Credit Crunch WoesThe beauty about Trevali is they will have an existing mine up and running with instant cash filling the coffers.
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Metal's there, it's money that's hard to find
For junior miners, the credit crunch has made it almost impossible to raise capital
ANDY HOFFMAN
From Friday's Globe and Mail
January 25, 2008 at 8:12 AM EST
In the midst of the greatest mining boom in history, being a junior miner is suddenly very grim.
While large producers are awash in cash to fund development projects, thanks to soaring metal prices, small companies with advanced-stage properties are finding it almost impossible to raise capital.
"The debt market is not there for us right now," said Ian Austin, the president and chief executive officer of Skye Resources Inc., which is trying to raise about $1-billion (U.S.) to finance a nickel project in Guatemala.
Skye, which has seen its shares plunge 55 per cent over the past year and 23 per cent in January alone, is by no means the only miner struggling with panicky debt markets.
Fellow Vancouver junior Adanac Molybdenum Corp. has been trying to raise $600-million in debt financing for its Ruby Creek project near Atlin, B.C., since October.
"It's difficult to get anybody's attention when the house is on fire," Mike MacLeod, Adanac's president and CEO, said yesterday in an interview.
As the scope of the credit crunch has widened, the plight of junior mining firms, hoping to go it alone and build projects without the financial help of senior producers, has taken a dark turn. The subprime mortgage market meltdown in the United States has saddled banks and other lenders with mountains of bad debt and heavy financial losses.
The recent whipsawing volatility experienced by equity markets has frayed nerves even further, and the appetite to increase leverage with risky high-yield debt associated with junior mining projects has all but disappeared.
"It's tough right now. It's hard for those types of companies to attract new investment dollars because of the lack of liquidity," said Egizio Bianchini, the head of the metals and mining group at BMO Nesbitt Burns.
The unwillingness to take on junior mining project financing could intensify an already severe shortage of new mines and metal supply. If demand for metals such as copper, zinc and nickel continues at current levels, commodity prices are likely to remain strong.
What is so frustrating for the junior miners is that little, if anything, about their projects has changed. Skye's $640-million Fenix project is still expected to produce 50 million pounds of ferro-nickel a year if the company can raise the capital to complete construction and begin production. Nickel is trading at just over $12 a pound, down from its record highs, but well above average historical levels.
The company hopes to start commercial production by late 2009, but to meet that target, Skye will have to complete its financing during this quarter. It had held off trying to raise capital until it completed the project's final cost assessment late in the summer - just in time for the subprime collapse.
"We just missed it," Mr. Austin said.
Given the recent plunge in its stock price, the expected 30-per-cent equity component of the financing would be more dilutive to shareholders. With the collapsing debt market, Skye is now considering taking on a joint-venture partner to help fund Fenix.
"It's been a bit of a downward spiral. The lower the share price, the more dilution has to come. In my view, the most likely outcome now is that they will have to joint-venture the project," said Orest Wowkodaw, an analyst at Canaccord Adams.
Mr. MacLeod said Adanac will continue to advance Ruby Creek, which it hopes will produce roughly 10 million pounds of moly a year, as best it can in the face of the challenging credit markets. With moly trading at a buoyant $33 a pound, Adanac had been hoping to achieve commercial production by the middle of next year, but it will have to complete the financing first.
"You've got to deal with the market as it is and keep moving forward," he said.
"If a junior stops, it dies."
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