Are Toronto junior miners facing the knell of doom?Published by MAC on 2013-02-25
Source: Nostromo Research, mining.com (2013-02-21)
"Initial public [share] offerings of juniors have...gone to the dumps: not many new exploration companies are being born and meantime a slew of juniors faces a cash crunch with potentially epochal proportions..".
So commented Mineweb's Kip Keen on 20 February, apparently predicting the end of the (largely) Toronto-led junior mine financing boom as we once knew it.
However, Canadian mine stock promoters are nothing if not optimistic, wild though their optimism may seem.
According to John Kaiser of the eponymous Kaiser Research, "...the bearishness eating away at mineral explorers allows for greater shareprice pitch because the whole junior boat has sunk so low that shareprices in many cases, of the still many active explorers, can hardly go much lower ... if the right drillhole comes, a lot of money can be made".
In contrast to the role of hedge funds and others (like Glencore and JP Morgan) who exploit volatile market prices, Kaiser says that "such gains come for all the right reasons - as opposed to the rampant computer assisted day trading bent only on exploiting stock volatility".
That's a crucial factor, ignored by Ernst & Young in its own prognosis of the mining industry, published earlier this week (though Kaiser seems distinctly naive in believing that the price speculators would miraculously quit the scene, just because a mining company has apparently made a lucky strike)
Kaiser "then wondered...if a small group of companies made significant discoveries, might a critical mass be achieved to buoy the whole boat?"
Jim Sinclair, a "well known precious metals trader", dug in with his own point of view, asking: "When you are approaching zero how much can you lose?" (Apparently very little, Jim, if you're betting both ends against the middle).
As Kip Keen points out, quoting Kaiser's final comment: "We may be back to 1999 (or worse, possibly)".
That was the year when, in the face of mounting costs ,toppling balance sheets, and rising antipathy to mining projects around the world, Rio Tinto and seven other big companies launched their own "Global Mining Initiative".
The GMI largely succeeded - until, that is, the massive Credit Collapse of late 2008, from which the industry is still trying to "recover".
And it will, quite possibly, never do so.
Canadian mining deal value and volume down 37%, 19% in 2012: Ernst & Young
21 February 2013
Ernst & Young launched this morning its new global report, Mergers, acquisitions and capital raising in mining and metals 2012-13, which included the following key findings:
- Canada followed the global downturn in mining and metals value and volume with a year-over-year decrease of 37% and 19% respectively
- There were 941 deals around the world with a total value of US$104b in 2012, down 7% and 36% from 2011
- This is lowest number of global deals since 2008 and the smallest by value since 2009 at the height of the financial crisis
- State-backed and financial investors' appetite for M&A, combined with divestments, will drive a recovery in mining and metals deal volumes and value in 2013
Here is a more in-depth résumé of the report:
Canadian mining deal value and volume fell 37% and 19%, respectively, year over year in 2012, but activity is set to pick up in the year ahead, according to Ernst & Young's new report Mergers, acquisitions and capital raising in mining and metals: 2012 trends, 2013 outlook.
"Despite mirroring the global decline in deal value and volume, Canada maintained an 18% share of global mining and metals M&A value and 37% of global volume in 2012," says Bruce Sprague, Ernst & Young's National Mining and Metals leader. "We saw a number of mid-tier and junior executives maintain confidence to pursue acquisitions despite turbulent times - a drive that's set to continue in 2013."
This appetite also contributed to a rise in Canadian outbound investment volume, with many companies pursuing large, cross-border strategic acquisitions to expand existing operations.
Meanwhile, rising costs, softer commodity prices and project execution challenges have mining and metals companies renewing their focus on cost savings, capital optimization and shedding non-core or underperforming assets until commodity prices recover sufficiently to encourage new investment.
"Mining and metals companies around the world are managing a number of macroeconomic factors," says Sprague. "We've seen these factors dampen deal appetite here at home - and abroad."
The report reveals the downturn in Canadian deal value and volume is part of a broader global trend. Global transactions value and volume declined by 36% and 7%, respectively, from 2011 - with the lowest number of deals since 2008 and the smallest by value since 2009. But the tide is turning, Sprague says.
"Over the next year, we expect to see investment increase at a slower pace, with the majority of Canadian companies doing deals looking to scale-up existing operations by acquiring ‘de-risked' assets," says Sprague. "These companies are also looking close to home for potential targets, with Latin American countries such as Peru, Chile and Mexico at the top of the investment destination list."
The Canada-China Foreign Investment Protection and Promotion Agreement is also expected to reignite Chinese state-owned enterprise interest in the country's resources sector, as Canada looks to stimulate economic growth in a move that will help offset ailing inbound investment from the US.
Click here to read to report in full.