London Mining Plc: The Offer from Blackrock World Mining Trust

On March 29, 2012, the chief executive officer of London Mining, an iron ore mining firm based in the United Kingdom, was considering an innovative financing offer from BlackRock World Mining Trust, an investment firm owned by asset manager BlackRock. The offer was a royalty agreement that would see BlackRock pay US$110 million to London Mining in exchange for 2 per cent of iron ore revenues from the Marampa mine in Sierra Leone. The company was looking at raising $250 million in debt and funding the remainder through a combination of free cash flow, convertible debt, or an equity issue. The opportunity to sell a portion of the revenues as part of a royalty agreement seemed appealing. The chief executive officer’s challenge was to evaluate the advantages and disadvantages of agreeing to the royalty arrangement.