Financing options for juniors brighten, mining experts say
TORONTO Exploration companies will have more financing options this year as equity markets open their doors a little wider for junior miners, according to a panel comprising Canada’s top mining financiers.
Mining and capital markets experts from Canada’s Big Five banks were bullish on the opportunities for financing exploration, they said on a panel focused on exploration financing at the Prospectors and Developers Association of Canada convention in Toronto on Tuesday.
More investors are now seeking to find the next “little star,” said Ryan Latinovich, managing director from RBC’s equity capital markets group. “It’s the lifeblood of our industry and we need to do a better job of finding those little stars.”
The market is growing more supportive of smaller companies, giving them more options and the ability to be patient when evaluating merger or acquisition offers, he added.
During the past few years of languishing metals prices, junior miners have turned to alternative financing options such as royalty companies or streaming agreements, which force miners to commit to a long-term royalty payout or agreements to sell their products at a severely discounted price in exchange for upfront cash.
Debt markets have been often off-limits for junior companies because banks are reluctant to agree to long-term repayment deals when a project is risky.
However, amid increasingly optimistic outlook from a growing number of commodity experts, the public equity markets are poised to ramp up lending as they come off the fastest rate of financing for mining projects in four years.
Companies raised $1.1 billion from public markets for exploration within Canada in 2016, a 74 per cent increase from the $630 million raised the year before, according to a report by SNL Metals and Mining.
Streaming companies will continue to compete with banks for financing and their structures will continue to evolve, said Peter Collibee, head of the global metals and mining group at Scotia Capital.
“But we’re not going to see same size of transactions as we saw in 2015-2016. The simple reason is the mining industry is in a far better state,” he said, adding that “most of the commodities are financeable at the moment.”
David Scott, of CIBC Capital Markets, warned that financiers need to avoid the kind of irrational exuberance that led to some irresponsible lending in the last boom cycle. “We get as caught up in cycle as anyone else, so you can’t always assume the banks are the ones that are going to be conservative. If we make a bad loan to one mine company, we own the mine and we don’t want to own mines.” The panel also cautioned against becoming too optimistic in a new era of “de-globalization” that sparked volatility, from the fallout of the election of U.S. President Donald Trump and Britain’s decision to exit from the European Union. “This whole de-globalization is going to put an added cost on Canada. It’s a real concern,” said Egizio Bianchini, managing director at BMO Capital Markets.
Such uncertainty could create more risk, raise the cost of capital and sacrifice wealth creation, he added.
Rick McCreary, deputy chair of investment banking at TD Securities, was slightly more stoic about the current global political climate. “In a political environment, the pendulum swings back and forth and it’s highly likely it’s going to swing the other way,” he said. “We just have to weave and bob with it.”