In the magical world of FinanceLand, it seems evil Dr. Doom has landed on the capital (Stall Street), and with a zap from his freezing ray-gun, has permeated the landscape with a thick layer of frost. 

The effect: Traditional sources of financing – indeed, virtually every type of credit – have been placed in an Ice Age-like deep freeze. Facing a major crisis of confidence, banks underwent a 180-degree turn: Whereas they were previously almost force-feeding us loans, banks are now terrified to even include them on their menus. 

If you are a company in search of bank lending, it basically doesn’t matter how good your cash flow, profit projections or even your balance sheet might be. It seems no bank cares whether you sell top-notch service skills, soft drinks, crude oil, or gold ingots. Not even tremendous government pressure, the promise of massive bailout outlays, or historically low U.S. central bank rates are enough to get credit flowing.  Yet business must move forward.  So deals are still getting done, but in non-traditional ways.

And no sector has shown a stronger ability to overcome this liquidity drought than the mining industry.

The Mining Sector’s Wild Ride

In the past few months, natural-resource players have gone on a $42 billion fundraising spree, in which every single dollar has come from outside the regular banking system. 

Instead, investment banks have been busy raising fresh capital for the mining industry in truly a variety of ways.  And in some cases, individual investors have taken things into their own hands.

Most of the action has been in the form of private-equity placements.  Essentially, a consortium of investment banks agrees to buy an issue of shares at a fixed price (called a “bought deal”), and to resell those on the secondary markets to individuals and institutional investors. The issuer gets to keep the cash raised, minus fees.

For some, this action got started early.  It’s as if they anticipated that these particular players predicted that the credit markets would morph into glaciers, and that accessing capital might become akin to melting an iceberg.

So let’s dissect a few of these deals to gain some clarity on the recent goings-on.  We’ll start with the more traditional financings.

How Heavyweights Get Financed

Kinross Gold Corp. (KGC), the world’s fourth-largest gold producer, has also proven itself to be one of the shrewdest players, especially in recent months.  Its first coup was the acquisition of Aurelian Resources Inc., in mid-2008, an all-share offer that transferred to Kinross Aurelian’s major gold deposit of 13 million ounces in Ecuador.

Then, this past February, as the broader U.S. stock indices were beginning another downward leg down toward multi-year lows, Kinross completed a “bought deal” offering, raising $400 million.  And it didn’t even need the money.  Or perhaps did, as Kinross recently announced a $150 million purchase of 20% of Harry Winston Diamond Corp. (HWD), to gain access to Winston’s Diavik diamond mine in northern Canada.

In a bought-deal offering, an underwriter (an investment bank, or a syndicate) buys securities from an issuer (in this case Kinross), before then selling the securities to the public. The advantage, during normal times, is that Kinross gets to avoid the so-called “financing risk” of the deal getting done only at a deep discount to the actual market price of its shares. And in a troubled market such as the current one, a conventional deal probably wouldn’t even get done.

Not to be outdone, the Saskatoon, Saskatchewan-based Cameco Corp. (CCJ), one of the world’s largest uranium producers, recently completed its own “bought-deal” financing package.  The underwriters, led by two of the largest Canadian investment banking firms, raised about $460 million in the effort.

What’s more, in an unlikely coincidence, the CEOs of both Kinross and Cameco have recently stated publicly that there were highly attractive investment opportunities emerging among miners. The financial crisis that’s hampered the fundraising abilities of their weaker competitors has also depressed their share values.

Not surprisingly, healthy miners have begun circling like vultures.

Then, in an uncommon move of late, BHP Billiton Ltd. (ADR: BHP), the world’s largest diversified miner, raised $3.25 billion in global corporate bonds.  Sporting a healthy balance sheet with a low debt ratio, Billiton’s genius tactic comes in a very low interest rate environment.  So the company borrows cash with a low interest burden, and it’s not dilutive to shareholders.  Meanwhile, its more-financially fragile rivals have to resort to outright asset sales of prized operations.

And most recently, AngloAmerican PLC (ADR: AAUK) divested its 11.3% stake in AngloGold Ashanti Ltd. (ADR: AU), a Top-Five gold producer.  But, as Money Morning reported, rather than selling those shares into the market, AngloAmerican chose to sell directly to Paulson & Co. (a New York hedge fund), bypassing the markets altogether.

How Middleweights Get Financed

Mid-tier miners make up a small group that, for now, appears to be getting smaller. 

Case in point is New Gold Inc. (NGD):  This company’s current makeup comes from the early 2008 three-way combination of New Gold, Metallica Resources Inc., and Peak Gold Ltd.  And, in order to accelerate growth, New Gold has just announced an almost-all-stock offer to take over Western Goldfields Inc. (WGW), allowing New Gold to conserve its healthy cash hoard. 

How Lightweights Get Financed

Junior miners are an essential part of a long-term bull market in the natural-resources sector. But the business cycle – or the pesky credit crisis – still wreaks havoc on their best-laid plans.  And when that happens, their ability to think creatively can allow them to swim rather than sink.

For these smaller players, the ones with promise of near-term gold production, or with existing gold mines, have the best shot at accessing capital.  At the recently concluded Prospectors and Developers Association of Canada (PDAC) mining show in Toronto, the world’s largest mining-and-exploration conference, much of the discussion centered on financing. 

In his presentation at the conference, Gordon J. Bogden of Gryphon Partners, who counsels companies seeking financing or advice on mergers, said that financial inventiveness is paramount.  Options to be considered should include private equity, mezzanine financing, and even mergers among junior miners, has to be on the table in order to advance projects.

Take, for example, two small mining companies, one focused on copper, the other on gold and silver.  Both are top-notch, profitable and well-run, but were caught in the credit crunch.  In each case, a (savvy) high-profile mining entrepreneur infused several million dollars in exchange for shares and warrants, allowing the business to return to normal activity.

So what’s the point?

While bank lending is at a virtual standstill, mining companies of all sizes have found ways to get financing outside of traditional credit markets.

The point of all of this is that deals are still getting done – even while people are spending less and saving more, and even though many investors are afraid to invest. But for the most-attractive deals, cash is finding its way out of pocketbooks, and into a few select coffers.

That money, quite interestingly, is overwhelmingly accessible to one sector: Mining.

Investors are courageously committing capital, especially in return for unsecured common shares, clearly expecting healthy returns in the coming years. 

What we can gather from their actions is that the natural-resources sector is viewed as a huge opportunity, meaning it will be the focus of tremendous activity in the next few years, and can most likely count on support from healthy players and savvy individual investors.

Perhaps it’s a sense that the nasty thorn called inflation may be making its way into our sides sooner rather than later. 

And informed investors know that hard assets, and tangible natural resources, have always provided the best protection against the ravages of the U.S. Treasury’s printing press.

Investors would be wise to follow their lead.

[Editors’ Note: To read a sidebar to this story, “If You Follow the (Smart) Money, Gold is Clearly the Smart Play,” which appears elsewhere in today’s issue of Money Morning, please click here. Also, watch in the next two weeks as Money Morning’s newest feature – investment quarterly reports

News and Related Story Links:

• Money Morning Special Investment Report:
  Three Ways to Profit as Inflation Causes Gold Prices to Increase.

• Wikipedia:
  Ice Age.

• Money Morning Special Investment Research Report:
  If You Follow the (Smart) Money, Gold is Clearly the Smart Play.

• MarketWire.com:
  
  Cameco Completes Bought Deal Offering of Common Shares; Gross Proceeds of Approximately $460 Million.

• Wikipedia:
  
  Bought Deal Offering.

• Web Site:
  Prospectors and Developers Association of Canada.

• Wikipedia:
  mezzanine financing.

It’s been 30 years since the accident at Three Mile Island effectively killed the commercial nuclear power industry in the United States. But strongly escalating concerns about global warming, growing worries about so-called “Peak Oil," and greatly improved nuclear-power technology are combining to make nuclear power an increasingly alluring option in the United States, Money Morning has been reporting.

The 30-year anniversary of the Three Mile Island accident – which occurred near Harrisburg, Pa., in the in the predawn hours of March 28, 1979 – has obviously resurrected some of these discussions. But thanks to these deep-seated and growing concerns – virtually every one of them sparked by globalization – the nuclear power industry is moving ahead with plans to build a string of new reactors in the U.S. market, The Washington Post reported this weekend…

The revival faces many uncertainties, but will also re-open a vista of investment opportunities for energy-sector investors.

The crisis that grew out of the TMI accident, in which worker error and equipment malfunctions triggered a partial meltdown in the core of one of two reactors at the Pennsylvania power plant along the Susquehanna River, was long believed to have forever ended any chance that new commercial nuclear plants would be built in the United States.

But nuclear power is now making a comeback – largely out of necessity.

The United States generates about one-fifth of its electricity from the 104 reactors now in operation – all built before the TMI accident. Utilities have applied to build 26 new reactors, many of them expansions of existing nuclear facilities, and the Nuclear Regulatory Commission (NRC), which has to approve the plans, says the first approvals could come by 2011.

It could take nearly a decade before any of these approvals leads to a finished, operational nuclear plant.

But the revival faces tough barriers – including the multi-billion-dollar price tags of a nuclear plan today. Jone-Lin Wang, managing director of the global power group at Cambridge Energy Research Associates, a consulting firm, told The Post that plant estimates "have gone up substantially, compared to just a few years ago."

 A 1,000 megawatt unit could cost $6 billion to $8 billion; since many plans call for building twin units as part of a single project, that could push the total cost up to $16 billion.

"For some of the companies going through the licensing process, that’s the same size as their entire market cap," she told newspaper. And in today’s ultra-tight credit market, that could be a deal breaker.

Despite these uncertainties, the industry is growing again, particularly in Western Pennsylvania – a region long associated with nuclear businesses because it was the headquarters of one-time commercial-nuclear-power heavyweight Westinghouse Electric Corp., now part of Japan’s Toshiba Corp.
The Pittsburgh-based Westinghouse unit still builds and maintains reactors [as does the United States’ General Electric Co. (GE)], added 1,400 workers last year to handle the influx of business, and says it will keep adding 650 a year for the next half a decade.

"The recession is something everyone is paying attention to, but it doesn’t seem to be having a significant impact on us," company spokesman Vaughn Gilbert told The Post.

Gilbert said that Westinghouse now has contracts to build six reactors in the United States, including a deal it signed in January.

[Editor’s Note: Look for a story on nuclear power profit plays that will appear as an installment of Money Morning’s “Hot Stocks” series in an issue of Money Morning later this week.]

News and Related Story Links:

The Washington Post:
Nuclear-Power Industry Enjoys Revival 30 Years After Accident.

Money Morning Outlook 2008 Economic Forecasting Series:
Outlook 2008: Continued Supply Crunches Will Add a “Glow” to Uranium Stocks.

When most investors look at today’s financial markets, they see nothing but gloom and doom. But when Money Morning Investment Director Keith Fitz-Gerald looks at the same scenery, he sees the potential for investors to reap the benefits of  “financial opportunity of a lifetime.”

But only if certain key factors – consumer sentiment, market valuations and credit availability – line up properly.

 “A lot of folks focus on the depths of the crisis,” says Fitz-Gerald, who is also the editor of The Geiger Index. “But what they fail to understand is that the deeper the sense of doom, the greater the potential for boom. I actually think – based on an examination of history – that we are approaching one of the greatest profit opportunities of the next 100 years.”

This potential opportunity – how to read it and how to play it – will be a central focus of this month’s free Web summit,  "What the Geiger Index is Telling Us About Gold, Oil, Commodities, and the Recovery," which Fitz-Gerald hopes will leave investors with a clear view on how to position their portfolios in order to capitalize on these looming opportunities. The summit will be held Tuesday (March 24) at 4 p.m. EDT (U.S. East Coast time). There is no cost or obligation for the event, which is expected to last about 20 minutes.

Here’s are some of the other topics Fitz-Gerald will cover:

• Why most investors are buying into gold the wrong way… and exactly how to do it right, for maximum gains.

• How to play the “pressure cooker” in exploding profits – that’s ironically been created by falling oil prices.
• Why oil prices have dropped – and how this is creating a "pressure cooker" that’s likely to explode profits in the months ahead. Here’s how you play it…

• The best way to invest in commodities (it’s not what you think)…

• Whether we’ve hit bottom, where we’ll go from here, and how The Geiger Index says you can position yourself to profit.

As the investment director for Money Map Press LLC, which includes Money Morning, The Money Map Report, The Geiger Index, Time Trader Pro, and other publications, Fitz-Gerald has more than 20 years’ experience in helping people capture consistent profits and generate income, despite challenging market conditions. He is regarded as one of the world’s leading experts on global investing and is known for his uncanny accuracy, insight, and perspective.

In a lengthy interview several weeks ago, Fitz-Gerald told Money Morning readers that the opportunities to profit were likely on the increase. But in Tuesday’s Web summit, Fitz-Gerald will detail specific recommendations investors can look at in the weeks and months to come.
To find out more, please click here.

To skip that step and actually register for the event, please click here.

News and Related Story Links:

• Money Morning Market Commentary:
  Financial Crisis May be Creating the Best Investment Opportunities of our Lifetime, Money Morning Expert Says.

• Money Morning Market Commentary:
  Five Wall Street Whoppers And Why You Need To Know Them.

If you have business writing experience and a superb knowledge of investing and the capital markets – and want to spread your creative wings and bid adios to your stodgy newsroom or brokerage house – then we’d like to talk to you.

Money Morning, the industry’s fastest-growing global-investing news service, is looking for a full-time associate business editor. Money Morning zeroes in internationally oriented news and investing opportunities by following global money flows, and our unofficial motto is: ‘Go Global or Get Left Behind.’ Writing about this major paradigm shift in investing is our bread and butter. We break news. And we’re already being recognized as a leading news organization: Major news sources are syndicating our stories and our writers are being interviewed by leading media outlets such as ‘Air America Radio.’

Money Morning offers a competitive salary, plus significant benefits. And the company’s offices are situated in the beautiful Mt. Vernon historic district of downtown Baltimore. The ideal candidate will have a minimum three-plus years experience writing and editing business and investing stories. Finance MBA’s are welcome to apply. Marketing knowledge is an extreme plus. Interested candidates should send a cover letter, resume and no more than six clips to the attention of Violet Campbell, The Oxford Club, 105 West Monument St., Baltimore, Maryland, 21201, or to vcampbell@oxfordclub.com NOTE: Applications without cover letters will not be accepted.

At the conclusion of a two-day meeting, the central bank’s policymaking Federal Open Market Committee said it had left a benchmark interest rate unchanged at 5.25%. The Federal Funds Rate has been at that level for a year. Before that, U.S. borrowers had endured two years of steadily rising interest rates.

The Fed said inflation readings on so-called “core” inflation – which excludes volatile food and energy prices – had gotten “modestly” better in recent months. But the central bankers also said that “a sustained moderation in inflation pressures has yet to be convincingly demonstrated.”

However, in announcing the steady monetary policy, the Fed removed language present in previous statements that said inflationary pressures were “somewhat elevated.”

The orders for so-called “durable” goods dropped by 2.8% last month – the biggest decline in four months, and far more than the 1% decline economists had projected. This report is considered a crucial indicator of the health of the U.S. factory sector. (For full text of the government report, click here.

The Commerce Department said that the weakness was led by a huge 22.7% drop in orders for commercial aircraft, although with the long lead times those orders entail, aircraft-sales statistics can be very volatile from month to month. But the government report noted that orders were down for a wide range of other products, including electronic gear, factory machinery, and primary metals.

While some economists discounted the weak figures, noting that past months’ reports were subsequently revised upward, others said the report doesn’t bode well for hopes that stepped-up business spending will help pull the U.S. economy out of a malaise that’s lingered for a year.

Gross, the founder and chief investment officer for Pimco, one of the world’s largest specialists in fixed-income investing, posted his comments in his July outlook column on the company Website. He believes the mortgage-sector crisis will crimp the construction of new homes as well as consumer spending. And that, in turn, will induce the central bank to reduce the benchmark Federal Funds rate from its current level of 5.25%.

That reduction will take place within the next six months, Gross stated.

While “there is no hint yet of a true ‘crisis’ – these developments may be just what the Fed has been looking for: Easy credit becoming less easy; excessive liquidity returning to more rational levels,” Gross wrote. “Still, Pimco looks for the Fed to issue an insurance policy in the form of lower Fed Funds at some point over the next six months.”

Gross says he still believes we’ll see strong global growth, but says the U.S. housing downturn will affect both growth and short-term interest rates for another year or more. He also cautioned that the subprime-credit-related problems in several Bear Stearns hedge funds reminded him of the problems at the vaunted Long-Term Capital Management Hedge Fund a decade ago.

“Derivatives are a two-edged sword,” Gross said. “Yes, they diversify risk and direct it away from the banking system into the eventual hands of unknown buyers, but they [also] multiply leverage like the Andromeda strain. When interest rates go up, the Petri dish turns from a benign experiment in financial engineering to a destructive virus because the cost of that leverage ultimately reduces the price of assets;.

Added Gross: “Houses, anyone?”

Ironically, it was the Fed’s decision to cut interest rates after the collapse of LTCM that most experts now say created the artificially low interest rates that fueled the disastrous Internet bubble – and in an oddly decoupled and delayed manner – the housing boom that followed and that’s the cause of the current credit problems.

The Fed’s policymaking Federal Open Market Committee concludes its two-day June meeting today, but is expected to leave interest rates unchanged.

The New York-based Conference Board said yesterday that its Consumer Confidence Index dropped nearly 5 points to reach 103.9 in June, down from a revised 108.5 in May—its lowest level since August 2006, when the index was at 100.2. (For the full text of the Conference Board comments go to http://www.conference-board.org/economics/consumerConfidence.cfm).

Although consumer confidence is a so-called “lagging indicator”—it measures a past point in time—it’s still very closely watched by economists and professional investors as something of a harbinger of what’s to come.

Consumer spending accounts for about two-thirds of all economic activity in the $10 trillion U.S. economy. So any sign of a major drop off in consumer spending is taken very seriously by financial forecasters and investors alike. Needless to say, it’s also very closely watched by both product manufactures and product retailers.

Index changes of 5% or more—either up or down—are usually seen as strong indicators of a major change in the economy’s health. The 4.6-point decline for June represented a very-strong 4.24% change in the index.

Second, although forecasters had predicted a decline in the index, they had only anticipated a slight step back: The consensus CCI estimate for June was 106—meaning the reading of 103.9 was much weaker than anticipated.

Rising oil prices and continued bad news about the formerly white hot U.S. housing sector have weighed heavily on the consumer’s psyche. In fact, in a separate report, the U.S. Commerce Department said yesterday that sales of new homes fell for the fourth time in five months, deepening already-severe worries about the once-hot housing market.

All of these factors will be carefully weighed by the U.S. Federal Reserve’s policymaking Federal Open Market Committee, which begins a two-day meeting starting today. Although investors are predicting the central bankers will leave the benchmark Federal Funds Rate at its current 5.25%, Fed watchers will scrutinize any statements the central bank makes for clues about the potential for interest-rate shifts in the future.

Although the the U.S. Federal Reserve’s Federal Open Market Committee meets tomorrow and Thursday, most investors aren’t expecting the central bank policymakers to take any action on interest rates.

At least, not right now.

Indeed, although the FOMC is meeting this week to discuss interest rates, it is almost universall expected to keep the benchmark Federal Funds Rate steady at its current 5.25%–where it’s been since last summer.

But the policy statement the FOMC releases after its two-day session concludes on Thursday will be studied carefully for hints about the future direction of interest rates.

Uncertainty about market interest rates has played havoc with the financial markets, sending bond yields skyward and injecting an uncomfortable choppiness into already-turbulent stock markets. The tug-of-war in critical reasoning that forms the basis for every interest-rate debate is fueled by such competing and contradictory issues as the massive slump in the once-white-hot housing sector and the near-record highs in the prices of gasoline and other energy-related commodities.

Earlier this month, Fed Chairman Ben Bernanke said that elevated levels of inflation, excluding energy and food, may not pull back because the housing-market problems will crimp economic growth for a longer period than most expected.
“Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside,” Bernanke said in remarks to a monetary policy conference in Cape Town, South Africa.
Bernanke was speaking from Washington, delivering his remarks via satellite.
“The adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,” Bernanke added.
However, Bernanke also said that so-called “core inflation,” is slightly elevated, but slowing ebbing. His reasoning: Even though gas and oil prices have risen, overall energy costs remain below their peak levels from 2006.
No wonder even the savviest of Fed watchers find it tough to forecast the Fed’s next moves.
Policymakers have reiterated time and again in recent months that they expect the U.S. economy to continue its advance, while also vowing that inflationary pressures will be kept in check.

It’s a reassuring stance.

When they’re not scrutinizing the central bank’s every move, Fed watchers will spend some time this week studying some of the other economic reports that could provide some additional insight on inflationary pressures in the U.S. economy. On Friday, for instance, the Commerce Department’s report on personal income and spending includes data on so-called “core personal consumption expenditure,” or “core PCE” inflation.”

As Fed watchers know, that’s the central bank’s preferred inflation indicator, meaning it’s closely watched by investors, too. Economists are forecasting an increase to 2.1% in May from 2.0% in April. Personal income is projected to have risen to 0.6% in May, compared with a decline of 0.1% in April. Spending will have increased 0.6% in May, compared with an increase of 0.5% in April.

The Fed last raised interest rates almost exactly one year ago, on June 29, 2006, increasing the afore-mentioned Fed Funds rate by a quarter percentage point to its current level of 5.25%. That was the fourth quarter-point increase of the year, and was the final increase of 17 the central bank made from 2004 to 2006, according to Federal Reserve Bank of New York statistics (http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html). When the current rate-boosting campaign first started, the Fed Funds Rate stood at 1.00%.

The deal is the latest in a series of major buyouts and stock offerings that could be an advance signal that the market for alternative investments is starting to play itself out.

Alternative investments include private-equity, venture-capital and hedge-fund firms. They’re all similar in that they try and do financial deals that provide their investors with returns that far exceed those provided by the typical stock-market investments. Investors include institutions, such as insurance companies and pension funds, as well as wealthy individuals who must meet stringent requirements prior to participating. This has been one of the hottest slices of the investing market for several years.

Yesterday’s announcement about the GLG Partners deal follows Friday’s debut of the much-heralded Blackstone Group as a public company. Blackstone (NYSE: BX) saw its shares soar on Friday – in spite of a broad market decline – although they declined 7.5% yesterday.

Rather than undergoing an initial public offering, or IPO, GLG Partners will merge with an already-existing public company, the Delaware-based Freedom Acquisition Holdings, the two firms announced yesterday.

By transforming itself into an NYSE-listed public company, the London-based GLG says it gets better access to the United States, its financial markets, and its wealthy investors – the latter of which are drawn to the high reported returns and strong social cachet that hedge-fund investments carry.

GLG was founded in 1995 as a unit of the Lehman Brothers brokerage house, and gained its independence five years later. It is not well known in the U.S. market, experts say.

Freedom is technically known as a “special-purpose acquisition company,” although Wall Street shorthand refers to it as either a “shell company,” or a “blank-check operation.” It’s a publicly traded corporation that has no operations of its own, but was formed to take over other companies – a process known to Wall Street as a “reverse merger,” and one that enables firms such as GLG to avoid the time, cost and reviews mandated by the IPO process.

Freedom was founded a year ago. When finished, the hedge fund will trade on the NYSE under the symbol GLG. The principals hope to have the deal finalized by the end of this year.

When that happens, GLG will join Blackstone and several other companies that have sold off pieces this year, raising capital and enabling insiders to sell off some of their holdings. The deals took various forms.

Fortress Investment Group went public via an IPO in February. Oaktree Capital Management LLC – one of the firms that bought Formica for $175 million, fixed it and then sold it for $700 million in a deal announced last month – raised $700 million in a private-placement deal managed by Goldman Sachs.

It’s an old investment adage that when insiders start cashing out, a market top may be at hand.

Some of the trends at least hint at a market peak.

Fundraising by private-equity funds slowed substantially in the fourth quarter of 2006, but still broke records for the year, according to a report by Thomson Financial and the National Venture Capital Association (NVCA).

In that 2006 final quarter, 37 venture capital funds raised a total of $2.83 billion – and 39 Buyout and Mezzanine funds raised $17.83 billion. Despite this slower pace, venture capital saw the highest fundraising year since 2001, with 200 funds raising $28.5 billion. Buyout and Mezzanine funds recorded the highest year ever with 138 funds raising $102.9 billion.

An investment company operated by the Dubai government is investing in GLG. A similar unit of China’s government invested in Blackstone before its IPO.