TORONTO – A sudden squall of equity deals arranged for Canadian junior miners signals a potential thaw in a year-long freeze on new financings that has held back the pace of mining exploration.
Over the past year, the flow of bought deals - a type of equity financing commonly used by early-stage miners in Canada - slowed to a crawl as the euro zone debt crisis and a pullback in emerging economies fueled market uncertainty.
Equity financings are the lifeblood of early-stage mining companies, which rely on them to fund their projects, and when economic fears paralyze markets hundreds of Canadian miners and explorers are often deprived of the capital needed to survive.
Mining stocks have now started to bounce back after falling more than 40 percent over the past year, reflecting a brighter macroeconomic outlook. And the S&P TSX Metals & Mining Index is up more than 25 percent since July, giving some early-stage miners confidence to wade back into equity markets.
Tyler Swan, a managing director in equity capital markets at CIBC, expects a flurry of financings in the months ahead.
"There is a large pipeline in place, of companies looking to come to market before the end of the year," he said.
Sandstorm Gold Ltd was one of the first to take the plunge. The company, which recently raised C$150 million ($153 million) for itself, focuses on arranging production-sharing, or so-called streaming, deals to fund mining projects of others.
"Our financing was somewhat of a bellwether for the rest of the industry to see that financings can be done, and investment banks since then having been going around trying to convince mining companies to raise equity," said Nolan Watson, chief executive of Sandstorm.
The numbers illustrate the pent-up demand. Only about C$400 million was raised through fewer than 30 bought deals in the spring and summer of 2012, compared with the roughly C$2 billion raised via 80 deals a year earlier, according to Oreninc, a firm that tracks financing activity among juniors in Canada.
But investor sentiment seems to be turning, thanks to a brighter economic outlook. The U.S. Federal Reserve recently outlined plans for a third aggressive program to lift the U.S. economy, while China has given the go-ahead to some 60 infrastructure projects worth over $150 billion.
Not coincidentally, precious metal explorers Premier Gold Mines and Torex Gold Resources Inc this week outlined plans for bought deals to fund projects. And Labrador Iron Mines Ltd, one of Canada's newest ore miners, has joined the rush.
Bought deals help reduce risk for issuers by allowing them to sell shares to an underwriter, or a syndicate that in turn markets the equity to the public.
Torex, which owns the Morelos gold project in Mexico, said on Monday it plans to raise about C$350 million through a deal being led by BMO Capital Markets. Premier Gold, which owns assets in the gold mining belts of Ontario and Nevada, aims to raise nearly C$60 million in a deal led by RBC Capital Markets.
In a sign that the equity window may have also opened for miners outside precious metals, Labrador Iron Mines plans to move on a C$30 million bought deal led by Canaccord Financial.
New issuers are also stepping up. Last month, Ivanplats - the mining company founded by billionaire Robert Friedland - began a long-awaited process to list on the Toronto Stock Exchange.
The company, which owns copper and platinum projects in Africa, plans to sell about 60 million shares at between C$4.50 and C$5.40 as part of its initial public offering, said a source familiar with the situation. That would make the offering worth between C$270 million and C$325 million.
Among the other new issuers seeking to tap the market is Potash Ridge - a potash exploration company with a project in Utah - that filed its papers with regulators in late September.
But some caution that there is no guarantee the window for financings will remain open.
"A lot of people are optimistic and are hoping the window will extend for some time, but I think markets are still fairly volatile," said Richard Steinberg, who heads the securities and mergers and acquisitions group at Fasken Martineau in Toronto.
Steinberg believes companies that move quickly will benefit, given lingering uncertainty and caution among many investors.
"There is nothing better than being first in line," he said. "Whether the window will extend to allow additional offerings by other similarly situated mining companies remains to be seen."
One of the big overhangs remains the steady stream of bad news from Europe, Watson warns.
"I do not think that this window is going to stay open indefinitely. I think it is going to close here," he said. "It could be one month away or six months away, it just depends on when the next macro problem crops up globally, whether it be Spain, or Greece, or Italy, or the U.S. fiscal cliff."
(Editing by Frank McGurty; and Peter Galloway)