NAIROBI. Mining firms that operate in Uganda will have to move further than the exploration stage if they are to attract banks to finance the industry, a Standard Bank top executive has said.
Mr Anthony Ndegwa, an investment banker at Standard Bank’s Mining Finance division, said: “Explorations are a high-risk venture and many exploration projects do not end up as viable mining operations, and therefore, equity rather than debt funding is suited for exploration.”
Mr Ndegwa, who will be speaking at the third Mineral Wealth Conference in Kampala next month, added that bank financing is premised on positive projected cash flows and a high level of confidence which a project at the exploration stage does not provide.
He will discuss the risks that the banks look at, and what the mining companies need to do to access credit.
There is increased confidence today in Uganda’s mining industry than it was a decade ago, with a number of minerals including gold, phosphates, iron ore being explored.
A number of companies are also spending colossal sums of money to move from the exploration to the production stage.
A $600 million (about Shs1.5 trillion) phosphate plant was recently launched in Tororo, while the Chinese consortium of Tibet Hima intends to invest up to $175 million (about Shs455.3 billion) to revive Kilembe Copper Mines.
Mr Ndegwa said banks are ready to present credit to a company that is at the development and production stage.
“Once the equity funded exploration activities prove-up viable mineral resources, at appropriately high levels of confidence, banks are able to provide project finance to develop a Greenfields project,” he said.
Junior mining firms operating in Uganda invest at least $5 million (about Shs13 billion) during the exploration stage with the figure shooting higher with proven mineral reserves.
To finance a mining project, banks look for proven and expert-certified mineral resources, strong mine development plans appropriate for the resource, scale of production, quality of sponsors, quality of contractorsdevelopers and the market dynamics for the target commodity.
SOURCE: Daily Monitor