Brian Benza
31 October 2008
The global credit crisis is beginning to affect mining projects in Botswana as companies are now expected to struggle to raise funds to start up or expand operations.
There is currently a multitude of multinational companies that directly rely on funding from international markets that are in the process of setting up mining operations in Botswana in various mining activities which include uranium, nickel, copper, silver and gold.
Speaking at a panel discussion on how Botswana is safe from the credit crisis, renowned economist and E-consult Managing Director Dr Keith Jefferis said he was a bit pessimistic about the prospects of the new mining companies that are still prospecting for minerals due to the credit crunch and weakening of commodity prices.
"One of the fundamental components of this current crisis is risk aversion and mining is an inherently risky business," Jefferis said.
"I am concerned that while there has been a lot of good results announced by prospecting companies in Botswana, these firms might find it difficult to get their projects to the mining stage.
"This week, Discovery Metals, which is prospecting for copper and silver in Maun, announced that their exploration was going on very well and at the same time that they will need $200 million to develop the mine. Now personally, I think they are going to struggle to raise that money. The combination of risk aversion and the weakening of commodity prices are going to make it very difficult for mining companies.
Commodity prices have been on a free fall recently due to an anticipated slowdown in the global economy with nickel prices falling by 80 percent over the past 18 months.
"Some of these new mines that we thought were going to come on stream might be deferred and might come in at a later stage," he said.
Companies prospecting for minerals in Botswana include Discovery Metals, A-Cap Resources that is exploring for uranium, Albidion (nickel), Firestone (diamonds), Energy Resources (uranium), Hana Mining (copper and silver).
This week, international finance services group Credit Suisse, said the credit crisis risks delaying around $50-billion of the mining sector's capital expenditure used to fund new or expand existing projects in 2009.
A report from the company said limited access to financing might impact the construction of some 300 million tonnes of iron ore, five million tonnes of copper, 10 million tonnes of aluminium and over one million ounces of platinum, which could be delayed by two to three years.
"We think up to $50-billion of the $75-billion scheduled for 2009 is likely to be deferred for at least a year," it said.
This could then delay a further $150 billion scheduled between 2010 and 2012, the bank said.
The continued rise in raw materials such as steel has also exacerbated the situation as costs continue to rise with expected revenue continuing to fall due to the weakening of international commodity prices.
"The potential delay of such capacity is likely to plant the seeds for the next bull market, especially given that the recent five-year bull market did not see large scale capacity additions, with the exception of iron-ore," it said.
The delayed projects represent around 66 percent of next year's spending plans, and for iron-ore, it would affect some 35 percent of the current seaborne market.
"The most affected miners are likely to be those with excessive debt like Xstrata and the juniors who have limited access to financing," the report said.
Other analysts believe that the credit squeeze is going to force a few mid-cap or junior companies to merge or to be swallowed up by huge multinationals. Last week the market witnessed BSE-listed Aviva Corporation entering into a merger implementation agreement with Northern Energy Mining Inc. (NEMI) to create a new growth oriented international coal and energy group.
Despite the pessimistic forecasts on mining companies due to the credit crunch, there is a belief that energy development companies will still be able to attract investors due to the huge appetite for power in the industry.
"Those related to coal and gas will be largely unaffected because the need for power is so extreme in southern Africa and so the economics of those projects are still intact," said Jefferis.
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