The downturn in the mining industry is beginning to ripple through brokerage firms and investment banks in Canada.
One small brokerage firm, Fraser Mackenzie Ltd., closed earlier this year. Casimir Capital Ltd., a closely held investment bank, has cut jobs on its mining team and is shifting its focus to energy companies.
Bill Vlaad, a financial services recruiter, says requests to find bankers to work with mining and natural resources companies are drying up. Those searches now represent less than 10 percent of his business, down from half of his work three years ago. Mark Morabito, chairman of Canadian mining company Alderon Iron Ore Corp. (ADV), says he’s getting a steady stream of e-mails from bankers who are getting fired.
“I’m now dealing with the top guys, the global heads of mining, because the guys in between are all gone,” Morabito said in an interview. “Toronto is just a dead zone.”
Though the job cuts have been relatively small so far, many in the finance industry expect a bigger wave of reductions as well as consolidation, especially among boutique financial firms. If the number of such firms shrinks, mining companies could find it even harder down the road to finance exploration drilling and mine development.
During the multiyear boom in commodity prices that followed the global financial crisis, these securities firms grew as mining companies easily tapped the Canadian stock markets for financing. About half the world’s mining companies have their headquarters in Canada — producers of copper, gold, iron ore and zinc — and most of the industry’s stock sales go through Toronto.
Equity financing, one of the few options for speculative companies searching for the next big mine, is now shrinking amid a slump in metals prices. Gold futures in New York have dropped 21 percent this year while copper is down 13 percent.
The total value of mining equity sales in Canada declined in 2012 and fell more sharply in the first part of this year, particularly among the small and midsize explorers and developers.
Financial firms that serve these companies are under pressure. The picture will “probably get uglier before it gets better,” for securities firms, said Michael Graham, who worked in institutional equity sales at Stonecap Securities Inc., in a June 13 phone interview.
“Everybody is talking to everyone in terms of do we get together, do we fold?” he said. “I think the reality is that everybody is going to cut people.”
Graham left Stonecap, a Toronto-based investment dealer, in early June to help with an initial public offering for a small energy company and plans to reassess his options at the end of the summer.
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