Miners face cold reception from lenders at key Australian meet

Small mining and exploration companies are facing a less-than-receptive contingent of lenders and financiers at an annual gathering in the Australian outback designed to bring the two sides together.From graphite deposits buried deep in the tundra to veins of gold running beside the Amazon and copper discoveries in Peru, most of the roughly 1,000 prospectors attending the Diggers and Dealers conference hope to lure some form of funding.A barrage of nearly 50 companies present their cases in a beauty pageant-styled setting over three days, though most deals are traditionally cut in the dozen or so pubs within walking distance of the venue.“We’re just not making any headway here,” said the chief executive of a company prospecting for gold in Australia and in need of around A$5mn ($5.3mn) to pay for drilling equipment, who asked not to be named.“If your company is in the early stages of development, a penny dreadful, as ours is, the door is closed,” the official said, employing the term used to describe low-cap exploration companies listed on the Australian stock market.The miners blame banks’ growing reluctance to part with funds on a souring outlook for mineral commodities as Chinese industrial growth slows and economies in Europe worsen.“We’re fortunate that we have a real project and the capital we require,” said Phillip Wing, a director of Metminco, which is developing copper mines in South America.“For companies that have no real assets to speak of or are simply having operational problems, there’s nothing really available for them,” Wing said.The lack of funding reflects a return to prudent lending and is in sharp contrast to the boom years immediately after the global financial crisis, when regional banks found themselves competing with international institutions such as Credit Suisse, Merrill Lynch and UBS to provide small-cap financing.“That’s all dried up,” said Bruce Maluish, managing director of Ventnor Resources, which is developing an Australian copper mine.An international banker, who in previous years had secured “millions in finance capital” for small miners in Australia, said he did not expect to see much business this year.“Debt markets may still be open for some, but I’m not really seeing sufficiently de-risked projects this year,” he said.David Flanagan, chairman of Atlas Iron, which is in the midst of a major expansion project to boost iron ore output three-fold to 12mn tonnes a year, said “the right commodities” are still attracting funding.Fortescue Metals Group, Australia’s No3 iron ore miner, this week obtained $1.5bn in debt financing to help with its own expansion plans.A report by accountants Deloitte also forecasts investment in Australia’s resources sector is still two to three years from peaking.While iron ore has tumbled to less than $117 a tonne, Power said he expects the price to recover to as much as $150 a tonne in the next few months as Chinese steel mills, key buyers, replenish inventories.“We believe we are seeing a short-term price reduction driven by a soft steel market and mills running down iron ore inventories as a result” he said.“Existing producers and near-term expansions such as ours will benefit from having already been developed and de-risked.”But, he said, several projects planned on the back of high iron ore prices are now unlikely to attract investment.As the doors to financing close, several executives predict the sector will be swept by a wave of mergers and acquisitions.Gold miners Silver Lake Resources and Integra Mining said they were planning to merge in an all-scrip deal valued at A$450mn..Also, Chinese miner Zinjin lifted its stake in Australia’s Norton Gold Fields to 61.3% as it pursues a friendly takeover of the Australian gold producer.“Given that we have a number of smaller companies that are probably below the radar screen in terms of being of sufficient size to attract fund investment the best means for them to do that is for mergers,” said Gavin Wendt, an analyst for Mine Life in Sydney.Not all attendees, however, are lacking attention.Mark Bennett, managing director of Sirius Resources , said he was enjoying a new-found popularity among bankers after telling the market late last month the firm had made a big nickel and copper discovery. Sirius shares rose more than 700% in a single day.“We suddenly went from being one of the penny dreadfuls just two weeks ago to company with a real future,” Bennett said.