Africa's local banks offer mining lifeline where others fear to tread

Thu Dec 12, 2013 8:43am EST

* Ecobank and Banque Atlantique move into mining finance

* Junior miners viewed as high-risk

* Branch networks provide alternative perspective

* Avocet, London Mining and IMIC have signed loan deals

By Stephen Eisenhammer

LONDON, Dec 12 (Reuters) - African banks are playing an increasingly significant role in the continent's new generation of mines, providing cash for projects considered too risky or expensive for rattled markets and cautious international lenders.

Central and West Africa is home to some of the world's largest untapped deposits of gold, iron ore and other minerals, but the promising mine projects often require billions of dollars to be spent on bridges, roads, railways and ports.

That level of investment, combined with the perceived risks of corruption and political uncertainty in Africa, is proving too much for under-pressure equity and debt markets and twitchy overseas banks undergoing enforced belt-tightening since the financial crisis.

A solution, however, appears to be on the mining companies' own doorsteps, with recent deals suggesting that local banks could provide a lifeline for the region's junior miners.

In West Africa, banks such as Togo-based Ecobank and Ivory Coast's Banque Atlantique are moving in on mining projects, emboldened by the expert local knowledge gained from their extensive branch networks.

Ecobank agreed a $63 million loan with Burkina Faso-focused gold miner Avocet, which has a market value of $44 million. It also increased its share of a $200 million loan with Sierra Leone iron ore miner London Mining, equivalent to four fifths of the company's market value.

IMIC, an investment company that is buying Cameroon-focused miner Afferro , signed a loan facility with Banque Atlantique worth $27 million. Afferro has a market value of $150 million.

RAPID EXPANSION

Ecobank, listed in Nigeria and Ghana, has expanded rapidly and operates in 35 African countries. Banque Atlantique operates in eight countries, with a focus on French-speaking Africa, once dominated by the likes of BNP Paribas, SocGen and Credit Agricole, who have cut back overseas lending to boost their capital strength.

Chinese investment, though present in companies such as iron ore miner African Minerals, has also failed to live up to expectations.

Yet Africa's burgeoning banks are ready to pick up some of the slack, says the head of corporate and investment banking at Standard Bank, the continent's largest lender.

"There is an emerging group of more local African banks who are sophisticated, have strong balance sheets and are looking to build their investment banking and structured project financing capability," Standard Bank's David Munro said, adding that the trend is also extending to other capital-intensive areas such as oil, gas and general infrastructure.

For international banks, including the big South African ones with a significant African presence, such as Standard Bank and Nedbank, local lenders can be important partners to share the risk attached to mines in remote and often volatile parts of the world.

Nedbank has an alliance with Ecobank and is also affiliated through bonds that could convert to a 20 percent holding in its smaller rival. Nedbank Chief Executive Mike Brown recently said he expects the bank to take up the stake.

GOOD PARTNERS

"They're a good partner, they don't tend to have the same view of political risk as we do," Mark Tyler, managing director of mining investment banking at Nedbank Capital, told Reuters.

But while the Ecobank tie-up gives access to a branch network stretching into places where Nedbank has no presence - such as Burkina Faso, Ivory Coast and Liberia - it is starting to encounter an increasingly competitive edge.

"We've lost a couple of deals because Ecobank has put some serious money down," Tyler said.

Charles Kie, head of corporate banking at Ecobank, told Reuters that having operations on the ground across Africa enables it to see the risks differently.

"I can easily imagine that the perception of risk of African countries is still far from the reality," Kie said.

"It's not simply because the international banks are stepping out of the continent," he said of the rising involvement of local banks, "... 20 years of growth means we are now in a position to play a much stronger role."

Ecobank in March announced a record annual profit of $348 million for 2012, though it has also faced its share of troubles, with its chairman resigning in October over allegations of mismanagement.

Regardless of any hitches along the way, Standard Bank's Munro believes the role of Africa's local banks in mining will only increase: "You can't play against a theme like this, you have to play with it."

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