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Rpt miners struggle to fund tin projects, deeper shortages loom


´╗┐* Many banks shun market after cartel collapse* Firms look at options such as end-user finance* Deficit due to deepen, threatens spike in price* Soaring prices could spur substitutionBy Eric OnstadLONDON, Dec 11 Companies seeking to build new tin mines are struggling to finance the projects, which could deepen shortages in a market that is already in deficit and exacerbate price moves that are already volatile. Financing any new mine has become difficult following the global financial crisis, but the situation in the tin sector is even worse. Many banks shun lending to tin projects due to its thin market after the collapse of a cartel in the 1980s. Prices may have to double to attract enough investment in new mines. But if the price soars out of control, consumers could be forced to find substitutes, leading to a boom-bust situation. Companies are looking at a range of creative options to fund the next generation of mines to extract the metal, which is mainly used for solder in the electronics industry and in coatings for cans and other packaging. Some are seeking money based on other products mined in the same project such as tungsten or iron ore, while others are trying to obtain financing from end-users who want to lock in a stream of supply."It's very tough for tin producers," said Peter Cook, chairman of Australia's biggest tin producer, Metals X."The real problem is tin is a commodity that has a very volatile price ... Any bank that finances a project likes to secure the cash flow," he said in an interview during a recent tin conference sponsored by industry group ITRI. Banks often require mining firms to hedge output to lock in future prices, but long-term hedging is impossible for tin, because futures for the metal on the London Metal Exchange (LME) only extend 15 months forward, compared with 123 months for copper and aluminium.

Another difficulty is weak share markets and low valuations of mining shares, which makes it difficult to raise money through equity issues."Some projects can actually get project finance from the banks, but the project won't go because they can't raise the equity component," Kasbah Resources Managing Director Wayne Bramwell said. END USERS Australia's Venture Minerals, which is developing the Mt. Lindsay tin/tungsten mine in Tasmania, expects tungsten to be the main driver for financing and may sell U.S. bonds."There are more creative ways of getting funding through off-take around tungsten, but tin I have less confidence in," Andrew Radonjic, its technical director, said.

Kerry Heywood, chief executive of Tin International, a private company working on projects in eastern Germany, has been holding talks with European tin smelters that use scrap supplies but are interested in more stable feedstock from mines. Kasbah Resources also has been holding talks with end-users. Most consumers have not been prepared to be the main sources of cash, but they probably hold the key to future funding, Bramwell said."We can see this security-of-supply issue already happening. The change will be driven by the end-users, reaching through the smelters and down into companies like our own to secure supply."Korea's Daewoo International has already made an investment in a tin project in Cameroon, Bramwell added. DEEPER DEFICITS The tin market is the only one of the six main industrial metals on the LME with a deficit forecast for 2013.

According to a poll of analysts by Reuters, its deficit is estimated to be 2,970 tonnes this year and widen to 4,189 tonnes in 2013. The shortfall could get deeper, because small-scale mining in locales such as China, Indonesia and Bolivia, which accounts for nearly 40 percent of global mine output, is expected to decline in coming years as easily accessible deposits run out. At the same time, few new bigger mines are due to launch production."There are many deposits but few real projects with economics that seem viable," John Sykes, director of Greenfields Research, said. Many new mines have low grades of ore, which hikes costs. At a grade of 0.5 percent, a typical open pit mine would need a price of $25,000 a tonne to just break even, and an underground operation would need about $40,000, ITRI said. Three-month tin on the LME has gained 18 percent since late October to around $23,000 a tonne but is still down about a third from a peak of $33,600 touched in April 2011. Peter Kettle of ITRI expects prices to reach $35,000 to $40,000 by 2015, a gain of 50 to 75 percent. A more bullish view comes from Mark Thompson, executive chairman of private firm Treliver Minerals, which is seeking to revive tin mining in Britain. He said prices would go as high as $100,000 per tonne due to the funding difficulties and resulting shortages, before settling at $40,000 to $60,000."Very few projects I look at, and I'm also on the board of Eurotin so I'm talking about our projects as well - none of these things work at $20,000, none of them are financeable," said Thompson, who co-founded Galena, the hedge fund arm of commodity trader Trafigura. Warren Hallam, managing director of Metals X, warned that the tin market could behave like the rare earths market, where prices skyrocketed on supply fears when China imposed export controls and then later tumbled."It'll always be subject to manipulation because it (tin) is the tiniest of all those markets. It's a miniscule market compared to the copper market," Hallam said. A spike in prices, however, could curb demand in the long run by spurring consumers to find alternatives, Kettle said."This is all still dependent on a continual growth in consumption of a couple percent a year. If the price does goes to $100,000 a tonne, then you will get a lot of substitution.

Trlpc loan bankers seek ways to generate deals as lbos dry up


´╗┐European leveraged loan bankers are pitching dividend recapitalisation deals and other leveraged financing options to sponsors as the supply of buyout loans dries up. Faced with very little dealflow and time on their hands, leveraged loan bankers are inviting sponsors to reprice deals on better terms to reduce borrowing costs, remove covenants on deals that are not covenant-lite and raise extra debt to enable borrowers to extract value through dividend payments."People are nervous about the lack of deal flow. Bankers are pitching anything and everything right now as the high yield and leveraged loan markets are open," a banker said. Despite a strong start to the year where banks were busy working on a variety of LBOs, including Austrian packaging group Constantia Flexibles, Altice's Portugal Telecom and Swiss packaging group SIG Combibloc, the pipeline has now dried up. The outlook for new deals is being hindered further as owners have become increasingly attracted to exiting a company via the capital markets rather than a sale, in a bid to obtain maximum returns.

European drinks bottler Refresco Gerber is seeking a stock market listing in Amsterdam, disappointing leveraged loan bankers that had been working on debt packages of up to 1.4 billion euros ($1.52 billion) to back a potential sale. Advent is preparing an exit from German perfume chain Douglas and has asked JP Morgan and Goldman Sachs to organise a sale or listing, while Cinven mandated Rothschild in January to explore options including a sale or listing of its German truck and trailer parts maker Jost. Meanwhile, Hellman & Friedman are expected to push ahead with an IPO of energy analysis group Wood Mackenzie. Any M&A that does happen will take some months to reach the leveraged loan market leading bankers to try to generate business by changing existing deals.

"We would all like more LBO deals for sure. A month ago it did not look likely there would be that much refinancing this year but actually its looks as though there will be now. Dividend recapitalisations and repricings are what will be happening at least in the short term, it is what keeps things ticking over," a second banker said.

WINNERS AND LOSERS Sponsors are viewing the approach as positive, eager get better terms on deals. Conversely, cash-rich investors are preparing for looser terms on more aggressive deals. Investors are unlikely to put up too much of a fight though for fear of repayment, given the lack of deal flow."Every deal we have ever looked at we are talking to sponsors about doing a dividend recapitalisation on. Any banker who has ever done a deal will look at what they can do as possible investors have cash bursting out of their ears," a third banker said. Despite keeping bankers busy, the workflow is unlikely to be that rewarding or cash generative as most of the deals will be pitched on a best efforts basis, which typically generate fees of 50bp-100bp."If a big team is not bringing in income then they have the head count to chase the sponsors and pitch for this work, but there is no money in it though," a fourth banker said. ($1 = 0.9196 euros)