TIGHT CAPITAL MARKET The average amount of capital raised by junior miners in 2013 was $1.6-million, which indicates the struggle for survival that most juniors are facing
The current iron-ore price uncertainty is 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, hosted by IMM Events, part of publicly-owned conference organiser Informa Group, earlier this month.
He says this challenge is further exacerbated by the declining demand for iron-ore from China – the world’s largest iron-ore consumer – which will ultimately determine the supply/demand model in future.
Backes notes that there are fewer initial public offerings on the LSE’s Aim market for smaller companies seeking access to growth capital, while delistings are at an all-time high.
The IFC, a member of the World Bank Group, whose mission it is to offer investment, advisory and asset management services to encourage private sector development in developing countries, notes that the average amount of capital raised by junior miners in 2013 was $1.6-million, which indicates the struggle for survival that most juniors are 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 points out that M&A trans-actions in Africa were largely absent in 2013 except for a few transactions in South Africa. This, he believes, shows 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”
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Since concluding its New Africa Mining Fund II, the fund has resolved to discontinue seeking new investment opportunities, as it has been unable to find value commensurate with the risk of the sector.
Gardiner says he understood the desperate need for funding, because without that, junior miners are left with their hands tied. He suggests that juniors consider using hedge funds to finance the development of their iron-ore projects.