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No concern is causing more concern for miners right now than use of capital. So a full house was available to hear from a panel of well-known Bay Street bankers, who gave their thoughts about the state of mining financing and also the broader health of the profession. The speakers included Egizio Bianchini (BMO Capital Markets), Peter Collibee (Scotia Capital), Rick McCreary (TD Securities) and David Shaver (RBC Capital Markets).
Needless to state, they maintained a cautious outlook on the sector, though they are doing see potential for significant dealmaking around ahead and therefore are encouraged by the recent uptick in metal prices and financing activity.
But lots of miners still an awful lot of capital. Bianchini thinks the needs US$50 billion to US$60 billion to right itself after bingeing on debt towards the top of the commodity cycle.
“(Debt) is probably going to kill several companies this time around, or at best take a few appendages,” he said.
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The bankers noted that selling equity is tough because of the high volatility in the market. When large-cap mining stocks can fluctuate Ten or twenty percent each day as they have recently, investors are extremely reluctant to leap right into a bought deal. Having said that, recent financings around the gold side demonstrated that good companies can still get equity deals done.
Stream financing reached record levels this past year, and also the bankers expect another active year for streamers despite concerns in some circles that they are “tapped out” after bingeing on acquisitions this past year. The streamers have maintained they have lots of capacity on their balance sheets to do deals.
Senior miners have also been selling loads of assets to deal with their debt problems, and many more are now available on the market. Some of them have found their distance to Toronto-listed companies, and a couple of the bankers expressed hope that spin-offs in the major producers will finish as new IPOs in Toronto. Vale SA, for instance, has thought about basics metals IPO in Toronto, which may effectively bring Inco Ltd. back to life.
“I think we’ll see more IPOs here,” said Shaver.
