Mining finance ready to come out of mourning, says TSX head

By Laura Syrett
Published: Wednesday, 10 September 2014

This year is widely predicted to be better than 2013 for natural resources project funding, but the industry still faces hurdles when it comes to tempting investors to part with cash.

Mining finance is in better shape than it was a year ago, but the markets are still not fighting fit, a top executive for the world’s largest exchange for natural resources capital said today.

 
More money is being raised for mining, but investors are struggling
to accept the new status quo (source: 401(K) 2012). 
Speaking in London at the Global Mining Finance Autumn Conference, Graham Dallas, head of business development for Europe, the Middle East and Africa at the Toronto Stock Exchange (TSX), told IM that the market was definitely in a healthier position than it was this time last year.

“We’ve seen about 60 miners delist from the markets since last year, down to around 1,555 from 1,600” said Dallas, who also covers the TSX-Venture exchange for small cap miners.

“The market is definitely healthier at the top end. We’ve got some big ticket transactions on the way, but it’s also getting better at the bottom end (...) We seem to have come through the ‘five stages of grief’,” he said.

Dallas explained that small cap explorers had suffered most acutely from the collapse of confidence in the mining sector since 2012 and that it has taken time for investors to accept the new status quo.

“When the market was booming, investors came to view that situation as normal, so it has taken a while for them to adjust [to the weaker conditions],” he said.

Dallas said that while the Toronto markets had seen a number of miners delist, there had not been the “rush for the door” that some commentators had predicted.

“It’s not all bad news (...) While we don’t expect to see a flurry of IPOs [initial public offerings] anytime soon, more money is being raised – almost $6bn already this year,” he added.

Open for (debt) business

According to George Rogers, CEO of London-based financial services group, RockFace Capital, financing is available for mining projects, but investors are still cautious about where they put their money.

“I’ve heard some people say the debt markets are closed – they’re not, they’re absolutely open,” Rogers said. “Certainly, in London, there is a lot of money looking for a home.”

“Lenders tend to drift in and out of mining finance (...) if you chuck your money around in this sector without being cautious and sensible, you’re going to get losses,” he added.

Rogers stressed that “decent”, well managed projects are likely to secure funding and said that, when things do go wrong for a mining company, this can typically be traced back to poor management during the “boom times”.

He dismissed alternative forms of financing which have recently come to prominence, such as royalties and streaming, suggesting that traditional debt and equity financing was beginning to thaw towards the resource sector.

“It’s very difficult to predict the future,” he said. “I think all of us in this sector are slight natural optimists, but things certainly seem to be improving”.

No bargain-buys

Andrew Lindsay, director of Chile-based copper producer Antofagasta Plc, offered a general perspective on the lack of mergers and acquisitions (M&A) in the mining industry, noting that the predicted rise in buyouts to compensate for scant financing had not materialised.

“In theory, you’d think at this stage in the [commodities] cycle it would be better to buy than to build, but it hasn’t quite worked out like that,” he said.

“There has been a paucity of assets coming onto the market and those that do tend to go for substantial sums.”

“We thought that the source [of businesses for sale] was going to be the big boys discarding non-core assets, but this hasn’t happened,” Lindsay explained.

He added that the problem faced by junior miners looking to sell assets to majors was funding the development of their projects to a point where bigger companies would consider buying them.

“There is no such thing as a problem-free mine,” Lindsay said, adding that the biggest determining factor when it comes to M&A is usually a project’s risk profile.

“Everything is a trade-off – size, location and risk profile; the greater the risk, the higher the return you’ll need to look for,” he said.



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