Investors and analysts spread some
optimism in the mining industry by saying that better times lie
ahead for the sector as economies in the US, Europe and Japan
Speaking at the Global Mining
Finance Spring Conference 2014 in April in London, UK, Damien
Hackett, vice chairman of mining advisory at global investment
bank, Canaccord Genuity, showed that in the past 12 months the
worlds economy shifted from an accelerated contraction to
a quick expansion.
Signs of economic expansion
worldwide, recovery of equity markets and alternative forms of
financing can inject new liquidity in the mining sector and
help it to exit the stagnation experienced in the past four
years since the global economic crisis.
This will be good for mining
equities funding, Hackett said at the conference.
Hackett added that the Japanese
economy has seen a spectacular improvement, with
quantitative easing (QE) three times that of the US, while the
EU and US have also expanded their economies in the last three
and six months, respectively.
Together, the three nations
represent 31% of global mineral consumption.
China, which accounts for 51% of
global mineral consumption, has also recorded a moderate
economic expansion, although there is uncertainty about its
future growth, Hackett added.
He also pointed out that
Chinas self-sufficiency in natural resources has
decreased between 2008 and 2012, a fact which might play
favourably for new mining companies and mineral producers
outside China, if the country increases its imports of natural
New funding opportunities
Hackett explained that global
equities increased steadily between 2000 and 2009 as a result
of a five-year commodity super-cycle which pushed commodity
prices up by 600%.
This was a great time for
mining industries, Hackett said.
Andrew Raca, head of corporate
finance at London-based investment bank VSA Capital, said at
the conference that from 2009 to 2013, the performance of
commodity prices decreased rapidly and mining equities has been
the lowest performing sector in the global economy.
However, Hackett showed that
despite a plunge in equities after the global economic crisis
in 2009, the equity market did not fall to the levels seen
prior to 2000, when capital was undervalued.
Raca echoed Hacketts
optimism, saying that equity valuations are expected to
increase gradually as there is greater capital availability in
the market and that the alternative investments market (AIM)
has been recovering during 2013.
He also said that following a trend
characterised by a 50 to 60-year periodic cycle of peaks in
commodity prices, a new increase in prices should be expected
in the near future.
Additionally, investment in the
form of streaming and royalty financing have demonstrated
themselves to be more convenient and provide more flexibility
in repayments, Raca added.
Investors perception of the
supply-demand balance in the market remains a critical factor
to invest in new mining projects, stressed Raca. He included
rare earths within a list of hot commodities for positive
Carl Noack, from investment
management company Altus Capital Ltd, added that timing in
entry-exit strategy, injection of liquidity and risk tolerance
are other important factors in the development of a successful
Noack said that, to be profitable,
a mining project must be technically robust, have a flexible
mine plant, pit optimisation and a management team with
interests aligned with shareholders.
Closing the conference, Raca said
that Chinas role will be crucial in the development of
the mining industry in the near future, as the country has a
huge amount of available capital, totalling $3.7 trillion in
foreign reserves, and shows a continuous demand of
Chinese investors take a long
term approach and want to structure development in such a way
they can control risks, he added.
China looks for assets
geographically close, with particular attention to East Africa,
and prefers to take a majority stake in acquiring
resources, Raca said.
Chris Gale, managing director of ASX-listed junior
exploratory Latin Resources Ltd, noted that China will invest
up to $100bn in Latin America by 2020.
Barclays Bank pulls out of
Despite the optimism in the market, rumours abounded at the
time of going to press that along with JPMorgan Chase and
Morgan Stanley, Barclays would exit part of its metals,
agricultural and energy business.
Barclays is one of the top five
banks in commodities, which, according to the Financial
Times controlled about 70% of all commodities trading last