By Michael Pascoe
The future of Australian resources development is being spelt out in the headlines surrounding Mt Gibson and Gindalbie - and it's not about iron ore prices.
More important than any particular point in the metals price cycle is the little matter of access to capital. If you have access to Asian finance, you have a project; if you don't, you won't. The mid-caps' traditional European and North American sources of equity and debt have dried up.
Mt Gibson has the big headlines as it struggles with orders, prices and key shareholders, but there's a bigger story behind Gindalbie's smaller announcement that it's considering an offer from joint venture partner AnSteel to provide equity rather than debt finance for Gindalbie's final $144 million payment towards their Karara iron ore project.
AnSteel is offering Gindablie $162 million in exchange for shares at a "substantial'' but undefined premium to the present 41.5 cent price. Given Gindalbie's market cap of $211 million, even a very substantial premium means the Chinese steel giant moves to a controlling stake from its present 12.6% holding.
(Somebody phone the Foreign Investment Review Board - and this time let's hope the decision making is cleaner and clearer than the Sinosteel saga.)
But bigger than that is the $1.4 billion project financing of Karara Mining. There's not a Western bank that would want to know about it now and - if they hypothetically did - rates would be in the higher end of a 400 to 600 point range above US LIBOR.
Thanks to AnSteel, Karara Mining is in the final stages of negotiations with China Development Bank in a range of 200 to 300 points. Nice. And it's non-recourse.
Metals prices gyrate, marginal production comes and goes, but the emerging economies' industrialisation and urbanisation proceeds regardless, as BHP constantly reminds us. In a credit-constrained world then, it's the access to money that counts.
That's a reality well understood in Perth. In another space, I interviewed Murray McGill, Patersons Securities executive director, who sees his business being focused more and more on Asia.
"If we're raising money for mid-cap WA companies next year, we will be talking to Asian investors who are cashed up and less so talking to US and European investors,'' McGill says. "America has ceded economic power in five years that was going to happen over 50 because of their own mucking up of their system.''
There's an old rule: he who has the gold makes the rules. Asia has the gold, the West has a mountain of debt. Adapt to it.
Michael Pascoe is a BusinessDay contributing editor