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Mining lawyers are fairly bullish on 2013. They’re expecting at least two trends. First, mergers and acquisitions will gather steam as cash-rich mid-tier mining companies will target increasingly cash-poor juniors. Second, weakness in traditional public debt and equity markets will fuel alternative financings, such as joint ventures, streaming or royalty deals.
Khaled Abdel-Barr, a partner with Lawson Lundell LLP in Vancouver, sees favourable market conditions for acquisitions. “I’m generally quite bullish on an uptick in M&A in the Canadian mining space.”
Commodity prices have softened, and this has weakened valuations for smaller companies. This, in turn, makes it difficult for those small companies to finance projects by raising equity through public offerings. Majors and intermediates, meanwhile, have been quietly building up cash. They’re waiting in the weeds to bid on the struggling juniors that have the best projects.
Shea Small, a partner in the Toronto office of McCarthy Tétrault LLP, says that when commodity prices were high, smaller companies were able to access capital markets to finance marginal projects. Conditions have changed — and the smaller companies are now exposed, he says. “When those high commodity prices came down, it became clearer who was swimming without a bathing suit.”
“If capital markets don’t open up, there are going to be a lot of companies looking for a dance partner,” adds Jay Kellerman, managing partner with Stikeman Elliott LLP and one of the world’s top mining lawyers. “It’s a tough world out there.”
Sander Grieve, co-chair of FMC Law’s mining group, also expects a wave of this “opportunistic” type of M&A. “As we put it here more colloquially, in some cases you have to marry for the money.”
This approach will probably limit the number of any mega deals between large producers. “A number of the majors are currently focused on their core operations, and managing costs, rather than on making transformative acquisitions,” says Jeff Lloyd, an M&A and corporate finance lawyer with Blake, Cassels & Graydon LLP in Toronto. “As a result, I think mining M&A deals in 2013 will tend to be smaller deals, such as project-level transactions where one joint-venture partner buys out another, and transactions involving juniors.”
The key to this scenario is that even with lower commodity prices, the larger producers are still making decent money. John S.M. Turner, a partner with Fasken Martineau DuMoulin LLP in Toronto, explains that this enables the more-efficient companies to wait for the right time to move. “Some of them have beefed up considerably on the corporate-development side, and they’re looking at opportunities.
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