Canadian gold miners are facing a cool market for equity financing, despite bullion’s big move this year.
Earlier this month, a syndicate of underwriters got stuck with about one-third of New Gold’s Inc’s $150-million equity issue after failing to find enough interest from investors early on.
The transaction was a “bought deal,” in which brokers buy stock from the company and attempt to flip the shares to investors, preferably in a matter of hours. A source familiar with the deal said that after a more than two-week effort, the syndicate led by BMO Nesbitt Burns Inc. finally cleared all the remaining unsold shares in New Gold on Friday.
The Globe and Mail has kept the source’s name confidential because the person wasn’t authorized to speak publicly on the matter.
New Gold has some specific issues, including a high debt load and cost overruns at its biggest mine, that made its stock offering a tough sell. But the long-term underperformance of many Canadian gold companies has also left many people wary of the sector, including “generalist” investors who traditionally would have allocated some of their portfolio to gold stocks.
“Generalists don’t have both feet back in this market,“ said David Cobbold, a mining banker with Macquarie Capital Markets Canada Ltd. “They’re nibbling around the edges and taking a very cautious approach.”
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