Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (33995)	3/12/2009 11:02:20 AM
From: LoneClone	Read Replies (1) \| Respond to of 193209

SA mining may come full circle Allan Seccombe Posted: Tue, 10 Mar 2009 miningmx.com [miningmx.com] -- JUNIOR exploration and development companies have to be a lot more creative when it comes to raising funds, with debt financing proving scarce and expensive. Among the solutions are approaching majors with their projects, a listing or private capital. Banks and large financial institutions are strongly risk averse in the current economic climate and have skewed their lending to the major mining companies, which are in production and offer a safer debt profile than an untested junior. While junior gold producers like Great Basin Gold and Simmer & Jack Mines have had success in raising capital, companies in other sectors have had to offer shares at a hefty discount to raise capital, with diversified miner Metorex being a pertinent example, offering its share at what was then a 50% discount. Xstrata, the world’s fifth-largest mining group, offered shares at a hefty 66% discount in January towards paying down a heavy debt load. With dollar liquidity drying up and proving to be very expensive, companies are generally turning away from international funders to South African banks for capital. “Big companies are coming back to South African banks to extend their credit facilities. We are not talking millions but billions,” said Reg Demana from Nedbank Capital’s Corporate Finance division. This has increased the difficulties for junior companies when it comes to approaching banks with projects that won’t be in production within the next 12 months. “If the banks are providing these billions to a few big companies, the little liquidity that would have existed for the junior guys to access for new projects or expansion is being sucked dry,” Demana said. Pure exploration companies can’t even get through the door, while those with a bankable study or that are likely to be in production soon with cash flow do crack the nod. Financing options Among the options open to juniors is approaching a major company for financial assistance, which could bring the South African mining industry in a full circle. In the past, the major companies owned the majority of resources, but were forced to give up some of these up under new mining laws to junior groups. Nedbank’s joint head of mining and resources, Mark Tyler, has raised the prospect of juniors using major groups as conduits to financing, arguing the majors have cash and they are able to extend credit facilities because of their access to the banks. “With the new dispensation in the South African mining regime of ‘use it or lose it’ you’ve had a lot of big companies losing resources to juniors,” Demana said. “I think this will be one of the ways for majors to claw back lost ground, by funding the juniors in exploration and they can then take out the junior company or flip up their interest in the project to shares in the junior,” he said. A good example of this is Impala Platinum’s relationship with exploration junior Kameni Resources, a Loucas Pouroulis vehicle that has scraped together R300m in seed capital to fund exploration, and needs another R700m more before listing in March 2010 to raise R5bn. The South African platinum project Kalkfontein was created through a merger of ground held by Kameni and Impala Platinum, which has a 20% stake in the project along with board representation. Implats has “flip up” rights to convert its stake in Kalkfontein into shares in Kameni after listing. In a sector like coal, the majors are keen to tie up large land packages but there is said to be a large valuation perception gap between buyers and sellers, but the sellers, generally small firms or individuals, will soon run out of money and find themselves struggling to raise cash, which will play into the majors’ hands. The other option is a listing, but smaller, unlisted companies need to have at least a bankable feasibility study so that wary investors can evaluate the project brought to the market. Noah Greenhill from the Johannesburg bourse said the pipeline of companies interested in listing is strong, but the timing of their debuts is an open question, with much depending on commodity prices and the state of the global economy. He raised the prospect of some companies listed offshore with projects in South Africa or Africa coming to the JSE for a secondary listing during the course of this year. The sectors could be gold or energy, like coal and uranium. “Investors will not let companies get away with rubbish,” Greenhill said.