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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