for mining projects (particularly gold) in Africa. Issues of concern to potential lenders, such as completion risk, security arrangements, foreign exchange availability and political risk are discussed. Measures which tend to minimise lenders risks, such as escrow accounts, debt conversion, gold loans, hedging programmes, and political risk insurance, are examined. The government’s role in enhancing project financing arrangements is also discussed. A survey of available sources of debt financing for African-based gold mining projects is provided. Emphasis is placed on specialized financial institutions which are active in the African lending market. Examples include governmental and inter-governmental credit agencies, export credit agencies, and suppliers’ credits. Finally, the paper describes recent experiences in the financing of new and expanding gold mining operations in Ghana.