M&A, Financings Power Junior Sector

The year’s 23rd trading week was highlighted by lots of small but significant events, as the North American mining sector continued to gain strength after a long hard winter of hunkering down.

• Internationally, the big story was Uranium One bouncing back decisively from its troubles just a few weeks earlier in Kazakhstan. That was when the head of state uranium miner Kazatomprom was arrested and the legality of Uranium One’s assets in the country came into question, resulting in Uranium One’s share price being halved.

Since then, the Kazakh government has reassured foreigners that it will honour existing contracts, and Uranium One’s managers have struck a politically savvy deal to partner with a Russian state-owned mining company active at the Karatau uranium mine in Kazakhstan.

• M&A activity flared up again amongst the juniors, with a flurry of deals. Rui Feng’s Silvercorp Metals launched a hostile, all-share bid for Nevada gold developer Klondex Mines. Silvercorp, an experienced high-grade miner in China, is eyeing Klondex’s high-grade, 2-million-oz. Fire Creek deposit in Nevada’s Battle Mountain-Eureka trend. Klondex has spent the past few months hunting for money to carry out bulk sampling, so Silvercorp’s offer may yet turn into a friendly one if no white knight appears. If Silvercorp is successful, watch for it to accelerate the pace of development and spending at Fire Creek, which looks like a promising project that has suffered from years of undercapitalization and penny pinching.

• In a similar vein, the relatively moneyed Medoro Resources tabled a friendly share-and-warrant bid for Colombia Goldfields, which is short on cash to advance its intriguing assets in Colombia’s Marmato Mountain gold district, south of Medellin.

• Back in Kazakhstan, Orsu Metals unloaded its Varvarinskoye gold-copper project onto Russia’s Polymetal in return for up to US$20 million in cash plus the assumption or transfer of over US$215 million in debt and hedging obligations related to previous financing of the project.

• Down Under, the OZ Minerals saga drew to a close with its shareholders voting strongly in favour of selling most of its assets to Chinese state-owned China Minmetals in a deal worth just under US$1.4 billion. OZ will keep its Prominent Hill mine in Australia, the sale of which had raised national security concerns as it’s near a sensitive military facility. Minmetals won over reticent shareholders by boosting its bid from US$1.2 billion in the days leading up to the key vote. This sweetener helped kill off a rival, eleventh-hour proposal to recapitalize OZ in an effort that would have been spearheaded by Aussie investment bank Macquarie.

• There was more good news for the beaten up molybdenum subsector, with industry leader Thompson Creek Metals revising upwards by about 10% its 2009 estimates for molybdenum sales and production in response to the recent improvements in the molybdenum market. A planned month-long shutdown this summer of milling at the Thompson Creek and Endako mines in North America is being reduced to two weeks.

• The first half of June was a lively couple of weeks for junior mine financing, with 79 financings proposed, 82 closed and only 3 cancelled. Encouragingly, the money flowed into companies big and small, domestic and foreign, and for just about every mineral commodity.

Some of the biggest closings included: Goldcorp, $954 million; Franco-Nevada, $370 million (closed June 16); Agnico-Eagle Mines, $335 million; Gabriel Resources, $67 million; Bannerman Resources, $27 million; Aquiline Resources, $18 million; and SilverCrest Mines, $14 million. Topping the list of proposed financings were: Inmet Mining, $348 million; Great Basin Gold, $143 million; Aura Minerals, $100 million (funds needed to buy some of Yamana Gold’s mines); and Semafo, $40 million.

• In a positive sign for Ecuador and foreign miners there, the CEO of Chilean state-owned copper miner Codelco travelled north to a signing ceremony attended by Ecuadorian President Rafael Correa, his cabinet, and the Chilean mines minister. Codelco has pledged to work with the Ecuadorian government to explore and develop potential copper resources currently under the latter’s control. This sensible agreement sure beats a bandied-about pair-up by the Ecuadorian government with Venezuela’s state-miner, and all its accompanying political baggage.

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