The credit crunch has driven up the cost of finance for junior miners and caused financers to take smaller positions in these companies, but they are not yet turning junior miners and their projects away.
Rand Merchant Bank transactor Gary Buisansky said at the Africa Mining Congress in Sandton, Johannesburg today the RMB still had a strong appetite for good mining projects under current economic circumstances, but the bank was taking steps to mitigate its risks.
This included sharing risk between a number of stakeholders by taking smaller positions in companies and passing on the higher cost of finance to junior miners.
Buisansky said the bank was still considering, developing and financing projects before syndicating it onwards. The RMB elected to finance companies that particularly had sound management that would make its money work for it.
Mohale Rakgate, senior investment officer: project finance of the Development Bank of Southern Africa, said the Development Bank that had a mandate to firstly assist development in South Africa and then Southern Africa, has not rejected any deals in the current tight credit situation, but the organisation was also passing on higher financing cost.
The Development Bank now sought companies with good reward-risk profiles and was still open for business in current circumstances.
Both RMB and the Development Bank consider coal as one of the most attractive commodities on the continent at this stage. The Development Bank also favours platinum projects, but the RMB is careful about platinum as some platinum projects require enormous cost to reach production.
The financers view the Democratic Republic of the Congo (DRC) as the current hot spot for mining investment in Africa as the country still has much value to unlock and hosts phenomenal projects. Rakgate feels alumina projects in Guinea are enticing, while Buisansky sees coal in South Africa as an enormous hot spot.
RMB preferred better projects in bad jurisdictions to weaker projects in good jurisdictions. Among its criteria for financing is sound management that has ideally undertaken mining projects before, excellent geology, sufficient infrastructure and a commitment and focus on the particular project, said Buisansky.
The Development Bank was not seeking ready projects but wanted projects that required assistance and development to bankable feasibility stage.
The organisation is currently focusing one third of its work in Southern Africa and two thirds in South Africa, but will expand investment to the rest of Africa in the next three years.