A few years ago mining groups were reeling as commodity prices, particularly for precious metals, continued to feel the rough end of a 10 to 15-year downturn. Project financiers were chasing those deals with safe well known mining majors backing them, while the juniors struggled to gain debt financing or equity. Early stage exploration projects or marginal deals, meanwhile, struggled to get off the ground.

How different the situation is now. The weakness of the US dollar against other major currencies has had a direct impact on metal prices with gold, nickel and copper finally emerging out of a prolonged slump.

By the end of last year, copper prices had reached a six-year high and nickel prices a 14-year high. Copper prices rose over 40% last year and nickel 110%. The benchmark three-month copper price on the London Metal Exchange rose by more than 40%, while the three-month LME Nickel price has more than doubled. In early January gold prices hit a 15-year high of $430.50.

Such increases are already having a knock-on effect on mining finance.

Michael Price at Barclays Capital in London says: "Not only do I think that there will be a rise in mining deals but there already has been. With the sustained increase in US dollar metal prices we are looking forward to an active pipeline of transactions this year."

For the mining companies the outlook also looks good.

Oxus Gold, an Aim-listed London-based mining company with operations in Uzbekistan and Kyrgyzstan, last year completed financing for its Amantaytau open-pit gold mine in Uzbekistan securing a $36 million, three-year non-recourse finance loan from Standard Bank and WestLB.

The transaction has been voted European Mining Deal of the Year by Project Finance. But a couple of years ago, as Bill Trew, Oxus Gold's chief executive, says: "it was a total dog's dinner".

Debt financing for the deal was struggling and securing the necessary equity was proving near impossible. And without progress on the mine, the company's future hung in the balance. Hopes of raising funding through a flotation proved fruitless when the share price of Oxus, then known as Oxus Mining, dropped below the float price and it was feared a further share issue would be too dilutive to shareholders.

Project finance seemed one of the few options left on offer.

A change of board, a reengineered project and new arranging banks, and the deal and the company that has emerged looks much healthy. More importantly the transaction has managed to catch the tip of the wave as gold prices have risen.

This means that a project conceived on the basis of gold prices as they were a few years ago is pouring gold in an entirely new environment. Meanwhile the group's share price has enjoyed the benefits of having a project in operation and of the upturn in commodity prices.

Oxus is not alone. First Quantum Minerals, sponsor of the Kansanshi copper project in Zambia [see African deal of the year], also approached WestLB and Standard Bank to arrange $120 million of the non-recourse financing for the $200 first phase of the mine's development. The financing - which comprises commercial debt, export credit guaranteed debt and a subordinated loan from the European Investment Bank - provided First Quantum with the lowest cost of capital and the least dilution to shareholders.

In both cases, being a small mining company in a tricky market without the backup of an working mine's cashflows or a strong share price, meant project financing was one of the few options on offer to either group.

The situation should look very different as both sponsors approach the second phase of their projects.

The difference is that miners, who were once struggling to secure funding, are faced with a variety of options. "The equity markets are hot right now," says David Rhodes, senior manager at Standard Bank in London. He says that, "whereas miners, particularly the juniors, may have struggled to find financing in the debt market a few years ago, the rapid rise in metal and commodity prices has brought the equity providers back in the market."

But what is good for the project financiers is also good for the equity providers. Says Rhodes: "Unfortunately, quite a few of the deals that we have been targeting are now being financed by equity."

He says that while commodity prices are high, this is seen as the perfect time to get involved in a mining deal. Unfortunately, in some cases, equity means less hassle and more speed for miners.

Jane Templeton-Knight, partner at the law firm Hunton & Williams in London says: "Small mining companies will continue to do deals on a project finance basis. You don't expect to see many of the majors doing project finance. Strategically, the majors often prefer to approach an underdeveloped market like China, for example, by acquiring small local operations."

Mark Rachovides, principal banker in the natural resources group at the European Bank for Reconstruction and Development in London, believes that in Russia the London equity market is playing an increasingly important role. "We've seen a number of successful equity raisings over the past few months for Russia. The question is why?"

Investors have been buoyed by the recent bounce in prices and, where Russian precious metals are concerned, are prepared to take on the higher risks because of the promise of higher returns.

But a decision by Moody's, the US credit rating agency, to award Russia an investment grade debt rating last year has also opened the door to a broader range of investors. Doing business in the country is far more palatable for equity investors and with a few more deals under their belts, they are also better informed about the risks they are taking on. (The exception to this being in the base metals sector where projects continue to be managed by state-owned entities.)

"What is interesting about the current equity rush, though, is the general absence of large mining companies," says Rachovides. He says many of the big players have tended to focus on project finance deals or on-balance sheet deals.

But if there is a market for equity, is it just there for a three-year hit, or will equity investors start to feel comfortable with longer-term investments?

It could be too early to say but in most cases those investing in exploration and start-up ventures are doing so for the capital gain.

As the money filters back into the market, Russia looks set to be a key focus for investors. Former Soviet Union countries such as Uzbekistan, are however, still perceived as too politically risky for many and investors and lenders are likely to pick only the best deals.

Even so Oxus Gold's Trew says the options for the much bigger second stage of his Amantaytau project in Uzbekistan are much wider. The present plan is to finance some of it with bank support and some with cashflow from phase one.

"The situation is different now. The equity markets are readily available for most mining deals, especially precious metals," says Steve Sharpe, managing director at Endeavour Financial in London. "But it poses a conundrum for miners because now it easy to use equity."He says the question is whether the company can stand the dilution to its shareholders.

"You minimize dilution by a project financing, but can you stand the pain?" Sharpe says that while lenders are willing to put their money into such transactions - especially for precious metals deals - they often do so providing the upside exposure to the metal price is not restricted.

However, the flipside of this equation is that with gold prices, for example, so depressed over the past 10 years, most mines that are coming on-stream are doing so based on a price of about $275-$300 an ounce when the current price is nearer $420 an ounce.

For now at least the banks hope to get as much out of the current interest in mining projects as possible. One observer says, "Banks aren't being overly optimistic. They know that if they get involved in mining deals, they get a short tenor and a quick return. It's a short, sharp, shock of cash."

Nevertheless big deals still require extra support. Among the deals in the market is the Khanong copper mine in Laos, sponsored by Oxiana, the Australian start-up. The $185 million has an eight-year tenor with a cash sweep and is on the point of closing.

SG is arranger but the deal also has a strong Scandinavian influence thanks to the involvement of Outokumpu, offtaker for all of the copper output. Among the lenders is FinFund, Norfund, Nordea and Nordic Investment Bank. Meanwhile, EFIC, the Australian export credit agency, is supporting the sponsor.

Oxiana, which has an existing gold property in Laos, bought its 80% stake in the project from Rio Tinto. Development of the site is underway thanks to an equity injection of $45 million from Oxiana's gold mine in Sepon.

Elsewhere, Standard Bank is arranging a limited recourse finance loan for the Centamin's Sukari Gold project in Egypt. Financing for a plant and the expansion of the mine from its 2 million tonnes a year capacity to a larger processing facility of up to 5 million tonnes is in progress.

The Australian company has been in the country since 1995 and already operates nine projects in its Eastern Desert Concession. Sukari Hill, one of the largest gold finds in Africa, is a key project for the country, however, it hit a stumbling block last year with the government over issues of national security and law.

Elsewhere, ANZ is acting on behalf of the Saudi Arabian state-owned mining entity on a $4.5 billion bauxite and alumina deal and a $1.5 billion phosphate project, both of which are still at an early stage.

But with much of money only now trickling in, it could be some time before lenders see all the fruits of the recent rise in prices. Certainly in the intervening time, those projects that were put on the back shelf or more marginal projects may now resurface.

But, for some, it is also a time to get involved in new markets. China's booming economy and change in rules on foreign ownership mean it is also attracting mining groups and banks.

Michael Price says that while lenders are looking at China, "it comes down to the right sponsor and project. There is a shortage of good projects although we are aware of several in the later stages of exploration. In comparison, several attractive mining projects have been financed in Russia and there is an established track record. China has some way to go to catch up."

More significantly where the key South African and Australian mining companies are concerned, the weakness of the US dollar has merely put a higher cost on imported goods.

"The appreciation of the rand is hurting South African mining groups," says one banker. "The weakness of the dollar is good news for exploration companies, in particular, but is not a bonanza for all. And it is still the case that while the buoyancy of the equity markets may help the smaller exploration groups, bigger projects have to look at a number of options."

The question is, will the upturn in commodity prices last long enough to bring countries such as China into the project financing arena? And with so much dependent on the sagging US dollar, are lenders being over-optimistic about the fortunes of the sector as a whole?

"15 years ago we were using today's gold prices,2 says Sharpe. "The question is: is what happened in between because it was depressed or is today's price inflated?"