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Alternative financing to revive Cornish tin mining?

Published by , Editor
Global Mining Review,

International law firm Fieldfisher has advised TSX-V-listed Canadian company, Strongbow Exploration Inc., on successfully closing a conditional ‘synthetic’ offtake agreement with specialist mining private equity fund, Orion Mine Finance.

Strongbow is the owner of South Crofty, the iconic former-producing copper and tin mine near Camborne and Pool in Cornwall. The company plans to bring the mine back into production following a proposed dual listing on London's AIM market.

Strongbow announced its offtake deal with US-headquartered Orion on 17 October, marking yet another example of the use of non-traditional forms of financing in the mining sector.

The offtake provides for the sale to Orion of 5% of the next 10 years of tin production from South Crofty, through the delivery of London Metal Exchange (LME) tin warrants representing tin refined to LME-Approved Brands, rather than the physical tin itself.

The agreement is conditional on Orion making an equity investment of at least US$3 million in Strongbow, as part of the company's planned AIM fundraising.

This type of production-based financing, whereby companies sell rights to receive future output from their mines, has grown rapidly in popularity since the commodities market downturn in 2011/2012.

Now, with commodity prices back in firmer territory and investors beginning to return to the mining industry, mining companies have a wider choice of funding options to choose from to get their projects off the ground.

They also have the flexibility to tailor deals to their specific project needs and to receive funding at an earlier stage of the project's development – a luxury that is not always available to them with traditional project finance investment.

Such arrangements are typically only possible once a mine is at the development stage. Production-based financing has the added advantage of de-risking projects in the eyes of banks.

For offtakers and traders, there are numerous benefits to securing advance access to commodity supply, which they have the freedom to dispose of in the most commercially advantageous manner.

Such deals typically involve expert legal and other advisers with extensive mining sector experience, who can provide guidance on considerations such as the scope of the offtake, the length of the offtake term, delivery and purchasing obligations, pricing and the termination of contracts.

For Strongbow, the offtake agreement with Orion represents a further endorsement of the South Crofty project, allowing the company to work towards its AIM admission before the end of this year.

The company is preparing for the dewatering of the now flooded mine workings with a view to re-commencing tin production at South Crofty.

Fieldfisher corporate partner Jonathan Brooks advised Strongbow on the Orion offtake agreement and is leading a team comprising directors Ed Westhead and Gary Pickard, senior associate Owain Davies and paralegal Jamal Moursy working on the company's AIM admission and a placing to raise funding to re-start production at South Crofty.

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