Editorial: Credit Crunch Cramps Miners’ Style

Mining companies and investors spent much of the week ended Aug. 25, the 35th trading week of 2007, licking their wounds and laying low after the previous week’s bloodletting on the world markets, which was set off by a sharp contraction in the U.S. subprime lending market.

* Shockwaves from the newly exposed troubles in short-term lending continued to ripple through Canada’s mining sector, with companies putting out a string of press releases either downplaying their exposure to the problem or emphasizing their complete noninvolvement with such curious headlines as “San Gold Funds Are Safe.”

The first mining junior to be nipped by the freeze in Canada’s asset-backed commercial paper (ABCP) market, Redcorp Ventures, ended the week with long-time Redcorp directors Jonathan Rubenstein and Abraham Aronowicz jumping ship for “personal reasons.” Redcorp said discussions between it and Coventree — the largest player in Canada’s ABCP market — have been limited, but stressed that the credit quality of the underlying trust assets in which Redcorp invested with Coventree “remains high” with an R1-High rating from the Dominion Bond Rating Service.

* Financings that have come so easily to Canada’s mining sector over the past couple of years are suddenly no longer slam dunks. Rouyn-Noranda, Que.-based junior Fieldex Exploration was the first to come right out and cancel a planned $3.9-million non-brokered private placement originally announced in late July, blaming poor market conditions. On the other hand, Sherritt International was able to line up a near unprecedented US$2.1-billion of project debt for development of its Ambatovy nickel project, in Madagascar, with a group of international lenders in Japan, Korea, Europe, Canada and Africa.

* A long list of merger-and-acquisitions activity moved forward during the week: Teck Cominco announced it has bought 93% of Aur Resources’ shares and will move towards compulsory acquisition of the rest; similarly, Lundin Mining said it had bought 93% of Rio Narcea Gold Mines’ shares and would force the holdouts to sell; shareholders of Aurogin Resources and Morgain Minerals voted almost unanimously to merge the two companies to form Castle Gold; Meridian Gold’s board surprised no one by rejecting Yamana Gold’s barely sweetened hostile offer; and Mwana Africa finally upped its drawn-out offer for Canada’s SouthernEra Diamonds, turning the deal into a friendly one, with the new offer comprising one Mwana share for every 2.28 SouthernEra shares, valuing the latter at C67 per share, or an aggregate C$105.3 million, not counting SouthernEra shares already held by Mwana.

* After a quiet summer, Crystallex International’s shares popped back onto traders’ radar screens with a plunge to $2.80 from around $3.50 on heavy trading. The stock traded above $4.50 as recently as early July. On Aug. 20, Crystallex said it was unaware of any adverse corporate developments — other than general stock market conditions — that could account for the recent trading activity and that the process for issuing an environmental permit for its flagship Las Cristinas gold project in Venezuela remains on track.

While the President of the Commission of Economic Development of the Venezuelan National Assembly, Ricardo Gutierrez, recently made positive statements about Las Cristinas, Venezuelan President Hugo Chavez is proposing making sweeping changes to the constitution — including enforcing a 6-hour work day — and said in a speech to the nation that “we have broken the chains of the old, exploitative capitalist system. The state now has the obligation to build the model of a socialist economy.”

* Canadian geologists should take note that a major new tome entitled Mineral Deposits of Canada has just been published by the Geological Association of Canada in co-operation with the Geological Survey of Canada. Comprising 44 papers by leading geologists, this 1,068-page volume considers all significant deposit-types in Canada, economically important mining districts, the geological evolution and metallogeny of our geological provinces, and current exploration methods. The book can be ordered for $80 at www.gac.ca or at GSC bookstores.

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