Photo by: Bloomberg
JOHANNESBURG (miningweekly.com) – The current iron-ore price uncertainty was a significant challenge for junior miners trying to obtain finance for their projects in Africa, International Finance Corporation (IFC) mining investment division senior investment officer Sacha Backes told delegates at the fourth Africa Iron Ore conference, in Johannesburg, this week.
He said this challenge was further exacerbated by the declining demand for iron-ore from China – the world’s largest iron-ore consumer – which would ultimately determine the supply/demand model in future.
Backes noted that there were fewer initial public offerings on the LSE’s Aim market for smaller companies seeking access to growth capital, while delistings were at an all-time high.
The IFC, a member of the World Bank Group, whose mission it was to offer investment, advisory and asset management services to encourage private sector development in developing countries, noted that the average amount of capital raised by junior miners in 2013 was $1.6-million, which indicated the struggle for survival that most juniors were facing.
Further, global merger and acquisition (M&A) transaction trends last year indicated that the value of such deals was significantly lower than in previous years, while the main investor focus was on domestic transactions rather than outbound transactions to reduce risk.
Backes further pointed out that M&A transactions in Africa were largely absent in 2013 except for a few transactions in South Africa. This, he believed, showed an effort by investors to focus on more developed jurisdictions that exhibit lower risk.
Meanwhile, also speaking at the conference, Africa-focused mining project equity fund New Africa Mining Fund mining analyst Ross Gardiner told delegates that there was limited room for venture capital-type funds such as those that were previously offered by New Africa Mining Fund in the iron-ore industry, as “our pockets are not deep enough and we cannot afford project delays owing to the limited investment periods offered by these types of fund.”
Since concluding its New Africa Mining Fund II, the fund had resolved to discontinue seeking new investment opportunities, as it has been unable to find value commensurate with the risk of the sector.
Gardiner said he understood the desperate need for funding, because without that, junior miners were left with their hands tied. He suggested that juniors consider using hedge funds to finance the development of their iron-ore projects.