Rujun Shen& Joseph Chaney

Banks Reluctant to Finance Mining Exploration Despite Rebound in Prices

Tianjin, China. Seeking capital to finance a greenfield mining project without a proven track record? Good luck with big banks.

Major lenders are as reluctant as ever to offer project financing to the industry’s lesser-known players, as a risk-aversion hangover lingers from the financial crisis — even though base metals prices have seen a recent rally.

“Bankers have been more picky on project financing,” Alberto Migliucci, head of mining, oil and gas for Southeast Asia at Credit Suisse, said at the China Mining conference. “Basically anything to do with exploration or long-term development has been most impacted. Any new project — let’s say zinc mines that would start first production in two to three years time — will suffer.”

China has driven the metals price rally, fueled by government money for its stimulus plans, direct state stockpiling and a huge loosening of credit.

Metals markets are forecast to continue to rebound from weak demand levels last year, when the financial crisis decimated global industrial activity.

Copper for three-month delivery on the London Metals Exchange hit $6,570 a metric ton this week, its highest in more than a year, lifted by a weakening dollar and prospects of global recovery.

Next year, analysts expect iron ore price increases of up to 15 percent, as steel makers ramp up operations and seek more ore. Small and large miners are seeking funds to expand and to cash in.

Fortescue Metals failed to secure $6 billion in financing from China to more than double annual output to 95 million tons by tapping new mines in Australia.

Banks will likely only offer project financing to established players instead of risky start-ups.

“A lot of new entrants take on these greenfield projects,” Migliucci said. “I can give an example in Indonesia where a top pineapple producer, a successful entrepreneur, bought a coal project and wanted to be a miner.”

Still, small miners with new projects flocked to the China Mining conference in Tianjin with hopes of securing funds.

Centaurus Resources, which is focused on iron ore in Brazil, was looking for an investor to help it expand. It plans to start production at one of four mines with a combined annual capacity of four million tons.

Many banks, at least in the near term, may be reluctant to help.

“When the banks look at mining projects they are definitely gun shy,” said Nick Halkas, a mining specialist at Standard Bank. “Projects would have to be low cost and on the technical side at this point in time.”

Reuters

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