While US Treasury Secretary Timothy Geithner continues to dither over details of the Financial Stability Plan, leaving markets in general to stumble on sideways, selected mining companies continue to raise fresh capital directly from investors. While bank bail outs have become commonplace in a number of countries, and all kinds of sectors have raised hands in appeals for non-bank bailouts, the mining sector has struggled on silently.But the struggle tides may have turned, for miners at least. In the past few months, mining companies have raised at least USD 30bn by way of new equity issues (also known as rights or capital issues), bonds, loan notes, and, in some forced circumstances, sales of equity stakes in operating entities. Old fashioned bank lending is rare, if seen at all.The single biggest raising, at USD 7.2bn, was announced this week, when mining major Rio Tinto sold bonds to Chinalco, a far smaller company, but a significant player in the global aluminium sector. If the bonds are subsequently converted into equity, Chinalco's stake in the Rio Tinto group will rise to 18%. Chinalco, however, is also to spend USD 12.3bn buying direct equity stakes in some of Rio Tinto's best operating assets, such as Hamersley Iron.Rio Tinto has been staggering around under a mountain of debt since it bought Alcan for USD 38bn in cash, a figure very similar to Rio Tinto's net debt on 31 December 2008. While investors had for months anticipated that Rio Tinto would be forced into a crippling rights issue, it has taken the Chinese takeaway option, for the meantime, anyway.Not so for Xstrata, one of the most acquisitive major mining stocks over the commodities supercycle between 2002 and 2008. In line with Rio Tinto, Xstrata is faced with a small mountain of debt; both groups also suffer under deeply depressed stock prices. But Xstrata has bit the bullet, and chosen to go ahead with a hugely dilutive rights issue set to raise nearly USD 6bn, of which USD 2bn will be used to acquire Glencore's world-class, cash generative Prodeco coal operations in Colombia. Glencore ranks as Xstrata's biggest shareholder, and has interesting challenges of its own.At the other end of the capital raising scale, a number of gold companies have been raising fresh capital as if nothing odd at all is going on in credit and equity markets. Seen as a group, gold stocks (and a very small cousin, silver stocks) are the single best performing equity subsector in the world, in a relative sense, reflecting broad confidence in gold bullion, and also the price trading well within throwing distance of its record high, set in March 2008.While Xstrata is seeking to raise nearly USD 6bn, its market value, or capitalisation, is a relatively modest USD 10.9bn, reflecting the huge extent to which the issue will dilute, when it goes through. Compare that to Newmont, a Tier I global gold stock, raising USD 1.1bn by issuing 30m new shares, equal to a modest 6% of its existing shares in issue, and a relatively modest amount of capital compared to its market value of USD 20bn.At the same time, Newmont is raising USD 450m in loan notes, in the form of convertible debt. Newcrest, Kinross, and Harmony, also Tier I global gold names, have recently raised USD 498m, USD 361m, and USD 99m, respectively, in fresh equity issues. Such is the confidence in these offerings from quality gold stocks that the issues are typically announced as bought deals, where a broker or group of brokers buy the stock en masse from the issuing company, and then onsell the stock directly to their clients.While gold stocks rank first in bought deal offerings, some smaller gold stocks are having a tough time, with private placements used as a last resort. Banro, which has a heavily endowed string of gold prospects broadly west of Bukavu in the Democratic Republic of the Congo, recently raised the equivalent of USD 10m in such an offering. Banro has a market value of just over USD 70m, but needs more than USD 400m to build Twangiza, its first proposed mine in the district.Osisko also holds an advanced project, but in a settled mining district in Quebec. Osisko's Canadian Malarctic project could product an average of around 450,000 ounces of gold a year for 14 years, and while Twangiza is projected to produce about 175,000 ounces a year over about the same period, Banro's project is wide open to extensions. In any event, Osisko carries a market value of USD 656m, and recently raised USD 242m.The Osisko name outweighs Banro's by a factor of nearly ten times; this comparison, oversimplified as it may be, illustrates how smaller gold companies are likely to be forced into all kinds of interesting deals, but not, perhaps, as extreme as turned out this week by Rio Tinto, a deal that in any event needs to be given the blessing of all kinds of regulators in all kinds of places.It is not only established gold companies that have been able to raise fresh capital with relative ease. There have also been successful recent issues by the likes of Silver Wheaton, and, in the uranium space, First Uranium. Beyond Xstrata and Rio Tinto, smaller entities outside gold, silver and uranium spaces have also shown it to be tough going, not least the recent monster dilution issues announced by Metorex and Katanga Mining.SELECTED RECENT MINING CAPITAL RAISINGS
Lake Shore Gold***
* Sold units of one share and half a warrant.
** This deal is incomplete and conditional.
*** Two issue prices apply
Source: Market & company information, compiled by Barry Sergeant