SA Mines and Energy Journal : June 2009
JUNE/JULY 2009 SA MINES & ENERGY JOURNAL 44 FINANCE Capital raising and financing can be a tricky business during the tough economic climate, and nearly 50 people benefited from some expert advice at a recent SACOME seminar. Aimed at mining and exploration companies, the seminar at the Adelaide Convention Centre covered topics such as mergers and acquisitions, equity and debt options, the banking sector outlook, the Foreign Investment Review Board and disclosure obligations, case studies and investors' perspectives. The seminar brought together an impressive group of speakers from South Australia and interstate, including Creagh O'Connor, a director of Gryphon Partners who has recently been involved in asset sales for OZ Minerals, and Paul Early, a director of Barclays Capital (Mining and Metals), who flew in from Sydney. SACOME saw the need to provide those in the resources industry with the best possible information on what is happening out there in the financial marketplace. The seminar was not intended to be a 'magic bullet', but hopefully people would leave knowing that, at the very least, they have explored all the options. The speakers reminded the audience (as if we needed reminding) that things were grim. The short-term outlook looks bleak, with a number of small companies potentially entering administration; even some of the largest companies have been forced to restructure to remove debt and cashflow pressure. The debt market is particularly tight at the present time. A range of methods introduced to free up capital have still not achieved the desired result, and many companies are being denied access to funds. Only those with the least risk are gaining access to funding. Funding costs remain high as banks re-capitalise with new equity and state aid -- and these increased funding costs are being passed on to clients. The good news is that debt capital markets continue to be opened for stronger-rated issuers prepared to pay the price. Mr Early, who spoke mainly on the banking situation, also gave an appraisal on metal price forecasts, saying: "We expect the first quarter of 2009 to prove to be the bottom of the price cycle, but conditions are unlikely to be in place for a sustained recovery until late 2009. "We are most positive about copper, zinc and lead prices, less so on aluminum and nickel. Gold prices will fall back before strengthening in the second half of 2009 when a weaker US dollar, plus a switch back to inflationary concerns, could see it test A$1000 an ounce again. " The nature of "cornerstone" funding sources has changed. In previous years, major mining companies have provided a useful source of capital to junior mining companies seeking funds to advance their projects (through farm-in/ joint-venture arrangements). The global financial crisis has had a negative impact on many of these sources. Capital is now being sourced from Asian parties and private equity firms. "Gryphon has noticed an increase in the number of private equity firms and funds looking to acquire resource projects, particularly those seeking opportunities involving distressed companies, " said Mr O'Connor. Traditional sources of equity and debt funding still exist, but a flexible, multi-pronged strategy is required. "Companies, more than ever, need to be prepared to contemplate more creative, or non-traditional, financing strategies to continue advancing their projects and growth options, " said Mr O'Connor. The seminar also heard from Craig Ball of Taylor Collison, Jeremy Schulz of Finlaysons Lawyers and Kevin Malaxos of Centrex Metals, who provided valuable information across areas such as equity-raising, dealing with potential investors, and Foreign Investment Review Board and disclosure obligations. On a positive note to end, Mr Early reminded everyone that: "We still live in a natural- resource-challenged world. If China and India follow the path mapped out by other Asian nations in their per- capita consumption of raw materials and energy, global corn production would need to rise by a third, oil production to more than double and copper to triple. " Where's the money? Exploring all options is the key to staying afloat in the financial mire, writes Jonathan Forbes, SACOME Director, Industry Development. Traditional sources of equity and debt funding still exist, but a flexible multi-pronged strategy is required.
April May 2009