The Lexpert Special Editions profiles selected Lexpert-ranked lawyers whose focus is in Corporate, Infrastructure, Energy and Litigation law and relevant practices. It also includes feature articles on legal aspects of Canadian business issues.
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8 www.lexpert.ca Feature MINING M&A IN A CHANGING WORLD MARKET VOLATILITY and uncertainty about the economy will impact dealmaking in the mining sector. But lawyers who work with mining companies and their investors say that the deal flow is still there and will come back even more once transparency improves. "ere is still activity in M&A even during this period of volatility," says John Wilkin, a partner in the securities group at Blake Cassels & Graydon LLP. "But the type of transactions we're seeing is changing." In 2021, he says, the story was very much base metals, such as copper, and so-called strategic metals like rare earth minerals and lithium. However, in 2022, the interest is more in precious metals like gold and silver. Wilkin says that despite the price of these metals coming off recent highs, they are "still main- taining their relative strength compared to base metals." Volatility in dealmaking Wilkin points out that current volatility has made it somewhat difficult for boards of mining companies to make deals or want to make deals. "It's challenging for boards to complete transactions if there are rapid LAWYERS WHO ADVISE ON MINING DEALS SAY ECONOMIC VOLATILITY, INFLATION, AND GEOPOLITICAL RISK PAINT A MURKY PICTURE, BUT THAT SHOULD BE TEMPORARY, WRITES ZENA OLIJNYK changes in the price of metals," he says, adding, "ey are still looking for opportunities, but their execution is a bit more difficult." Once volatility settles down, he says, one way or the other, those wanting to make deals "will get a better line of sight." Many deals use a combination of cash and stock as currency. However, the number of acquisitions that require leveraged debt financing has recently decreased, Wilkin says, with the increased cost of capital. "Transactions that can be done using stock, or a combination of stock and cash, are more likely to get done." Despite some slowdowns, however, deals are still happening. Wilkin points to acquisi- tions that have recently closed, such as Skeena Resources' purchase of QuestEx Gold & Copper, then selling certain QuestEx proper- ties to an affiliate of Newmont Corporation. Also, American silver producer Hecla Mining has agreed to acquire all the shares of Canada's Alexco Resource that it doesn't already own in an all-stock deal valued at more than US$75 million. at deal was expected to close in September. Consolidation in the gold market At Stikeman Elliott LLP, Amanda Linett, a partner and co-head of the firm's mining group, notes that much of the consolidation in the gold sector comes from already-large players wanting to replace depleting reserves and benefit from economies of scale. A recent 2022 example Linett points to follows on the heels of the 2019 merger of Randgold Resources Ltd. and Barrick Gold Corp. into Barrick Gold (Holdings) Ltd. as well as Newmont Mining Corp.'s 2019 acquisition of Goldcorp Inc. Her example is the $22-billion "merger of equals" between Agnico Eagle Mines Ltd. and Kirkland Lake Gold. e deal, which closed in February, establishes Agnico Eagle as the third-largest gold company in the world and the largest producer of gold mined in Canada. While a lot of M&A will focus on targets with quality production assets, Linett says, "Buyers are on the lookout for acquiring development projects, companies that have promising assets not yet developed and even exploration companies that won't likely produce for a number of years." Jen Hansen, a partner in the securities group at Cassels Brock and Blackwell LLP, also notices that "capital markets seem to be in a bit of a lull on the financing side, whereas with M&A activity, we're still seeing a fairly active market. We expect that to endure, and we anticipate that we will continue to see strategic transactions and consolidation in the sector, even in light of the challenging capital markets, as there are opportunities that remain. ough, given the market reac- tion to a number of recent transactions, we will likely see issuers exercising discipline in their approach, along with ongoing, enhanced engagement with stakeholders as to the rationale." Some proposed deals have faced pushback. For example, Gold Fields' intended acquisi- tion of Canada's Yamana Gold remains in limbo. However, the South African miner is gaining backers for its purchase as share- holders better understand the company's strategy, which includes consolidation and expanding to offset rising costs. Since the parties announced the deal on May 31, Gold Fields has lost about a third of