Natural Resources Asset Monetization & Commoditization

Though the global natural resources sector is highly sophisticated, integrated and complex, key drivers still continue to prevail based on various intrinsic commercial market fundamentals, business fundamentals and business-revenue models. Asset monetization and commoditization of the traditional and conventional natural resources value chain is based on, including but not limited to, exploration, development, production, generation, processing, refining, transmission, and distribution to wholesale and retail consumers. This broadly covers; conventional energy (hydrocarbons, nuclear, large hydro etc.), renewable energy (solar, wind, biomass, etc.), mining & metals (precious metals, base metals, rare earths), water, and related areas.

In the current macroeconomic scenario of massive public and private sector debts and deficits, structured project finance based on non-recourse, limited recourse and total recourse financing coupled with “bankable” contracts and agreements play a vital role in natural resources asset monetization and commoditization. In recent years, various sources of global capital have focused on specifically targeted investments in natural resources assets wherein timely monetization and commoditization delivers definitive higher current income, yielding higher profitability margins, positive net cashflow, and long-term capital appreciation.

In the last two (2) decades, various viable and sustainable investment and business structures have been effectively deployed along the entire natural resources asset value chain. Special purpose investment vehicles and business models include, but not limited to, Master Limited Partnerships (MLPs), proven “tolling” structures, Strategic Alliances/Partnerships (SAPs), Special Joint Ventures (S-JVs), and Acquisition & Divestiture (A&D) strategies.

It is very important to understand and appreciate that “bankability” of secured investment is subject to “credit-worthiness” of all parties in ensuring actual return of capital to investors along the entire natural resources asset value chain. Contractual control with securitization of all Assets Under Management (AUM) via non-recourse, limited recourse and total recourse financing is mandatory for proper asset monetization. In addition, non-recourse financing coupled with commodity risk mitigation, guarantees (“take or pay”, “take and pay” etc.) as well as basket of hedging mechanisms are critical for proper asset commoditization.

There are a multitude of success stories which have slowly restored investor’s confidence in the last decade since the demise of Enron. It is important for continual commitment in always adhering to fundamentals and hopefully the current macroeconomic scenario will be overcome in due course of time.