ICLG: Mining Law 2023

Practical cross-border insights into mining law

Mining Law 2023

10 th Edition

Contributing Editor: Andrew Emrich Holland & Hart LLP

Table of Contents

Expert Analysis Chapters

The Winds of War: Trade and Regulatory Challenges Facing the Mining Industry Andrew Emrich, Holland & Hart LLP


Competing Considerations in Intercreditor Agreements for Project Finance, Mining Streams and Royalties Oliver Irwin & Darren Spalding, Bracewell (UK) LLP Alice England, Anglo Pacific Group PLC


Q&A Chapters

Argentina Marval O’Farrell Mairal: Luis E. Lucero & Agustina Dellacasa

Kazakhstan Haller Lomax LLP: Timur Odilov, Zarina Baikenzhina & Mikhail Abdulov Malawi Ritz Attorneys at Law: Ahmed Mussa, Gonjetso Dikiya, Tawela Taona Msiska & Ashleighn Banda



Canada Lawson Lundell LLP: Khaled Abdel-Barr & Karen MacMillan



China Jincheng Tongda & Neal Law Firm: Guohua (Annie) Wu & Yingnan (Jason) Li

Mexico RB Abogados: Enrique R. del Bosque



Philippines Fortun Narvasa & Salazar: Roderick R.C. Salazar III


Congo – D.R. Kalamba & Associés: Harlène Ngalula & Anne Marie Nsaka Kabunda


United Kingdom Milbank LLP: John Dewar & Emily Whittaker


Ghana N. Dowuona & Company: NanaAma Botchway, Eyram Homenya & Nana Akua Tufuoh


USA Holland & Hart LLP: Karol L. Kahalley


Zambia Dentons Eric Silwamba, Jalasi and Linyama Legal Practitioners: Joseph Alexander Jalasi, Jr. & Eric Suwilanji Silwamba, SC Zimbabwe Wintertons Legal Practitioners: Nikita Madya & Milton Muzaza

Indonesia MacalloHarlin Mendrofa Advocates: Andika Mendrofa & Shanti Prameshwara



Japan Anderson Mōri & Tomotsune: Hiroaki Takahashi




Chapter 2

Competing Considerations in Intercreditor Agreements for Project Finance, Mining Streams and Royalties

Oliver Irwin

Darren Spalding

Bracewell (UK) LLP Anglo Pacific Group PLC

Alice England

■ “ Resource and Reserve Risks ” – What is the grade and quality of that metal or mineral, and how probable or proven is the economically minable part of the measured or indicated mineral resource? ■ “ Commodity Price Risk ” – Will the cyclical and often vola tile nature of commodity prices impact on the certainty of the long-term revenue for the mine, and is any hedging possible against that risk? ■ “ Political Risk ” – Given the challenging and emerging market jurisdictions in which some mines are located, can the risk of resource nationalism be mitigated? To mitigate some of these risks, project finance structures for mining projects are often described as “limited recourse” to sponsors, rather than “no recourse”, because they will often include a number of specific features, such as completion support in the form of either a debt service undertaking or completion guarantee from sponsors, and/or the increased use of political risk insurance (or involvement of export credit agencies or multi lateral agencies).

Introduction The development of a mining project typically requires signif icant capital expenditure. For that reason, as is the case with many other major infrastructure projects, all but the largest mining companies will seek external financing solutions to fund the development of their mines. Many mining companies raise capital to finance the development of their projects through traditional means such as the debt and equity capital markets and limited-recourse project finance debt. They also frequently utilise a number of more industry-specific pools of capital, such as streaming arrangements and royalties. Where mining companies seek to combine project financing with secured streaming and/or royalty agreements, an “inter creditor agreement” will usually be required in order to regulate the interests and rights of the various finance providers. Gener ally speaking, an intercreditor agreement would typically only be required when creditors are secured (which may not be the case for a royalty if the regulatory framework for that jurisdiction allows the royalty to “run with the land”). Although not uncommon in the international project finance market for mining, intercreditor agreements can give rise to rela tively complex legal arrangements, as the competing considera tions of each of the parties to these multi-source hybrid financing structures must be taken into account. The intercreditor agree ment harmonises these considerations and acts to regulate the parties’ relationship, potentially for decades. Project Financing Although it is found in many different shapes and sizes, project financing is, in essence, the provision of limited-recourse debt to a newly incorporated special purpose vehicle for the purpose of developing a specific project. The providers of that debt have limited recourse to the sponsors of the project and must therefore look solely to the revenues of the project for repayment of their debt (and the payment of the interest that accrues on that debt). The project financing of mining projects gives rise to a number of specific risks that may not be present in other sectors where project finance is common (such as, for example, the financing of independent power projects). This can include exposure to: ■ “ Completion Risk ” – Will the project produce the antic ipated grade of metal or minerals within the anticipated timescale for the anticipated construction budget?

Figure 1: Traditional project finance structure

* Upfront loan amount for project financing is often a single payment, but can be staged for development projects

Streaming Agreements Under a streaming agreement, in exchange for upfront payment(s), a “Stream Investor” will receive the right to purchase the future production of all or a portion of one or more metals produced by that mine (at a discount to the prevailing market price). Histori cally, streams related to by-products produced by a mine in addition

Mining Law 2023

© Published and reproduced with kind permission by Global Legal Group Ltd, London

Bracewell (UK) LLP / Anglo Pacific Group PLC


to its main production, meaning that, for example, a streaming agreement may relate to silver produced as a by-product of gold production. However, over the past decade, stream financing has become more mainstream and now spans more diverse commodi ties, particularly for mining companies that have otherwise strug gled to access equity markets. Streams are inherently bespoke arrangements that can be structured in a number of ways, but typically relate to a specific percentage or specific quantity of production from a mine. This right to purchase may be subject to an overall cap or run for the life of the mine – for example, a Stream Investor could acquire the right to purchase 50% of the cobalt production from a mine until delivery of 10 million tonnes and a right to purchase 25% thereafter, or it could acquire the right to purchase 50% of the cobalt production for the life of the mine. A “life-of-mine stream” would expose the Stream Investor to reserves risk but could also, depending on how the streaming agreement is structured, allow the Stream Investor to benefit from any subsequent expansions to the mine. Streams for producing assets often involve a one-off upfront payment upon the closing of the transaction, whereas a streaming agreement for a development asset (that is, a mine that is not yet in production) might be structured so that the mining company receives multiple staged payments upon satisfaction of certain pre-agreed specified milestones. A Stream Investor will make additional payments calculated on the basis of each unit of metal that is delivered, typically either at a fixed price, subject to index ation, or as a percentage of the spot price at the time of delivery. The difference between the additional payment and the prevailing market price is “credited” against the upfront payment. Importantly, streaming agreements are structured as contrac tual arrangements between the Stream Investor and the mining company, and so do not grant the Stream Investor a proprietary interest in the mine itself. Consequently, Stream Investors often seek security over the mining company’s assets and are typically secured creditors. Figure 2: Streaming structure

Common types of royalties include: ■ Gross Revenue Royalties – these entitle the Royalty Holder to a fixed portion of the mine’s gross revenue before any deductions. ■ Net Smelter Return Royalties – these entitle the Royalty Holder to a fixed portion of the net revenues received from a smelter or refinery by the mine operator following the deduction of certain costs, such as transportation, insurance, smelting and refining. ■ Net Profit Interest Royalties – these entitle the Royalty Holder to a fixed portion of the profits of the mine after deduction of production-related costs. Where permitted by local law, royalty arrangements are often structured to create an interest in land, thereby establishing property rights in favour of the Royalty Holder. As noted above, this is in contrast to a streaming arrangement, which is typically limited to a contractual arrangement between a Stream Investor and the mining company. However, in jurisdictions where an interest in land cannot be created under the royalty arrangement, a Royalty Holder may also only have a contractual arrangement, which it may seek to protect, where possible, with security in the same way as a Stream Investor. Figure 3: Royalty structure

* Upfront amount for stream is often a single payment, but can be staged for development projects

Benefits of Streaming and Royalty Agreements

The use of innovative financing structures has a number of bene fits for a mining company when compared to project financing or equity financing. Issuing new equity in the mining company or a listed parent will naturally result in dilution of the current shareholders’ interest in the mine and, although streaming and royalty agree ments also result in a dilution of the revenues from that mine, the dilution is limited to the specific asset and specific production from that asset. This is further mitigated, particularly in the case of a stream, if it is in respect of a by-product, meaning that share holders in the mining company retain an undiluted interest in core production from the mine. An additional significant benefit for a mining company is that compared to a standard project financing, streaming and royalty agreements are often “ covenant-lite ”, with fewer controls imposed on the mining company’s parameters of operation. The effective “repayment” of royalties and streams is (by virtue of their nature) not a fixed repayment (unlike the amortisation of a project finance loan) and is wholly dependent on the level of production and/or the revenue produced by the mine. Consequently, Stream Inves tors or Royalty Holders effectively share similar risks to equity (as they receive lower revenue when the mine’s production levels or commodity prices fall).

* Upfront amount for stream is often a single payment, but can be staged for development projects

Royalty Agreements Royalty agreements typically involve a single upfront payment to the mining company. The “Royalty Holder” then receives payments from the mining company that represent a propor tion of production or revenues on an ongoing basis. This means that, in effect, royalty arrangements are (typically) settled by the delivery of cash to the Royalty Holder, whereas streaming arrangements are settled by the delivery of product to the Stream Investor.

Mining Law 2023

© Published and reproduced with kind permission by Global Legal Group Ltd, London


Competing Considerations in Intercreditor Agreements

Project finance lenders, however, require payment of prin cipal and interest regardless of the mine’s production levels or the level of commodity prices – meaning that project finance debt is arguably a riskier proposition for a mining company, as it entails incurring a fixed liability to be settled using the proceeds of uncertain revenues. Lastly, a streaming agreement may be a highly effective solu tion for a mining company in securing a guaranteed long-term purchaser for a mine’s non-core products, which may be advan tageous if there is not a particularly liquid or accessible market for that metal. Intercreditor Agreements Most project financing arrangements will include different classes of secured creditors, such as the providers of senior secured debt and the providers of secured interest rate and/or commodity hedging arrangements. This will typically mean that those secured creditors will require an intercreditor agree ment to regulate, amongst other things, how those secured cred itors may exercise and enforce their rights. A key function of an intercreditor agreement is to set out how the various creditors rank, and how those creditors would share in the proceeds of the enforcement of any secured assets. The finance market for mining projects has evolved such that, broadly speaking, the providers of senior project finance debt have first priority, with a Stream Investor and/or a Royalty Holder ranking second in priority. As between a Stream Investor and Royalty Holder, they may rank pari passu or with such other hierarchy as is negotiated between both parties (depending on a number of factors, including timing and quantum). The intercred itor agreement regulates the claims of each of these separate classes of creditor in a legally valid, binding and enforceable contract. Intercreditor Considerations for Stream Investors and Royalty Holders There is no set LMA 1 or LSTA 2 template for a project finance intercreditor. As such, it remains possible for a Stream Investor or Royalty Holder to seek to negotiate intercreditor terms that are bespoke to its requirements (and potentially those of the mining company). Some of the key considerations for Stream Investors and Royalty Holders in any intercreditor agreement are as follows. A “cashf low waterfall” regulates the priority of payments made by the borrower (the mining company) under a project financing. The treatment of any Stream Investor or Royalty Holder within the cashf low waterfall for the project financing may be a highly negotiated point, although the usual opening position would be that, in the ordinary course, a Royalty Holder will seek to cate gorise its royalty payments as operating expenditure, meaning that those payments would be made at the top of the cash water fall (above payments of principal and interest under the project finance loans). In the case of a Stream Investor, the “payment” made by the mining company is in the form of delivery of the relevant metal or mineral, so the issue is less contentious, as the project finance lenders will wish to ensure that the revenue received for those deliveries (albeit at a discount) is available to service their debt. Cashflow waterfall

The project finance lenders will likely seek to alter the standard position with a Royalty Holder in a downside scenario (that is, following the occurrence of a material event of default under the project finance loan documentation). In such a scenario, project finance lenders will typically seek that the royalty payments are no longer paid at the top of the waterfall, but are instead subor dinated below repayment of principal and interest due under their project finance loans. A Royalty Holder will typically seek to ensure that no amend ments can be made to the cash waterfall that could or would impair their preferential position in the waterfall. Project finance lenders may also seek the right to suspend or terminate the ordinary operation of the arrangements under a streaming or royalty agreement if they were to accelerate the project finance debt (meaning that the project finance debt would be stated to be immediately due and payable). The benefit to the project finance lenders of terminating or suspending: ■ a streaming agreement, is that the mining company would then be able to sell the relevant product at the full market price without a discount; and/or ■ a royalty agreement, is that the mining company would retain more revenue or profit, in each case, allowing the project finance lenders to recover their debt more quickly. Stream Investors and Royalty Holders are likely to be highly resistant to this proposition, and insist that any purchaser following a sale on enforcement by the senior project finance lenders continues to be bound by its streaming agreement or royalty agreement. This is typically a key concern for any Stream Investor or Royalty Holder. In intercreditor discussions, lenders may also seek the right to terminate a stream or royalty if there is an enforcement of share security over the mining company in order to sell the mining company to a third party, so as to obtain a better sales price. This would be on the basis that an unfettered company/asset with the potential to fully maximise sales revenue will be more attractive to purchasers. This is also typically a highly negoti ated point and again the Royalty Holder and Stream Investor will want their positions to be preserved through any such sale. Termination of the stream/royalty


Stream Investors and Royalty Holders may seek to negotiate the ability to enforce any rights they may have as an unsecured third party creditor (or by virtue of the applicable laws of that jurisdic tion) regardless of the provisions of the intercreditor agreement.

Governing law

The governing law of the intercreditor agreement may, more than is typical, be an important consideration for the Stream Investor or Royalty Holder. For example, under an English law governed intercreditor agreement, enforcement would typically always be led by the first-ranking creditors (e.g. the project finance lenders); whereas, in certain North American jurisdictions, there may be more flexibility and willingness to permit second- or third ranking creditors to lead any enforcement action.

Mining Law 2023

© Published and reproduced with kind permission by Global Legal Group Ltd, London

Bracewell (UK) LLP / Anglo Pacific Group PLC


As there is no absolute standard form or model for intercred itor arrangements for project finance, streaming and royalties, we expect that the market will continue to evolve and provide oppor tunities for agile market participants to leverage their expertise and know-how. Endnotes 1. Loan Market Association: https://www.lma.eu.com/docu ments-guidelines/documents. 2. Loan Syndications and Trading Association: https://www. lsta.org/content/the-lstas-complete-credit-agreement- guide-second-edition.

Conclusions As the prevalence of alternative forms of mining finance, including stream and royalties, has increased, so has the complexity of the arrangements between the various providers of that finance. Somewhat counter-intuitively, these arrangements could lead a Royalty Holder to take the view that its interests are better served not being a secured creditor, meaning that they can argue that they should not be subjected to the terms of an intercreditor agreement. If the security package on offer is limited in scope and would not, as a practical matter, offer any monetary value in an enforce ment scenario, consideration may be given as to whether a Royalty Holder would have better rights against the mining company as an unsecured creditor (if the royalty “runs with the land”), as there would be no intercreditor restrictions on its ability to enforce its rights or prove its debt claim in an insolvency scenario.

Mining Law 2023

© Published and reproduced with kind permission by Global Legal Group Ltd, London


Competing Considerations in Intercreditor Agreements

Oliver Irwin is a Partner at Bracewell (UK) LLP. He advises lenders and sponsors on the development and financing of cross-border energy and infrastructure projects across a broad range of industries, many of which are the first of their kind in the respective sector. He has significant experience advising on multi-sourced project financings involving export credit agencies, multilaterals and development finance institutions. He is also a regular speaker at industry conferences and a lecturer at the TXF/CC Solutions “School of ECA Finance”. IFLR1000 has identified Oliver as a “Rising Star” or “Highly Regarded” every year since 2013, and he has been ranked by Chambers UK each year since 2012, where clients report that Oliver is considered “truly outstanding” and highlight his “knowledge of debt financing” and “drive to get the deal done”. In the 2022 edition of Chambers UK , clients comment: “Oliver is calm, cool, collected he knows his stuff, which shows through in tough moments of negotiations.” Bracewell (UK) LLP Tower 42, 25 Old Broad Street London EC2N 1HQ United Kingdom Tel: +44 207 448 4228 Email: oliver.irwin@bracewell.com URL: www.bracewell.com Darren Spalding is a Partner at Bracewell (UK) LLP. A corporate lawyer dedicated to the energy and infrastructure sector, Darren advises clients on M&A transactions and projects across the value chain, with a particular focus on cross-border matters, having worked on deals and projects in more than 30 jurisdictions. Darren is regularly called upon to advise on, and negotiate, a range of royalty and streaming transactions. He has a wealth of experience in the structuring and development of mining projects, including in relation to shareholder arrangements. Darren has been recognised as a leading M&A lawyer by the IFLR1000 Financial & Corporate and M&A Guide (2017–2022). He is ranked in Chambers UK (2019–2022) and is also highly regarded by The Legal 500 United Kingdom (2014–2021), with clients noting that he is “a very good upstream lawyer” who has “deep contractual expertise” and “a fantastic understanding of extremely complicated issues”.

Bracewell (UK) LLP Tower 42, 25 Old Broad Street London EC2N 1HQ United Kingdom


+44 207 448 4209





Alice England is General Counsel at Anglo Pacific Group PLC, having joined the Group in March 2019. She has over 15 years’ experience in the natural resources sector, and a detailed understanding of the legal terms and structures of royalty and streams. Prior to joining Anglo Pacific, Alice began her legal career at Herbert Smith Freehills. She qualified as a lawyer at Dentons and during that time worked in the Middle East on hydropower and carbon capture storage projects. Subsequently, Alice worked as a senior legal and commercial adviser at a FTSE 250 oil and gas company, where she provided advice on a wide range of transactional and operational matters, with a particular focus on corporate M&A, fundraising, acquisitions and disposals, corporate governance and dispute resolution. She has a BA (Hons) in English Literature and a Diploma in Law from the University of Exeter, and a Legal Practice Certificate from the University of Oxford, Faculty of Law.

Anglo Pacific Group PLC 1 Savile Row (entrance via 7 Vigo Street)


+44 203 435 7400



London W1S 3JR United Kingdom



Bracewell is a leading international law firm with extensive experience of matters related to mining. Our lawyers have represented mining clients in mergers and acquisitions, project development and finance, environmental issues, litigation, financial restructuring, capital markets, and intellectual property. Bracewell has represented clients in the mining sector in jurisdic tions right across the globe. Our team has experience acting for developers, lenders, royalty providers and other stakeholders in the mining industry. We deliver commercially oriented legal excellence on every project and trans action. Our extensive experience results in a pragmatic, constructive and commercially oriented approach. www.bracewell.com Anglo Pacific is the leading royalty and streaming business focused on investing in the commodities required to provide for a more sustainable world. Over the last eight years, we have successfully executed this strategy and today, 75% of the portfolio is exposed to future-facing metals. As well as the green commodity focus, we systematically integrate sustainability into our investment decisions. By assessing the long-term viability of a mine, we are able to make informed investment decisions, better identify and manage risks and generate sustainable, long-term value for all of our stakeholders. www.anglopacificgroup.com

Mining Law 2023

© Published and reproduced with kind permission by Global Legal Group Ltd, London

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