It's shaping up to be a buyer's market in the Canadian mining industry.
After last year's rout – when miners had to put acquisition activity on hold to focus on cost cutting – interest in potential takeovers is starting to pick up as companies' shares hover at multiyear lows.
"The pendulum is starting to swing," said Egizio Bianchini, co-head of BMO Nesbitt Burns' mining franchise. "Generally, buyers believe that we are in a bit of a buyer's market."
Miners spent last year improving their financial position and are now more comfortable operating in an environment of lower commodity prices.
And with plunging metal prices hammering the market capitalization of mining companies, many players are on the hunt for deals.
Even companies under pressure to improve their balance sheets are looking at possible purchases.
"You never get to choose the timing of an acquisition opportunity as perfectly as you may like," said David Pathe, chief executive of Sherritt International Corp., a nickel and energy company which has made paying down debt a priority but is also scouring the landscape for a nickel asset.
The fact that gold has shot up 10 per cent so far this year to around $1,330 (U.S.) an ounce and other metal prices are expected to rebound has helped boost confidence.
"There is a comfort level and the money is starting to flow in," said Gene McBurney, co-founder and director at investment bank GMP Capital Inc. "We will see people building up their balance sheet for the purposes of engaging in transactions."
So far this year, three Canadian companies have launched hostile bids and the country's two largest gold miners have sold one of their jointly owned mines.
The problem is that miners are not happy with the unsolicited offers they are attracting.
Bids are conservative compared with a few years ago when purchasers would typically offer 30 to 100 per cent above a target's previous stock price.
In contrast, Goldcorp Inc. recently offered a 15-per-cent premium for Osisko Mining Corp.; HudBay Minerals Inc. presented an 18-per-cent premium for Augusta Resource Corp.; and Waterton Precious Metals' private equity fund provided a 14-per-cent premium for Arizona-based Chaparral Gold Corp.
"The premiums offered are arguably at the lower end, and to an extent reflect a valuation gap between buyers and sellers," said Jay Patel, an Ernst & Young partner in charge of the firm's Canadian mining transactions.
Osisko, Augusta and Chaparral have all rejected the unwanted bids, saying they are undervalued. The companies' stocks are trading above their offering prices.
Mr. McBurney, whose firm is advising Goldcorp and HudBay, said he warns companies that they will come out bloodied if they decide to bypass management and take their bids directly to shareholders. "I never met a CEO who said: 'I want to cave on this one,' " said Mr. McBurney, who would not comment on the Goldcorp and HudBay deals.
Last year marked the lowest level of merger and acquisition activity in the Canadian mining sector in years . A total of $12-billion worth of deals were consummated, down from $18.8-billion in 2012, according to Ernst &Young. That was well off the peak of $103-billion in 2007.
Miners that wanted to get rid of their non-core assets had a hard time finding a buyer. "There were disparate views between where buyers and sellers were willing to transact," said Chris Gratias, co-head of mining investment banking at Canadian Imperial Bank of Commerce. "That is changing. We're starting to see companies become more aggressive."