No issue is causing more concern for miners right now than access to capital. So a full house was on hand on Tuesday to hear from a panel of well-known Bay Street bankers, who gave their views on the state of mining financing and the broader health of the industry. The speakers included Egizio Bianchini (BMO Capital Markets), Peter Collibee (Scotia Capital), Rick McCreary (TD Securities) and David Shaver (RBC Capital Markets).
Needless to say, they maintained a cautious outlook on the sector, though they do see potential for significant dealmaking in the year ahead and are encouraged by the recent uptick in metal prices and financing activity.
But a lot of miners still need an awful lot of capital. Bianchini thinks the industry needs US$50 billion to US$60 billion to right itself after bingeing on debt at the top of the commodity cycle.
“(Debt) is probably going to kill a few companies this time around, or at least take a few appendages,” he said.
The bankers noted that selling equity is tough because of the high volatility in the market. When large-cap mining stocks can fluctuate 10 or 20 per cent a day as they have recently, investors are very reluctant to leap into a bought deal. That said, recent financings on the gold side showed that good companies can still get equity deals done.
Stream financing reached record levels last year, and the bankers expect another active year for streamers despite concerns in some circles that they are “tapped out” after bingeing on acquisitions last year. The streamers have maintained they still have plenty of capacity on their balance sheets to do deals.
Senior miners have also been selling loads of assets to address their debt problems, and many more are now on the market. Some of them have found their way into Toronto-listed companies, and a couple of the bankers expressed hope that spin-offs from the major producers could end up as new IPOs in Toronto. Vale SA, for instance, has considered a base metals IPO in Toronto, which would effectively bring Inco Ltd. back to life.
“I do think we’ll see more IPOs here,” said Shaver.