* Asian end-users step in to fill funding gap
* Explorers signing joint-ventures, supply agreements
* Turbulent stock markets make equity offerings difficult
* European banks retreated from financing, leaving gap
By Pav Jordan
TORONTO, March 5 When Adriana Resources
needed to develop its Lac Otelnuk iron ore project in
Eastern Canada, it turned to Chinese steelmaker WISCO to help
foot a bill that will eventually come to some C$12.9 billion.
WISCO, a subsidiary of global steel giant Wuhan Iron & Steel
Corp, was among the few prospective partners with
deep enough pockets to consider the price tag on the project to
build what promises to be one of the world's largest iron ore
"Logically, the only way that made any sense was to go to an
end-user as a partner, because they could absorb the slightly
higher capital and because by the time it comes out in the wash
they are getting their material at a huge discount," Adriana
Resources Chief Executive Allen Palmiere said of the investment.
"It's impossible to access capital markets for that kind of
funding, it just can't be done," said Palmiere, who approached
WISCO in 2009, when he was barely a month into the job.
Joint ventures like the one signed by Adriana Resources and
WISCO are becoming increasingly common in Canada, marrying
cash-strapped explorers and Asian partners that need bulk
commodities like iron ore to feed rapid industrialization. The
concept is set to be a theme at the Prospectors and Developers
Association of Canada (PDAC) convention in Toronto this week.
Among the nearly 30,000 delegates at this week's
PDAC event are executives from exploration companies eager to
sign so-called take-off agreements, where they receive project
financing in exchange for equity stakes or promises of future
Under the deal with Adriana, WISCO became the 60-percent
owner of the Lac Otelnuk project, which is due to start
producing some 50 million tonnes of iron ore pellets per year in
northern Quebec in 2016 or 2017.
WISCO, which has already committed C$120 million to the
project, will also own the right to 60 percent of production,
guaranteeing supply for its steel mills for some 50 years.
"You've seen a lot more of these kinds of partnerships as a
way for explorers to fund their business instead of relying on
the public markets," said a investment banker at one of Canada's
"Where some have used public markets, many others are moving
to the strategic capital and to the trading houses of Japan,
with the Chinese investors and other money out of Asia."
Both China, the most powerful force in the world economy
since the 2008-09 economic crisis, and India have helped sustain
commodity prices even as the weak U.S. housing market and
Europe's sovereign debt crisis stymie regional growth.
Asian commodity giants have also become major project
financiers as turbulent stock markets made it tough to do equity
offerings. The deals are also gaining popularity as European
banks retreat from strategic funding deals, bankers say.
There are few statistics to quantify growing participation
by Asian powers in Canadian resources. But numerous individual
examples highlight the level of Asian interest.
Another example is Century Iron Mines,
Canada's largest holder of iron ore land claims, which has a
joint venture agreement that gives WISCO access to 40 percent of
output from three projects in the Quebec/Labrador area and a 25
percent stake in Century.
New Millennium has partnered with Indian steel
giant Tata Steel to develop two projects in the same
Palmiere said at least three other Canadian miners in the
iron ore-rich Labrador Trough in northern Quebec - home to about
a dozen other early stage exploration projects - are seeking
deals with Asian partners.
"I get a sense there's more and more activity of
Chinese looking to Canada as sort of an acquisition point," said
Michael Bourassa, a mining lawyer with Fasken Martineau DuMoulin
who represented Adriana on the WISCO deal.
"There is definitely an appetite out there from people
looking in Canada. They use us as sort of a stepping stone to
get to the assets, because a lot them are held by juniors and
intermediates here in Canada."