Credit woes hit new mine projects, others survive

By Eric Onstad

LONDON (Reuters) - The mining sector -- with strong earnings, low debt and buoyant underlying metals prices -- has been less hurt by the global credit crisis than others, but the funding tap has virtually closed for unknown firms with new projects, executives said this week.

"The big boys can always do what they like, but I know a lot of good projects that cannot get debt financing in place," Pekka Pera, chief executive of Finland's Talvivaara (TALV.L), told the Reuters Global Mining Summit.

Talvivaara, building the biggest nickel mine in Europe, raised $320 million in project finance last year just before the sub-prime U.S. mortgage crisis hit debt markets.

"We couldn't do it now. Nobody's getting any finance at the moment, there's no deals now, just no deals," he added, referring to start-up companies with new mine projects.

Firms with good projects and no funds to build them could become targets of bigger firms, said Paul Knight joint global head of metals and mining at UBS's (UBSN.VX).

"There is an interesting species of companies that had pretty ambitious projects and made, what in retrospect looked to be optimistic assumptions about equity and debt financing."

"Those are potential acquisition opportunities or co-financing opportunities for the major companies."

Chief Executive Richard Adkerson of Freeport-McMoRan Copper & Gold Inc (FCX.N) told the summit that his firm was scouting out possibilities thrown up by the credit squeeze.

"There is unquestionably, a challenge today in raising capital for virtually any business," he said. "We see it as an issue that might lead to opportunities for companies like us.

TERRIFIED

Several mid-sized companies have been able to replenish their coffers despite the credit problems either because of good timing or due to having a good loan history.

Russian gold producer Peter Hambro (POG.L), listed on the Alternative Investment Market in London, was prepared for the prospects of a tighter credit market.

"I had been terrified for a long time that what we are now seeing would happen and we spent a long time trying to persuade the young turks in our organization that we should have money when we didn't need it," said Executive Chairman Peter Hambro.

The firm raised $180 million last year through a convertible bond that can be exchanged for gold at $1,000 per ounce.

"It was about 5 percentage points below what it would have cost us to issue a regular bond, so there was a big savings in terms of cash outflow on interest.