Mining M&A Set for Major Expansion as Valuations Recover | Elian Terner

Key Concepts

• National Bank of Canada Capital Markets CEO Mining Conference: An annual event in London, UK, that has evolved from focusing on Canadian gold companies to a globally relevant platform for mining CEOs across various commodities and stages of development.
• Mining M&A (Mergers & Acquisitions): The increasing activity in the mining sector involving companies combining or one company acquiring another.
• Investment Banking: Services provided by financial institutions to help companies raise capital, advise on mergers and acquisitions, and manage financial risks.
• Equity Underwriting: The process by which investment banks help companies issue new shares to raise capital.
• Lending Practice: The provision of loans and financing by banks to companies, including the mining sector.
• Streaming and Royalty Companies: Companies that provide upfront capital to mining companies in exchange for a percentage of future revenue (streaming) or a percentage of production (royalty).
• Developer Companies: Mining companies focused on exploring and developing new mineral deposits.
• Commodity Cycle: The cyclical nature of commodity prices, which influences investment and activity in the mining sector.
• Generalist Investor: An investor who invests across a broad range of asset classes and sectors, not specializing in a particular industry.
• Thematic Investing: Investment strategies focused on specific trends or themes, such as AI or critical minerals.
• All-in Sustaining Cost (AISC): A key metric in the gold mining industry that represents the total cost of producing an ounce of gold, including operating costs, royalties, and sustaining capital expenditures.
• Free Cash Flow (FCF): The cash a company generates after accounting for operating expenses and capital expenditures.
• Bought Deal Financing: A type of equity offering where an investment bank agrees to purchase all the shares being offered by a company at a set price.
• Convertible Debt: A type of debt that can be converted into equity under certain conditions.
• Shareholder Returns: The ways in which companies return value to their shareholders, such as dividends and share buybacks.
• Geopolitical Situation: Global political and international relations, which can significantly impact commodity markets.
• De-dollarization: The process of reducing the reliance on the US dollar as the primary global reserve currency.
• Critical Minerals: Minerals essential for modern technologies and economic development, often with supply chain vulnerabilities.

National Bank of Canada Capital Markets CEO Mining Conference: Evolution and Impact

The National Bank of Canada Capital Markets CEO Mining Conference, held annually in London, has significantly evolved over its 12-year history. Initially established as a joint effort with the TSX, its premise was to showcase Canadian gold companies with assets in Canada to the UK and continental European markets. However, over the last three years, the conference has broadened its scope, dropping the requirement for gold as the sole commodity and the necessity of Canadian assets. This change reflects National Bank's own business and practice, which is now considered globally relevant in the mining sector.

The conference has grown from inviting 22 companies in 2023 to hosting 40 companies this year, with participation from CEOs of major gold producers like Agnico Eagle and Alamos, streaming and royalty companies such as Weed and Precious, Triple Flag, and Gold Royalty, and exciting developer companies like Snow Line and Bravo. The event is now recognized as one of the most important on the circuit, attracting over 100 attendees for its associated dinner. The conference also facilitates approximately 15 CEO interviews, which are made available on Kitco Mining's YouTube channel.

The London Mining Finance Scene and Investment Appetite

London, as a global finance center, is experiencing a growing appetite for mining investment, mirroring trends seen in New York. While Toronto and Perth are considered mining hubs, London and New York are increasingly turning their attention to the sector as the commodity cycle turns. This is evidenced by successful cross-listings from the TSX to the NYSE and NASDAQ, which have added liquidity and interest to mining stocks. In London, while dual listings are less common, pockets of capital are growing and showing deeper interest in the mining ecosystem.

Sources of New Investment Interest

The traditional mining specialist funds are shrinking, but new ones have emerged with more opportunistic, thematic investment strategies beyond long-only approaches. Generalist investors are also paying attention to the mining sector due to compelling thematic drivers. The rise of Artificial Intelligence (AI) is a major theme, prompting generalist portfolio managers to consider their exposure. Similarly, significant increases in commodity prices, such as gold doubling in the last 12 months, attract attention. For instance, blue-chip gold companies like Agnico Eagle Mines have seen their share prices increase by over 100% year-on-year, making them attractive to new investors seeking safety and liquidity.

National Bank Capital Markets' Busy Year in Mining Finance

National Bank Capital Markets has had a record year, with its global practice experiencing significant momentum. The investment banking side has seen a balanced year between equity underwriting and M&A advisory. Their lending practice has also expanded, positioning them as a top lender among Canadian banks with a globally relevant balance sheet. They provide senior lending to large, diversified mining companies and single-asset lending globally.

Key M&A and Equity Transactions

National Bank has been involved in several significant M&A deals, including advising:

• First Majestic on its acquisition of Gatos.
• Paname on its acquisition of Mag Silver.
• New Gold on its sale to Corvus.

They also advised on exciting developer M&A, such as:

• Augusta Gold on its sale to Anglo American, consolidating Anglo's position in Nevada.
• The Newmont Copper situation, which involved a bidding war between Central Asia Minerals and Cana, with Cana being the successful bidder.

On the equity side, National Bank led some of the largest deals in the sector, including:

• Perpetua Resources ($375 million transaction).
• Financings for Allied, i80, Osisko Development, and Highlander.

The hallmark of National Bank's practice is its ability to be both a large, well-resourced bank with a global footprint and a nimble, creative advisor, respecting the entire mining ecosystem.

Financing Trends and Investor Focus

This year has seen larger financings and a notable increase in bought deal financing. While last year's equity activity focused on larger-cap names for balance sheet cleanup and growth, this year's activity has predominantly been on the developer side. This shift indicates a move towards a bull market where risk-taking is more prevalent, and investors recognize the need to fund exploration and development for junior companies to ensure future supply for intermediate and senior producers. The higher prices for gold, silver, and copper have created more financing opportunities, exemplified by Vizsla Silver's recent $300 million convertible debt financing for a development asset.

M&A in the Gold Space: Dynamics and Drivers

While M&A activity in the gold space is heating up, bidding wars are not always the outcome, even for high-quality producers. The case of New Gold, which reported spectacular third-quarter results with all-in sustaining costs below $1,000 per ounce, illustrates this. National Bank advised New Gold on its sale to Corvus.

Factors Influencing Gold M&A

• Valuation Multiples: New Gold was trading at a high multiple due to its strong free cash flow generation. Potential buyers need to have similarly high valuations to execute accretive transactions, narrowing the pool of eligible acquirers. Corvus, also at a free cash flow inflection point after significant capital spending, was a suitable partner.
• Depleting Resources: The fundamental challenge of depleting resources in mining drives the need for consolidation. Companies must replace ounces produced to sustain operations.
• Valuation Cycles: Historical M&A charts show that the most robust activity occurs at peak valuation moments, not necessarily during troughs. As valuations improve and the market enters a bull phase, M&A is expected to increase. Developer M&A is consistently on the table, and with improved valuations, it is likely to see more activity.

Shareholder Returns and Valuation Perception

There has been a noticeable increase in shareholder returns this year, with dividends appearing to gain favor over share buybacks. This suggests that companies now perceive their valuations more favorably than in previous years, with fewer CEOs complaining about being undervalued.

The Rise of Dividends

While scale was a key factor for investors in a more depressed market, dividends and the return of capital are now at the top of the list. Lundin Gold is highlighted as a prime example, distributing 100% of its available free cash flow last quarter and trading very well as a result. Investors are rewarding this return of capital.

Future of Shareholder Returns

The normalization of higher dividend payouts across the sector is a complex question. The mining industry, being a depleting resource business, requires continuous reinvestment for replenishment. However, if access to capital (equity, debt, or lending markets) is perceived as easier, companies may be more inclined to return more capital. The comparison with the oil and gas sector, which offers higher dividend yields despite lower commodity prices, suggests that gold companies could potentially adopt similar strategies.

Key Themes and Trends in 2025

Several significant themes have shaped the mining landscape in 2025:

• Gold Price Surge: The gold price reaching $4,000 per ounce has been a major driver.
• Newmont's Divestiture Program: This has created several new mid-tier gold producers.
• CEO Transitions: Significant leadership changes have occurred at major gold producers.
• Tether's Investment: The stablecoin company Tether has invested in royalty and streaming companies, signaling a new type of generalist investor with an understanding of hard assets. This trend is also seen in other players from the Bitcoin and crypto world, seeking to hedge against the volatility of digital assets.
• Potential Breakup of Barrick Gold: Speculation about the restructuring of major players.
• Anglo American-BHP Merger Talks: The potential $53 billion merger between Anglo American and BHP, though BHP has reportedly withdrawn, other interested parties may emerge.
• Consolidation Theme: The M&A environment is expected to intensify as the bull market progresses.
• Middle East Focus: National Bank is expanding its presence in the Middle East with an office in Dubai, recognizing the region's growing interest in critical minerals and mining investments. They anticipate more transactions from Middle Eastern groups in the coming year.

Tether's Investment Strategy

Tether's investment in royalty and streaming companies is seen as a logical first step, as these are financial entities that Tether, as a financial player, can more easily understand. While buying a gold producer directly at cost of production might seem more efficient, the current strategy allows them to gain exposure to the sector. It is possible that a future step could involve direct participation in mining operations.

Outlook for 2026: Geopolitics and Base Metals

The geopolitical situation is expected to be a key theme influencing the mining sector in 2026. While not the sole driver of the gold price, geopolitical stability, such as a potential peace accord in Ukraine, could stabilize gold prices. This stability would also facilitate M&A activity in gold and other precious metals by reducing volatility and making valuation modeling more constructive.

Furthermore, a reduction in geopolitical uncertainty could boost the base metals complex, particularly copper. With renewed belief in global growth, copper prices may find another leg upwards. These developments are seen as healthy for the mining marketplace.