Miners have been warned not to expect a recovery in
project funding for at least the next year, as the drought in public funding
continues and private investors look to cherry pick assets with existing or
imminent cash flow.
Speaking at the Mines and Money 2014 conference in London
today, a panel of bankers, fund managers and industry analysts said that the
current climate for resource investing
was still bearish as a result of oversupply and low prices in many commodities,
combined with a legacy of capital mismanagement by mining
"We are paid to be patient," said Mark Sawyer,
senior partner at private equity group, Greenstone Resources.
"The days of the two week roadshow and $20m in the
bank at the end of it are over," he said, noting that many miners are
struggling to secure the investment they need just to stand still.
Bert Koth, managing director for metals and mining at
Denham Capital Management, said that the gross misallocation of capital by
mining companies in recent years had left investors gun shy of new projects in
He pointed out that commodity
prices need to recover significantly before financiers feel confident in
"Eventually, we will see price spikes and a recovery
from the current market, but this is years away, not months," he said.
Koth also acknowledged that the bearish climate had left
a pool of assets with attractive valuations, but that investors were generally
focused on projects at an advanced development stage rather than greenfield opportunities.
Rajat Kohli, global head of mining and metals at Standard
Bank, said it might take "another year or two" before equity
begins to return to the mining industry in force.
"Even then, it won't be a universal return - different
commodities will have different cycles," he said.
Discussions on the subject of whether private equity
funding could plug the gap left by the public markets identified some
opportunities for cash-hungry companies, but broadly reinforced the message
that opportunities are slim.
"Talking about private equity in mining is probably
more important now than at any time in history," Koth said, but added
affirmatively that private sources of capital will not fill the gap left by
Speakers generally agreed that while funds may include
"one or two" early stage projects in their portfolios, their
attention was given almost exclusively to post-pre feasibility study, partly or
fully permitted, construction ready projects.
Sawyer said that investors were closely focused on
knowing and minimising their exposure to risk and that few were interested in
projects with large outstanding capex requirements.
More positively, Sawyer explained that, while private
capital is highly selective, such deals are often easier to consummate that
"Execution of a public deal requires shareholder
approval, and that's when dilution can become an issue," he said.
Kohli attempted to reassure miners that the current
painful funding scenario was being mitigated to some extent by corrective
capital management measures and management restructuring, but reminded
delegates that it was part of the resources cycle - a point reinforced by Will
Smith, portfolio manager at CQS.
"Funding is difficult right now (...) Production
will be constrained by future growth, and this is sowing the seeds of the next
bull market," he said.