* 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 substitution
By Eric Onstad
LONDON, Dec 11 (Reuters) – 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.
