CAPE TOWN, Dec 4 (Reuters) - The International Finance Corporation (IFC) plans to increase its equity stakes in mining companies hit by sharply lower commodity prices and a global credit crunch, its chief executive said on Thursday.
Miners have adopted a cash conservative approach to weather the financial crisis, which has seen expansion projects scrapped or delayed as commodities slump barely a year after hitting record highs.
This has eroded profits and worsened their outlook, raising the spectre of thousands of job losses.
“If anything, I think in this financial crisis we will increase the amount of equity rather than decrease it,” Lars Thunell, chief executive officer of the private-sector lending arm of the World Bank, told Reuters in an interview.
Thunell said a concern for many banks was that some mining companies were undercapitalised, and if the IFC could inject more capital it would be beneficial to both parties.
“It would have at least two benefits. One is that they can actually leverage up that and mobilise more money, and the other side of that is of course to share the risk,” he said.
Thunell said the IFC’s new investment total in 2009 should be similar to the $16.2 billion it made in 2008, a 34 percent increase on 2007.
In 2007 the IFC invested a then sub-Saharan Africa record $150 million in Lonmin LMI.LLONJ.J, the world’s No.3 platinum producer, with $50 million worth of shares and the remaining $100 million as a standby loan.
Lonmin has indicated it will lay off a total of about 5,500 workers in South Africa, blaming the retrenchments on a huge drop in demand for platinum from car makers, the biggest user of the metal. The platinum price has slipped by more than 40 percent this year.
Asked if the IFC would bail out struggling black-owned mining companies, such as Mvelapanda Resources MVLJ.J and Incwala Resources, Thunell said they would look for sustainable development before committing any funds.
In 2004, the IFC signed an agreement worth $28 million in loan financing to Mvelaphanda to acquire a 15 percent stake in Gold Fields Ltd. (GFIJ.J).
“We are not in the grant business. We believe in sustainable development, which means that we will try to invest in commercially viable projects,” he said.
Thunell said the IFC would prioritise existing clients, such as Mvelaphanda, to “help them through these tough times.” (Editing by James Jukwey)