By Pav Jordan
TORONTO |Sun Mar 6, 2011 2:25pm EST
TORONTO(Reuters) - A whole new class of conservative investor is piling intothe mining sector -- once the exclusive domain of daring risk-takers --bringing a bonanza of funding options to junior miners racing towardproduction.
Pensionfund managers andsovereign wealth funds are now hungry to providefinancing for projectsdeemed worthy of delivering stable, long-termreturns.
"That'sa verystrong signal that this asset class is large enough now and thereturnsare steady enough, or expected to be steady enough," said MikeWhite, thepresident of IBK Capital Corp, a Toronto specialist in equityfinancingfor miners with projects under development.
"Younowhave more demand than this world has ever seen for metals," hesaid. "Sowhat do we see? We see the investment bankers of the world andotherinvestors and institutions reacting."
Whitecommentssome ahead of the PDAC prospectors and developers conventionrunningMarch 6-9 in Toronto. The show, sponsored in part by IBKCapital, willbring together hundreds of small-cap miners withfinanciers looking fornew projects.
Newfound interest in mining finance is clearly evident.
TheCanadaPension Plan Investment Board, Canada's No. 2 pensionfundadministrator, recently created a team dedicated to privateequityinvesting in mining.
LastNovember,the CPPIB, with some C$140 billion ($144 billion) undermanagement,completed a second tranche of a C$150 million credit facilitywithOsisko Mining Corp (OSK.TO).
Itisnot that investment criteria have changed for the CPPIB andinvestorslike it. What has receded is fears of short-term volatility inmetalprices. Investors that traditionally shunned mining in favorofinfrastructure and other conservative investments are taking afreshlook, more confident of consistent returns.
Thatassurancereflects a growing consensus that commodities are goingthrough what isknown as a "super cycle," driven by Asian economicgrowth. To many, asteady rise in prices seems all but assured for yearsto come.
"TheCPP InvestmentBoard is interested in pursuing more direct investmentopportunities inthe extractive industries, including mining," MarkWiseman, CPPIB'sexecutive vice-president, told Reuters in an emailedstatement.
"Asa long-terminvestor, CPPIB has a comparative advantage in its abilityto withstandthe volatility inherent in commodity-based industries."
APPETITE ON THE RISE
Thenewpools of available investment means junior miners with projectsclose toproduction have greater access to capital than at any time inrecentmemory, according to industry experts interviewed on the eve ofPDAC, theindustry's largest annual gathering.
"Asprices continue to rise higher and macrofactors enter into the picture,projects that may have been questionableand not developable at lowercommodity prices ... are certainly moreeconomic," said Lawrence Lewis,head of equity capital markets at ScotiaCapital, the investment bankingarm of Bank of Nova Scotia (BNS.TO). Scotia Capital is also a PDAC sponsor.
JeffRichmond,a managing director at Scotia Capital, said its minefinancing businesshas grown in parallel with the rise in metal prices."The market has beenopen," he told Reuters.
Thefloodhas gathered pace since the end of 2009, after many metalpricesrecovered from a brief swoon during the global economic crisis.Gold,the classic safe haven, barely faltered.
Aswellas the pension funds, sovereign wealth funds from China,Korea,Singapore or Dubai are also increasingly active in mining, wheretheycan exchange U.S. dollar-denominated savings for hard mining assets.
Morethanever before, Chinese, Indian and Brazilian companies arenegotiatingoff-take agreements -- financing pegged to a share of futureproduction.Their aim is to acquire more of the raw materials needed tofeedmanufacturing processes or infrastructure development in theirboomingeconomies.
Asian andLatinAmerican banks are another class of relative newcomer to mining, anareaonce dominated by their North American and European counterparts.
"Wearewitnessing a shift of the balance of power to emerging marketcountries,particularly Brazil, India, and China," said Darryl Levitt, alawyerspecializing in mergers at Macleod Dixon in Toronto.
"Miningcompaniesand financing parties located there are now scouring the restof theworld for financing opportunities to secure resources," he said."It isno longer a question of developing their own backyards butextendingtheir reach into other countries which are minerally endowed."
($1=
.97 Canadian)
(Additional reporting by Euan Rocha and Julie Gordon)