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January 2019 Trends and Innovations in Mining Finance
David Shaver – CIBC Capital Markets
Agenda
I. Market Backdrop
II. Traditional Mining Financings
III. Alternative Mining Financings
IV. Key Takeaways
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All values are expressed in Canadian dollars, unless otherwise noted.
(29%)
(24%)
(18%)
(13%)
(12%)
(12%)
(12%)
(11%)
(6%)
(5%)
(4%)
(3%)
(2%)
(2%)
1%
12%
14%
58.1%
1314%
Energy
Base Metals Equities
Consumer Discr.
Financials
Utilities
S&P / TSX
Health Care
Materials
S&P 500
Industrials
Gold Equities
Real Estate
Telecom
Gold Price
Consumer Staples
Technology
FANG
Cannabis
Bitcoin
Sector Performance
Increased volatility in the broader equity
market
2018 Last 3 Months1
Risk capital flowing into cannabis and
cryptocurrencies
Potential for further geopolitical uncertainty,
market sell offs, trade wars
Interest rate hike cycle slowing
Weakening U.S dollar benefiting gold
1
3
5
2
4
Relative Index Performance Key Themes
1 Market data as January 25, 2019. 2 Gold equities based on TSX Index and base metals equities based on TSX Index.
Source: Bloomberg Financial Markets and Thomson One Analytics.
2
2
2
2
1
(51%)
(12%)
-3%
(2%)
2%
2%
2%
3%
3%
4%
4%
5%
5%
7%
10%
10%
11%
14%
26%
Bitcoin
Energy
FANG
S&P 500
Financials
Industrials
Real Estate
S&P / TSX
Consumer Discr.
Utilities
Health Care
Telecom
Gold Price
Base Metals Equities
Technology
Materials
Consumer Staples
Gold Equities
Cannabis
(52%)
(23%)
(19%)
(18%)
(15%)
(13%)
(9%)
(6%)
(3%)
(1%)
14%
26%
Cobalt
Zinc
Lead
Crude Oil
Copper
Nickel
Silver
Thermal Coal
Gold
Iron Ore
Met Coal
Uranium
Commodity Overview 2
• Uranium and Met Coal been the top performers over the last twelve months while more prominent metals (eg. gold, silver, copper)
have underperformed
• The outlook remains strong for uranium, cobalt, nickel and silver which should drive capital markets activity in these metals
• Gold building strong momentum with recent rise through US$1,300/oz
Commodity Forecast – Spot to Long Term Outlook1 Commodity Performance – Last Twelve Months
1 Market and consensus data as at January 25, 2019. 2 Iron ore price based on 62% iron ore fines price.
Source: Bloomberg Financial Markets and Thomson One Analytics.
2
(35%)
(32%)
(17%)
(11%)
(1%)
(0%)
12%
15%
20%
39%
49%
66%
Thermal Coal
Met Coal
Iron Ore
Zinc
Gold
Lead
Copper
Crude Oil
Silver
Nickel
Cobalt
Uranium
2
Corporate Balance Sheets in Good Shape 3
Average Senior Gold Net Debt/EBITDA1,2
Average Senior Base Metals Net Debt/EBITDA1,2
Key Themes
Strong cash flow generation from senior gold and senior
base metal producers 1
Debt repaid and leverage ratios reduced 2
Anticipated interest rate hikes slowing 3
1 Based on analyst consensus estimates of EBITDA and Net Debt. 2 Market Data as at January 25, 2019.
Senior Gold: Agnico, Barrick, Goldcorp, Kinross, Newcrest and Newmont
Senior Base Metals: Anglo American, BHP, Glencore, Rio Tinto, and Vale.
Source: Bloomberg Financial Markets and Thomson One Analytics.
Rising Interest Rate Environment (%)
1.8x1.0x
2014 Current
1.7x
0.7x
2014 Current
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Jan-14 Apr-15 Jul-16 Oct-17 Jan-19
US 10 Year Treasury
Note: Market data as at January 25, 2019.
Senior Gold: Agnico, Barrick, Goldcorp, Kinross, Newcrest and Newmont.
Senior Base Metals: Anglo American, BHP, Glencore, Rio Tinto, and Vale.
Source: Bloomberg Financial Markets and Thomson One Analytics.
Mining Equity Valuations – Stocks Are Cheap 4
Senior Base Metals Senior Gold Senior Base Metals Senior Gold
Price/Net Asset Value Price/Next 12 Months Cash Flow
0.50x
1.00x
1.50x
Jan-17 Jan-18 Jan-19
0.83x
1.24x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
11.0x
Jan-17 Jan-18 Jan-19
5.6x
7.2x
60
70
80
90
100
110
120
24-Aug 3-Sep 13-Sep 23-Sep
Rela
tive P
erf
. (B
ase
=100)
(20%)
(0%)
30
40
50
60
70
80
90
100
110
120
15-Jul 30-Jul 14-Aug 29-Aug 13-Sep 28-Sep
Rela
tive P
erf
. (B
ase
=100)
(56%)
(15%)
Mining Investor Themes – Event Driven Risk 5
1 Price performance shown as 10 days before announcement to 6 months after announcement.
Source: Bloomberg Financial Markets and Thomson One Analytics.
• Announcement of revised mine plan and downward guidance revision at
Detour Lake
Announcement
• Announcement of revised life of mine plan at Rainy River; downward
guidance revision
• Announcement of reversal of ruling to reinstate Escobal mining license
Announcement
Announcement
Detour (April 26, 2018) New Gold (July 25, 2018)
Tahoe (September 4, 2018)
30
40
50
60
70
80
90
100
110
120
Apr-18 Jun-18 Aug-18
Rela
tive P
erf
. (B
ase
=100)
(29%)
(18%)
• Announcement of material reduction in guidance and indication of
potential revisions to R&R
Guyana (October 29, 2018)
30
40
50
60
70
80
90
100
110
120
19-Oct 1-Nov 14-Nov 27-Nov
Rela
tive P
erf
. (B
ase
=100)
(50%)
6%
Announcement
6 Mining Sector Flows
Canadian Precious Metals Mutual Funds
Bullion and Gold Equity ETF Flows (US$ billion)
Key Themes
1 Source: Investment Company Institute 2017 Fact Book and February 2018 Monthly Report; net fund flows include reinvested dividends.
U.S. Domestic Equity Cumulative Net Fund Flows1 (US$ billion)
AUM1 (C$ billion) Total Return
$6.8
$2.0
$3.3$2.9
$2.1
PeakSince 2005
2015(Avg.)
2016(Avg.)
2017(Avg.)
Current
11.8%
(8.4%)
3 Year 2018
($25.5)
($13.5)
$44.6
($12.0)
($38.6)
2014 2015 2016 2017 2018
Funds flows from actively managed funds to passive funds
(ETF, Index, and Quant Funds) continue to grow
Passive capital does not buy new equity issues
1
2
Increasing electronic and algorithmic trading strategies
heightens volatility 3
Overview of Mining Finance Alternatives 7
Common
Shares
Preferred
Shares
Joint
Ventures Royalties
Commodity
Forwards /
Streams
Convertible
Debentures Bonds
Bank
Debt
Project
Debt
Equity Debt
Issuer Pricing DateIssue Size (C$
millions)Discount (%)
Nov-18 $25 na
Sep-18 $26 11
Sep-18 $97 9.5
Sep-18 $90 na
Aug-18 $73 na
Jul-18 $97 12
Jun-18 $300 11.8
May-18 $280 15.3
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Thousa
nds Coal & Uranium
Base Metals
Precious Metals
Canadian Mining Equity Issuance 8
TSX Mining Equity Issuance (C$ billions)
Select Mining Equity Issuances (C$ millions)
1 Consists of two tranches: $5 million common share tranche (5.6% discount) and a $20 million FT tranche (38.9% premium). 2 Consists of three tranches: $9 million charitable FT tranche (32.2% premium), $6 million traditional FT tranche (12.6% premium) and a $9 million common share tranche (2.3% discount). 3 Consists of two tranches: $40 million tranche (66.7 premium) and $28 million tranche (34.5% premium). Includes concurrent $5 mm private placement of common shares. Distribution metrics pertain to public
common offers.
Includes $66 million concurrent non-brokered private placement of common shares to RCF, Newmont and BlackRock. Distribution metrics pertain to public common share offering only.
Note: Based on pricing date.
As of January 25, 2019.
Key Themes
Mining equity issuance at lowest levels since 2002
Base metals a significant portion of recent issuance
Offering sizes have been small and new issue discounts
remain large
1
3
2
2
1
3
C$179mm
9
Select Recent Canadian IPOs (Over C$50 million, Excluding SPACs) Key Themes
Mining Initial Public Offerings Update
1 IPO sector composition based upon dollar value of IPOs.
Note: As at January 25, 2019.
“Window driven market” with 2017 seeing first significant
IPO’s in 5 years 1
Recent IPO’s primarily in base metals – zinc and copper 2
A number of IPOs in the pipeline for 2019 and success will
depend on market conditions 3
Canadian Mining IPO Market Update C$ millions (TSX)1
$277$204
$615
$317
$583
$1,883
$107-
$1,075
$60
$306
- -$155
-
$1,392
$21
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mining IPOs
C$127mm
C$52mm
USD$570mm
C$23mm
C$52.5mm
C$200mm
C$33mm
C$21mm
Withdrawn
31%
20%
16%
6%
6%
5%
5%4%4%4%
Dimensional
PIMCO
TIAA
Franklin Templeton
BlackRock
T. Rowe Price
JP Morgan
Capital R&M
Fidelity
Vanguard
19%
13%
12%
12%
11%
9%
9%
7%
5%3%
MD Financial
Manulife
BMO
CIBC
Scotia
Fidelity
CI Financial
TD
IGM Financial
RBC
Evolving Equity Investor Landscape 10
• Money management is becoming increasingly concentrated
1 Source: Bloomberg Intelligence. 2 Source: ETF.com and Investment News as at December 31, 2016.
Canadian Top 10 Mutual Fund Providers - AUM1,2 U.S. Top 10 Mutual Fund Providers - AUM1,2
Total Canadian Mutual Fund Provider AUM: US$1.1 trillion Total U.S Mutual Fund Provider AUM: US$8.7 trillion
11 Mining Convertible Debenture Update
Market data as of January 25, 2019.
Source: Bloomberg and CIBC Internal Database.
Select Mining Issuers (2014 – 2018 YTD)
Mining Convertible Debentures Issuance 2010-2018 YTD (US$ millions)
1,340
754
Bonds that are convertible into equity at a premium to the
current share price 1
Provides downside protection to investor and lowers the
borrowing costs for issuers 2
Recent issuance has accelerated in the junior mining sector
to fund project development and to refinance debt 3
Key Themes
670154
643
608
2975 65
335
490
670
112
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2010 2011 2012 2013 2014 2015 2016 2017 2018
Base Metals
Precious Metals
Mining High Yield Bond Market Update 12
Market data as of January 25, 2019.
Source: S&P LCD Database.
Select Base Metals and Gold Mining Issuance Since 2010 (US$ millions)
2017-2018 Selected Mining High Yield Deals
Key Themes
Has provided significant capital to the mining sector 1
A low interest rate environment provided attractive funding
opportunities to producing miners 2
Issuance has slowed in 2018 with volatile interest rates and
no refinancings in the gold sector 3
$3,540
$2,050
$3,400
$250
$2,345
$3,840
$2,250
$5,775
$3,075
$1,000
$2,800
$800
$465
$2,450
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
Total Precious Metals
Total Base Metal
Issuer
Amount Issued
(US$ millions) Type
First Quantum Minerals $1,850 Base
Baffinland Iron Mines $575 Base
Fortescue Metals Group $500 Base
Largo Resources $150 Base
Kinross $500 Precious
IAMGOLD Corp $400 Precious
New Gold $300 Precious
Total $4,275
Mining Bank Debt Update 13
Source: Bloomberg and CIBC Internal Database.
Mining Issuances in the Canadian Bank Market 2010-2018 (C$ millions)
Key Themes
Most intermediate to large cap miners have revolving
credit facilities with a syndicate of banks 1
Many of these facilities are undrawn at this time 2
Banks have remained supportive of the mining sector
with many new or renewed credit facilities put in
place since 2014
3
Precious Metals Diversifieds Base Metals Iron Ore
Battery Metals Streamers Uranium
$3,686
$13,200
$18,189 $19,633 $18,990
$24,960
$19,457
$24,589 $24,796
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
57%
48%
33%
65%
90%
49%
65%
41%
100%
23%
19%
14%
9%
18%
28%
24% 38% 58% 35% 10% 32%7%
59% 77%
Eagle Fruta del Norte Woodlawn Buritica MRC Amulsar Brucejack Hope Bay Red Chris Scully Mine
Other
Royalty
Project Debt
$398 $1,050 $183 $384 $96 $325 $540 $294 $106 $276
Mining Project Debt Update
14
Source: Company disclosures.
Recent Select Transaction Financing Blends (US$ millions)
Financing Size
Project Name
Key Themes
Project debt remains a significant part of development
funding 1
Financing packages have also included equity, warrants and
streams 2
In general, financing packages are concluded post completion
of a feasibility study 3
Lenders view Development Bank and Export Credit Agency
favorably when financing in high risk jurisdictions 4
16
Alternative Financings vs. Jr. Gold Equity1,2
Mining Alternative Financings – Junior Gold Funding
Key Themes
Junior gold companies have
historically relied on public equity
markets to raise capital
1
1 Market data as of January 25, 2019.
2 Junior gold consists of gold mining companies listed on the TSX with a market cap less than C$300 mm
15
Juniors now relying less on public
equity and more on alternative
sources of capital
2
Streams provided by royalty
companies – significant in 2014 and
2015
3
Strategic private placements by larger
cap miners – in 2017 and 2018 4
Strategic Private Placements Equity Streams
7% 7%17%
39%
65%58%
36%
83%
44%
20%
34%
57%
17%
15%
$1,246
$1,124
$853
$1,498
$1,288
2014 2015 2016 2017 2018
Avg. Deal Size
Mining Alternative Financings – Streams and Royalties 16
Royalty and Stream Transactions1 (US$ billion; Since 2012)
Osisko /
Orion
1 Average deal size based on transactions over US$250 million only. 2017 average excludes Orion / Osisko transaction.
Market data as at January 25, 2019.
Source: SNL Financial and CIBC internal database.
Aggregate Deal Value
# of Transactions
17 24 12 17 9 11 9
Key Themes
Streaming and royalty companies have become significant
players in the mining space and key providers of capital 1
Strong level of activity in 2012-2016 as senior precious and
base metals miners reduced debt 2
Recent activity has focused on supporting acquisitions and
project development 3
Scarcity and increased competition has resulted in strong
competition for high quality streams 4
$2.2
$2.7
$1.2
$4.4
$2.1
$1.4
$2.0
$0.9$1.0
$0.6 $0.7 $0.7
$0.8
-
$1
$2
$3
$4
$5
2012 2013 2014 2015 2016 2017 2018 YTD
Str
eam
ing T
ransa
cti
on V
alu
e
(US$ b
illi
ons)
• Arcus Development
• Auryn Resources
• Contact Gold
• Colorado Resources
• Gold Standard Ventures
• Independence Gold
• Mawson Resources
• Probe Metals
• Sirios Resources
• Alio Gold
• Triumph Gold
• Continental
• Goldstrike
• Pilot Gold
• TMAC
• Almadex
• SolGold
• Lundin Gold
1 Market data as at January 25, 2019. 2 Junior gold consists of gold mining companies listed on the TSX with a market cap less than C$300 mm.
Source: Bloomberg Financial Markets.
Capital Raised by Jr. Gold Companies1,2 (2017 – 2018) Strategic Private Placements vs. Jr. Gold Equity1,2
17
Strategic Investments / Holdings More Common
• Belo Sun
• Candelaria
• Cartier Resources
• GoldQuest
• Orla
• Otis Gold
• White Gold
• NuLegacy Gold
• Coral Gold
• ATAC Resources
• Reunion Gold
• Skeena
• Royal Road
• Midas Gold
• Gold Standard Ventures
• NuLegacy Gold
• Calibre Mining
• RTG Mining
• Lundin Gold
• Victoria Gold
• White Gold
• Nighthawk Gold
• Aurion Resources
• Pure Gold
• TomaGold
• Novo Resources
• Cardinal Resources
• Asanko
Indicates new or additional investment made in 2016 – 2018
Mining Alternative Financings – Strategic Private Placements
• The larger cap gold companies have become significant providers of capital to the junior golds
StrategicPP76%
CommonShares
20%
FT Shares4%Chart Label Transaction Type Value
(C$ mm)
Strategic
PPStrategic Private Placements $839
Common
SharesOther Common Shares $218
FT Shares Other Flow-Through Shares $42
Total Total $1,100
11% 16% 17%
47%76%89%
84%
83%
53% 24%
2014 2015 2016 2017 2018
Strategic Private Placements Other Equity
18
Select Mining Private Equity Investors
Mining Alternative Financings - Private Equity
Market data as of January 25, 2019.
$70
$452 $378
$85
$700
$275
$540
December’17 May’17 January’17 May’15 December’17 March’18 May’18 Key Themes
Private equity investors have been deploying
significant capital in the mining sector 1
Strong technical expertise and ability to
understand technical risks 2
Ability to provide a combination of
structures: equity/equity linked, debt,
streams/royalties
3
US$ millions
Key Takeaways 19
Access to capital for mining remains window driven and capital providers are highly selective
High risk capital, which has traditionally supported junior mining, has moved on to several other alternatives
which have provided strong returns R
Structural changes in the public equity markets are negatively impacting a miner’s ability to raise equity capital R
However, sophisticated alternative providers of capital are emerging and providing highly structured financing
packages R
Large miners continue to have access to relatively inexpensive debt R
R
Understand all your sources of funding and how they fit with your objectives, and be ready to
finance when the window opens
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