As we are about to host our thirty-fifth Annual Global Metals, Mining and Critical Minerals Conference next week it is important to highlight the strength of the equity capital markets for metals and mining companies, particularly in precious metals. The last six months has seen investors rush into gold and silver as safe-haven assets amid a backdrop of geopolitical uncertainty and expectations of a weaker U.S. dollar. Surging gold and silver prices have created an exceptional opportunity for equity capital raising by metals and mining companies.

Since the beginning of the calendar year the mining industry has accounted for 57% of all new equity and equity-linked capital issuance in Canada, most of those deals being in precious metals. The reason for the sharp increase in issuance is the rally in gold bullion from US$2,900 per ounce to US$4,900 per ounce over the last twelve months and the underlying equity prices of precious metal mining companies.

The price of silver is highly correlated to gold and has increased significantly, overshooting its historical link to gold. Both gold and silver are off their peak prices but remain at very attractive levels for gold and silver miners.

Mining company equity offers greater leverage than underlying commodities and therefore is a particularly attractive investment in bull markets. In this environment we are seeing mining deals exceptionally well-subscribed. Investors are coming from around the world to Canada to invest in Canadian mining companies, including from the U.S., Europe, Australia and the Middle East.

Most of the equity raised by mining companies in Canada is by way of a bought deal, whereby banks buy equity at a fixed price from an issuer and take the risk of re-selling the shares to investors. We have also seen a sizeable amount of capital raised by way of convertible debentures, which tend to be shaped as marketed offerings where the issuer takes the pricing risk.

When it comes to potential IPOs in the mining sector, we have visibility on a growing pipeline. These typically take four to six months from commencement to closing, so their success will be dependent on market conditions remaining constructive.

Another area of rising activity is non-registered block trades where an investor, financial or strategic, sells shares in a mining company in a single trade. It is common for mid-to-large cap mining companies to have investments in numerous emerging mining companies. The increase in activity is due to the strong rally in mining equities and the desire of strategic shareholders to raise non-dilutive capital. Typically, one bank buys an entire block of shares at a fixed price and takes the risk of selling the shares in the market.

Even with the recent volatility in the price of gold and silver, the prices are well-above historical levels and the cost for ming companies to produce the commodities. This creates a highly favourable environment for mining producers, developers and exploration companies and investor demand for their underlying equities.

The thesis for gold remains very much intact and therefore we are bullish on the outlook for mining equity capital markets.