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Small miners facing financing roadblocks

(China Daily/Agencies)
Updated: 2009-10-22 08:51

Codelco's Andina open pit copper mine in the Andes mountains of Chile is pictured in this file photo. [Agencies]

Looking for capital to finance a greenfield mining project without a proven track record? Good luck with the big banks.

Major lenders are reluctant to offer project financing to the lesser-known players, as a risk-aversion hangover lingers from the financial crisis - even though base metals prices have rallied recently.

"Bankers have been more picky on project financing," Alberto Migliucci, head of mining, oil and gas, South East Asia at Credit Suisse, told the China Mining conference on Tuesday.

"Basically anything to do with exploration or long-term development has been most impacted," he added. "Any new project - let's say zinc mines that would start first production in 2-3 years time - will suffer."

Metals markets are widely 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 ton on Tuesday, its highest in more than a year, lifted by a weakening dollar and prospects for a global economic recovery.

And next year, analysts are tipping iron ore price increases of up to 15 percent as steelmakers ramp up operations and seek more ore. Both small and large miners are searching for funds to expand and to cash in on the rebound.

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

Banks are not willing to return to their old ways, and will most likely only offer project financing to well-established players instead of risky start-ups.

"Just prior to the crisis, a lot of silly money was going around," Migliucci said.

"A lot of new entrants take on these greenfield projects. I can give an example in Indonesia where a top pineapple producer - a successful entrepreneur - bought a coal project and wanted to be a coal miner, and they asked Credit Suisse to help finance that."

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 to lock in a financial investor to help it expand. It plans to start production at one of four mines, which together have a combined annual capacity of 4 million tons.

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"Really, we want to find the right partner to be there for the big project down the track," Managing Director Mark Papendieck told Reuters on the sidelines of the conference.

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, director, mining & metals, investment banking, at Standard Bank.

"In terms of projects moving forward, those projects would have to be low cost, and on the technical side at this point in time, absolutely no short cuts."