The financing of mining expansions in the '90s

Before detailing the likely financing trends in the 1990's let us examine the current situation from the three broad perspectives of the industry, the US companies and current financing. During the 1980's the rise in consumption of most widely used metals outstripped the increase in new capacity. Today, consumption expressed as a factor of capacity is now in the range of 85-92% for the most important metals. Hence the supply/demand characteristics are in much better balance than has been the case for nearly a decade. Companies have moved from a position of asset rich - cash poor, high debt, and low liquidity to a position of financial strength. The US industry is in healthy shape, despite all the additional costs of labor and environmental constraints compared to other parts of the world. The country risk and the commercial return of a mining project in that country are inextricably linked. The greater the risk the greater must be the return to attract investment. The more successful exploration companies are forging links with the larger companies who provide seed financing in return for modest corporate holdings. In this way, the larger companies are able to secure a lien on the more attractive prospects of the exploration companies. This trend is likely to accelerate in the 1990's. To summarise: supply/demand for most metals is well balanced, companies are financially stronger, opportunities are broadening and financial instruments are becoming more sophisticated. Against this background companies will need to sharpen their analysis, improve the skills of their staff, and ensure that the management have open minds. The opportunities are tremendous for those with the vision to select the best opportunities