A recovery in metals prices, years of cost controls amongst the mining companies, and a renewed interest from institutional investors are some of the reasons the mining IPO market has busted open this year.
After spending the best part of five years in the doghouse, mining is staging a comeback on the Canadian initial public offering (IPO) market.
A recovery in metals prices, years of cost controls amongst the mining companies, and a renewed interest from institutional investors are some of the reasons the IPO market has busted open this year.
Last year, the mining IPO market, like the larger Canadian IPO scene itself, was dead. In 2015, the only deal of note was TMAC Resources Inc. backed by Terry MacGibbon, which raised $155-million.
But over the past month alone, three new mining IPOs have been announced, including what could turn out to be the biggest in the sector in a decade. Luxembourg-based zinc miner VM Holding SA is planning a dual listing in Toronto and New York, and according to Bloomberg, plans to raise $750-million. (The last mega IPO in mining was when Franco Nevada Corp raised $1.2-billion in 2007, according to Thomson Reuters data.)
Among the juniors, too, there's been an uptick in IPOs as well, with Ero Copper Corp., which has a copper mine in Brazil, announcing it plans to raise $103-million. Meantime, Titan Mining Corp., whose chief asset is a zinc mine in New York State, is aiming to whip up $45-million.
"Three IPOs doesn't make a market, but it certainly is a positive trend that we haven't seen in a couple of years," said Alan Hutchison, partner and co-chair of the mining group at Osler Hoskin & Harcourt LLP.
Over the past few years, mining companies have gotten back to basics, he says, focusing on core projects, cleaning up their balance sheets, and becoming more disciplined around cost controls – factors that have improved sentiment among investors.
"There's no question" that the IPO market is picking up, said Ryan Latinovich, head, Canadian mining and metals, global investment banking, with RBC Dominion Securities Inc.
"The overall outlook for the mining sector has improved, with activity levels increasing both with institutional investors and corporate clients," he said.
Helping boost investor confidence is a rebound in the price of metals, particularly base metals. Zinc is trading around levels not seen in a decade. Cobalt, a byproduct of copper and nickel mining, and a key ingredient in batteries for electric cars, has spiked in price this year as well. Cobalt 27 Capital Corp., a pure play on physical cobalt, raised $200-million in a June IPO on the TSX Venture Exchange.
Gold, too, has been in a mostly upward trend over the past 18 months. That buoyancy has even paved the way for juniors to make it to market this year. In February, Superior Gold Inc., which has a small gold mine in Australia, raised $28.5-million in February on the TSX Venture exchange.
But it is the Canadian base metals sector, more than precious metals, that is especially hungry for new IPOs, said Egizio Bianchini, global co-head, metals and mining with BMO Nesbitt Burns Inc. The vast hollowing out that occurred during the last great mining boom, that saw giant Canadian companies like Inco and Falconbridge Ltd. swallowed by foreigners, and the lack of significant new investment in the years since, has left a huge void, he said.
"Eventually, nature abhors a vacuum," said Mr. Bianchini.
"It's a natural breeding ground for new companies."
Niall McGee