Record Crowd Gathers at Toronto Mining Show Chasing Shrinking Funding Pie
A record number of prospectors, geologists and promoters showed up at the world’s largest mining gathering this week in Toronto searching for funding that’s become increasingly elusive.
“There’s a lot of cash sitting on the sideline, still cautious about where the market’s going,” Ron Little, chief executive officer of Ottawa-based Orezone Gold Corp. (ORE), said at his booth nestled among about 600 other cubicles at the Prospectors & Developers Association of Canada convention. “The smaller companies for the next year may struggle if they don’t have enough cash to get through.”
More than 30,000 people registered for this year’s PDAC event, according to the association, topping the 27,700 last year. The meeting, now in its 80th year, is a magnet for startup mining companies -- known in the industry as juniors -- seeking investment to develop and build mines.
Mining companies have raised at least $1.43 billion from 43 initial and secondary offerings and preferred share sales in Canada this year as of yesterday, according to data compiled by Bloomberg. That’s 25 percent less than the $1.91 billion raised from 86 deals in the same period a year earlier.
Mineral-exploration spending growth will slow this year unless equity markets improve, Halifax, Nova Scotia-based Metals Economics Group said in a March 4 report.
“Many juniors may have trouble raising the necessary funds to sustain or increase exploration spending in 2012,” the mining research company said.
The Standard & Poor’s GSCI Spot Index (SPGSCI) of 24 commodities has climbed 9 percent this year and posted annual gains in nine of the past 10 years, helped by raw-material demand from developing nations and rising gold prices.
Still, the index (HUI) fell 1.5 percent on March 6, its biggest drop since Dec. 14, because of concern that the growth of global economies will slow. China, the world’s biggest consumer of metals, lowered its economic-growth target on March 5.
Attendance at the PDAC convention has risen fourfold in the past 15 years, according to the association. A then-record 7,500 people attended in 1997.
At this year’s four-day event, which ended yesterday, the mineral explorers with their maps and rock samples were joined by contractors, students, headhunters and investors who crowded trade-show halls and packed in for presentations. Government delegates from more than 20 countries attended, including mining ministers from Peru, Chile, Brazil and Afghanistan.
Gold Versus Miners
“You are probably part of one of the biggest bubbles we’ve ever seen,” David Harquail, CEO of Toronto-based Franco-Nevada Corp. (FNV), said in a March 5 presentation to delegates. He contrasted the boom in attendees with bullion’s outperformance compared to gold stocks.
Gold has advanced for 11 straight years and traded at a record in London in September as investors bought the metal as a hedge against inflation. Gold producers, meanwhile, have lagged behind bullion. The NYSE Arca Gold BUGS Index has climbed 55 percent in the past five years while gold has more than doubled.
Companies that have operating mines use PDAC to scout for new deposits promoted by juniors, said John Smith, CEO of Vancouver-based Silver Standard Resources Inc. (SSO), which has a mine in Argentina and is studying projects in Mexico and Peru.
“We have an exploration team that is here walking through, back and forth,” Smith said at the conference. “The bulk of the work is really about early-stage assessment and understanding opportunities.”
The event is vital for governments seeking investors for mining and exploration projects, said Guillaume Curtis, secretary general of the ministry of mines and geology in the west African country of Guinea.
“There is more money here in Toronto than anywhere else where exploration is concerned,” Curtis said in an interview, speaking through a translator. “It’s not something we should have missed.”
To be sure, some larger companies have been able to raise funds, including Banro Corp. (BAA) The Toronto-based company said March 2 it raised $175 million for a gold project in the Democratic Republic of Congo. Detour Gold Corp. (DGC) sold C$277 million ($280 million) of equity in a share sale last month to fund completion of its gold project in Ontario.
“The money is there for juniors,” Reg Advocaat, CEO of Vancouver-based Fortunate Sun Mining Co., which has projects in Mexico and Canada, said during PDAC. “If the projects have merit, you will get financed.”
‘Desperate for Money’
Still, the hundreds of companies must compete for investors’ attention at the PDAC event, Advocaat said.
“They are not all getting funded,” he said.
It’s “tough” for the smaller mining companies to get reasonable financing even amid relatively high metals prices, said Ken Hoffman, a Princeton, New Jersey-based metals and mining analyst at Bloomberg Industries.
“The juniors are desperate for money,” Hoffman said. “PDAC is the way they get together, do the dance and see if there’s any deals to be done.”
Funding difficulties may result in takeovers as juniors are forced to seek buyers, Orezone’s Little said. In 2009, he was CEO of a precursor company, Orezone Resources Inc., when it was acquired by Iamgold Corp. (IMG) The $139 million all-shares transaction gave Toronto-based Iamgold a controlling stake a Burkina Faso project, while other Orezone exploration companies were spun out into a new entity led by Little.
“The companies that need cash are somber, the ones that have a lot are thankful, and the bigger ones are maybe smiling internally,” Little said. “It’s a hardship for some but a great opportunity for others.”
Merger-and-acquisition talk in the mining industry has been “more muted” than in previous years, Egizio Bianchini, vice- chairman at Toronto-based investment bank BMO Capital Markets, said in a Feb. 27 interview on Bloomberg Television.
There have been at least $6.08 billion of mining deals valued at $1 billion or less so far this quarter, according to data compiled by Bloomberg. That compares with $10.7 billion in the first three months of 2011.
At the minimum, the Toronto conference raises the specter that financing or a white knight will appear.
“PDAC has been going for a long time,” Cay Mims, a consultant who works for Miami-based The Highland Group, said in an interview in Toronto. “If you want to do a deal, you have to be here.”
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