Australian miners and explorers have been told to expect a “bank closed” sign for at least the rest of the year unless they have exceptionally robust projects needing financing. Addressing the first day of the 2008 Paydirt Asia Downunder Conference in Perth, European boutique bank, West LB Capital Markets said the global credit crisis had dried up mining’s traditional access to non-bank project funding packages. “This will force a return to the banking sector as the source of project funding, with some expectation now for banks to pool their resources to put financing packages together as club deals,” WestLB’s Head of Metals and Mining, APAC, Rod Hill, said.
“Appetite for banks to underwrite deals and sell down is currently dead,” Hill said. “The sector faces however, the fact banks in the short-term will be focusing internally, looking only at their current portfolios. They will be very selective in chasing new financings for at least the rest of the calendar year,” he said. “This is not surprising as new internal bank guidelines are being issued daily and the banks are insisting on tighter security for project financing.
“Those miners or project developers able to attract bank interest can, however, expect highly fluid funding rates as the fallout from the credit crisis feeds through into new loan financing for miners.”
Junior minerals explorers in Australia facing pressures in raising fresh capital as the global credit crunch bites, have been warned to prepare themselves for potential takeover by predatory Asian investors. At the same conference, DJ Carmichael’s Head of Research, Paul Adams, said unlike previous cyclical downturns, there was now “nowhere to run” for small explorers if they could not access capital growth through equity markets.
Where once they could convert to a dot com and then back again when cycles improved, in the current global crisis, there is just no opportunity to morph into something else,” Adams said. “The warning signs are already there. Recent rights issues by these juniors have been poorly taken up, there is growing risk aversion to any explorer in an area of geopolitical uncertainty, and funding activities for project development are being delayed if not curtailed altogether.
“There is an emerging disconnect between project value and share price and this makes it a very dangerous time for small Australian explorers with reasonable assets but thin balance sheet.”
Adams said these companies were becoming easy takeover targets and the most likely predators would be Asian sovereign wealth funds and aggressive funds.
“Australian explorers facing this scenario need to think about their defence strategies if a takeover is launched against them,” Adams said. He also warned equities markets not to expect any quick resolution to the worsening US problems overnight – saying that since 1980, the average recovery duration of a true bear cycle was 137 weeks.