February 2, 2020 / 8:00 AM / 21 days ago

Miners face funding squeeze as green investing surges

    * Miners lose out on financing to cleaner industries
    * ESG of growing importance to mining companies
    * Mining private equity funding shrinks: tmsnrt.rs/2GyXRHt

    By Helen Reid and Tanisha Heiberg
    CAPE TOWN, Feb 2 (Reuters) - 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.
    Making the mining industry more sustainable by running mines
on renewable energy, for example, will 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," said Boris Kamstra, executive director of Alphamin
Resources, which manages the Bisie tin project in Democratic
Republic of Congo.
    The capital squeeze that started about two years ago has
worsened recently, said Julian Treger, CEO of Anglo Pacific
Group, a mining royalty and streaming company. The
average cost of capital for early-stage mining projects rose by
two percentage points over the past two years, he estimates. 
    "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withdrawn.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 Feb.
3-6.         
    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 shows. 
 
 
    COAL PROJECTS FLOUNDER
    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 on Jan. 14 it would sell active holdings in
companies generating more than 25% of revenues from thermal
coal.
    "If you’re a small coal explorer, I don’t think you stand
much of a chance of raising any money at all," said Fred White,
associate director at Medea Capital Partners in London. 
    "There’s still a huge market and huge demand [for coal], but
it's not getting financed by Western banks," he added. Local
trading houses and lenders are stepping in instead.
    Thermal coal accounts for nearly 40% of the world's
electricity generation and more than 40% of energy-related
carbon dioxide emissions, according to the International Energy
Agency.
    In Africa, where access to electricity is still a problem,
coal-to-power projects could previously rely on support from
development finance institutions. 
    But even they are withdrawing under pressure. 
    In November, the African Development Bank (AfDB) decided
against funding a Kenya coal project that was halted by a local
environmental tribunal in June.
    The continent's biggest coal producer, South Africa, is also
seeing funding dry up. South Africa's Nedbank has
stopped funding coal-related projects, while FirstRand
cut greenfield thermal coal projects to less than 0.5% of its
lending.

    
 (Reporting by Helen Reid and Tanisha Heiberg; Editing by Susan
Fenton)
  
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