With the Eurozone crisis plunging the world’s economy
into a second phase of financial turmoil and, as a
result, an extremely varied M&A landscape, miners are
bracing for an unpredictable time in the traditional debt and
equity markets. Amidst the uncertainty, though, more miners
are harnessing alternative financing strategies to move their
“It is about optionality these days,” says Lee Downham,
partner in charge, global mining and metals, transaction advisory
services at Ernst & Young. “You need to keep all
of your funding options open and not necessarily
expect that you can fund in the traditional
equity and debt markets.
Availability of financing will not go
back to pre-crisis.” According to
Downham, all things being
equal, companies that pursue
private wealth options alongside
traditional sources of
investment will get their
financing before those limited
Many financing experts
point to the recently acquired
European Goldfields as an example.
In October, Qatar Holdings
agreed to lend US$750 million to
European Goldfields, which is listed in
Toronto and London, to fund the development
of mines in Greece. The Qatari sovereign wealth fund
put up a $600-million, seven-year loan secured against Greek
gold assets, and an additional $150-million unsecured loan.
European Goldfields has now agreed to be bought by Eldorado
Gold for $2.4 billion, superseding the Qatar Holdings deal,
but it is the strategy itself that fund managers are looking at –
both in picking companies and in supporting companies
already held that are seeking financing.
The wealth of sovereigns
According to Ernst & Young research, companies in the initial
public offering (IPO) pipeline, ranging from some $200
million to several billion dollars in size, have been facing
delays of up to 18 months in anticipation of more stable markets.
However, securing private funding in the interim could
help underlying assets progress and deliver a stronger story for
an IPO when it does happen, Downham explains.
And that is advice that could affect a broad swath of companies.
Ernst & Young reports that the majority of transactions
in 2011 were juniors looking to bring assets to market,
although there has been an increase in the $200-million to
$1-billion asset range since 2008. At the same time, large placings
across the major producers have decreased. According to
Downham, this trend is likely to continue because companies
across the sector are still wary of falling back into pre-crisis levels
“Majors are limiting buying activity to low-cost, high-grade,
scalable assets or to companies that can offer at least some kind
of operational overlap that nobody else can bring, such as
technical expertise or cost benefits,” Downham explains,
adding that the large miners continue to look at iron ore
and coal, with copper staying strong on fundamentals.
But companies seeking mine financing
need to recognize that the world has