Can you provide an overview of Nebari Holdings’ focus within the natural resources sector and some recent significant investments?
Nebari is a mine finance provider, focused primarily on credit and provision of structured finance packages to the junior mining sector. Across Nebari’s various funds, we have a wide investment mandate in terms of commodities and geographies, although we primarily lend to companies with projects in Tier 1 jurisdictions. We’ve been particularly active in Australia and Canada, but have also recently made loans to Canadian companies with projects in Namibia and Fiji. One of our funds is dedicated to convertible debt for precious metals companies. In that fund, we are very focused on potential equity upside, which reflects the funds and its investors’ views on rising gold prices. Our other funds are resource agnostic, and we can fund companies over a range of commodities, other than thermal coal.
What sets Nebari apart is its technical focus when evaluating potential loans and investments, and its ability to move with speed. I’m a lawyer by training, but the rest of my colleagues on the investment team have technical backgrounds in addition to finance experience. This helps us not only critically evaluate the technical aspects of potential investments, but also allows for the evaluation of projects from an operational perspective. I think this has helped build strong and collaborative relationships with the companies in which we’ve invested.
Nebari’s founders met while working at Glencore in Switzerland, which I think has informed the entrepreneurial culture of the company. We look for that same quality in management teams when considering an investment.
For companies listed on the TSX, some recent Nebari transactions include:
- Ascot Resources (TSX: AOT), US$14M fully convertible loan to refinance existing debt and to help develop its Premier Gold Project in British Columbia
- Empress Royalty Corp (TSXV: EMPR), US$15M accordion loan facility to support acquisitions
- Signal Gold (TSX: SGNL), US$21M term loan to support development of its Goldboro Project in Nova Scotia
- Lion One Metals (TSXV: LIO), US$37M structured finance package to advance development of its Tuvatu Gold Project in Fiji
- Osino Resources (TSXV: OSI), US$15M loan to advance development of its Twin Hills Project in Namibia
The global energy transition towards renewable and sustainable sources is gaining momentum. How is Nebari Holdings aligning its business model with the growing demand for green energy solutions and critical materials?
Nebari sees investment in materials required for the energy transition as good business and will continue to look for opportunities to invest in quality projects in this space. We are committed to environmental, social, and governance (ESG) principles in our investment process. We seek to partner with companies that support responsible and sustainable mining practices. We evaluate the ESG performance and plans of our borrowers during every due diligence process and monitor their compliance with relevant standards and regulations. We also engage with our borrowers to encourage improvement in their ESG practices. By doing so, we aim to create long-term value for our investors and contribute to the global transition to an environmentally and socially sustainable economy.
How has investment into junior mining companies changed over the last few years?
The largest change in the last 18-24 months has been the persistent lack of capital available via the equity markets. While this has had an impact across industries, junior mining companies have been particularly impacted. This is despite the general sentiment that metal prices across commodities are poised for gains. For some reason, this has not translated to the equity markets, and in fact several endemic mining investors have pulled back from the junior sector. While not necessarily a positive thing overall, it has benefitted Nebari’s business as there are a few companies that, in a more typical cycle, would finance development and growth via the equity markets, but are increasingly interested in debt.
Of course, debt is not appropriate for every project, but in cases where there is a clear path to a future liquidity event (for development projects) or sufficient cashflow to support repayment (for operational mines), having some debt on the balance sheet makes sense and allows companies to advance development or growth without having to do highly dilutive financings at comparably low share prices.
Another change has been the increase in capital coming into the energy transition metals space from OEMs, majors, offtakers, and increasingly, governments. I think this trend is likely to continue, particularly if companies continue to struggle with equity raises. This is a net positive for the industry but has probably led to some “froth” in companies with certain battery metal projects. As time goes on, I think the companies with the best exploration assets and most viable development projects with potential to produce in the near term will continue to attract investment from both traditional and non-traditional sources. I anticipate there being increased investor rigor when evaluating projects and marketing plans.
I certainly hope that the equity markets improve for juniors, as there is quite a bit of investment that needs to be made in the mining sector to meet anticipated metals demands
Looking ahead, what do you anticipate will be the key trends shaping investment in junior mining companies over the next decade?
I certainly hope that the equity markets improve for juniors, as there is quite a bit of investment that needs to be made in the mining sector to meet anticipated metals demands. I always joke that mine finance isn’t rocket science, you can either dilute the company by selling equity, dilute the asset by selling a royalty or a stream, or take on debt. In many cases, it takes a mixture of all three to develop and grow mines. Without equity being available, it can be incredibly hard for many projects to advance to production.
That said, I think equity will continue to be challenging for a lot of juniors, particularly those with projects in the feasibility stage, which is where you are seeing more and more projects languish. There have been some early signs of more investment from majors into junior companies, both at the company level and project level. I think this trend is likely to continue, but for companies at the feasibility and development stages, I think the best thing they can do to attract investment is to be extremely calculated in capital expenditures and cutting costs where they can, while still allowing meaningful project progression. Investors like to see fiscal discipline as well as project momentum. In markets like these, I think it’s challenging to attract investment without being able to demonstrate both.
Let’s look at the impact of regional regulations on the mining and investment industries. America set a strong tone with the IRA, which is expected to have global repercussions. Do you see other regions or countries following suit?
The Inflation Reduction Act (IRA) has been a good development in the US and several promising projects are already benefitting from federal investment. However, with respect to critical mineral development projects in the US, I believe it will be challenging to meet the goals the IRA was formulated to achieve without significant changes to the federal permitting process. For projects on federal lands, the permitting timelines are extremely long and unpredictable, and are increasingly subject to partisan politics. This has had an impact on investment in development projects as there is a lot of uncertainty around if, and when, projects will receive permits.
In addition to investors hating uncertainty, many investors, including private funds, have investment horizons that are incompatible with these protracted timelines. I believe this is an area that requires a substantial bi-partisan effort to address. The Canadian permitting process, which is extremely robust from an ESG standpoint, but provides for much more efficient timelines, can serve as a model to the US.
The Canadian government has also been instrumental in supporting investment in exploration via flow-through financings. The US government should consider something similar if it is serious about attracting private investment in US critical mineral projects.
I think the trend of direct investment by governments in battery and critical mineral projects is likely to continue, with more countries and regional alliances making capital available. But government financing alone is not enough, and can sometimes take a very long-time to underwrite. More efficient ways for governments and governmental-supported organizations to fund exploration and development processes are needed. Doing this will also increase private investment in these projects as securing governmental and quasi-governmental financial support can be hugely de-risking for investors.
