ANALYSIS: Experts look to Asia for mining financing

Thursday, October 2, 2008

The collapse of international stock exchanges in recent days is changing the nature of financing systems popular with large-scale mining companies over the past 10 years and "that system is going to disappear," mining lawyer Carlos Saravia told BNamericas.

"It used to be that a mining company could find the money in two weeks. It isn't that easy anymore," said Saravia, who is Argentina's former deputy mining minister.

"The only exploration companies that will survive are the ones with feasible projects because that way they will be purchase targets for large mining companies," said the lawyer who is a partner in Buenos Aires law firm Saravia Frias-Mazzinghi.

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Andre Gauthier, president of Vancouverite Maxy Gold (TSX-V: MXD), agreed that mining companies are having difficulty finding funds for their projects, but not necessarily because of the current crisis.

The executive feels that the market has been frozen for over a year since the search for capital in Canada and London is bottlenecked with over 4,000 mining companies that are "chewing on the same bone," according to Gauthier.

"Before the crisis, I looked to China for two reasons: to explore but also to find financing there," he said.

In the last three years, Maxy Gold has raised roughly 10% of its capital in Canada and the remainder in China. "Canada is the present and the past," but the present and the future of the industry is unfolding in Asia, Gauthier said.

Saravia agreed, adding that "the emergent path for coming years is to seek financing in Asia, principally with the Chinese and in a more direct way."

Saravia predicted that not a single dollar will be raised on a stock exchange through March 2009 and said some companies only have enough resources of their own for the next seven or eight months.


The financing problems that are plaguing mining companies also affect new projects, "because they are still there but can't fire up operations," said Mariana Almeida, mining lawyer for Colombian-Venezuelan consultancy firm Incolven.

For his part, David Aldana - an analyst at Bogotá-based brokerage Ultrabursátiles - feels that because of the current market situation, "it's foreseeable that certain companies planning to start trading on an exchange will not do so."

Right now, "it's no good entering an exchange that isn't liquid for getting the money they need," according to Aldana.

In Peru, the country's mining, oil and energy society SNMPE said the financial crisis in the US is expected to cause a delay in firing up exploration and mining projects worth US$3bn.

However, Peru's energy and mines minister Juan Valdivia was quoted by international press as saying that mining projects are still underway and he rejected the idea that the sector has slowed.

Meantime, all markets are focused on the US house of representatives which is scheduled on Friday to vote on the US$700bn bailout plan for Wall Street, after rejecting the first version of the plan earlier in the week, before the senate approved a modified version on Wednesday.