Mining finance challenges; Second annual conference explores the issues

Obtaining financing for mining and exploration projects has been difficult for the last several years, particularly for junior companies. Today, though, the purse strings of investors appear to be loosening, leaving the industry with many questions about financing in the coming years.

How have capital markets and exploration spending changed? Are there signs of improvement? Where has capital been raised in private, public markets, stock exchanges, private equity, etc.? What companies successfully raised capital in the last year? How are they spending it? How are traditional and alternative funding sources investing in mining? What are the issues mining companies need to know about when tapping alternative sources of capital?

Those were some of the questions that were answered at the Current Trends in Mining Finance conference, sponsored by SME and the New York Section April 26-28. Held in New York City, the conference attracted 115 professionals who work on the finance and economic side of the mining industry.

Three of the conference organizers talked with Mining Engineering about the conference and the state of financing in the industry today. Tim Aich (TA) is managing director with Behre Dolbear & Co.Alan Oshiki (AO) is executive vice president with the Abernathy MacGregor Group. Henry Weingarten (HW) is managing director with the Astrologers Fund Inc. Here is what they had to say.

What was the purpose of the conference? What did it offer that made attendees want to come?

AO: The conference offers a unique perspective on raising capital in the mining industry, with insights not only on the markets themselves but on the various trends and financing methods.

HW: To highlight current industry trends in mine financing. A wide variety of topics from 2014 mineral forecasts to fresh alternatives to conventional financing were covered. Learning from and networking with more than 50 industry experts as well as other attendees made this a valuable event for conference attendees.

TA: This event brings together people with varied interests and involvement related to the global mining industry raising money. We have bankers from large global firms discussing trends they see including what types of companies in the past year raised capital, what types of financing structures are being used, as well as senior partners from the law firms and the Big Three accounting firms talking about the growing presence of private equity and alternative streaming and royalty-based financings, as well as merger and acquisition trends. It is an event where people can sit down and talk about these issues face-to-face, as well as schedule meetings with institutional investors, bankers etc. in New York.

What did you takeaway from the conference?

AO: I think it's the continued increase in "dry powder" among private equity firms - capital that is earmarked for mining investment, but has not yet been deployed. It's a bit of a mystery since it seems equity values in the industry have never been more compelling and are at historic lows in some cases.

TA: 2014 continues to be a challenging environment for the mining industry, underscoring the importance of management focusing on leveraging and realizing the value of assets and operations. All the while, global fundamental demand for many of the industrial metals and minerals continue their steady growth. The emerging markets continue their steady paths to modernize, requiring and using more mineral resources.

What speaker at the conference stood out to you?

TA: The event is filled with many outstanding speakers. To pick out one or others, is really hard. If you look at the agendas for the past two years, both year's line-up of speakers have been outstanding, a who's who of key people from the banking, accounting, mining and related sectors, including service providers who individually are experts in their own right. All have so much to say

- and best of all most stay with us to meet and talk with attendees.

AO: If I had to pick just one, I think Mike Cramer of Citibank always has a lot to share and his presentation on the outlook for mine financing - which he updates periodically and we've asked him to give at the beginning of each of our conferences - is quite prescient.

In light of the softening commodities market, what does this portend for juniors to get longterm financing?

AO: I think we've hit bottom and I wouldn't be surprised to see a rebound in junior mining equities. In fact, during the first quarter of this year there was a rebound, then a pause, and we are now in the midst of what is beginning to look like a return to that upward momentum. It may turn out that juniors have more financing options available to them than in the more recent past.

HW: When the tide is out, we can see who is naked. Those companies with first class management and projects in the bottom quartile of expenses will be funded. The rest will continue to struggle until the commodity recession reverses as we move into H2 2015 and 2016.

TA: The opportunities do exist within the junior sector, there are plenty of firms with capital looking longer term to realize the benefits of what appears to continue to be a fundamentally positive outlook for the metals and minerals sector worldwide, as the global economy continues to steadily recover from the global financial crisis in 2008-2009. The industry has experienced a tough couple years wherein all have had to reset expectations given the new realities relative to the robust period seen in recent years.

What innovative financing alternatives are available in this tight debt market?

AO: Royalty or "stream" financing seems to be a favorite, in lieu of project debt or equity issuance.

TA: Beyond the traditional sources of capital from the major lending, banking institutions, there is a growing pool of capital within a larger number of private equity firms looking at the sector as well as among the smaller and medium sized financial institutions able to and knowledgeable enough to privately fund projects, development and exploration. Valuations are still at levels whereby raising equity capital continues to be unattractive.

What strategies are smarter mining companies employing to ensure and secure long-term capital for their projects?

AO: Probably the most effective strategy is to maintain a company's relationships with key shareholders, lenders and other sources of capital. This isn't easy to do without a positive story, but the best companies are out there, rain or shine.

HW: Project finance, selling future products both to royalty companies and industrial users.

TA: There are many firms looking for those opportunities. Being realistic is so important and thinking about the mining business with a longterm perspective - as we all know it is. There is capital being raised, albeit not on the same scale or in forms seen during the recent peak years. Staying on track and keeping visible is important. How does the tighter and competitive global market for capital affect short and long-term planning for mining companies?

AO: The biggest impact has been at the junior level, and a lot projects are on hold as a result. The mid-tier seems to be able to finance viable projects, for the most part.

HW: This trend favors companies with longerterm horizons. This is one reason why Chinese and Indian companies will play a larger role in the years to come.

TA:. As was discussed at the conference, there are signs and in recent months deals done, among some mining companies to merge and or acquire other assets to gain mass and benefit from economies of scale and or situational specific opportunities to realize benefits rather than struggling and or going it alone.

How do the different international disclosure requirements for resources and reserves affect the amount of investment in the industry?

AO: Would it help to have one, uniform international regime for resource and reserve reporting? Of course, but for knowledgeable industry analysts it's more of a headache than a problem. Where it could become an issue is when generalist institutional investors return to the sector, which it seems they may be starting to do. They'll have a learning curve to climb - not only on this issue but others as well.

TA: As we all know too well, around the world today it is difficult for any of us to agree on one method including regulations impacting doing business.Progress is being made, albeit at a slower pace than the industry may prefer, for example here in the United States.

As the global demand for commodities soften, how are sophisticated companies adjusting their long-term business plans to accommodate these downturns?

AO: It really comes down to costs. Marginal projects reflect a lack of discipline with regard to capital deployment. Throughout the course of my career, I've seen these excesses come and go a few times - the industry gets in over its head periodically, and then there's a shakeout. If anyone remembers when Big Oil got into the mining game some years back, there was a similar result as what you're seeing today with some of the larger miners. The situation eventually self-corrects and you're seeing that now.

HW: Better control of expenses from reduced exploration budgets to intelligent risk management (i.e. dynamic hedging) is one avenue slowly becoming acceptable.

TA: In recent years, the industry, from the largest mining companies to the smallest juniors, have had to rationalize marginal assets to raise capital, refocus and reprioritize activities to those yielding positive cash flows. All have had to cut costs, operating and capital spending following the recent period wherein costs escalated, prices softened and investor sentiment is 'risk off about assets in the ground. It is now about generating returns and positive cash flows. The speculative bubble popped a couple years back, for a number of reasons, which was discussed by many of the speakers at the conference.

Given the current climate of the mining industry, what do you believe to be the outlook for mergers and acquisitions?

AO: I think the outlook is very positive. I say this because values in some areas are very compelling and, in many cases, good projects can be acquired at a very reasonable cost. Mining M&A started to pick up earlier this year - some of it not so friendly - then it seemed to slow down a bit. Given what's happening in the market now I wouldn't be surprised to see it heat up a bit this year.

HW: The current scarcity of fresh investment capital, especially for juniors, combined with cheap financing, makes this an ongoing increasing trend in 2014-2015.

As a reminder to mark your calendars, SME, together with the NY Section of SME, will be hosting the 2015 Current Trends in Mining Finance conference in New York, this time at the Princeton Club on April 26,27 and 28,2015. Notably, it will hold another short course and delegates' dinner with an invited guest speaker on Sunday April 26. The short course workshop is slated to be about Metals Hedging Strategies and Accounting Issues.

Big Data: Smarter Use of Data in the Mining Industry conference in New York

Building on the success of the Current Trends in Mining Finance conference, SME and the New York Section have organized a one-day conference on Big Data and its applications in the mining industry. The event is scheduled for Tbesday, Oct. 14,2014 at the Princeton Club in New York City.

"This first ever SME conference about Big Data in the Mining Industry is an attempt to bring experts together to discuss and highlight recent developments in data sciences and information technologies, as well as best practices within the mining industry, and to learn from other sectors about opportunities to realize greater efficiencies and increased productivity. There are misconceptions about the term "big data" and its relevance to mining. However, there are many examples from which we can all learn how our industry can adopt new ways and methods for realizing from its assets," Alch said, "We have organized a group of speakers who will discuss how the mining industry can realize benefits of data and information technologies to optimize operations, increase productivity and evaluate and prioritize management and investment decisions."

The mining industry today is focused on controlling and minimizing operating and capital costs. There are ways it can optimize and leverage the operations and assets it has, Alch said, in part by utilizing the streams of data flowing from various parts of the business, equipment, etc. together with a variety of products and service providers that are expert in the data sciences and information management sectors to help operators and executives determine best next steps.

SME's Big Data conference will highlight a number of leading experts' work including the use and recent advances in predictive analytics, advantages of cloud-based technology, and practitioners involved with computer and scenario simulations. There are new options and means available that the mining industry can employ to help sort through the data to more quickly model and simulate various planning, business scenarios.

To learn more about the event and register, visit the SME's event website at http://community. smenet.org/bigdata/home/. For those interested and want to present a topic, please send a biography and abstract to Tim Alch at [email protected] or Tara Davis, email [email protected].