Recent Deal Activity

  • Overall uptick in M&A activity and equity/debt financing, especially for gold, silver and copper companies; recent movement also seen in iron ore and coal.
  • Increased variety in deal making and finance — joint ventures, convertible debt, high-yield debt, strategic partnerships, off-take arrangements.
  • More cherry picking of specific assets as opposed to corporate-level acquisitions.
  • Greater activity in commodity streaming (Silver Wheaton, Gold Wheaton) and royalty companies (Royal Gold's acquisition of International Royalty Corporation).
  • Return to share-for-share transactions as opposed to cash-only deals.
  • International investment interest continues to rise — particularly from China, India and Brazil.
  • Increased shareholder activism and proxy fights (Chariot Resources, Rockwell Diamonds).

Our Perspective

McCarthy Tétrault's Mining Group observes the following industry challenges, opportunities and trends through the balance of 2010:

Inbound Investment — Eye on Asia

  • Over the last 12 months, greatly increased interest in Canadian resource companies and assets from Asian investors, particularly Chinese SOEs and private investors. Chinese inbound investment was $4.5 billion in 2009 and exceeds $7 billion so far in 2010. Examples include:
  • China Investment Corp. invested $1.74 billion to acquire 17% of Teck;
  • Wuhan Iron & Steel Corp. made a $240-million strategic investment in Consolidated Thompson Iron Mines and a joint venture in Bloom Lake project; and
  • Jilin Jien Nickel Industry Co. made a $192-million joint hostile bid for Canadian Royalties.
  • Strong interest in Anglo American's metallurgical coal assets in British Columbia (auction process underway) and steel and grinding media businesses in Alberta and British Columbia.
  • Canadian junior and mid-cap mining companies have diverse assets internationally; many remain vulnerable to cash-rich buyers.
  • Increased willingness to consider greenfield developments and exploration projects (recent staking activity in Saskatchewan potash belt).
  • Some Canadian mining companies operating in Asia (such as SouthGobi Energy Resources) are eyeing Hong Kong Stock Exchange listings.

Industry-Wide Trends

  • Partial rebound of commodities sector.
  • Material difficulties reaching consensus valuations of mining assets.
  • Deterioration in deposit quality, and narrowing production pipeline exacerbated by mine closings as a result of the economic downturn.
  • Cost containment.
  • Infrastructure access, combined with equipment and skills shortages.
  • Concerns over operating in high-risk jurisdictions.
  • Securing and maintaining the social licence to operate, including Aboriginal and environmental concerns.

Regulatory Developments to Watch

  • Investment Canada Act thresholds for review of M&A transactions generally raised to $600 million, but full implications of new national security test for foreign investment and guidelines for investments by SOEs still being assessed.
  • Role of "poison pills" in Canadian take-over bids — securities commissions appear divided as to whether shareholder approval of a poison pill after a hostile bid has been made will be allowed to defeat the bid.
  • Changes to TSX rules require shareholder approval of materially dilutive share exchange transactions — may partially arrest retreat from all-cash deals.
  • The US approach to energy policy and climate change policy.

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