A qualitative evaluation of the differences in risk/reward profiles for project finance in the development of a typical porphyry copper deposit compared with a typical diamondiferous kimberlite deposit

Abstract Project finance is becoming an increasingly popular tool in the mining sector as miners look for more alternative methods of funding extraction projects. Unlike traditional corporate finance, project finance allows borrowers to isolate debt to a specific project and insulate related corporate entities from the risks associated with developing a new deposit. This makes the risk reward profile of the project paramount from both a borrowing and a lending perspective. This paper considers how risk/reward profiles are derived and constrained for a typical porphyry copper deposit (PCD) project and a typical diamondiferous kimberlite deposit (DKD) project. Feasibility in terms of risk and reward is analysed for the four main stages of each hypothetical project (deposit, construction, production, final market/sale of commodity). It is concluded that there is a notably more constrained risk/reward profile for a PCD deposit than a DKD deposit. Despite DKD projects having greater upside potential, project finance for a PCD deposit is considered safer and therefore more favourable from the perspective of a lender.