Latin Finance - July/August 2010 - 41

canadian miners

offering the same type of financing, Silver for the Escobal purchase, as well as Wheaton, was formed five years ago. engineering studies and exploration. Watson says that in the past year, most Tahoe plans to finance the Escobal of Sandstorm’s business has been mostly acquisition with a combination of a minimum of 230 million Canadian dollars focused on LatAm, providing financing cash and 40% of the fully diluted number to projects in Mexico and Brazil. “South America is one of our favorite places to do of issued Tahoe shares. Funds raised business,” he says. “It has some of the best will be used for the cash portion of the acquisition. The Escobal project is Tahoe’s environments for mining. Governments are not as bureaucratic as North American sole asset. governments,” he adds. According to TSX president Kevan Cowan, 3.5 billion Canadian dollars was raised via the TSX for projects in LatAm in 2009. In Canadian Mining Investment in LatAm (C$bn) Regional focus comparison, 4.3 billion was raised for North American 60 projects. According to Cowan, 1.6 billion was raised via the TSX for Mexican mining 50 projects alone in 2009.

Metal Stream Financing

Other types of funding vehicles are also available. Sandstorm 30 provides metal stream financing, which Ecclestone describes as “the new main 20 thing on the block.” “We give money to a mining company in exchange 10 for a contract to buy a 2004 2005 2006 2007 percentage of its product at *In Canadian dollars a fixed cash cost per ounce,” Source: Natural Resources Canada says Watson. Sandstorm claims to take on more risk Paying Gold Interest than companies offering other types Another financing source gaining of financing because if, for example, popularity is gold and silver loans. three years into operation a mine with “Gold and silver loans are increasing. a 30-year life shuts down and does not produce anything, Sandstorm will have no Companies basically just pay interest in gold,” Ecclestone says. Mandalay’s Mills production to acquire. describes these vehicles as a “pretty Watson explains that by providing attractive way of financing gold or silver a miner with metal stream financing, properties.” Sandstorm buys the right to purchase Gold loans, says Watson, usually a piece of the company’s production have a five-year tenor with interest rates during the entire life of the mine at a varying between 5%-20% depending on fixed price. For example, in exchange how risky the project is. Silver loans, he for an undisclosed upfront payment to says, have tenors of no more than 3-4 Brazil-based Aurizona, Sandstorm gets years and pay rates similar to gold loans. to buy 17% of life of mine gold for $400 In the structure, a mining company per ounce for the 20 years the mine is borrows funds and the amount to be expected to operate. repaid depends on the price of gold or Sandstorm is expanding via a sister silver, whichever the miner produces. company called Sandstorm Metals & “In this case, if the mine never produces Energy, with which it will provide this anything, it still has to repay the loan,” same type of financing to companies beyond precious metals. Another company Watson says. Sandstorm does not offer

this form of financing. Demand for political risk insurance is also heating up in more investmentfriendly countries. “Peru is really hot and Colombia and Chile are always reaping a lot of FDI. Brazil is of course a hot market, with loads of resources pouring in,” Zurich’s Thomas says. Meanwhile, demand for insurance for projects in non market-friendly countries has practically dried up. “I don’t know that a lot of companies are scrambling [to invest there],” says Thomas. “From a mining company’s perspective, when a government threatens with expropriation, capital expenditures in that country go to zero,” says Watson. But even in Venezuela there are still miners seeking to grow. A spokesman for Vancouverbased gold miner Rusoro Mining, for instance, says his company has not been threatened with expropriation or nationalization by the Chavez government. “We are in a joint venture with the government and so far, so good,” he says. “We haven’t had any trouble and have even bought two going concerns.” Rusoro is 2008 doing a feasibility study on the San Rafael and El Placer projects and expects to raise $200-$250 million from international banks. And Ecuador, another country investors perceive as risky, is still getting investment from Canada. “In Ecuador we are waiting patiently to see how the mining regime evolves, but we are cautiously optimistic,” says Burt. “I would say the international finance community is cautious about Ecuador. That is a wait and see situation,” he adds. The risk may well be worth it, given better ore grades. Burt says that at Kinross’ Chile properties, ore grades average one gram per ton. In Brazil the average is 0.4 grams per ton and in Ecuador the average is seven grams per ton, which means producing that gold can be done at lower cost. LF

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