Funding challenges in tough climate

06/08/2009 - 00:00

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ANXIETY over foreign investment is compounding the funding challenges created by the global financial crisis, according to the junior mining executives at the recent WA Business News roundtable.

Funding challenges in tough climate

ANXIETY over foreign investment is compounding the funding challenges created by the global financial crisis, according to the junior mining executives at the recent WA Business News roundtable.

Yet the volume of capital raised in recent months shows retail investors are answering the call for fresh working capital needed by smaller companies to keep the drills turning.

Pioneer Resources Craig McGown said the silver lining in the global slowdown was that stocks offered far better value today than at the peak of the boom last year.

"I think that values have returned to a reasonably sustainable level," he said. "And I think the indication from the equity markets over the past six or seven months is that ... people feel there is presently good value in the current marketplace.

"But for people who are looking at project development ... the capacity of the debt market is a bit limited because the bankers are still a little bit anxious."

That meant companies looking to move into the development phase had to turn elsewhere for project financing; and that funding was largely coming in the form of international metals traders and state-owned conglomerates from China.

However, renewed anxiety of Australian governments and regulators about the level of foreign control of Australian resources was becoming a major impediment to project development.

Peter Toll, a regular adviser to the sector as a director of accounting firm BDO Kendalls, said anxiety over foreign investment failed to recognise simple reality.

"There is limited demand for the (end) products within Australia, as compared to worldwide demand, so if the demand is outside, then that is where the investment funding has to come from to make them work," he said.

"And at the junior end in particular ... there is just no incentive in the local market to support them."

It was a point taken up by Mr McGown.

"We are an industry that is thirsty for investment, and until the Australian government says it's going to create significant incentives for Australians to invest ... you've got a marketplace that needs investment and there are people from outside who have put their hands up," he said.

While some anxiety was understandable where the target was a major project or company, such as Rio Tinto in the case of Chinalco, it was completely misplaced in the case of small companies.

Will Burbury, chairman of Pilbara iron ore junior Warwick Resources, said there was no need for the same level of regulation of Chinese investment in small companies when it would deliver employment, development and infrastructure that were simply beyond the capacity of those companies to fund themselves.

Heron Resources managing director Mat Longworth said dealing with overseas partners was always a learning exercise, but there were ways to avoid some of the pitfalls.

Heron was itself negotiating an unincorporated joint venture structure with a Chinese battery manufacturer for its Yerilla nickel project, comprising a simple partnership that would not require the establishment of a jointly owned special purpose joint venture vehicle.

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