Mining outside the wreckage lane

Great Basin Gold, Silver Standard, and others announce bought deals; mining companies have now raised USD 34bn in non-bank finance in the past few months.

JOHANNESBURG - 

Amid chaos, or at best uncertainty, in global markets, aggravated by the continuing slowdown in the world economy, mining companies have raised - not all are yet past tense - at least USD 34bn in non-bank finance in the past few months. The past few days has seen bought deal announcements from the likes of Great Basin Gold, Focus Minerals, Victoria Gold, Allied Gold, and Silver Standard.

Gold companies, and also those directly focused on silver, have usually been able to raise fresh cash directly from investors via so-called bought deals, where a few brokers buy a block of stock, and sell it on in smaller denominations to their investors. The biggest conventional deal to come out of the precious metals sector, so far, is courtesy of Newmont, which raised USD 1.1bn in fresh equity, and issued USD 450m in convertible notes.

Most equity raisings have been by gold stocks, in terms of numbers, but in terms of capital raised, the two biggest deals, by far, have been in the form of forced transactions by Xstrata, and Rio Tinto.

Both companies have been saddled with a combination of outsized debt and, as a direct consequence, battered stock prices. Xstrata is seeking to raise the equivalent of nearly USD 6bn, in a hugely dilutive rights issue. Rio Tinto is seeking to raise USD 19.5bn from Chinalco; USD 12.3bn by selling various selected equity stakes in certain of its underlying assets, and USD 7.2bn by selling to Chinalco convertibles that, if one day converted, would see Chinalco's stake in Rio Tinto increase to 18%.

Rio Tinto remains the most indebted, in absolute terms, of the world's mining companies, with USD 38.17bn in net debt on 31 December 2008, being mainly a reflection of Rio Tinto's USD 38bn cash acquisition of Alcan in 2007.

While the Rio Tinto plan has attracted a fair degree of criticism from a number of its shareholders, and requires regulatory approvals at various levels in various countries, the transaction reflects the ability of the mining sector to raise fresh capital during trying times, even if from other mining companies.

There have also been offtake  deals, such as announced by European Nickel, royalty-type deals, such as that concluded between First Uranium and Gold Wheaton (which has been seen in a recent bought deal), and stressed sales of underlying shares, such as substantial blocks of AngloGold Ashanti shares recently sold off by Anglo American, which, like Xstrata and Rio Tinto, faces interesting debt challenges. In extreme cases, a mining company may simply be eaten up by another one, as seen in the case of Minmetals taking a debt-stricken Oz Minerals, in a cash deal worth around USD 1.7bn.

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Related Links ARTILCES:  Gold's biggest name in the spotlight  The case for unbundling Anglo American  Gold Wheaton in CAD 100m bought deal  Barrick Gold takes $773m writedown on Australian mines, reports 4Q08 loss  OTHER PAGES:  MINING FINANCE / INVESTMENT AFRICA

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