TORONTO (miningweekly.com) – The number of companies that have delisted from the TSX and the TSX-V is far fewer than many commentators predicted, while the level of financing activity by mining companies on both exchanges has also increased, attendees at the mineLatinAmerica convention, in Toronto, were told.

Alternative fiscal models had also helped many companies weather the downturn, although success had frequently depended on a company having the right investment profile: either being in production or holding advanced-stage projects.

GETTING BETTER

In a market still looking for signs of improvement, the increase in the number of financings on both the TSX and TSX-V compared with 2013 had been a positive development, TSX-V venture exchange director for listed services Tim Babcock said. This included companies in the mining sector and reversed the downward trend witnessed over the past few years, he added. “So 2013 was, hopefully, the bottom.”

Issuers in the mining sector had raised $6.7-billion year-to-date in the third quarter, Babcock highlighted, although he noted that this included an early first-quarter raise of around $2.4-billion by Turquoise Hill Resources, the operator of the Oyu Tolgoi copper/gold mine, in Mongolia. “But even if we factor that out, we’re still up in aggregate terms by about 50% compared with 2013 in terms of dollars raised,” he noted.

The wave of capitulation of junior mining companies foreseen by several commentators had not occurred. Some even predicted that up to half of the issuers on the TSX-V would potentially disappear. “But we’ve certainly not seen that,” Babcock explained.

There were currently about 1 500 mining companies listed across both exchanges and around 100 had gone, he said. Some had shifted downwards to the NEX – a separate board of the TSX that provided a trading forum for listed companies that had fallen below TSX-V's ongoing listing standards – while others had reinvented themselves, moving into technology or being consumed through mergers and acquisition (M&A) activity.

“So it’s not huge doom and gloom. A lot of issuers have put their project development or businesses on  care and maintenance and have been able to manage with the money they’ve already raised, or they are using different fiscal models,” Babcock added.

REMAKE, REMODEL
With equity financing still unfavourable or impossible for some, alternative finance had sometimes filled the fiscal void, KPMG partner, advisory Jamie Samograd said. However, those securing the greatest success were either in or near production.

Risk associated with a jurisdiction could also affect the availability of financing, noted Norton Rose Fulbright co-head of banking and finance, Latin America, Rubén Eduardo Luján. In the Americas, Chile, Colombia, Mexico, Peru and various provinces in Canada and states in the US were considered the strongest contenders in this regard. Financiers were also more inclined to seek project development in phases rather than agreeing to a complete funding package.

The ongoing pressure on many commodity prices had been problematic for financiers, making it harder to quantify a potential return on investment. “In this regard, I don’t think any metals have been immune. However, there’s still been activity in base metals, particularly copper. There’s even less of a connection for precious metals because of greater uncertainty on whether precious prices will go up in the next cycle,” Samograd said.

Seniors that may have been willing to partner or invest the necessary seed funding for a project in previous cycles remained preoccupied with their balance sheets. External investment remained a secondary concern for them; indeed, many continued to divest projects considered noncore or nonessential.

However, this sell-off favoured midtier mining companies as they were presented with the opportunity to bid for many of these assets on relatively favourable valuations. The same was true for intermediate companies seeking value in the junior space.

Streaming and royalty companies, or those seeking offtake agreements, had also found similar conditions Luján said. “In these instances the financing is secured by a mining company that’s willing to use future production as the basis for [finance] repayment,” he added, noting that it was not that common yet, although it had certainly started to pick up.

But the opportunities for those offering streaming, royalty and offtake deals would become less favourable on a market revival, which would herald the recovery of more traditional financing avenues, such as equity financing.

WHO BUYS?
Broadly speaking, Samograd noted two types of buyers looking to make acquisitions: the strategic buyer and the financial buyer. The strategic buyer may have several reasons for advancing an M&A, including the desire to enter a new jurisdiction or to diversify a portfolio in terms of metals or minerals, he said.

The financial buyer would consider M&A with the return on capital deployed at the forefront of its mind. “So, for some of the funds, it’s not worth their time if the investment isn’t over $250-million,” Samograd noted.

Private-equity funds primarily comprised two groups: those who had traditionally focused on mining and those newer to the sector, often with a background of investing in oil and gas. “There’s not a lot happening on this front yet, although there’s a lot of money out there looking into what frequently appears to be the same deals and opportunities,” Samograd commented.

Those funds that had traditionally been involved in mining, such as Resource Capital Funds or Denham Capital, were also noteworthy for having the experience and teams in place to seek out earlier-stage opportunities with greater confidence. “They can incubate earlier-stage projects, helping them grow to the point where a fund exits or takes the company into production,” he added.

The current climate was advantageous for private-equity funds, as they could also take advantage of the low valuations and opportunities this created. “They’re tracking properties all the time, waiting for the right moment,” Samograd stated, pointing out that "you don’t hear much about many of the deals because they are private and a lot of the activity goes under the radar, which they [the funds] prefer. Generally, it’s only when they have a big success that it hits the press."