As the world's biggest base metal miners embark on a fire sale of their mines, Canadian banks are poised for a piece of the action.
The groundwork has been laid for a busy year for mining deals after one of the slowest periods in more than a decade.
Desperation is high among indebted industrial metal producers, whose businesses have been felled by low commodity prices and weak demand from the world's largest metal consumer, China.
Vale SA, Freeport-McMoRan Inc., Glencore PLC and Anglo American PLC are all planning to divest dozens of mines in a mad dash to raise cash, providing a smorgasbord of assets for potential buyers.
"Canada is a big part of that buyer list," said Peter Collibee, head of global mining and metals at Bank of Nova Scotia.
Vale, the Brazilian iron-ore giant, is swimming in $25-billion (U.S.) of debt and aims to reduce it by $10-billion. Freeport, a U.S.-based copper and oil producer, plans to halve its $20-billion debt load. London-based Anglo American is trying to sell 29 mines to bolster its financial position.
But the pool of serious buyers is small. Most mining companies are focused on preserving their balance sheets with copper, nickel, iron ore and other commodities in the dumps.
Financiers such as Osisko Gold Royalties Ltd. and Silver Wheaton Corp. are few and far between. Resource-focused private-equity firms have relatively small pots of cash to play with. And the heavyweight firms such as Blackstone Group LP, Kohlberg Kravis Roberts & Co. and Apollo Global Management LLC have struggled with the long-term nature of mines.
"There may be some new players on the margin, but I don't think it is substantial amounts of new capital coming in," said Michael Faralla, head of global mining at Toronto-Dominion Bank.
That has made it ultracompetitive for the handful of serious buyers and their financial advisers. For top mines such as Barrick Gold Corp.'s Chilean copper mine, more than 20 buyers came out to look but most were quickly weeded out.
Last year marked one of the weakest for mining mergers and acquisitions. Globally, there were 1,500 deals, the lowest number of transactions in more than a decade, according to data from Thomson Reuters. The total value of acquisitions was $120-billion, higher than the previous two years but less than half of the record $271-billion in 2006.
Acquisitions were difficult to finance last year partly because public markets were closed for most miners. The few share offerings that made it to the market were in most part a tough slog to sell. Some mines that were on the auction block were pulled off the market due to lack of interest.
The weaker activity has also dented the work flow for Canadian banks that used to dominate the mining space globally.
However, Bank of Montreal, GMP Capital Inc., Toronto-Dominion Bank and Bank of Nova Scotia still managed to be competitive with the big global lenders, although no Canadian bank made it into the top 10, according to Thomson Reuters.
This year, the tide has started to turn. Franco-Nevada Corp. increased its share offering, with the Canadian banks underwriting the equity raise. Other gold miners such as Kinross Gold Corp. and Osisko raised funds.
The sheer number of mines on the market has piqued investors interest. They flocked to BMO's annual mining event in Florida last week to kick the tires on distressed assets.
"On the buying side, there is a general view that this won't last forever, and how long will it last, no one knows. So people are fairly busy and fairly active in sorting through opportunities," said Egizio Bianchini, BMO's co-head of metals and mining.
One of those potential buyers, Osisko's chairman Sean Roosen, was inundated with requests and meetings. "Our feeling is that the next six to 12 months are crucial," he said.