Small miners may face bankruptcy

London - Small mining firms are at increasing risk of bankruptcy as the global economic downturn tightens credit availability and sluggish markets hit equity value, a director at Standard Bank told Reuters.

Exploration companies and small mining firms have listed on exchanges around the world to take advantage of the commodity boom with copper up fivefold and gold threefold in 5 years.

But the credit crunch has battered equities over the last year with mining stocks losing some 15 percent of value, making it difficult for miners to raise cash.

"It is a tough market out there for development mining companies - many are really struggling," Thys Terblanche, head of global mining and metals at Standard Bank, Africa's biggest bank by assets, told Reuters in an interview on Monday.

The recent commodity boom has added strains throughout the mining process from finding the right people to getting hold of equipment to ramp up production amid rising costs.

But in several parts of the world projects have been put back due to rising energy prices or shortages, geo-political difficulties and technical problems, Terblanche said.

"We have already seen one company in Australia go into liquidation, where they cannot afford to pay the bills anymore or fund the exploration programmes," he said.

"Sadly we could see more of that."

Australian miners Monarch Gold and View Resources have entered voluntary administration this year.

Commodity rally
And financial markets have crumbled.

"It is more difficult to raise money to finance your project and every month of delay...capital budgets increase," he said.

Especially hard hit were companies that had yet to go into production as they were not generating any cash flow.

It was previously easy to get funding with hedge funds and private equity seeking to cash in on the commodity rally.

"In the market we are in at the moment, liquidity has disappeared and a lot of those sources of financing are not there any more," Terblanche said.

The market had returned to more traditional project finance sources such as due diligence and debt covenants, he added.

But strong Chinese demand and tight supplies, especially if more mining projects are shelved, would keep metal prices firm.

"There is a mismatch in the market where commodity prices continue to be strong, even if there is volatility," he said.

Copper prices have lost around 18 percent since hitting a high of $8nbsp;940 per tonne in July this year and gold has shed more than 20 percent since its record set in March.

"There is a generally bullish outlook because no one can say where decent supply is going to come from, while current equity valuations are reflecting something quite different."

- Reuters