The Canadian resource sector has recovered nicely from the worldwide decline in commodity prices, public company valuations and M&A activity that was experienced earlier in the year. As economies and financial markets around the world begin to stabilize, we see excellent opportunities and advantages for investors in the Canadian resource sector. In this regard, the following factors are significant.

Domestic and international supply of natural resources

With an abundance of base metals (in particular iron, copper, zinc and nickel), precious metals (in particular gold, silver and platinum), uranium, diamonds, coal, oil and gas, controlled by Canadian companies, both domestically and internationally, there is an enormous source of supply for the global economy. The Canadian entities exploiting such natural resources have a voracious appetite for capital and are open to takeover, investment or joint ventures.

Global leader in mining finance

Canada is a global leader in the mining industry and Toronto is the world's most active centre for mining equity finance - almost 60% of the world's public mining companies have Toronto listings. Toronto-listed mining companies are currently involved in nearly 10,000 projects worldwide, approximately half of which are outside Canada. Over the past five years, issuers listed on the Toronto stock exchanges (the TSX and the TSX Venture Exchange) together have led all international stock exchanges in mining equity financings, with over 10,000 transactions, being over 80% of the volume of all mining equity financings in the world (the next markets were ASX at 9% and LSE-AIM at 8.5%; US markets combined were 0.35%). These TSX-TSXV equity financings saw mining and exploration companies raise US$136.9 billion, being 33% of the value of all world mining equity financing during the five-year period (LSE-AIM accounted for 20%; ASX accounted for 11% and US markets combined were under 9%).

Recent M&A trends in the Canadian mining sector

Foreign Acquisitions/Joint Ventures

We anticipate an increase in acquisitions and joint ventures by and involving foreign investors, including specifically sovereign wealth funds. In response to the seemingly inexhaustible demand of expanding economies for metals and other natural resources, there is a need to secure sources of supply and potential influence in commodity price negotiations. This trend is being fuelled in part by lower commodity prices.

Reduction of debt

Many Canadian companies, including mining companies, are carrying high-debt loads. We anticipate that highly leveraged Canadian resource companies will continue to sell off non-core assets to reduce debt.

Strategic acquisitions

Cash-rich and high valued senior Canadian resource companies will capitalize on lower company valuations to pursue strategic acquisitions of junior and middle-tier Canadian resource companies.

Recent trends in mine financing

Equity financing

Notwithstanding the state of the global economy generally, there seems to have been a continued strong appetite for equity at Canadian resource companies. In 2009, the TSX and TSX Venture Exchange together saw mining issuers complete 1,962 equity financing transactions to raise C$22.2billion. In comparison LSE/AIM had 166 equity financings raising C$22.3 billion and the ASX had 186 equity financings raising C$13.5 billion.

Debt financing

Canadian banks, while very-well capitalized, remain very cautious lenders. For senior companies and strong middle-tier companies, senior debt financing may be available but terms are tougher - higher upfront fees; strict requirements for feasibility studies and due diligence; tighter credit parameters; preference for operations in stable jurisdictions; less willingness to negotiate positive and negative covenants (particularly financial covenants); requirements for offtake agreements; and strict hedging requirements (lenders do not like exposure to commodity price fluctuations).

As a consequence, many companies turn to non-traditional bank debt to finance their activities, including instruments such as convertible debentures, or given the appetite for equity, additional equity.

Royalty agreements This source of financing, in which mining companies sell a percentage of future revenues in exchange for current financing, will become more common. We understand that under recently-negotiated royalty agreements in Canada, net smelter royalties are typically 2% of proceeds net of smelting and refinancing charges plus 10%-15% of net profit after all expenses are deducted.

Joint ventures and strategic partnership Joint ventures and strategic alliances will become much more common as a source of funding for junior exploration and development companies in Canada. This type of structure with a Canadian "partner" has the added advantage for investors of providing risk-sharing, local knowledge of the legal and regulatory landscape, as well as contacts for a wide variety of purposes, including political, financial, professional, customers and suppliers.

Joint ventures in the Canadian mining industry typically utilize an unincorporated joint venture structure. In such a joint venture, one "partner" typically retains title over the joint venture assets, subject to holding a proportionate undivided beneficial interest in the joint venture assets for itself and a proportionate undivided beneficial interest in the joint venture assets in trust for the other joint venture partners. Control and operatorship are governed by the terms of a negotiated joint venture agreement.

Another less typical joint venture structure involves the use of a limited partnership model whereby the general partner of the limited partnership typically controls all of the joint venture assets. For contractual purposes, the limited partnership would be the contracting party to any commercial or other agreements, but it would be the general partner that would execute such documents in its capacity as the general partner of the limited partnership. Control over the general partner itself is exerted by the joint venture partners in accordance with their respective ownership interest in the general partner.


With an abundance of natural resources controlled by Canadian companies, both domestically and internationally, and the world's most active centre in the resource sector for resource finance, Canada has always presented excellent opportunities for investors. Specifically, this is an ideal time to take advantage of opportunities in the current economic climate and recently increased thresholds for review of foreign investment.