MINING FINANCE / INVESTMENT
Alternative financing for mining projects growing as equity funding slows
Experts insist financing is available for good mining projects, but not always from traditional equity markets, such as stock exchanges.
Posted: Wednesday , 30 Nov 2011
RENO, NV -
While massive amounts of money have been flowing into the mining sector and into mineral commodities, those funds have not necessarily come from equity markets, mining financing experts observed Tuesday at the Northwest Mining Association Conference in Reno.
Doug Silver of Red Kite Management, a metals trader, observed, "You can't raise equity right now" with a U.S. Congress in gridlock, China's projected growth numbers leveling, and the possibility the Eurozone could fall apart.
However, Silver added "a huge giant pool of endowment money is trying to get into the mining industry."
Silver named several organizations which are potential sources of alternative financing for the mining industry including Resource Capital Funds, RMB Resources, Glencore, Red Kite, Barclays Bank's Cooper Canyon Copper Group for copper projects, AMCI Capital for coal projects, and Denim.
Meanwhile the Chinese are now backing a number of new equity funds for foreign investment in the natural resources sector, he noted.
Jasper Bertisen of RCF observed that mining projects are now considered "real assets" that are attracting increasing amounts of private equity investments, including of limited partnerships of institutional funds committed to long term investment.
Among the potential sources of mining capital are hedge funds, which typically go short on mining investments, and private equity institutional funds which are usually long-term investors.
Funded mainly by institutional and high net worth investors, private equity funds can commit large sums of money for long periods, sometimes exceeding 10 years, which is an attractive option for mining companies with long-term projects. In fact, the typical span of a private equity fund is usually eight to 10 years, which can coincide with the capital needs of mining projects, Bertisen noted.
Bertisen said private equity funds offer mining companies money in both good and bad times, and provide creative investment structures such as convertible debentures, project interests, bridge loans and leveraged buyouts. The more sophisticated investors who are members of these funds generally concentrate on a small number of investments.
These investors may include major university endowments, which have extremely large portfolios, hospitals, foundations, charitable trusts, Bill Gates, the Museum of Modern Art, or a Mayo Clinic, and some pension funds.
However, Bertisen said only four to five true mining-focused private equity funds exist globally, making it difficult for a number of mining projects to get private equity funding. He stressed the importance of making sure a financier knows about mining when a mining company is seeking project financing.
Resource Capital Funds or RCF was founded in 1998 after Rothschild decided it wanted to get out of the business of funding mining projects and decided to create a private equity fund. RCF has invested in 108 mining companies of which now 40 to 50 investments are still outstanding.
The fund invested in 27 mineral commodities. Its current and historic holdings have included 31% of its portfolio in industrial minerals, particularly rare earths; 17% each in precious metals and bulk minerals, such as iron ore; 18% in base metals; 11% in energy such as coal and uranium; and 6% in service providers to mining.
RCF'S DUE DILIGENCE
To be seriously considered for private equity investments, mining projects must have appropriate valuations, good quality resources identified, favorable indications on metallurgy, product quality and marketing; and be located in jurisdictions where title is secure, business can be conducted, and projects can be permitted, said Bertisen.
RCF's due diligence includes a technical evaluation of the project including orebody characteristics, metallurgical performance and technological risk, infrastructure requirements, permitting, social and environmental aspects, and in the case of rare earths, product quality and markets.
A legal, financial and country/jurisdictional review is conducted, along with an economic evaluation of NPV/share, per share appreciate potential, and market and transaction multiples.
The project management team is evaluated for competency and honesty, and the capability of top management to effectively sell the company to potential investors, as well as develop the asset, he added.
Among RCF's investments are Allied Gold in Australia, AQM Copper in Peru, Avanti Mining in British Columbia, Bannerman Resources in Namibia, Berkley Resources and EMED Mining in Spain, First Nickel in Ontario, Forbes & Manhattan Coal in South Africa, Global Advanced Metals and Talison Lithium in Western Australia, Molycorp in the United States, Rolling Rock Minerals in Mexico, Missouri and New York, and Tarn Drilling in Colorado.