Mining Maven Says Share Slump to Spur Merger Boom

Catherine McLeod-Seltzer, one of Canada’s top mining dealmakers, is forecasting an increase in mergers and acquisitions because of a shortage of financing.

Mining stocks are trading close to a three-year low as commodity prices decline on concern that growth is slowing in China, the largest metals consumer. McLeod-Seltzer says that as investors shun equity offerings and banks shy away from making loans, more mine developers will be bought by larger competitors looking to add output and reserves.

“I see these downturns as opportunities,” she said in an interview in Toronto. “The company that’s going to create value for shareholders today is the one that’s not timid.”

McLeod-Seltzer, 52, who sits on the boards of five miners including Toronto-based Kinross Gold Corp., says that during her 28-year career she has raised more than $600 million for new companies searching for mineral riches. She has co-founded exploration startups including Arequipa Resources Ltd., which was bought by Barrick Gold Corp. for almost $1 billion after three years, and Peru Copper Inc., sold for about C$776 million ($757 million) within three years of its initial public offering.

‘Like Cockroaches’

“She’s been very effective,” Rob McEwen, founder of Canada’s Goldcorp Inc. and the chief executive officer of Toronto-based McEwen Mining Inc, said in an interview. “She’s curious, and she’s one of those people who seems to have a good eye for mineral deposits.”

The world of mineral exploration comprises hundreds of ventures in Canada alone that are trying to bring deposits into production. In return for assuming the risk of evaluating and developing projects, often in remote regions, the payoffs, when they come, can be enormous.

Mineral prospectors and promoters are “some of the most optimistic people on the planet,” McLeod-Seltzer says. “We’re like cockroaches -- we’ve survived a lot of nuclear winters.”

The S&P/TSX Global Mining Index has fallen 31 percent in the past 12 months. The cost to build and operate mines is rising. Smaller companies are having difficulty accessing capital after equity markets cooled and European banks, the biggest providers of mining project finance, curbed lending amid economic turmoil at home.

‘Rocks and Stocks’

“If you have that kind of risk profile going forward, I can’t imagine sitting on a lending committee and saying we’re going to lend $1 billion to a project in some crazy part of the world,” she says of lenders caught up in Europe’s debt crisis.

Canadian miners raised $72.3 million from 11 stock sales in April, according to data compiled by Bloomberg. That compares with $620.3 million from 30 deals a year earlier. The amount of money raised year-to-date has fallen 37 percent to $2.06 billion.

“The junior explorationist, what he needs to be doing right now is making sure he doesn’t go under, that’s his number-one focus,” McLeod-Seltzer says. Companies may need to rein in costs and delay some spending, she said.

McLeod-Seltzer says having a father in the mining business meant she grew up talking “rocks and stocks” at the dinner table. Her family lived in northern British Columbia when her father Donald managed a gold mine, before moving to the Northwest Territories, where he worked on an exploration project, after which they settled in Vancouver. She learned from her dad just how quickly boom can turn to bust in mining.

Lights Off

“You’d have one day where my dad was building a swimming pool in the backyard and then the next thing you know he’s running around the house turning off every light,” she says. “These cycles that we see, they always correct.”

She studied business administration at Trinity Western University in Langley, British Columbia. After graduating, she worked for a year at Canadian Commercial Bank and was hired in 1985 by brokerage Yorkton Securities Inc.

In 1992, while she was running Yorkton’s office in Santiago, Chile, she met prospector David Lowell. The two became friends and founded Arequipa with properties in Peru that Lowell had acquired.

Arequipa discovered the multimillion-ounce Pierina gold deposit in 1995, after which Barrick made its move, buying the company for C$940 million. Arequipa was a “really big score” for McLeod-Seltzer, McEwen says.

“She picked up a flavor of what the market wants and she said, ‘Let’s get the geologists operating closer to what the market wants, rather than what the geologists want,’” he says.

Prices Near Highs

McLeod-Seltzer achieved a similar result 11 years later. Peru Copper, another South American mining venture she co-founded, was purchased by Aluminum Corp. of China in 2007 for C$6.60 a share. Peru Copper sold shares at C$1.65 apiece in an initial public offering less that three years earlier.

Since then, McLeod-Seltzer says she’s tried to do the same thing: find “great explorationists,” help them raise money and communicate with investors.

She’s chairman of Bear Creek Mining Ltd., a Vancouver-based company exploring for precious metals in Peru. She’s also chairman of Vancouver-based Pacific Rim Ltd., another junior miner, and a director of Stornoway Diamond Corp., a company she co-founded with geologist Eira Thomas.

Another company that she helps run, Troon Ventures Ltd., is “actively looking” for a project to acquire, McLeod-Seltzer says. Troon directors include her father, brother Bruce McLeod, as well as Michael Kenyon and Jonathan Rubenstein, the founders of Canico Resource Corp., a miner created in 2002 and acquired by Vale SA for C$803.7 million three years later.

‘Pots of Cash’

Mine builders and operators are getting some good news, McLeod-Seltzer says. Prices for many of the commodities they produce remain close to historic highs. Copper prices in New York have quadrupled since the end of 2000 and gold has risen more than fivefold.

“It’s a liquidity issue, a financial issue, I think, not a lack of demand for the materials,” McLeod-Seltzer said. “The metals prices are still very robust.”

Developers with advanced projects that are almost ready to be built will probably become takeover candidates for larger producers, most of which have strong balance sheets and lots of cash, she said.

“Most of the producers are sitting on pots of cash, they are making money and they know that every day that they stick a shovel in the ground they are diminishing the size of their resources,” McLeod-Seltzer says. “They have to replace them. Now is the time.”

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