JOHANNESBURG (Business Day) -- Banks are scrambling to lend money for good mining projects, but mining companies could start to find share issues more attractive as interest rates rise.
New South African projects in the pipeline run into the billions. While big groups can fund these from their balance sheets and cash flows, junior mining companies are looking to raise external financing.
Standard Bank director of mining project finance Brad Breetzke said last week the subprime crisis had made it more expensive to raise dollar financing, but the trend was less marked for rand financing.
"I think there is still fairly robust competition among banks to provide debt for mining projects, perhaps because commodity prices still look like they will be sustained in the medium term," he said.
"On one project where we were seeking one or two partner banks, 11 showed up, not only South African but international banks."
Standard Bank director Nicky Goldin said many companies realised debt was becoming more costly and harder to raise while their share prices had risen, making equity an easier way to raise capital.
"Commodity prices are still rising, and commodity shares are in favour. So, yes, I believe we will see a fairly substantial amount of equity issues in future."
At least two companies had approached Standard Bank wanting to move their listings from AIM to the JSE after finding limitations to raising funds on AIM.
The biggest recent fund raising was AngloGold Ashanti's [NYSE:AU; JSE:ANG] $1.6 billion rights issue to reduce its hedge book and fund projects in South Africa, Australia and Ghana. Anooraq [AMEX:ANO; TSX-V:ARQ] said last Tuesday Standard Chartered Bank would provide R1.7 billion ($218.9 million) of debt to help acquire 51% of Lebowa Platinum. The total buying price of R3.6 billion ($463.5 million) would come from a combination of debt and equity.
Wesizwe Platinum [JSE:WEZ] said it needed R5.6 billion ($721 million) in debt and equity to develop its Frischgewaagd-Ledig mine. Platmin [TSX:PPN; AIM:PPN] arranged a R350 million ($45 million) bridging loan facility from Standard Bank, which would also lead-arrange a $200 million project finance facility to help develop Platmin's Pilanesburg project.
Ridge Mining [LSE:RDG] is drawing on its R715 million ($92 million) project finance facility from South African banks to build its Blue Ridge platinum mine. International Ferro Metals [LSE:IFL] will need R4.5 billion ($579.3 million), to come from internal cash and debt, to expand its mine and processing facilities.
Miranda Mineral Holdings [JSE:PRO] expects to raise up to R250 million ($32.2 million) from shares to develop coal properties. Pamodzi Gold [JSE:PZG] is considering debt instruments to raise $30-$50 million for working capital needs. BRC DiamondCore [TSX:BCD] needs $5 million shortly to repay a loan facility guaranteed by Banro [AMEX:BAA; TSX:BAA] and fund exploration.
Nedbank Capital mining and resources joint head Brad Maxwell said companies had to fund projects with debt and equity financing. Nedbank Capital was comfortable only with funding up to 60% of a project.