Mining in Canada in 2011

In 2011, the importance of mining and exploration companies to the Canadian capital markets was once again reaffirmed. According to the TMX Group (owner of the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSX-V)), the TSX and TSX-V are home to 58% of the world’s public mining companies. Issuers listed on these two markets were involved in raising 60% of the world’s mining equity capital. Canada’s significant exposure to natural resources and its seasoned capital markets once again made it the jurisdiction of choice for Canadian and international mining explorers, developers and operators seeking to raise new capital and manage their businesses in a stable and predictable environment. Canada continued to be globally recognized as a world class mining jurisdiction as a result of its sophisticated capital markets, its highly skilled and experienced advisors, the breadth and depth of its institutional and retail investor base, its strict and sophisticated mining regulatory regime (including National Instrument 43-101 – Standards of Disclosure for Mineral Projects, which was updated in June 2011, and proposed amendments to the Mining Act (Quebec)), its flexible and numerous public and private capital arising options and its multiple public company entry points.

Canadian Mining Capital Markets Significance

In 2011, Canada’s mining capital markets continued to be comprised of both Canadian issuers with projects in Canada and abroad, and foreign issuers with projects in Canada or with no affiliation to Canada other than the maintenance of a Canadian listing. It is estimated that half of the approximately 9,500 mineral exploration assets owned by TSX and TSX-V listed companies are located outside Canada.

The 2011 Canadian capital markets continued to be fuelled by fundraising activities and mergers and acquisitions transactions by TSX and TSX-V listed companies. Financial transactions in this sector continued to include offerings by way of long form prospectus, shelf prospectus, short form prospectus or private placement (with limited restrictions on investors – primarily a four-month hold period on the purchased stock).  Canadian mining issuers also continued to enjoy the benefit of access to U.S. investors without SEC review, using the MJDS system. Additionally, early stage exploration and development issuers without sufficient revenue to support capital expenditures continued to issue flow-through shares to Canadian investors.

Continued Strength in Canadian Mining Capital Markets

In the period from January 1, 2011 through November 30, 2011, TSX and TSX-V issuers completed 1,811 financings, raising a cumulative total of almost $12 billion. While the market for initial public offerings was significantly constrained, a few initial public offerings in the mining sector were completed, including Black Iron Inc., Midas Gold Corp. and the exchange traded receipts of the Royal Canadian Mint. Reverse take-overs, whether by CPC Qualifying Transaction or traditional means, continued as a viable public listing option for junior and mid-tier resource-based companies seeking a listing on the TSX-V.

The prevalence of capital markets activities for mining companies on the TSX and TSX-V is not a new trend. In the past 10 years, 80% of worldwide mining financings completed have been completed on the TSX or TSX-V. In 2010, approximately 2,400 mining equity financings were completed on the TSX and TSX-V with a value of $17.8 billion, representing 91% of all global equity financings completed in that year (by number) and approximately 66% of global equity financing (by dollar value).

Notable M&A Activity

Canada also remained a strong centre for both friendly and hostile mergers and acquisitions in 2011, despite the economic climate. During the first two weeks of the year, two large transactions were announced – HudBay Minerals Inc.’s acquisition of Norsemont Mining Inc. and the merger of Lundin Mining Corporation and Inmet Mining Corporation. The quick announcement of these transactions led many to believe that 2011 would be a strong year for M&A.

While in the end the year was not a strong as many capital markets participants would have liked, a number of significant transactions were announced or completed in 2011. Notable transactions included the acquisition of Equinox Minerals by Barrick Gold Corporation, Cliffs Natural Resources Inc.’s acquisition of Consolidated Thomson Iron Mines Ltd. and Minmetals’ supported acquisition of Anvil Mining Ltd. Notwithstanding the global nature of each of these mining companies, their connection to Canada is indicative of a desire for, and the benefits to be had from, maintaining a nexus to Canadian capital markets, particularly in an industry where listed securities provide attractive consideration in the context of M&A transactions.

Several other notable transactions were completed in 2011, including two significant competitive situations. Cameco Corporation announced an all-cash unsolicited offer for Hathor Exploration Ltd., which ultimately partnered with Rio Tinto plc, and Northgate Minerals Corporation was acquired by AuRico Gold Inc. following an agreement by Northgate to acquire Primero Mining Corp. Most recently, Polish miner, KGHM, announced an all-cash acquisition of Quadra FNX Mining Ltd.

Canada Remains an Global Mining Leader

Overall 2011 was an exciting year for resource companies listed on Canadian exchanges, with Canadian capital markets continuing as the global leader for mining transactions.

This article was originally published as part of Osler’s 2011 Capital Markets Review, which can be accessed here.