When it comes to funding a business, it’s important to know the different types of finance so you can make smart choices. Two popular options are project finance and corporate finance. Each works in its own way, with different goals and risk strategies. This article explores what these two financing methods entail and highlights the risks and benefits of each financing method.
Project financing
Project finance is a way of funding large, long-term projects, like business ventures, public services, or infrastructure, using a limited or non-recourse financial model. It’s especially popular with private companies because it lets them finance projects through off-balance sheet (OBS) transactions, reducing the impact on their main accounts [1].
Benefits of project financing in mining
- Project finance isolates the financial risks to a single project, limiting the sponsor company’s exposure to the project’s debts and liabilities, often through a Special Purpose Vehicle (SPV).
- It allows for high leverage, typically with 60-90% debt, enabling large-scale projects to access significant capital without impacting the company’s balance sheet or credit lines substantially.
- Project finance can enable financing of large, capital-intensive projects that might be too risky or expensive to finance on the company’s balance sheet.
- Because repayments come solely from project cash flows, risks are allocated to lenders and investors on the project level.
- Off-balance-sheet treatment can improve corporate financial metrics and allow exploration of additional investments.
Risks and drawbacks of project financing
- It has high upfront transaction and structuring costs due to complex legal, tax, and contractual arrangements.
- Project financing deals require extensive management time and technical expertise to negotiate and manage risk-sharing contracts.
- There is limited or no recourse to the sponsoring company, which may lead to higher interest rates than corporate debt.
- The project must generate sufficient and predictable cash flow to service debt service, making this approach unsuitable for early-stage or high-risk projects.
- Failure of the project can lead to loss of the specific project assets without impacting the parent company directly.
Corporate financing
According to [2], Corporate finance is a specialised field that deals with how companies manage, allocate, and optimise their financial resources to enhance overall value. It involves critical decision-making related to investments, capital raising, risk management, and financial operations. At its core, corporate finance focuses on three key areas: capital budgeting (deciding where to invest for future growth), capital structure (balancing debt and equity to fund operations), and working capital management (ensuring smooth day-to-day financial functioning).
Benefits of corporate financing in mining
- Corporate financing involves raising funds through equity or debt on the company’s balance sheet, benefiting from the company’s entire asset base and creditworthiness.
- Equity financing dilutes ownership but imposes no fixed repayment obligations, supporting early-stage or higher-risk projects with uncertain cash flows.
- Debt financing under corporate finance may be cheaper than project finance if the company has strong credit and diversified revenue streams.
- Easier to manage without complex multi-party agreements, allowing more straightforward financing and operational control.
- Suitable for maintaining overall operational flexibility and corporate growth initiatives beyond individual projects.
Risks and drawbacks of corporate financing
- Debt increases corporate leverage, impacting financial ratios and potentially restricting future borrowing capacity.
- Equity financing dilutes existing shareholder control and value.
- All company assets are at risk in case of financial distress, increasing exposure to default.
- Financial risks of individual projects affect the entire company.
- May limit the ability to isolate risks associated with specific projects compared to project finance.
Table 1: Summary Comparison Table
| Aspect | Project Financing | Corporate Financing |
| Risk exposure | Limited to project, SPV isolates sponsors | Full corporate exposure |
| Leverage | High leverage (60-90% debt typical) | Depends on company’s creditworthiness |
| Cost & complexity | High transaction costs and complexity | Generally lower complexity and costs |
| Repayment source | Project cash flows only | Company-wide revenues |
| Control dilution | None (project-specific) | Equity financing dilutes ownership |
| Suitability | Large, capital-intensive, predictable cash flows | Early-stage, diversified projects, exploration |
| Impact on balance sheet | Off-balance sheet for sponsors | On-balance sheet |
| Interest rates | Generally higher due to risks | Potentially lower if strong credit |
Overall, project financing is advantageous for large, capital-intensive mining projects that require risk isolation and high leverage, while corporate financing suits diversified mining companies with broader credit capacity and project portfolios. Mining companies often combine both approaches depending on project stages and risk profiles.
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Reference
[1] “What is project finance? (Definition and advantages),” Indeed Career Guide. Accessed: Sep. 11, 2025. [Online]. Available: https://uk.indeed.com/career-advice/career-development/what-is-project-finance
[2] “What is Corporate Finance? Check Meaning and Types,” http://www.bajajfinserv.in. Accessed: Sep. 11, 2025. [Online]. Available: https://www.bajajfinserv.in/corporate-finance
