Navigating the Changing Tides: Opportunities in Declining Mining Deal-making

Mining deal-making is experiencing a decline, but individuals like Beaty and others perceive opportunities in the current landscape. While the value of mergers and acquisitions in the mining industry has decreased compared to the previous year, some investors believe that various factors are moderating the situation. They argue that share prices for mining assets are reasonable or low, while commodity prices remain high. Large deals have slowed down, but small deals continue at a steady pace. Miners are generally performing well, although the need to replenish reserves persists. Despite the challenges posed by economic nationalism, NIMBYism, and higher taxes, the push for green metals is seen as favorable for mining deals.

According to Ross Beaty, a member of the Canadian Mining Hall of Fame and chairman of Equinox Gold, the market for mergers and acquisitions is currently moderate, neither extremely strong nor weak. He acknowledges that the mining industry presents both favorable and challenging conditions. Data compiled by CostMine Intelligence, a part of The Northern Miner Group, reveals that global mining sector mergers and acquisitions have declined to $11.4 billion this year, compared to $27 billion in the same period of 2022.

John Ing, the president and CEO of Maison Placements Canada, an investment bank based in Toronto, emphasizes the need for significant discoveries in the junior industry to attract financing for projects. He observes that except for a few individuals like Eric Sprott, there is a lack of interest from financiers in the exploration space. Ing believes that successful exploration results are crucial, but they seem to be scarce at the moment.

Looking beyond their domestic markets, investors like Ing are exploring opportunities in South America and Africa. They are considering companies such as Endeavour Mining in Côte d’Ivoire, Burkina Faso, and Senegal, Omai Gold in Guyana, and Centamin in Egypt. Beaty, who has founded companies like Pan American Silver and Lumina Copper, holds a more optimistic view on financing options, suggesting that even junior companies can pursue their own deals rather than being acquired. He points out that various forms of capital, including selling shares, royalties, streams, borrowing from banks, venture capital funds, and private equity funds, are currently available in the market.

Tim Clark, CEO of Fury Gold and a veteran of the finance industry, agrees with Ing’s assessment. He states that the market for junior mining companies is weak due to a lack of liquidity, with investors primarily focusing on commodities rather than the companies themselves. Clark suggests that when individuals buy gold for recessionary purposes, they tend to invest in commodities rather than equities. He believes that mid-cap and small-cap stocks have higher growth potential compared to gold, which might experience a modest 10-20% increase.

Fury Gold, which holds a joint venture with Newmont next to its Éléonore mine in Quebec and a project in Nunavut, could become a potential target for acquisition, but it needs to make further discoveries to attract the interest of major players. Frank Port, founder and chief investment officer of Bridgeport Capital, indicates that several mergers have already taken place this year, including Gold Fields’ joint venture with Osisko Mining on the Windfall project in Quebec. Port identifies Taseko Mines and Centerra Gold as potential targets for future mergers. He predicts that mergers will accelerate towards the end of the year and intensify in 2024-2025 due to a significant copper shortage, leading to increased expenses globally.

While Beaty acknowledges the potential of green metals like lithium, he remains cautious, as technological advancements could render them obsolete. He also questions the funding of exploration efforts by governments under the guise of economic nationalism when the critical mining gap with China lies in its control of processing plants. Beaty counters these concerns by expressing his interest in Strategic Resources, which recently completed a reverse takeover of Orion Mine Finance’s BlackRock. This company possesses a vanadium deposit in Quebec and plans for a processing plant. Beaty sees the investment in vanadium’s role in steelmaking as a hedge. If new technology transforms vanadium into a more commercially viable battery metal, it would be an added benefit, allowing him to participate in the green energy market without relying solely on it.