Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Despite a flurry of mergers and acquisitions and a robust IPO market reports out on Wednesday suggest that fear is slowly replacing greed in the mining finance business.
The Financial Post reports for investment bankers, the low-hanging fruit is long gone and the biggest financings are now high-risk: gold juniors in Africa, coal in Colombia and an infamous Quebec lithium play that overstated its resource.
Global Mining Finance’s July round-up says untrustworthy financial and resource reporting, threats of new royalty regimes, “super-profit” and carbon taxes, political turmoil, strikes and government takeovers are worrying resource investors all around the world.
According to Financial Post data most of $4.6 billion that was raised for Canadian mining companies came before liquidity began to dry up in April and May, and things have been slow since then. The FP quotes one investment banker as saying “the buy side is on strike,” and another saying: “These deals just have a different ring to them. It’s not plain vanilla anymore.”
Global Mining Finance in its July 2011 industry roundup says investor uncertainty is spreading to North American companies operating in Africa, South America, China and even Australia. The researcher quotes the head of BMO Capital Markets metals and mining: “The biggest political issue we’re facing right now is the whole trend towards governments taking a bigger piece of the pie, either through royalties, taxes or greater social license demands. It’s a trend that will not be reversed as long as commodity prices are high.”
MINING.com reported on Monday that Canadian companies – both as acquirers and as the targets of buyers – dominated corporate finance activity that approached $100 billion in the first half of 2011. Canadian financiers and mining companies shook hands on 325 deals accounting for almost two-thirds of all the metals and minerals transactions carried out around the world.
3 Comments
Dan
On long term the mining boom would continue simply put because of the world’s population growth. It’s doing business in difficult environments that makes investors cautious. The good part is that there are still a few good jurisdictions, camps, geologically attractive places like Canada, Yukon, Arctic, parts of the US (Alaska) where one can invest money and do business without having to fear populist governments, nationalizations, etc.
Projectconsult
Here is one for statistics: A hunter is out to shoot a duck, aims and Pow! – he fails one yard to the right, aims again – Pow!
now he misses the duck one yard to the left; according to statistics the duck is dead – So, the comment is as for
investors and resource venture capital – pick the right
comodities and one simply cannot miss. Good luck to all.
Adougall
Another factor being overlooked is the availabilility of skills. Most of the categories now fall into scarce skill listings and make it difficult to float new mines. Collieries for one are needed. I believe that the reliance on the renewable quotas is optomistic and revised strategies need to be looked at.