Key Takeaways
- North American mining companies are issuing shares at the fastest rate in a decade, raising significant capital.
- Junior miners are driving this trend, raising the majority of the funds, rather than major corporations.
- Increased investor demand, partly from those seeking exposure to gold’s earlier gains, is fueling this activity.
- Government support for critical minerals and strong copper prices are also contributing to deal flow.
- The market anticipates continued strong activity, including more IPOs and SPACs in the mining sector.
Mining Companies See Record Equity Issuance
Publicly listed mining companies are currently divesting shares into the market at a pace not seen in ten years, a trend that has drawn little reaction from investors.
With gold prices experiencing a significant surge for much of the year and demand for critical minerals on the rise, North American miners successfully raised $2.9 billion through 185 deals in October alone. This monthly total represents the highest figure recorded since November 2013, according to data compiled by Bloomberg.
Gold and silver miners accounted for one-third of these equity deals in October, even as the prices for both metals experienced a downturn following October 21.
Despite these price fluctuations, investor sentiment has remained robust, with substantial capital actively seeking investment opportunities. I can’t even think of a deal that’s struggled for the last while, commented Daniel Nowlan, vice-chairman at National Bank Capital Markets. Almost everything’s been oversubscribed—many deals have been upsized, so the market’s been very strong.
Junior Miners Lead Capital Raises, Not Majors
This record-breaking period of issuance has not been propelled by large share dumps from major industry giants. Instead, the activity has been dominated by smaller, junior mining companies.
Peter Miller, head of equity capital markets at Bank of Montreal, noted that the activity in the market so far has been entirely dominated by a plethora of junior miners. Rather than a few major players facilitating large transactions, the market has seen a widespread effort by numerous smaller companies to secure funding.
One of the most substantial capital raises came from NexGen Energy Ltd., a uranium miner with listings in Toronto, New York, and Sydney. The company secured C$400 million ($287.2 million) through a bought deal, followed by an increased sale of A$600 million ($395.9 million) in Sydney.
In the precious metals sector, Hycroft Mining Holding Corp., a gold and silver producer based in Denver, led the pack with a capital raise of $171.4 million, marking the largest deal in the gold and silver category for October.
💡 The strong demand stems from investors who missed out on earlier gains in gold and are now actively seeking exposure to the sector to balance their portfolios. Michelle Khalili, global head of ECM at Bank of Nova Scotia, stated, If you were an investor this year that didn’t have appropriate exposure to the sector, you will have lagged from a performance perspective.
Tailwinds for Critical Minerals and Copper
A significant factor contributing to the surge in deal activity is the heightened demand for critical minerals, bolstered by strategic initiatives from the U.S. government.
Near-record copper prices are also serving as a key driver for this segment of the market. According to Nowlan, this combination of governmental support and favorable pricing dynamics is expected to sustain deal flow for the foreseeable future, even with recent dips in gold and silver prices.
Miller further explained that metal prices do not need to reach stratospheric levels to encourage companies to issue shares. Buoyant prices, sufficient to generate market interest, are adequate for continued activity.
Data from Bloomberg indicates that Bank of Montreal was the most active advisor in facilitating these deals during October.
📊 Miller anticipates a busy November, with a full schedule of deals already in development, suggesting the current pace is unlikely to wane. The influx of capital into the mining sector has been notable, with John Ciampaglia, CEO at Sprott Asset Management, observing, We haven’t seen that much capital come into the space in a long time.
The market is poised for an increase in initial public offerings (IPOs), special purpose acquisition companies (SPACs), and further equity raises. Subash Chandra, an analyst at Benchmark Co., predicts, You are going to see a lot of these companies come to market, IPO, SPACs, raise equity. They’re all going to be in this competitive froth to get to market first.
⚡ Gold stocks now represent 12% of the S&P/TSX Composite Index in Canada. In the United States, Newmont Corp. has seen its value double this year, remaining among the top ten stocks on the S&P 500 despite recent market adjustments.
Expert Summary
The mining sector is experiencing a remarkable surge in equity issuance, driven primarily by junior companies seeking capital amidst strong investor appetite for gold and critical minerals. Favorable market conditions, including government support and buoyant metal prices, are expected to sustain this trend.