Financing pinch may squeeze Africa mining projects

CONAKRY (Reuters) - Financing for mining projects in Africa, where minerals exports have helped drive strong economic growth, could slow down and miners there face tougher credit terms as a result of the global banking crisis.

"The impact is difficult to evaluate at this stage but there's certain to be one," said Gregoire Leforestier, a mines project financing expert with BNP (BNPP.PA) Paribas.

"I think this will happen in three ways: the volumes of available financing will certainly be lower, the duration of available financing will also be shorter and the costs of financing will certainly also increase," Leforestier told Reuters on the sidelines of a mining conference in Guinea, the world's top exporter of the bauxite ore used to make aluminum.

Investor interest in African metals and minerals producers like Guinea and Democratic Republic of Congo has soared, driven by rises in metals prices and demand from commodities-hungry Asian economies like China and India.

Oil and minerals exports helped propel sub-Saharan Africa's economic growth to nearly 7 percent in 2007, according to the International Monetary Fund.

The IMF sees growth slowing in 2008 to 6.1 percent due to growing financial turmoil and rising food and energy prices.

Countries like bauxite-exporter Guinea, whose mining sector provides 85 percent of its hard currency earnings, are bracing for a possible impact from the international credit squeeze.

"This crisis could have collateral effects on African nations like us which are raw materials producers," said Abdoul Karim Sylla, secretary general of Guinea's Mines Ministry.

Before the global banking crisis broke, Guinea had forecast that over $27 billion would be invested in its mining and energy projects up to 2015. London-listed Rio Tinto (RIO.L) holds the concession for the $6 billion Simandou iron ore project and is a partner in local bauxite exporter CBG with Alcoa (AA.N). Russian aluminum giant RUSAL also mines and refines bauxite in Guinea.

With recent high energy and commodities prices and strong demand encouraging "resource nationalism" across the globe, both Guinea and Congo have launched mining contract reviews seeking to maximize benefits for the state from mining deals.

BNP Paribas' Leforestier said that in a tighter financing environment, governments would need to think about keeping the investment environment attractive to bring in project backers.

"You need to give confidence to lenders and investors about the local political and regulatory environment in Guinea, particularly confidence in the respect for contracts. I think that's a very important element," Leforestier said.

DEMAND STAYING STRONG

However, government and mining company officials said they were optimistic that global demand for Africa's treasure trove of metals and minerals would remain strong, despite the signs of a worldwide recession.

Congo's Deputy Mines Minister Victor Kasongo said he was confident his country's copper and cobalt riches would continue to attract both mining companies and financial backers for them.

"We've got high copper and cobalt content and low cost. We've got the best situation in the world. It's here that you can recuperate your money fastest ... There are strong margins," he told Reuters.

Kasongo said that even if smaller operators were forced to halt activities because of financing problems, bigger companies with deeper pockets would step in. Contract cancellations under an ongoing mines contract review process, still awaiting completion by Congo's new government that is to be appointed in the coming days, could also open up new mining concessions.

"I think the majors will come in and stage mergers to take advantage of these margins ... When the contract review is finished, I believe they will fight for those assets," he said.

Kasongo was optimistic that demand for Congo's copper would continue to be driven by the expansion of Asian economies.

Rio Tinto spokesman Jordan Feilders had a similar view: "Even with a slowdown in the world economy, we're confident that in the future there will be demand for iron ore, copper and aluminum which are the big minerals produced by Rio Tinto."

But other analysts were less upbeat.

"Guinea could clearly be hit by the crisis if the recession becomes a reality in nations which import our raw materials, especially bauxite. If the crisis in Europe and the United States slows activity in big importers China and India, that will directly affect our exports and reduce our revenues," said Guinean Finance Ministry economist Kalidou Diallo.

In Mali, Africa's No. 3 gold producer, a government mines official said there was "moderate concern" that gold mining projects still in exploration phase could suffer a fall-off in financing from private placements and stock market investment.

"The worry would be that an eventual economic recession would affect savings and stock market offers," said Mohamed Keita, an adviser at the Malian Ministry of Mines.

(For full Reuters Africa coverage and to have your say on the top issues, visit: africa.reuters.com/)

(Additional reporting by Joe Bavier in Kinshasa and Tiemoko Diallo in Bamako; Writing by Pascal Fletcher; editing by Alistair Thomson)