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.
Pension fund managers andsovereign wealth funds are now hungry to provide financing for projectsdeemed worthy of delivering stable, long-term returns.
"That'sa very strong signal that this asset class is large enough now and thereturns are steady enough, or expected to be steady enough," said MikeWhite, the president of IBK Capital Corp, a Toronto specialist in equityfinancing for miners with projects under development.
"Younow have more demand than this world has ever seen for metals," hesaid. "So what do we see? We see the investment bankers of the world andother investors and institutions reacting."
Whitecomments some ahead of the PDAC prospectors and developers conventionrunning March 6-9 in Toronto. The show, sponsored in part by IBKCapital, will bring together hundreds of small-cap miners withfinanciers looking for new projects.
Newfound interest in mining finance is clearly evident.
TheCanada Pension Plan Investment Board, Canada's No. 2 pension fundadministrator, recently created a team dedicated to private equityinvesting in mining.
Last November,the CPPIB, with some C$140 billion ($144 billion) under management,completed a second tranche of a C$150 million credit facility withOsisko Mining Corp (OSK.TO).
Itis not that investment criteria have changed for the CPPIB andinvestors like it. What has receded is fears of short-term volatility inmetal prices. Investors that traditionally shunned mining in favor ofinfrastructure and other conservative investments are taking a freshlook, more confident of consistent returns.
Thatassurance reflects a growing consensus that commodities are goingthrough what is known as a "super cycle," driven by Asian economicgrowth. To many, a steady rise in prices seems all but assured for yearsto come.
"The CPP InvestmentBoard is interested in pursuing more direct investment opportunities inthe extractive industries, including mining," Mark Wiseman, CPPIB'sexecutive vice-president, told Reuters in an emailed statement.
"Asa long-term investor, CPPIB has a comparative advantage in its abilityto withstand the volatility inherent in commodity-based industries."
APPETITE ON THE RISE
Thenew pools of available investment means junior miners with projectsclose to production have greater access to capital than at any time inrecent memory, according to industry experts interviewed on the eve ofPDAC, the industry's largest annual gathering.
"As prices continue to rise higher and macrofactors enter into the picture, projects that may have been questionableand not developable at lower commodity prices ... are certainly moreeconomic," said Lawrence Lewis, head of equity capital markets at ScotiaCapital, the investment banking arm of Bank of Nova Scotia (BNS.TO). Scotia Capital is also a PDAC sponsor.
JeffRichmond, a managing director at Scotia Capital, said its minefinancing business has grown in parallel with the rise in metal prices."The market has been open," he told Reuters.
Theflood has gathered pace since the end of 2009, after many metal pricesrecovered from a brief swoon during the global economic crisis. Gold,the classic safe haven, barely faltered.
Aswell as the pension funds, sovereign wealth funds from China, Korea,Singapore or Dubai are also increasingly active in mining, where theycan exchange U.S. dollar-denominated savings for hard mining assets.
Morethan ever before, Chinese, Indian and Brazilian companies arenegotiating off-take agreements -- financing pegged to a share of futureproduction. Their aim is to acquire more of the raw materials needed tofeed manufacturing processes or infrastructure development in theirbooming economies.
Asian and LatinAmerican banks are another class of relative newcomer to mining, an areaonce dominated by their North American and European counterparts.
"Weare witnessing a shift of the balance of power to emerging marketcountries, particularly Brazil, India, and China," said Darryl Levitt, alawyer specializing in mergers at Macleod Dixon in Toronto.
"Miningcompanies and financing parties located there are now scouring the restof the world for financing opportunities to secure resources," he said."It is no longer a question of developing their own backyards butextending their reach into other countries which are minerally endowed."
($1=
.97 Canadian)
(Additional reporting by Euan Rocha and Julie Gordon)