As the value of mining industry mergers and acquisitions falls from last year’s high, some investors see divergent trends moderating conditions.
They say share prices are reasonable or low for their assets while commodity prices have been high, the number of large deals has slowed while small deals remain constant, and miners are doing well but they need to replace their reserves. And some say the green metal push is good for deals even as it butts against economic nationalism, NIMBYism and higher taxes.
“The market for M&A is sort of moderate. It’s not extreme, it’s moderate, it’s not weak,” Ross Beaty, Canadian Mining Hall of Fame member and chairman of Equinox Gold (TSX: EQX; NYSE-AM: EQX), said by phone on the road in British Columbia. “It’s both a good world for mining and it’s a very tough world for mining.”
Global mining sector mergers and acquisitions fell to US$11.4 billion so far this year compared with US$27 billion in the same period in 2022, according to data compiled by CostMine Intelligence, part of The Northern Miner Group.
Deals this year include B2Gold’s (TSX: BTO; NYSE: BTG) US$902 million buyout of Sabina Gold & Silver (TSX: SBB; US-OTC: SGSVF), and Hudbay Minerals’ (TSX: HBM; NYSE: HBM) US$428 million purchase of Copper Mountain Mining (TSX: CMMC). But more than half the 36 deals were valued at less than US$15 million. The value total could be knocked higher by Glencore’s (LSE: GLEN) pursuit of Teck Resources (TSX: TECK.A, TECK.B; NYSE: TECK).
John Ing, president and CEO of Toronto-based investment bank Maison Placements Canada, says the junior industry needs big discoveries for financiers to back projects.
“The cheque writers, other than a guy like Eric Sprott, are just not there for a lot of the exploration space,” Ing said by phone in Toronto where he’s served small and midsize companies since the 1980s. “We need success, we need a great drill hole and I’m not seeing very many.”
He’s looking overseas to South America and Africa. Companies on his radar include Endeavour Mining (TSX: EDV; LSE: EDV)) in Côte d’Ivoire, Burkina Faso and Senegal; Omai Gold (TSXV: OMG; USOTC: OMGGF) in Guyana and Centamin (TSX: CEE; LSE: CEY) in Egypt.
“Centamin, they were ballsy enough to go into that country and now I see that Barrick Gold (TSX: ABX; NYSE: GOLD) is going in,” he said. “That’s what I’m looking at, companies with potential that can grow, then they will be a tidbit for some of the intermediates or the majors.”
Beaty, who founded Pan American Silver (TSX: PAAS; NASDAQ: PAAS) and Lumina Copper among others, is more optimistic on the financing front, even for juniors to make their own deals instead of being bought out.
“Available finance is not just selling shares, but it’s also selling royalties or streams, it’s borrowing money from banks, venture capital funds and private equity funds,” he said. “There’s actually quite a bit of capital available in the market right now.”
Likewise, Ing said talk of a recession couldn’t compete with the impact of some $2 trillion spent by governments boosting economies during the pandemic, and the war in Ukraine increasing commodity prices. Even high interest rates won’t hold back economies or M&A, he said. Other factors driving deals are the mining industry’s declining reserves and how company stock market values per ounce of reserves in the ground make many juniors inexpensive.
Focus on commodities
Agreeing with him is Tim Clark, who became CEO of explorer Fury Gold Mines (TSX: FURY; NYSE-AM: FURY) in 2021 after 23 years in finance with Bank of Montreal, Merrill Lynch and Barclays.
“The big guys will try for high-grade assets and might sell off a couple of other secondary assets, but those are phenomenal assets to some other companies,” he said by phone from his car near Boston. “All of a sudden you create this giant kind of consolidation effect and prices come up in a big way.”
The market for juniors is weak at the moment partly because of illiquidity, with investors focused on commodities instead of companies, he said.
“When you’re buying gold for recessionary purposes, no one’s buying equities. They’re buying commodities,” Clark said. “If you’re truly a bull on gold, you shouldn’t buy gold, because there’s not an upside, it might move 10-20% when the mid-caps and small caps will move 100%.”
Fury Gold, which holds a joint venture with Newmont (NYSE: NGT; TSX: NEM) next to its Éléonore mine in Quebec and a project in Nunavut, could eventually be a target but it needs more discoveries to create the scale a major would be interested in, Clark said.
Frank Port, founder and chief investment officer of Kelowna, British Columbia-based Bridgeport Capital, part of a four-member private equity consortium that manages $500 million, says three of his top five picks for mergers have already happened this year, including Gold Fields’ (NYSE: GFI; JSE: GFI) joint venture with Osisko Mining (TSX: OSK) on the Windfall project in Quebec.
“The short list for targets looks like Taseko Mines (TSX: TKO; NYSE-AM: TGB; LSE: TKO) and Centerra Gold (TSX: CG; NYSE: CGAU),” he said. “Mergers will move into fifth gear by this year-end and 2024-25 will be a frenzy as the realization sets in there is a major shortage of copper. The world as we know it is about to get very expensive.”
Beaty says he’s cautious about green metals such as lithium when technological change like the introduction of a new type of battery could make them redundant. He also questions how governments are funding billions of dollars for exploration as part of their economic nationalism when the more important mining gap with China is its control of processing plants.
He hedges the concerns with his interest in Strategic Resources (CVE: CR). In March, it completed a reverse takeover of Orion Mine Finance’s BlackRock, which has a Quebec deposit of vanadium and plans for a processing plant. Beaty is investing in vanadium’s role in making steel. Should new technology make the mineral a more commercial battery metal, that’s a bonus.
“If the green metal market actually becomes real for vanadium, then it’s going to be a really fabulous investment,” he said. “It’s a nice way to get involved in the green energy market, not rely on it.”