Using infrastructure unbundling as a financing tool

April 2026  |  SPECIAL REPORT: INFRASTRUCTURE & PROJECT FINANCE

Financier Worldwide Magazine

April 2026 Issue

Natural resource extraction and other capital-intensive industries that are exposed to commodity price cycles can occupy an uneasy position in the capital markets. They require substantial investment in physical assets of the type associated with infrastructure projects but are often constrained in their ability to access the type of long-duration, low-cost capital typically associated with such projects.

Traditional infrastructure investors, such as pension funds, sovereign wealth funds and insurance companies, focus on assets with predictable income streams supported by long-term contractual or regulatory frameworks. Where cash flows are perceived as cyclical or uncertain, the capital provided by those investors can remain out of reach.

In recent years, however, a significant financing innovation has emerged to address this apparent incompatibility. This innovation has been termed ‘infrastructure unbundling’ and involves detaching assets that would be capable on their own of generating relatively stable and contractable cash flows and financing them separately from other assets. A prime example is the mining industry, in which, by using infrastructure unbundling, mining companies have been able to access infrastructure-style capital characterised by lower pricing and extended tenors despite being very exposed to commodity price cycles.

This article discusses the example of the mining industry but argues that infrastructure unbundling is more than a sector-specific financing technique. Rather, it represents a broader evolution in capital structuring across hybrid industries: a deliberate effort to align distinct asset-level risk profiles with appropriately matched sources of capital. While mining provides a particularly instructive case study, the underlying logic has growing relevance wherever stable and volatile activities coexist within a single corporate group.

The structural mismatch in integrated balance sheets

At its core, infrastructure unbundling responds to a structural mismatch between the economic characteristics of particular assets and the blended cost of capital applied to them when they remain embedded within a larger corporate structure.

For example, in the case of mining companies, which derive revenues primarily from the extraction and sale of commodities into global markets, even where hedging strategies are employed, the business remains materially exposed to fluctuations in price, production volumes, input costs and geopolitical developments. Lenders and equity investors accordingly price capital to reflect this risk profile. Corporate debt tenors are often shorter, and pricing more conservative, than those associated with regulated or availability-based infrastructure assets.

Yet within many mining groups, there exist assets that, from both a legal and economic perspective, exhibit the hallmarks of infrastructure. Water treatment and supply facilities, dedicated power plants, transmission lines, railways and export terminals are frequently developed to support mining operations. These assets often operate on a cost-recovery or availability basis and can be supported by long-term usage commitments. In substance, they may generate stable and predictable cash flows that are not directly linked to commodity price movements.

When such infrastructure assets remain consolidated within the mining company’s balance sheet, they are financed at the enterprise’s blended cost of capital, effectively importing commodity volatility into assets with fundamentally different risk characteristics. This mispricing limits access to longer-term, lower-cost funding and diminishes overall capital efficiency, while obscuring the standalone value of the infrastructure embedded within the group.

Engineering bankable cash flows

To address this issue, some mining companies have started to adopt infrastructure unbundling by transferring particular assets with infrastructure-like characteristics into separate special purpose vehicles and causing those vehicles to enter into long-term contractual arrangements with the operating mining company.

These arrangements frequently take the form of take or pay agreements, throughput agreements or availability-based service contracts extending over 15 to 25 years. The objective is to create a legally enforceable and predictable revenue stream capable of supporting non-recourse or limited recourse financing on infrastructure terms.

For the structure to be financeable, risks must be clearly allocated. Revenue is typically based on availability instead of commodity prices, helping to stabilise cash flows and insulate them from volatility. Termination provisions and security arrangements are designed to protect lenders. And responsibility for operating the transferred assets is often assigned back to the mining company or to a specialist operator, ensuring there is the necessary expertise to manage the assets and minimising the number of competing creditors at the level of the special purpose vehicle. Together, these elements make operational infrastructure suitable for long-term institutional funding.

Lenders then assess the creditworthiness of the mining counterparty, the robustness of the contractual framework, the termination provisions and the adequacy of the security arrangements. By ringfencing cash flows and allocating risks contractually, the structure enables infrastructure capital to be deployed on terms that would not be achievable if the assets remained fully integrated within the mining group.

The financial implications of such separation can be material. Infrastructure debt may be available at longer maturities and at tighter margins than general corporate borrowing for commodity-exposed businesses. The separation can also enhance balance sheet flexibility at the parent level, particularly where the infrastructure vehicle raises debt on a project finance basis.

In certain cases, mining companies may divest minority equity interests in the infrastructure vehicle to third-party infrastructure investors, thereby recycling capital while retaining operational integration and strategic oversight.

Extending the model across hybrid sectors

But the logic of infrastructure unbundling is not confined to extractive industries. In the digital economy, the distinction between operating businesses and underlying infrastructure is increasingly pronounced.

Data centres, for example, typically operate pursuant to long-term lease agreements or colocation arrangements under which customers pay recurring rental or service fees for capacity and power usage. While technology companies may experience rapid growth, competitive disruption or earnings volatility, the physical data centre assets themselves can generate stable and predictable cash flows over extended periods.

As a result, data centres and related digital infrastructure have emerged as a distinct asset class within the infrastructure investment universe. Long-term leases, minimum payment commitments and structured service agreements provide the contractual underpinning necessary to support infrastructure-style financing. From a structuring standpoint, the same principles apply: the identification of stable cash flows, the establishment of ringfenced vehicles, and the allocation of risk through detailed contractual arrangements.

Comparable dynamics are also evident in the context of the energy transition. Industrial companies investing in on-site renewable generation, battery storage or transmission assets may do so under long-term power purchase agreements that provide defined revenue streams. Where revenues are contractually determined and relatively insulated from market volatility, such assets may be suitable for separation into dedicated financing vehicles capable of attracting infrastructure capital. Transportation and logistics operators that own port terminals, warehousing facilities or dedicated rail links may likewise consider ringfencing those assets.

Across these sectors, the same pattern is emerging: investors are more willing to fund assets when the risks are clearly defined and backed by strong contracts, even if the wider company remains exposed to market swings. The focus shifts away from the industry label and toward the reliability of the cash flows and the strength of the structure.

Conclusion: from technique to structural transformation

The experience of infrastructure unbundling in the mining sector illustrates how careful structuring can unlock value and improve capital efficiency. By separating infrastructure components from commodity-exposed operations and underpinning them with long-term contractual frameworks, mining companies have demonstrated that access to infrastructure capital is not inherently precluded by participation in cyclical industries. What ultimately determines financing terms is not the sector label attached to a corporate group, but the stability, durability and legal enforceability of the cash flows generated by particular assets.

Viewed more broadly, infrastructure unbundling reflects an important shift in how hybrid sectors approach capital structuring. As digital infrastructure, energy transition projects and other hybrid business models continue to mature, this approach is likely to become more prevalent. It reflects a move away from treating the entire company as a single risk profile and toward assessing and financing assets based on their individual characteristics.

 

Sergio J. Galvis and Benjamin S.D. Kent are partners and Sergio Garrido Vallespí is an associate at Sullivan & Cromwell LLP. Mr Galvis can be contacted on +1 (212) 558 4740 or by email: galviss@sullcrom.com. Mr Kent can be contacted on +1 (212) 558 3267 or by email: kentb@sullcrom.com. Mr Vallespi can be contacted on +1 (212) 558 3250 or by email: garridos@sullcrom.com.

© Financier Worldwide

BY

Sergio J. Galvis, Benjamin S.D. Kent and Sergio Garrido Vallespí

Sullivan & Cromwell LLP

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