As global investors shift away from heavy industry in favour of cleaner sectors, mining companies are losing billions in financing, raising the cost of capital and jeopardising projects.
Reuters stressed that making the mining industry more sustainable by running mines on renewable energy, for example, would be a key focus at the annual Investing in African Mining Indaba conference in Cape Town this week, as companies hunt for new sources of capital including private equity, debt, offtake finance and royalty finance.
Environmental, social & governance (ESG) concerns have driven money into specialised ESG funds which often exclude mining stocks among other ‘dirty’ assets. “You talk to anyone at the moment, they say there’s no money,” it quoted executive director of Alphamin Resources, Boris Kamstra, whose firm manages the Bisie tin project in Democratic Republic of Congo.
The capital squeeze that started about two years ago has worsened recently, CEO of Anglo Pacific Group, a mining royalty and streaming company, Julian Treger, said.
The average cost of capital for early-stage mining projects rose by two percentage points over the past two years, he estimated.
“Even for companies that have good projects it’s very difficult for them to raise any money in these markets,” said Caroline Donally, managing director at private equity firm Denham Capital, in Houston.
“Previous investors who would provide equity appear to have withdrawn. A number of specialist funds have shut up shop, and generalists aren’t investing in commodities anymore,” said Donally, who will be attending Mining Indaba, the world’s biggest mining investment conference, which takes place between February 3rd and 6th.
Cannabis stocks and cryptocurrencies are among alternative assets that are luring retail investors away from miners. Mining-specific private equity funds raised $0.3 billion in 2019, a fifth of the amount raised in 2009, and just barely more than the $0.2 billion raised in 2014 during a global commodity crash, data from Preqin showed.
Coal miners – especially those extracting thermal coal, burnt to produce electricity – are bearing the brunt of the sustainable investing trend. Norway’s sovereign wealth fund divested from all fossil fuel last year, and the world’s biggest asset manager Blackrock said.