Financing Precious Metals Production through a Holistic Strategy
Q&A with Laurent Mathiot, Chairman and CEO of OCIM Precious Metals, in the Mining magazine The Assay
What is prepayment?
The prepayment model has been used throughout the world’s economies for centuries and in various forms. In the past, farmers sold their produce ahead of the harvest to buy production tools. Similarly, merchants entered into contracts to buy ships. The British and the Dutch East India Companies developed a sophisticated prepayment model to better manage the massive costs and risks associated with transportation of goods from the Orient to end consumers in Europe.OCIM is a commodities trader focused on precious metals such as gold, silver and more recently platinum. We offer mining companies and producers access to working and/or growth capital funding through up-front payments that are repaid over time in deliveries of fine metals. Prepayment offers a simple solution by allowing producers to receive advance payment for their commodities and goods. After we agree on the principle of working together, OCIM deploys a field team to conduct a technical due diligence of the project. If the conclusions are positive and if we agree with our future partner on all deal terms, we then purchase a specific quantity of metals in advance and pay for the goods up front.
In return, the mining company undertakes to deliver, according to a predetermined schedule, specific quantities of precious metals, calculated per a negotiated discount relative to the LBMA fixing price on the day of the agreement.OCIM provides mainly shortterm investments with a term ranging from 3 to 24 months but also builds long-term relationships by offering to revolve facilities when appropriate.
What makes this funding solution attractive to mining companies?
Since the financial crisis of 2008, the banking system has been completely reshaped and financings in the commodities sector have declined drastically. Nevertheless, the need for capital remains considerable, and mining companies are finding it more and more difficult to fund themselves through traditional pathways…
