Two miners, two takes on equity financing

So far this year there have been two large equity financings by mining companies. And those deals — the first for US$800 million by Silver Wheaton Corp. and the second, a $1.25 billion offering by

First Quantum Minerals Ltd. that was priced this week — were different in terms of structure, process and outcome.

Consider Silver Wheaton’s offering that was completed through the sale of 38.93 million shares at US$20.55 each (at the time, the stock was trading at US$21.59): It was done via a bought deal, the Canadian way, with a largely Canadian syndicate. It didn’t sell well and the stock price has barely got back to issue price. The shares closed Friday at US$19.36.

First Quantum took the opposite tack. It opted to raise capital by what’s known as an overnight-marketed offering with the price set the next morning “in the context of the market.” The next morning, the company, whose biggest exposure is to copper, agreed to sell 76.923 million shares at $16.25 each. Prior to the deal being announced, the shares were trading at $17.25.

First Quantum also worked with a largely non-Canadian syndicate. Of the seven dealers in the syndicate, six were from away — with RBC Capital Markets being the sole local presence. One conclusion from the syndicate composition is that foreign investors are more bullish on copper than Canadians. The shares closed Friday at $16.46.

In another tale of two deals, consider the different decisions made by

Sun Life Financial in the spring of 2015 and the summer of 2014 in response to the same situation: what to do as the end of the initial term for issues of fixed-rate reset preferred shares approaches.

This year, the insurer, which has raised equity capital in this form on four occasions, opted not to redeem the Series 8R prefs. Those prefs, of which $280 million were sold at a fixed rate of 4.35% in May 2010, were set to mature on June 30.

Instead the insurer decided to extend them for another five years but offered holders a conversion privilege with the terms to be released on June 1. If holders don’t convert to a floating rate pref (a newly issued class known as the Series 9R), they will retain their Series 8R prefs. For both securities the yield will be set at a base rate (5-year Canada bonds or 91-day T-bills) plus 1.41%.

Given that the prefs are trading at $18.09, it was an easy call for Sun Life not to redeem and pay $25 per share to the holders. Based on that price, and using Friday’s fiveyear Canada bond yield, the yet-tobe-issued floating rate prefs would yield 2.046% — or a current yield of 2.84%.

For the fixed rate prefs, the comparable yield would be 2.45% — and a current yield of 3.41%. While higher now than the floating rate yield, that fixed yield may not be higher over the full five years.

One year earlier Sun Life opted to redeem the $250 million of Series SR prefs that were approaching their reset date. And with good reason: the prefs that were issued in 2009 came with a yield of 6% and a spread of 3.79%. Accordingly Sun Life redeemed because it had lowercost alternatives.