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Nolan Watson’s phone is ringing off the hook these days. On the other end of the line are increasingly desperate mining executives trying to entice him to part with some of his precious cash.
As the chief executive of gold-streaming firm Sandstorm Gold Ltd., Mr. Watson, a youthful 32, represents one of the few options for miners to turn to as they struggle to raise a penny of new capital.
“The pendulum has swung from anyone being able to get any amount of capital on just about any terms, to nobody being able to get any amount of capital on any terms,” says the Vancouver-based executive.
Indeed. Capital raising for mining companies has dried up to a point that is unprecedented in recent memory. Equity financing, when it is even possible, is so dilutive at current share prices that almost no one is pursuing it. Debt deals are being called off just days after they are announced as investor appetite shrinks from one moment to the next.
It is all tied to the economic turmoil out of Europe and broader risk aversion in the market, which is knocking down commodity prices and turning investors away from volatile mining stocks. It has forced the miners to pursue unconventional financing sources.
Many experts have likened the mining finance environment today to 2008, when commodities were bottoming out amid a global economic meltdown. But Jason Neal, co-head of mining at BMO Capital Markets, thinks that comparison does not go far enough.
“It’s much worse for raising equity capital now than it was even in 2008 and 2009,” he says. “There were actually a lot of deals done back then, especially on the gold side.”
This environment puts the miners in a very tricky situation. After the scare of 2008, they have gotten used to the idea of maintaining conservative balance sheets when capital is scarce, and as a result, they are reluctant to spend any money right now. Yet at the same time, commodity prices are reasonably strong (especially copper and precious metals), meaning there is plenty of motivation for them to invest in their projects and grow production. The market has been brutal to miners that are facing capital shortages, whether they be small companies trying to keep the lights on or large companies that could be forced to delay projects.
The solution, experts say, is that they should think outside the box in order to raise money.
“It’s an alternative source of capital story now,” says John Gravelle, Canadian mining leader at PricewaterhouseCoopers LLP.
Creative financing options include strategic investors, royalty and streaming arrangements, selling a large chunk of a project for cash, selling one project to fund another, rights offerings, alternative stock exchange listings, equity lines of credit, acquiring a cash-rich company with stock, and even private equity.
For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/07/24/miners-forced-to-get-creative-as-traditional-financing-sources-dry-up/