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The billion-dollar offering of Tahoe Resources Inc. shares is suffering from weak demand, another sign that mining investors remain cautious about the industry.
Late on Monday, Goldcorp Inc. announced plans to sell its remaining 26-per-cent stake in Tahoe for $998-million by way of a bought deal. Because the underwriters, led by GMP Securities and BMO Nesbitt Burns, purchased the Tahoe shares from the miner, Goldcorp has already received the full proceeds.
The financing initially looked like a big win for the lead dealers, particularly GMP, which has seen muted deal flow in recent quarters. However, the underwriting syndicate, which is rather large and includes global banks as well as boutique mining shops, is now responsible for selling the Tahoe shares to investors, and that process is struggling, according to people familiar with the deal.
The total number of shares sold falls anywhere between 25 per cent and 50 per cent of the total size, according to these people. The institutional order book is said to be between 20 per cent and 25 per cent, and it is unclear how many shares have been snapped up by retail investors. Tahoe’s stock closed at $16.78, which is below the $17.20 issue price and means investors can buy the shares cheaper in the market.
Although the underwriters have plenty of time to sell the deal, the early weakness proves mining investors remain picky. If the Tahoe shares are not sold when the deal closes, the underwriters will be liable for those that are outstanding. Big, bank-owned investment banks are more than capable of handling large liabilities, but GMP, which did not return a request for comment, is much smaller, meaning it will feel more of a pinch.
Earlier this year, Silver Wheaton Corp. launched its own $1-billion offering to finance an acquisition, and Bay Street collectively lost millions on the deal.
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