(Reuters) – Miners who can’t get financing for new projects from banks or traditional equity investors because metals prices have collapsed are turning to an alternative source: the engineering and construction companies, many from China and South Korea, who actually build their mines.
Several North American and Australian miners are in talks with engineering, procurement and construction (EPC) companies to take equity stakes or bring along banking partners to provide debt funding in projects in return for the EPC group winning a contract. China’s NFC and South Korea’s POSCO Engineering & Construction Co Ltd are among the companies pursuing these deals as they look to make up for business lost because of slowing infrastructure growth at home.
“The domestic order books of Chinese construction and equipment companies have been falling for a year, actually quite dramatically,” said Ingo Hofmaier, director at Hannam & Partners, a London-based corporate finance advisory firm. “To avoid underutilization and keep the music going, Chinese companies are now aggressively targeting foreign markets.”
Infrastructure investment in China slowed in 2014 as authorities try to re-engineer the growth model by reducing inefficient state spending and encouraging domestic consumption. Investment grew at its slowest pace in nearly 13 years between January and November 2014 at 15.8 percent, according to official figures.
Canadian construction and engineering company SNC-Lavalin Group Inc. is working with NFC, or China Nonferrous Metal Industry’s Foreign Engineering and Construction Co, for a contract to build the Hillside copper project for Rex Minerals in Australia. SNC and NFC are competing against South Korea’s Hyundai teamed with AMEC Foster Wheeler for the contract.
“There’s no doubt, financing will be part of that decision,” Rex Minerals executive director Steven Olsen told Reuters.
NFC and Hyundai declined to comment.
ALTERNATIVE FINANCE
Alternative forms of mine finance such as royalties, streaming and private equity, have blossomed in the past three years as metals prices fell and traditional banks and equity investors shied away from the sector.
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