Anyone who has a mortgage understands debt financing. In return for a signed statement giving the money lender title to every asset currently or proposed to be owned, they give you money to buy something; a house, car or mining project. The process is easily understood and not that arduous really. The company goes to the bank or other money lending institution and asks for $100 million. They give the company a list of information requirements and then present the bill for their evaluation costs. This is called a financing fee and is designed to be just one more thing that really bugs you about banks.

The big item demanded by banks is the feasibility study and it must be done by a third party that the bank trusts - probably because they have a big account with the bank. This is called the bankable feasibility study and is the grand daddy of all feasibility studies because it is done to a level of competence that gives the bank a happy feeling while lending the money. You must remember that banks don’t want failed mining projects - they want their money back with interest. So doing a high quality feasibility study is in the company’s interest as much as it is the bank’s. Remember previous comments about the feasibility being the cheapest insurance policy - the banks certainly see it that way. The bank just wants to be sure that the management is competent and this is demonstrated by a feasibility study that covers all the bases.

So why look for a bank to finance a mining project? Well because banks don’t want to be part of the company so instead of stock they are paid in interest charges. This means that the corporate pie (profit) is not split into as many shares and the stock price should go sky high - in theory. In reality most companies finance their projects with a mixture of debt and public or equity financing. The worst thing to happen is for the project to suffer problems or have the commodity price droop such that the company president comes to the door in his jammies one day and finds the bank manager with a measuring tape in his hand.

There aren’t a lot of points to bargain in getting bank debt really. One can argue about the severity of the conditions or covenants (thou shalt not open accounts with other banks) and fuss the interest rate a bit but that is pretty much all. Bargaining clout depends upon the size of the debt and the strength of the company. 

Sometimes debt is obtained through public company instruments such as a convertible debenture. In this case the money is raised as debt and the debt-holder has the option to convert his debt into stock at a particular price. This might seem like equity but remember that if the stock doesn’t rise to the conversion price then no one will convert and the company is left with debt payments. Debentures, convertible or otherwise, should be considered to be debt - full stop.

I am exhausted by this foray into an area of personal ignorance so time to get back to the good stuff - how to implement or construct the mining project.