The mining markets in Canada have been a bit volatile over the last few months, and according to a recent Reuters report, brought debt issuance down to a four-year low.
There’s a hovering potential banking crisis in the US, thanks to the Silicon Valley and Signature Banks failing, and that’s making the credit market incredibly tight for Canadian (and most other) borrowers. Although some predictions are calling for a strong second half of the year, so far in 2023 Reuters is reporting an M&A rate similar to that during the height of the pandemic.
Canadian M&A was at only $34.7 billion in the first quarter, which is down more than 50 percent compared to 2022. That’s worse than the global decline over the same period, which represented a drop of just under 50 percent. In an attempt to encourage more activity, Bank of Canada has paused raising interest rates, after 8 successive increases. This might help with getting some deals going thanks to a more predictable borrowing rate.
In one recent big M&A attempt, Glencore offered to pay $23 billion for Teck Resources, which would be the second largest acquisition in Canadian mining history, if it had gone ahead, but Teck has rejected the offer. Some analysts are saying that until sellers lower their expectations, the market is going to continue to struggle. A deal that did recently go through was Canada’s Lundin Mining Corp last month buying a 51 percent stake in Chile’s Caserones for $950 million.
Canada is a global leader in mining operations and natural resources, and an active financial market is critical to keeping the country’s industry active and healthy. Borrowers are unlikely to get eager to make offers as long as sellers are asking top dollar against valuations, especially in a global market that seems to be on the verge of an inflection point between crisis and bubble. It would not be surprising to see a diversification in the mining markets through entrepreneurial small and mid sized companies, rather than consolidation.