Miners get creative as equity financings dry up by David Jordan

B.C.’s top-tier miners are retrenching and juniors are scrambling for capital as equity markets hit a dry patch. The majors have plenty of cash on hand to see them through, but with equity financing grinding to a halt (there were 28 TSX and TSX-V mining financings in the first half of 2013, compared to 82 through Q2 2012), they’re forced to make some tough decisions. “When you’ve got a bit of a headwind, you’re looking at prudent capital management, so they’re all looking at capital-allocation decisions,” notes Bruce Sprague, Vancouver-based national mining leader for Ernst & Young LLP.

For some majors, it’s a matter of prioritizing their projects. Eldorado Gold Corp., for example, announced in July that it would reduce its 2013 capital budget by $250 million, to $448 million, and would delay expansion of an exploration project in Turkey.

For some juniors, there’s an upside to the cash squeeze: “Some major and mid-tier companies are saying, ‘Maybe instead of doing our own exploration, there are a lot of good juniors with exciting projects who have already done the heavy lifting from an exploration perspective,’” says Sprague.

Among those benefitting from cash infusions is True Gold Mining Inc., which raised $10 million in May through a private placement with Teck. Delta Gold Corp. of Vancouver got a welcome cash injection from Goldcorp in February in the amount of $2.25 million. Agnico Eagle Mines Ltd. of Toronto has invested in locals Atac Resources Ltd. ($13 million, in March) and Kootenay Silver Inc. ($4.75 million, in April).

Outright acquisitions are few and far between, but in July Alamos Gold Inc. of Toronto and Esperanza Resources Corp. of Vancouver agreed to a friendly takeover that would see Alamos pay $69.4 million cash for the Vancouver company.

Other juniors are pursuing more creative sources of capital. One relatively new wrinkle in financing is “streaming,” where a company pays cash up front in exchange for an agreement to buy a mine’s future output—at a fixed price below expected market prices. An aggressive new entrant to the streaming model has provided welcome relief to cash-strapped juniors. Vancouver-based Sandstorm Gold Ltd. has invested in such locals as Luna Gold Corp., SilverCrest Mines Inc., Colossus Minerals Inc. and Entree Gold Inc.

As for the return of the investing public, it’s more likely a question of when, not if. “Investors always focus on returns,” Sprague points out. “As a consequence they’re maybe a little skeptical, looking at the sector and saying, ‘Well, maybe we need to wait this out until the mining sector gets some of these issues ironed out.’” ■