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Exploration companies seek alternative funding solutions

9 February 2016

Amid falling demand for commodities, slower economic growth in China and overall sluggishness in global markets, mineral exploration companies are having to find new sources of funding.

Speaking to Mining Weekly Online in a telephone interview, London-based law firm Charles Russell Speechlys' energy and natural resources partner Clive Hopewell noted that there was still a lack of investment in exploration in the mining industry.

He added that, when demand for raw materials picks up again, there would still be a lag in investment in exploration projects, as investors would likely be more cautious, with many having burnt their fingers in the last mining boom.

I suspect there will be quite a catch-up period in investment in exploration opportunities, but also in getting the capital markets back up to speed in investing in mining,” he said.

He pointed out that, while there was “plenty of capital” available, accessing that capital was a lot more sophisticated and complex, with exploration companies needing to approach specialist investors, hedge funds, family offices and private equity houses for funding.

Hopewell further warned that the lack of investment in new exploration projects, and thus the development of new mineral resources and the availability of mineral supplies, would worsen the longer the downturn continued.

Also speaking to Mining Weekly Online, Charles Russell Speechlys partner Adam Carling said the mining industry was at a point in the cycle where asset prices looked cheap and that “there were certainly” opportunities for investors with a long-term view.

In terms of deal activity, it has been less than we expected in the last 12 months, but in terms moving private equity type or long-term investors into the market, that’s the most prospective deal activity for us,” he added.

He cautioned that mining companies should expect more shareholder activism in the year ahead. “It is already a notable feature of UK-listed junior miners, many of which have activities in Africa.”

He said factors that came into play included share prices being under pressure, leading to disgruntled shareholders and new investors coming in who are keen to exert a controlling influence, even at a comparatively low level.

Shareholders are seeking to progress their own views on how companies should be run,” Carling said, adding that junior African miners had experienced an increase in shareholders exerting their influence during the downcycle.

Carling added that former senior managers, who still held shares but were no longer active in the company, were also often involved in shareholder activism.

We see it playing out in various ways. Often, it’s just changing the board or encouraging management to pursue a particular deal,” he said.

Hopewell added that this increase would be brought on by the frustration of exploration or project development being put on hold.

The law firm’s energy and natural resources division, which would host a number of meetings at the yearly Investing in Mining Indaba in Cape Town next week, specialised in highly regulated sectors requiring specialist industry knowledge, such as mineral extraction, energy and power. 

This article was written by Megan van Wyngaardt for Mining Weekly, February 2016.

To read further about our Indaba event please click here, or for more information please contact Clive Hopewell on +44 (0)20 7203 5203 or at clive.hopewell@crsblaw.com.