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Mine offtake contracting, strategic alliances and the equity market

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  • Distadio, Luiz Fernando
  • Ferguson, Andrew

Abstract

We investigate market reactions to announcements of offtake contractual agreements. Offtake deals occur where a counterparty (offtaker) commits to partially or wholly purchase output from a project in return for technical, operational or financial support. Despite being common in the mining industry internationally, there is little empirical research on this important risk management strategy. Applying cooperative arrangements theory and using an event study approach, we find project sponsors exhibit mean (median) announcement date abnormal returns of 5.87 % (3.29 %). Evidence consistent with the resource pooling and real options explanations are found along with a negative certification effect for deals with financial intermediaries. We interpret this result to be consistent with a bargaining explanation.

Suggested Citation

  • Distadio, Luiz Fernando & Ferguson, Andrew, 2022. "Mine offtake contracting, strategic alliances and the equity market," Journal of Commodity Markets, Elsevier, vol. 27(C).
    • Handle: RePEc:eee:jocoma:v:27:y:2022:i:c:s240585132100057x
    DOI: 10.1016/j.jcomm.2021.100224
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