MINING FINANCE / INVESTMENT
Pension, Sovereign Wealth funds bring new opportunities to junior miners
A whole new class of investors is getting into the mining sector and with them, comes a range of new funding options for junior miners racing toward production
Posted: Monday , 07 Mar 2011
TORONTO (Reuters) -
A whole new class of conservative investor is piling into the mining sector -- once the exclusive domain of daring risk-takers -- bringing a bonanza of funding options to junior miners racing toward production.
Pension fund managers and sovereign wealth funds are now hungry to provide financing for projects deemed worthy of delivering stable, long-term returns.
"That's a very strong signal that this asset class is large enough now and the returns are steady enough, or expected to be steady enough," said Mike White, the president of IBK Capital Corp, a Toronto specialist in equity financing for miners with projects under development.
"You now have more demand than this world has ever seen for metals," he said. "So what do we see? We see the investment bankers of the world and other investors and institutions reacting."
White comments some ahead of the PDAC prospectors and developers convention running March 6-9 in Toronto. The show, sponsored in part by IBK Capital, will bring together hundreds of small-cap miners with financiers looking for new projects.
Newfound interest in mining finance is clearly evident.
The Canada Pension Plan Investment Board, Canada's No. 2 pension fund administrator, recently created a team dedicated to private equity investing in mining.
Last November, the CPPIB, with some C$140 billion ($144 billion) under management, completed a second tranche of a C$150 million credit facility with Osisko Mining Corp (OSK.TO: Quote).
It is not that investment criteria have changed for the CPPIB and investors like it. What has receded is fears of short-term volatility in metal prices. Investors that traditionally shunned mining in favor of infrastructure and other conservative investments are taking a fresh look, more confident of consistent returns.
That assurance reflects a growing consensus that commodities are going through what is known as a "super cycle," driven by Asian economic growth. To many, a steady rise in prices seems all but assured for years to come.
"The CPP Investment Board is interested in pursuing more direct investment opportunities in the extractive industries, including mining," Mark Wiseman, CPPIB's executive vice-president, told Reuters in an emailed statement.
"As a long-term investor, CPPIB has a comparative advantage in its ability to withstand the volatility inherent in commodity-based industries."
APPETITE ON THE RISE
The new pools of available investment means junior miners with projects close to production have greater access to capital than at any time in recent memory, according to industry experts interviewed on the eve of PDAC, the industry's largest annual gathering.
"As prices continue to rise higher and macro factors enter into the picture, projects that may have been questionable and not developable at lower commodity prices ... are certainly more economic," said Lawrence Lewis, head of equity capital markets at Scotia Capital, the investment banking arm of Bank of Nova Scotia (BNS.TO: Quote). Scotia Capital is also a PDAC sponsor.
Jeff Richmond, a managing director at Scotia Capital, said its mine financing business has grown in parallel with the rise in metal prices. "The market has been open," he told Reuters.
The flood has gathered pace since the end of 2009, after many metal prices recovered from a brief swoon during the global economic crisis. Gold, the classic safe haven, barely faltered.
As well as the pension funds, sovereign wealth funds from China, Korea, Singapore or Dubai are also increasingly active in mining, where they can exchange U.S. dollar-denominated savings for hard mining assets.
More than ever before, Chinese, Indian and Brazilian companies are negotiating off-take agreements -- financing pegged to a share of future production. Their aim is to acquire more of the raw materials needed to feed manufacturing processes or infrastructure development in their booming economies.
Asian and Latin American banks are another class of relative newcomer to mining, an area once dominated by their North American and European counterparts.
"We are witnessing a shift of the balance of power to emerging market countries, particularly Brazil, India, and China," said Darryl Levitt, a lawyer specializing in mergers at Macleod Dixon in Toronto.
"Mining companies and financing parties located there are now scouring the rest of the world for financing opportunities to secure resources," he said. "It is no longer a question of developing their own backyards but extending their reach into other countries which are minerally endowed."
($1=$0.97 Canadian) (Additional reporting by Euan Rocha and Julie Gordon)
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