Canadian banks see chance to bring mining back home Canadian banks see chance to bring mining back home
Globe and Mail
RACHELLE YOUNGLAI
Tuesday, Mar 08, 2016 Globe and Mail
“Capital is beginning to flow back into the mining sector,” said David Shaver, managing director of global mining and metals at Royal Bank of Canada. But he said “capital is still highly selective and focused on the gold sector.”
The dream of seeing Inco, Falconbridge and other mining powerhouses return to Canada is alive and well.
A decade after the country’s big mining companies were taken over by foreigners, Canadian bankers see an opportunity to reclaim lost ground.
More than 50 mines are on the auction block, as indebted miners Vale SA, Glencore PLC, Anglo American PLC and Freeport-McMoRan Inc. race to fix their balance sheets.
“We have an opportunity here because of the debt burden of these companies. The big companies will be much smaller,” said Egizio Bianchini, co-head of mining and metals at Bank of Montreal. “They have all announced major asset sales. Some of these companies are going to migrate to Toronto,” he said.
The restructuring among the large global mining companies was already under way amid the gruelling slump in metal and mineral prices. BHP Billiton hived off its uglier assets into a separate company called South32, based in Australia. Freeport-McMoRan, one of the world’s biggest copper producers, sold one of its copper mines to raise funds. Anglo American sold some mines and non-core businesses.
But as commodities continued to plunge, cash-strapped miners put more and more assets on the market. Vale, the world’s biggest iron ore producer that bought nickel giant Inco, said it has no restrictions on what it would sell to reduce debt. Anglo American plans to sell nearly 30 assets. Freeport-McMoRan, one of the world’s biggest copper producers, has said everything is on the table.
“Many of those assets will find themselves in the portfolios of TSX-listed companies,” said Peter Collibee, head of global mining and metals at Bank of Nova Scotia. “Toronto is going to be a centre for that,” he said.
Canada is still home to most of the biggest gold miners, including Barrick Gold Corp., Goldcorp Inc. and Kinross Gold Corp. But aside from Teck Resources Ltd., there is a dearth of senior base metal companies listed on the Toronto Stock Exchange.
“If you actually look back at the Toronto Stock Exchange in 2004 and 2005, and look at it today, everybody believes our sector, particularly in the base metal side, was gutted,” said Rick McCreary, deputy chair of investment banking at Toronto-Dominion Bank. “This has been an unprecedented opportunity for people to take advantage to buy assets that would never come on the market,” he said.
Some Canadian companies have been gobbling up mines and metals during this commodities downturn. Silver Wheaton Corp. and Franco-Nevada Corp., which buy future precious metal production for upfront cash payments, have made more than $1-billion in purchases from troubled miners. Mining mogul Lukas Lundin and his group of Vancouver-based companies have bought mines and projects from Freeport-McMoRan and others.
But most Canadian miners do not have the capital to buy anything. Although public markets are starting to thaw, it is only for a handful of gold companies such as Franco-Nevada and Osisko Gold Royalties.
“Capital is beginning to flow back into the mining sector,” said David Shaver, managing director of global mining and metals at Royal Bank of Canada. But he said “capital is still highly selective and focused on the gold sector.”
The day of reckoning for big industrial players comes after gold miners went through a similar purge. Barrick and AngloGold Ashanti Ltd. parted with top assets to reduce debt and now have healthier balance sheets.
The bankers were speaking to delegates at this week’s Prospectors & Developers Association of Canada conference in Toronto.