BlackRock eyes royalty deal with small miner
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 typical pitfalls of owning mining shares, such as rampant cost inflation and poor dividend flows.
BlackRock investment chief Evy Hambro has highlighted its 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 in an interview earlier this year.
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 several hurdles around licences and geological standards before the deal can be activated.
News of the 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.
Aside from the prestige of dealing with an investor of BlackRock's standard, the deal allows Avanco to solve its project funding shortfall without diluting its shares.
BlackRock has long ranked as the biggest shareholder in BHP Billiton and numerous other big miners, and Mr Hambro ranks as one of the most influential people in the mining industry.
Avanco shares rose 0.7¢ higher to 9¢, well above the 5.6¢ the stock was fetching in late June.
Frequently Asked Questions about this Article…
BlackRock World Mining Trust is negotiating a $12 million royalty agreement with Avanco Resources under which BlackRock would receive a percentage of revenues from sales of gold, copper and other metals from Avanco’s developing mine in Brazil if the deal is finalised.
According to the article, BlackRock prefers royalties and project financing because these instruments can deliver exposure to commodity prices and production without the equity-level risks of owning mining shares — such as rampant cost inflation and poor dividend flows — and because BlackRock can borrow at much cheaper rates than junior miners.
The royalty proposal would help Avanco solve its project funding shortfall without diluting existing shareholders, while also bringing the prestige and potential financial backing of a major investor like BlackRock.
Avanco will need to jump several regulatory and technical hurdles around licences and geological standards before the royalty agreement can be activated, according to the article.
News of the proposal triggered the heaviest day of trading in Avanco shares in a year, with volumes almost nine times higher than the daily average. The stock rose 0.7¢ to 9¢, up from about 5.6¢ in late June.
Yes. The article notes that about 14 months earlier BlackRock invested $110 million in London Mining by buying a royalty on all sales revenue, rather than simply purchasing shares — a move designed to avoid typical equity pitfalls.
Evy Hambro is BlackRock’s investment chief quoted in the article. He has highlighted BlackRock’s ability to borrow more cheaply than junior miners and said the firm plans a series of transactions that provide exposure to commodity prices, production levels and company fortunes without necessarily investing at the equity level.
From the article’s perspective, royalty deals represent an alternative way for large investors to gain commodity exposure with potentially lower equity risk. For companies like Avanco, royalties can provide non-dilutive project funding, which may influence share trading and investor sentiment — but the deal still depends on regulatory and technical approvals.
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