While the African mining industry should brace itself for difficult financial conditions, opportunities for economically viable mining projects remained, financial institution Nedbank senior investment banker Mark Tyler told delegates at the 2015 Investing in African Mining Indaba.
He explained that difficult market conditions, which were compounded by weak commodity prices and a general suppression of the markets, had led to a reluctance to invest in existing commodity miners, as well as in the future growth and development of the industry.
This, he maintained, might mean that many mining projects on the continent could find it easier to attract debt as their primary source of funding going forward.
“Many of the mining projects that were being considered in the days of easily available funding cannot go forward, as investors have withdrawn their interest, based on a probable lack of reasonable returns on their investments, which means that only a few of the more than 1 500 prospects previously under consideration are likely to be developed in the foreseeable future,” Tyler elaborated.
He added that other forms of mining finance, notably equity-based funding, faced similar difficulties, citing that the overall global value of equity-based funding had fallen every year from its record high in 2010.
Further, while the amount of mining equity raised in Africa slightly increased year-on-year in 2014, the total equity value raised on the continent was significantly lower compared with what it had been four to five years ago, Tyler noted.
“That said, private-equity-style investors will always continue to invest, as they are not focused on share price appreciation as the main driver of investment returns, but rather rely on growing the construction capital they invest.
“Therefore, opportunities most definitely still exist, particularly for those willing to consider less mainstream commodities, like fertilisers and diamonds, and there will always be an appetite, albeit a small one, for low-cost producers of all commodities – even those that appear to be largely out of favour,” he explained.
Speaking to Mining Weekly on the sidelines of the indaba, Nedbank mining and metals senior investment banker Paul Miller and resources finance head Peter van Kerckhoven added that while debt capital appetite remained among debt financiers, the fewer economically robust projects in the current commodity price environment, coupled with the tighter equity markets, had translated into fewer project financings being concluded.