With some mining companies increasingly reluctant to own outright the infrastructure that keeps their projects going, an African development institution is linking up with investment funds to help fill the gap.
The Nigerian-based Africa Finance Corporation has already expanded its debt or equity funding for resources projects from oil into mines, including a bauxite scheme in Guinea, Reuters report.
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Now it is testing the water on a modest scale with investments that separate infrastructure, such as power supplies, roads and railways, from the mines themselves.
Some miners remain keen on controlling these facilities, notable producers of bulk commodities such as iron ore. Others, however, have been selling off such assets – or seeking partners for new infrastructure – to limit their huge capital needs.
For investment funds and bankers, this offers the prospect of predictable returns as infrastructure providers typically charge users fees set under long-term contracts. This contrasts to mining production itself, where the swings and uncertainties of the commodities price cycle raise the investment risk.
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Development bodies including the AFC – which is owned by the Nigerian central bank, African financial institutions and industrial groups – want an alternative route into projects that can generate cash and ensure African resources are exploited to support economic development and job creation.
“I certainly see this as an opportunity for high-quality infrastructure assets,” Osam Iyahen, vice president responsible for natural resources at Lagos-based AFC, told Reuters in a telephone interview.
Resources companies have traditionally built their own transport links and power stations to secure supplies to and from their mines and smelters.
Full ownership has helped to avoid costly interruptions to operations and ensure some control over costs. Railways, for instance, are often reserved for a miner’s exclusive use, meaning it does not have to compete for track access or worry about the risk of blockages caused by other services.
But when commodity markets crashed in 2014-15, firms struggling under heavy debt burdens began selling anything that was not essential. Metals prices have since stabilised, but much of the industry is wary of returning to the old model and accruing high levels of debt.
Some, including Swiss-based miner and trader Glencore, has emphasised spreading the high cost of infrastructure. Through joint ventures, they can retain influence over how assets are built and run while getting full ownership off their balance sheets. “Partnerships to grow the business will remain a key element of our approach,” Glencore chief executive Ivan Glasenberg said this month.
