The world's biggest mining investor is continuing its search for innovative new ways to invest, and a small Australian listed company could be the next to benefit.
The BlackRock World Mining Trust is negotiating a $12 million royalty deal with copper and gold aspirant Avanco Resources, in the latest example of BlackRock eyeing investments that have less risk than the traditional purchasing of shares.
The trend began about 14 months ago, when BlackRock invested $110 million in an African-focused company called London Mining.
Rather than simply buy shares, BlackRock bought a royalty on all sales revenue, under a move designed to avoid the pitfalls of owning mining shares, such as rampant cost inflation and poor dividend flows.
BlackRock's investment chief Evy Hambro has highlighted BlackRock's ability to borrow money at much cheaper rates than junior miners, and he is increasingly keen for BlackRock to fill a niche around project financing.
"We are planning to do a whole series of transactions into instruments that deliver exposure to commodity prices, to production levels and to the fortunes of companies, but not necessarily at the equity level. We believe there is a massive opportunity out there in the market right now based on this huge divergence in the cost of capital for resource companies," he told BusinessDay, during an interview in London in February.
Avanco, which is developing a mine in Brazil, looms as the next cab off the rank, with BlackRock to receive a percentage of revenues from sales of gold, copper and other metals if the deal is finalised. Avanco will need to jump hurdles around licences and geological standards before the deal can be activated.
News of the BlackRock proposal on Tuesday prompted the heaviest day of trading in Avanco shares in a year, with volumes almost nine times higher than the daily average.
Avanco shares rose 0.7¢ to 9¢. The stock was fetching 5.6¢ in late June.