13/11/2017 - 15:52

Capital inflow turns talk positive

13/11/2017 - 15:52

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SPECIAL REPORT: Financing opportunities have improved markedly from just two years ago for the state’s junior miners, amid growing demand for drill rigs and skilled workers.

Capital inflow turns talk positive
Business News chief executive Mark Pownall (left) with George Bauk and Alan Stein at the junior miners boardroom lunch. Photo: Attila Csaszar

Renewed interest in local mining juniors from international money managers is just one sign that a long downturn in the sector may be nearing its end.

At a recent Business News industry lunch co-hosted with investor relations service Bulls’n’Bears, mining industry executives highlighted improved capital raising prospects, increased demand for local geologists, and a more competitive currency as potential drivers of business for mining juniors.

Plymouth Minerals managing director Adrian Byass said the market had changed dramatically from that of 24 months ago, when capital was not forthcoming.

“We can all see which way the wind is blowing at the moment,” Mr Byass told the forum.

“The capital is coming. I’m the chairman of another company (Galena Mining) which floated (in September) and we were turning money away.”

He said there had been no opportunity for oversubscriptions, with more than half the money turned away for the Western Australian project.

“Costs are realistic now, metal prices are high in US dollars and we’re off (exchange rate) parity.”

Terrain Minerals executive director Justin Virgin, who is also a client adviser at Patersons Securities, said there had been an increase in deals activity in recent months.

“There has been a lot of demand, a lot of oversubscribed raisings coming through the door,” Mr Virgin said.

“The window is open again at the moment.”

That was driven by a return of confidence into the market, as fundamentals for the sector became more positive, he said.

In light of the more upbeat mood in the sector, WA-based resources players are in the process of listing on the Australian Securities Exchange, with Tao Commodities, Lustrum Minerals, Nelson Resources, Raptor Resources, and BlackEarth Minerals seeking to raise $19 million between them in initial public offerings.

The growing positivity is not just a local phenomenon, according to Bulls N’ Bears chief executive Matt Birney, who oversees the Bulls N’ Bears sponsored content operation.

Mr Birney said he had started to receive interest from North American fund managers who were keen to bring capital into WA juniors.

Fund managers were also potentially interested in using ASX-listed corporate shells that had been inactive since the end of the last boom, he said.

“It’s quite extraordinary how WA tends to punch above its weight internationally; we think we’re in this isolated part of the world, but a lot of fund managers actually fully get the concept of WA,” Mr Birney said.

“There’s a real interest in WA from some of these funds around the world.

“Finding money is not that difficult; finding good projects is the hardest thing to do.”

Other industry members noted broad interest from North American fund managers.

The forum heard that a big driver of that was the electric vehicles market, which was expected to contribute to demand for commodities such as lithium, graphite, nickel and cobalt, all of which are used in development of batteries.

Creative thinking

Northern Minerals managing director George Bauk warned that recent positive signs in capital raisings did not necessarily demonstrate a structural shift in the market, however.

Northern put together an alternative funding strategy for its $56 million Browns Range rare earths project in the Northern Territory earlier this year.

Mr Bauk said banks had been reticent to give debt funding to projects focused on commodities without transparent markets.

“We had to think outside the box,” he said.

“We’ve had to go for some really out-there funding concepts with our research and development debt factoring facility; we’ve done deferred payment from an EPC contractor.

“We need banks to make the next step into these new spaces where there isn’t a terminal market.”

Mr Bauk said lithium projects had a similar problem, with banks reluctant to commit to long-term support.

Illustrating the point, both Pilbara Minerals and Altura Mining turned to alternative lending sources for their lithium projects.

Pilbara borrowed $US100 million, locking in an interest rate of 12 per cent, while Altura’s $US110 million facility comes with a 15 per cent interest rate.

Although equity markets had improved, the trend was not yet clear, Mr Bauk said.

“We could not raise a dime three months ago, we’ve got $13 million in the bank today,” he said.

“You’ve got to just take the money while you can.

“We’ve got challenging times ahead.

“If money comes your way, take every cent because you just don’t know what’s going to be there on Monday.

“We just don’t have an alignment of the investor base with what we do in the mining industry.”

Labour, equipment

Middle Island Resources managing director Rick Yeates said iron ore geologists were a dime a dozen at the moment, while there were very few good gold geologists available.

“They’ve been (swallowed) up by the Evolutions and the Northern Stars of the world, they’re just not there,” Mr Yeates told the boardroom forum.

Gold and copper explorer Kalia Group managing director, Terry Larkan, agreed that geologists were in demand, but despite that, costs had come down in WA, although they were still higher than overseas.

An example of this, Mr Yeates said, was drilling rig prices, which were still competitive.

“I get drilling companies still ringing me up and saying ‘we can do sweat equity deals’ and all that sort of stuff,” he said.

“There’s still some desperation out there, no question about that, (it is) usually the second- or third-tier contractors.”

Regulatory issues

Despite these pointers towards a stronger market, two factors outside the sector have caused uncertainty for local miners – the new state government in WA and a recent High Court decision.

The biggest battlefront in recent months has been over the introduction of a new, higher gold royalty rate, which would have raised $392 million over four years.

That move was nixed in October when the government was unable to pass the legislation through the state’s upper house.

Miners had run a sustained campaign against the hike, with the Chamber of Minerals and Energy of Western Australia claiming it would lead to the closure of five mines.

A further curveball was the High Court’s September ruling in the Forrest versus Forrest case, which found mining leases may be ruled invalid due to a flaw in the application process where applicants did not correctly submit a mineralisation report.

It was estimated around 10 per cent of mining leases in the state could be affected.

The government committed to legislate to resolve the issue and Business News understands a bill is being prepared.

Foreign jurisdictions also brought challenges.

In July, the Tanzanian government banned export of raw materials for processing outside the country, and introduced a new law that revenue from projects in the country would have to be held in local banks.

Blina Minerals executive director David Porter, who additionally serves as chairman of iron ore company Sundance Resources, said he had worked in African countries since the 1980s.

“Africa is hard … there are no rules,” Mr Porter said.

One example from his experience was in the Democratic Republic of Congo, where the mines department had been closed down.

Zimbabwe, Cameroon and South Africa were other challenging jurisdictions.

Mr Porter said Sundance had spent $300 million on exploration in Cameroon, but had failed to secure a mining lease.

The company reapplied every six months, he said.

Oil and gas explorer Calima Energy’s managing director, Alan Stein, said his experience in Africa, also across many decades, had been positive and host countries had, on the whole, honoured their contracts.

That may have been because Calima wasn’t in mining, he said.

A key point, however, was that Western businesses needed to fulfill their promises to communities.

“I’ve found it remarkably consistent,” Mr Stein said.

“When you’ve signed a contract, our experience has been that contract has stayed signed.

“Provided you play with a straight bat, you don’t get any requests.”

He said the state government’s moratorium on fracking was just as significant for sovereign risk as some of the issues in developing jurisdictions.

Kalia Group’s Mr Larkan said his company would be test piloting some new laws in another developing jurisdiction, Papua New Guinean autonomous territory of Bouganville.

The island was home to Rio Tinto’s Paguna copper mine, which was forced to close due to civil unrest in 1989.

There has been little mining activity in the three decades since.

Under the new system, resources are owned by landholders, who need to consent to developments, Mr Larkan said.

Kalia is expecting to receive an exploration licence in coming weeks, the first such permit to be issued under the new mining regime.

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