1. Why Special Structure?

• Reserve-to-Production Risk: 7-12 years from discovery to cash flow
• Off-take concentration: 60-70% of rare earths / lithium processing in China
• Price not LME-linked: Lithium, REE have opaque pricing
• Sovereign Risk: Most deposits in DRC, Chile, Indonesia, Argentina, India - Jaduguda belt.
• Unable to mortgage mine itself: Under Indian law, mineral rights are a concession from State, cannot be mortgaged without Govt approval. Sec 20A of MMDR Act.

2. Lending Structures Used Today

A. Classic Limited Recourse Project Finance: SPV is borrower. Lenders have recourse only to project assets and cash flows. This is now the dominant model.

Lenders require:

1. Mining Lease + Environmental Clearance as CP
2. Definitive Feasibility Study by JORC/NI 43-101 expert
3. Offtake Agreements for 60-70% of production
4. DSRA - 6 months debt service reserve

B. The Modern Toolkit for Critical Minerals - as seen in 2025-26:

1. EXIM / ECA Direct Lending: Project Vault, announced Feb 2026, is the largest ever - $10 Bn direct loan from US EXIM + $2 Bn private capital for a strategic reserve of critical minerals. Same EXIM approved $1.25 Bn for Reko Diq Copper-Gold mine in Pakistan and $2.9 Bn senior secured loan for Perpetua Resources in May 2026.
2. Development Finance Institution Blended Finance: EU EIB Critical Raw Materials Initiative - EUR 2 Bn target, IDA/ World Bank credits where private party may have to assume infrastructure cost - e.g. Shashe Project in Botswana where Roan Selection Trust had to bear half cost of engineering studies if it did not proceed
3. Streaming and Royalty Finance: Lender gives upfront capex in return for % of future production at fixed price. Treated as debt for tax but not pure loan.
4. Pre-export Finance + Offtake Prepayment: Traders like Glencore, Mercuria prepay. Part of Project Vault structure where commodity firms supply the reserve
5. Sovereign Production Assurance Royalty: New concept proposed by Mason Law - mapping grants, direct lending, loan guarantees, equity, offtake, stockpiles, tax incentives and contracts for difference into one toolkit

Brazil's New Law No. 15,506/2026 is instructive - it allows registered mineral agreements to be used as collateral for project finance but also makes pledging of mineral rights subject to CIMCE review, which means project finance structures relying on mining rights encumbrances could require approval before banks advance funds. India is moving similarly.

3. Core Lending Documents & Security Package

1. Facility Agreement - with Completion Guarantee from Sponsor till Commercial Operation Date
2. Mineral Mortgage / Deed of Hypothecation over Plant, Stockpile
3. Assignment of Mining Lease - requires State Govt consent u/s 12A MMDR Act
4. Offtake Agreement Assignment & Step-in Rights for lenders
5. Accounts Agreement - Waterfall: Taxes > O&M > Debt Service > DSRA > Distribution
6. Environmental & Social Action Plan - Equator Principles IV mandatory for critical minerals

4. Detailed Case Law

Indian Cases:

1. Pr. CIT vs International Coal Ventures Pvt Ltd, Delhi HC 2024 LiveLaw Del 1385
Issue: Is interest earned on borrowed funds earmarked for acquiring a coal mine a revenue receipt?
Held: Funds were called for and earmarked for a specific purpose of acquiring a coal mine, not surplus funds. If coal mine acquisition is aborted and borrowings are repaid, interest is capital in nature and not taxable as business income.
Lending Principle: Borrowed funds for critical mineral acquisition kept in escrow pending CPs are capital, not lender's working capital misuse.

2. Bihar State Financial Corporation v. Chhotanagpur Minerals & Others, Supreme Court
Issue: Enforcement of State Financial Corporation Act against mining defaulter.
Held: SFC can take over management and sell mortgaged mining plant without court intervention u/s 29 of SFC Act, 1951. Mining plant is "industrial concern" even if mine lease is State property.
Lending Principle: Foundation of security enforcement in Indian mining project finance.

3. K.P. Mineral Pvt. Ltd. vs Bihar State Credit & Investment Corporation Ltd., Jharkhand HC 15 July 2002
Facts: Writ petitioner challenged recovery notice of Rs. X crores for mining project loan.
Held: Court will not interfere in contractual recovery unless arbitrariness. Borrower must pay under One Time Settlement.
Lending Principle: Limited judicial interference once loan disbursed for mining project.

4. Mozambique Coal Mine Dispute, Delhi High Court 2024
Facts: Contractor sought stay on $10.53 Million Bank Guarantee encashment after mining rights terminated.
Held: In cases of unconditional and irrevocable bank guarantees, Court may stay invocation only when there is egregious fraud, irretrievable injustice, or special equities. Arbitral tribunal to investigate termination legality, but no interim injunction.
Lending Principle: Bank Guarantees in mining projects are autonomous; project finance CP Bank Guarantees will be honoured even if underlying mining lease disputed.

5. Jai Shakti Realcon v State of U.P. & 3 others, 2026 LiveLaw AB 438
Held: Lessee can't be forced to pay installments accruing due to State's delay in termination of mining lease.
Lending Principle: Force Majeure / Government Delay - lenders must draft Government Risk as excused payment event in Facility Agreement.

International Cases:

6. Orient Mineral Co. v. Bank of China, US Court of Appeals, Tenth Circuit, 24 Oct 2007
Facts: Dispute over Letter of Credit financing for mineral shipment.
Held: Bank's obligation under LC is independent of underlying mineral sale contract. Bank not liable for quality of ore.
Lending Principle: Basis for pre-export finance and LC structures in critical mineral offtake lending.

7. Bresco Electrical Services Ltd v Michael J Lonsdale Ltd UKSC 25
While a construction case arising from a mining project sub-contract, Supreme Court held that upon liquidation, claims become a single net balance under Insolvency Rules 14.25, and adjudication right survives.
Lending Principle: Critical for lenders - if EPC contractor for lithium refinery goes into liquidation, lender's step-in rights and netting provisions must survive insolvency set-off.[2020]

5. Key Risk Mitigants Lenders Now Insist For Critical Minerals

1. Price Floor: DOE LPO now requires 90% offtake contracted or CfD - Contract for Difference
2. Sovereign Assurance: India Critical Mineral Mission 2024 - Rs 34,300 Cr includes viability gap funding
3. Completion Support: Till COD, full sponsor guarantee - called "Financial commitments to provide all funds necessary to complete and operate the project, and to repay the loan" as IMF notes for mining finance
4. National Security Review: CIMCE/ FIRB clearance as CP.