What are some of the key equity financings BMO has led in Ontario’s mining sector over the past year?

BMO has helped finance several projects in Ontario, one of which is Argonaut Gold’s Magino gold project. We were the sole bookrunner on a C$52 million offering that the company completed in March 2022, and we were the top left bookrunner on a C$195 million offering that closed in July. We also worked with a couple of companies with future facing commodities—Frontier Lithium completed a C$10 million offering in November 2021, where we were joint bookrunner on a financing to support exploration activities on their PAK lithium project in Ontario. For Electra Battery Materials, we acted as sole agent on a C$10 million equity offering the company completed as part of a larger US$45 million financing package for a hydrometallurgical refinery the company is building in Ontario. What forms of financing are proving most resilient in today’s market?

The most resilient form of financing in a relatively more uncertain environment like the one we find ourselves in currently tends to come from commercial banks and private debt providers, including for corporate revolvers. Revolvers in particular are usually intended for large established companies that have a history of cash flow, and the bank market tends to support extensions of established revolvers even in times of uncertainty. Conversely, the least resilient financing markets tend to be the equity market and the high yield debt market. When companies say that it has been difficult to raise capital to build projects in this environment, what they really mean is it has been most challenging to find the equity portion of the funding package. Generally, companies can find project or private debt, even if expensive, and capital from royalty and streaming companies also continues to be readily available for high quality projects. Does BMO remain bullish on long term supply—demand dynamics for battery metals?

Near term, rising interest rates and concerns about potential recession in many places could create a shaky environment for forecasts. However, in our business we feel more optimistic today about the macro trends for metals and mining than at any time since the 2005 to 2007 period. Now we are entering a phase where almost the entire planet wants to decarbonize, including moving to electric vehicles, and all on the same timeline, implying that metal demand will be extraordinary. I think we can all agree this creates a supply / demand imbalance and it should drive strong price performance of a number of these commodities. What are the most pressing concerns for mining companies today, and in Ontario specifically?

The concern for companies and investors is that governments may look to increase taxes or royalties as a means of reducing government debt levels going forward. Permitting timelines, everywhere in the world but also including Canada, remains a focus. The result of rigorous permitting and often appropriate permitting processes can be that desirable returns on equity are more difficult to achieve for investors. In Ontario specifically, the two concerns we hear most from our clients are availability of experienced labour and inflation. Is there a playbook mining companies should consider following when it comes to efficient capital 
management in a downturn?

It definitely depends on the type of company. A large senior company with cash flowing assets will be thinking about managing their debt maturities and very carefully considering their dividend policy, thinking about staging projects in their pipeline, and defining a more defensive strategy to apply around capital allocation overall. More aggressive companies will look at a downturn as an opportunity to pursue either organic or inorganic growth.

For companies that do not generate cash flow, they might consider curtailing and / or delaying spending on their exploration / development projects or on G&A, and raising capital in the most non-dilutive way possible to get to the next catalyst, such as the next resource estimate or economic study.