Mining Finance and Investment

The money that orchestrates global mining

Many consider that we are currently experiencing the largest economic transition of our times. Largely triggered by the Covid pandemic, international governments have been printing money at historically unconventional speeds. “The debasement of currencies is unprecedented. Everyone should expect their wallets to buy much less over the next few years,” said Rob McEwen, chairman and chief owner of McEwen Mining.

According to Nasdaq’s financial advisor, Ron Surz: “As of March 2021, COVID costs totaled US$5.2 trillion. World War II cost US$4.7 trillion (in today’s dollars). All-in money printing totaled US$13 trillion: US$5.2 trillion for COVID, plus US$4.5 trillion for quantitative easing, and US$3 trillion for infrastructure.”

The relevance of the mining sector seems to only recently be understood by the general population. With an urgent need for clean energy and electrification, the ability to mitigate global warming relies on the mining industry’s capacity to provide the materials required for the transition. The TSX has seen a rebound within the mining space with the return of generalist investors.

With 14 mining companies on 2021’s TSX30 ranking, a renewed interest in the sector seems to be taking place. There are currently record levels of mining companies looking to graduate from the TSX to the TSX-V, with the time spent on the latter declining. Companies graduating from the TSXV to TSX made up 56% of new TSX mining listings up until August 2021, a 13% increase from 2020.

“Star Royalties is trying to provide a new form of competitively-priced financing, mainly focused on the smaller end of the sector that has been capital-starved for many years. As equity valuations are currently depressed, there is no shortage of smart capital deployment opportunities, with many developers and producers looking at royalties and streaming opportunities as they do not want to dilute at these levels.”

Alex Pernin, CEO, Star Royalties Ltd

More than ever before, investors are looking at ESG reporting as a pivotal element in their decision-making process. “We are continuing to make it easier for global investors to participate in our market, with complete transparency and confidence they are accessing the best companies in the global mining sector,” said Dean McPherson, head of business development – global mining, Toronto Stock Exchange and TSX Venture Exchange.

Shifting to the big board is often seen as a major accomplishment, adding to a companies’ reputation and making it eligible for index inclusion, which has a tendency to add to demand. “However it is not a panacea or guarantee of liquidity or premium valuations,” said Braden Fletcher, president and head of investment banking at Roth Canada, who explained that company fundamentals remain the most important focus for investors: “Selecting a listing venue should be about accessing the deepest pool of capital possible – which is why we see so many Canadian listed companies pursuing a dual list in the US,” he added.

Triple Flag Precious Metals joined the TSX in May 2021, raising over US$250 million in its IPO. Having realized that traditional financing opportunities are often limited for the mining sector, Triple Flag has focused on supplementing traditional financing methods: “We believed that there was real opportunity for additional stream and royalty financing to service the funding needs of mining companies,” said Shaun Usmar, founder and CEO of Triple Flag.

Streaming agreements emerged around 2004 and involve an up-front payment to an operator in exchange for having a percentage of fixed-price metal purchasing rights in the future. This benefits operators by retaining equity, and investors by securing access. “Streaming is becoming widely accepted as it is extremely patient to the mine building process and can be complementary to other forms of financing,” added Usmar.

When it comes to the relative dearth of mining M&A activity over the last couple of years, despite high metals prices, Adam Schatzker, managing director, mining research at Research Capital Corporation, reflected: “In the last bull market, M&A was a predominant theme, but many mistakes were made which came to the forefront as prices came down and capital costs escalated significantly. However, as we transition towards a greener future, M&A will become more of a necessity to develop projects.”

Focused on large returns with smaller sized companies, Research Capital Corp. takes interest in projects in low-risk jurisdictions with a strong ESG focus. Adam Schatzker elaborated on the firm’s relationship with Canada Nickel: “The geology of their project and Ontario’s very low carbon footprint for its electricity generation makes it theoretically possible for Canada Nickel to produce nickel with basically no environmental footprint,” he said.

TSX-V and OTCQX listed precious metals royalty and streaming company Star Royalties has an 85% gold-focused portfolio. The company generated the first carbon-negative gold royalty platform with Green Star Royalties, which will position the company to be carbon negative by 2023. “It will promote our first-mover advantage and better position us for improved equity and debt cost of capital to fund our precious metals deals,” said Alex Pernin, CEO of Star Royalties.

Earlier this year, Star Royalties announced a new royalty acquired on carbon offset credits with Elizabeth Metis Settlement (EMS Forest Project) in Alberta. “The project is a pure-green, ESG-focused investment where we are literary investing in allowing a forest to grow to generate carbon credits. The business model is massively scalable and there is no shortage of opportunities,” said Pernin.

In the past twenty years, Roth Capital’s sustainability team has completed nearly US$30 billion in transactions. “This has not been a recent opportunistic shift, this is a team of long-believers in solar, water and electric vehicles,” said Roth Canada’s Fletcher.

A stronger focus on engaging with indigenous communities is also part of the ESG shift. “Models have emerged that allow First Nations to share in the opportunity and wealth created by resource projects through ownership stakes and by leveraging projects to improve infrastructure and economic capacity” said Denis Frawley, partner at Toronto-based law firm, Ormston List Frawley LLP.

AurCrest Gold announced the formation of Big Tree Carbon Corp, a shared initiative between the company and the First People of the Great Boreal Forest, in April 2021. As First Nations-owned companies, they aim to generate carbon credits by preserving boreal forests. Michael White, president and CEO of IBK Capital explained: “The revenue for this activity globally could exceed hundreds of billions of dollars per year and represent the largest transfer of wealth in history from those that pollute to those that ensure the preservation of our planet’s biosphere.”

The Canadian Federal Government has also recognized the importance of investing in the sector, and has a renewed focus on policy. The 2019 Canadian Minerals and Metals Plan (CMMP) aims to address recurring challenges in the sector through cooperation. A C$40 million investment from the federal government to fund the Mining Innovation Commercialization Accelerator (MICA) is also a reflection of the importance of innovation and collaboration across sectors.