TORONTO: Just one year ago, Teck Resources
Ltd. was staring into the abyss.
At the Prospectors and Developers Association of Canada
(PDAC) annual convention last year, the Vancouver, British
Columbia-based company found itself buried in debt as it
borrowed billions just as global commodity markets were melting
down in epic fashion. Bankruptcy was certainly an option for
Canada's largest diversified miner at the time.
Just 12 months later, Teck not only has survived-thanks in
large part to Canadian $1.74 billion in financing from China
Investment Corp. and an uptick in Asian demand-but has seen its
stock value soar by about 540 percent. The coal, copper and
zinc producer even supplied the metal draped around the necks
of winter Olympians in Vancouver. Talk about a turnaround.
"This year feels a little bit different than it did last
year, both to us and I believe to everyone here," Donald R.
Lindsay, Teck's president and chief executive officer, said on
the sidelines of this year's PDAC convention in Toronto. "We
came to PDAC to take advantage of this feel-good factor."
David Anderson, who serves as Canada's Parliamentary
Secretary to the Minister of Natural Resources, also sensed
renewed vigor and hope among the more than 20,000 delegates.
"It's good see that the mood this year is much more optimistic.
The mining industry is showing signs of recovery and commodity
prices are improving and jobs have been created, and the
long-term prognosis is good," he said.
And there was plenty of good news at the convention. Keynote
speaker Andrew Keen, HSBC Securities Inc.'s head of metals and
mining equity research for Europe, the Middle East and Africa,
said that not only are supply/demand fundamentals improved but
companies' balance sheets are relatively clean as nearly
everyone took dramatic steps to reduce debt and cut capital
expenditures during the downturn. "When you put a revival in
commodity prices alongside a structural reduction in costs and
a repaired industry balance sheet, you get a wall of cash
coming through," he said.
With investors looking to spend and companies on the prowl
for acquisitions, there could be significant consolidation
within the Canadian junior mining sector, which was badly
bruised during the downturn. Juniors raised less than C$3
billion ($2.97 billion) on the Toronto Stock Exchange (TSX)
venture exchange last year, a nearly 60-percent decrease from a
record C$7 billion two years ago.
Gordon J. Bogden, managing partner of Gryphon Partners, said
that juniors are now looking to acquire non-strategic or
smaller assets shed by the majors, and there should be more
merger-and-acquisition movement between juniors and small
Paul Murphy, partner at PricewaterhouseCoopers, said the
global financial crisis meant that few investors were prepared
to take a chance on production and development companies,
exploration companies or any company perceived to carry a
higher investment risk.
Not so this year. Murphy anticipates a "blockbuster year"
for sector M&A as capital from recent financings is
deployed ahead of expectations of rising commodity prices.
"Specifically, we expect a steep uptick in deal volumes, a
tepid resurgence of deals of more than C$500 million ($494.5
million) and a moderate shift in China's focus away from
outright acquisitions of Canadian projects," he said.
But that doesn't mean Canada's miners are out of the woods
and without challenges. One issue facing the industry is the
lack of a strong middle tier, a number of delegates said.
"Currently, there's a big gap between Teck and everyone
else," Dave Constable, vice president of investor relations at
Toronto-based FNX Mining Co. Inc., said. "The market would be
rewarded if we can build more base metal champions (in
Canada)." He said that most Canadian juniors are too small to
be owned by all the funds, which makes it difficult to raise
capital for acquisitions or to move into production.
Many of the companies attending this year's convention were
beating the drum against Bill C-300, proposed legislation that
would give the Minister of Foreign Affairs and International
Trade Canada the authority to investigate complaints about
Canadian mining companies in developing nations. The proposed
legislation also would deny taxpayer-funded financing to
companies that are found to violate human rights or
Tony Andrews, PDAC's executive director, said during a press
conference that Bill C-300 does not provide Canadian companies
with due process and would seriously harm Canada's leading
position within the metals and mining industry.
"Even if a complaint is unfounded or frivolous, an
investigation will have to occur to establish that fact," he
said. "It's a process that can be easily abused and used as a
tactic by anti-mining groups because they know that being
investigated by your own government can translate into very
serious reputational damage for the company."
But even with the challenges, most PDAC members are looking
forward to the rest of the year.
"Even the volume in the exhibition hall is louder this
year," said an executive from a Canadian-owned nickel junior.
"Last year, there were still a lot of people here but everyone
was moping around in a daze. This year, people are on the
warpath because there's hope that once again they can make
their dreams happen."