May Newsletter – 04.05.2020
- M&As by Zoom: Remote due diligence could become the new norm as dealmaking takes a hit
- Barrick welcomes court decision over Papua New Guinea gold mine
- Hamilton’s Stelco signs deal to buy iron ore from U.S. mine
- Mongolia Scraps Coal Miner’s $1 Billion Overseas IPO Plan
- Australia’s Newcrest Mining to raise $655 million, quarterly gold output drops
- Vale mulling offers for New Caledonia nickel assets
- Venezuela allows gold mining in river basins
- IEA calls for boost to lithium-ion battery, hydrogen technologies
M&As by Zoom: Remote due diligence could become the new norm as dealmaking takes a hit
When Vancouver-based Silvercorp Metals Inc. earlier this week announced it would buy Toronto-based Guyana Goldfields for $105 million, it marked one of the first major corporate acquisitions in Canada in months.
In large part that’s due to the uncertainty brought upon by the COVID-19 crisis, rock-bottom oil prices and Canada’s weak economic outlook that has forced many companies to set aside any expansionary plans.
A Silvercorp Metals site in China. Silvercorp earlier this week announced it would buy Toronto-based Guyana Goldfields for $105 million
Social distancing policies and grounded planes have also made it nearly impossible to travel overseas, severely limiting any prospective buyer’s ability to conduct due diligence.
And yet, Silvercorp, in what could be the “new normal” as one advisor put it, conducted its due diligence entirely online — potentially setting a new paradigm for how mergers can be consummated during a health pandemic.
“There were some leaps of faith that would usually be mollified by normal course due diligence,” said Pat Burke, president of Canadian capital markets at Canaccord Genuity, who advised Silvercorp on the transaction.
“Oftentimes, it’s the boards that have a more difficult time, but they were able to do a virtual due diligence process that was unique.”
Typically, mine acquisitions involve site visits, and buyers like to talk to people on the ground, look at the mining licenses, and inspect the geology of the mine.
Guyana Goldfields was engulfed in controversy last March after the company drastically revised its estimate of the proven and probable amount of gold at its Aurora mine from about 3.9 million ounces to 2.2 million ounces. It is one of several bumps that rocked the company, including management changes, a proxy battle with its former chairman and operational challenges at the mine, that caused it to miss guidance and raised its costs.
In the past two years, the company has lost more than 80 per cent of its market capitalization as its stock dropped from above $5 to 65 cents on Wednesday.
Despite these challenges, Burke said his client met with management online over video conferencing software Zoom, interviewed miners who worked for Guyana Goldfields and requested film of certain parts of the mine in order to make itself comfortable with the transaction.
Barrick welcomes court decision over Papua New Guinea gold mine
SYDNEY (Reuters) – Barrick Gold Corp said on Friday it welcomed a court ruling ordering the Papua New Guinea (PNG) government to negotiate over a lease extension for the Porgera gold mine.
PNG Prime Minister James Marape said last week that the country would not grant the mine a 20-year operating extension due to environmental damage and social unrest.
The move came as the Pacific nation reviews the terms of resources projects in the country with a view to enlarging its share of the profit from its mineral riches.
Barrick suspended mining operations last weekend, saying it needed to keep workers safe and did not have any formal notification of the decision or details around any transition.
PNG’s National Court on Thursday ordered both parties to negotiate before returning to court in a week on May 8, to report on the progress of talks, Barrick (Niugini) Ltd (BNL) said in a statement and local media reported.
“We look forward to the coming discussions,” BNL said. Toronto-listed Barrick and China’s Zijin Mining each hold a 47.5 percent stake in BNL, the mine operator.
If talks between the parties fail to reach agreement, the court will appoint an accredited mediator to facilitate the negotiations, BNL said. The court ordered BNL to maintain the mine infrastructure and assets while negotiations continued.
Marape formally notified Barrick Chief Executive Mark Bristow that the lease would not be renewed in a letter dated April 28 and reviewed by Reuters.
Marape said his National Executive Council had recommended refusing to renew the lease and urged BNL to “to frame an exit strategy”.
The joint venture had run into opposition from local landowners and residents. Critics say the Porgera mine has polluted water and created other environmental and social problems, with minimal economic benefits for locals.
Hamilton’s Stelco signs deal to buy iron ore from U.S. mine
Stelco Holdings Inc. has bought into one of the largest iron ore mines in the U.S., according to the Hamilton, Ont., steel manufacturer.
The deal includes a new eight-year pellet sale and purchase agreement with United States Steel Corporation that lasts until Jan. 31, 2028.
Under the agreement, U.S. Steel will provide all of Stelco’s iron ore pellets for its Lake Erie Works steel mill, located in Nanticoke, Ont., and replaces a current agreement set to expire on Jan. 31, 2022.
Stelco will pay $100 million in cash for a 25 per cent ownership interest in the Minntac Mine pellet plant in Mountain Iron, Minn., which has a production capacity of up to 16 million tons of ore per year.
The agreement includes material required to support an expansion projection after a blast furnace upgrade.
“This transaction represents a major milestone for Stelco, as it secures a long-term supply of high-quality iron ore pellets and a highly valuable future option to acquire a 25 per cent ownership interest in the Minntac Mine, one of, if not the, best assets on the iron range,” said Alan Kestenbaum, Stelco’s executive chairman and CEO.
Mongolia Scraps Coal Miner’s $1 Billion Overseas IPO Plan
- ETT was preparing for Hong Kong IPO, people familiar have said
- Mongolia said international share sale remains long-term goal
Mongolia has shelved near-term initial public offering plans for state-owned coal miner Erdenes Tavan Tolgoi JSC as the Covid-19 pandemic roils financial markets.
The country’s cabinet partially repealed a resolution that called for immediate action for ETT’s overseas offering, while an international share sale plan remains the goal for the long term, according to a statement posted on the government’s website on Monday. The authority urged ETT to turn its focus to a long-delayed railway project to link its Tavan Tolgoi coal mine with China.
The Mongolian coal miner was working with an adviser for preparations of a planned Hong Kong IPO that could raise more than $1 billion, Bloomberg News reported in October. The company was targeting a listing in the Asian financial hub as soon as this year, people familiar with the matter have said.
The delay comes as first-time share sales have slowed globally on weak market sentiment. Companies have raised about $2.3 billion in Hong Kong through IPOs so far this year, a 43% drop from the same period in 2019, according to data compiled by Bloomberg. Chinese biotech firm Akeso Inc. raised $333 million in the city’s biggest listing in 2020.
Tavan Tolgoi, which means “five hills,” refers to the original location of the coal ore, according to its website. Tavan Tolgoi coal mine, located in the Gobi desert, is the largest coal ore deposit in Mongolia. Its deposit is estimated at a total of over 6 billion metric tons of coal, more than one-third of which is high-grade hard coking coal, the website said.
A share sale would have marked at least a third effort to raise money to develop the Tavan Tolgoi mine after international partnerships failed in 2011 and 2015. Mongolian lawmakers in 2018 approved a plan to sell up to 30% of Tavan Tolgoi mine.
Australia’s Newcrest Mining to raise $655 million, quarterly gold output drops
(Reuters) – Australia’s Newcrest Mining Ltd (NCM.AX) on Thursday said it planned to raise A$1 billion ($655 million) to acquire financing facilities for Ecuador’s Fruta del Norte mine and fund growth projects, increasing its exposure to rising gold prices.
Australia’s biggest listed gold producer announced the institutional placement as it reported a 16.7% slump in third quarter gold output, missing analyst expectations.
Newcrest said it planned to issue about 39.1 million new shares at A$25.60 per share, representing a 7% discount to its last close on Wednesday.
Some of the funds would be used to acquire the gold pre-pay and stream facilities of Canada-based gold miner Lundin Gold’s (LUG.TO) Fruta del Norte mine.
Newcrest reported that total gold production fell to 518,770 ounces in the three months ended March 31, from 623,124 ounces a year earlier, missing a UBS estimate of 562,000 ounces of gold output. Lower production at its Cadia and Telfer mines and the divestment of its Gosowong mine in Indonesia offset a rise in output from its Lihir mine.
Vale mulling offers for New Caledonia nickel assets
Vale (NYSE: VALE), the world’s top producer of nickel and iron ore, has received non-binding offers for its operations on the Pacific island of New Caledonia, it said in a conference call on Wednesday.
The Brazilian mining giant said it expected to have “relevant news” on the topic within a month or two.
Vale is selling its New Caledonia mine, one of the world’s biggest nickel operations.
Vale put its New Caledonia nickel assets on the block in December. The decision came after it had to write down $1.6 billion in the fourth quarter related to the ailing mines, the world’s biggest nickel operations.
That announcement came less than a year after it unveiled plans to invest $500 million in the nickel mine after failing to find a partner for the operation.
VALE BELIEVES THE NICKEL MARKET WILL ENTER A SURPLUS IN 2020, COMPARED WITH ITS PREVIOUS VIEW OF CONTINUED DEFICITS.
Vale last week axed its 2020 production forecast for the metal to 180,000 to 195,000 tonnes from 200,000 to 210,000 tonnes, excluding its unit in New Caledonia.
The extension of the care and maintenance period at its Voisey’s Bay nickel mine in Canada for up to three additional months, announced in early April, also weighed on the revised figure.
Delivering first quarter results, the miner said its near-term view for nickel has changed as a result of covid-19. The pandemic, it said, has “heavily impacted” its financial results.
Vale believes the nickel market will enter a surplus in 2020, compared with its previous view of continued deficits. Its long-term outlook, however, remains positive due to factors including demand for nickel in the batteries that power electric vehicles (EVs).
Venezuela allows gold mining in river basins
The Caroní river basin, pictured, where gold mining has been allowed, is the source of most of Venezuela’s hydroelectric power. (Image by Gabrielphoto985, Wikimedia Commons).
Emulating the late Hugo Chávez, Nicolás Maduro makes a fuss on TV every time his government makes a decision, no matter how big or small.
But that wasn’t the case this April, when Maduro’s Ministry for Ecological Mining Development, through resolution N° 0010 published in extraordinary issue N°6526 of the Official Gazette, decided to allow mining operations in six river basins in the southeastern Bolívar state.
ONE OF THE RIVER BASINS MINING HAS BEEN ALLOWED IS THE CARONÍ, WHICH BELONGS TO THE CANAIMA NATIONAL PARK, A UNESCO WORLD HERITAGE SITE
The Gazette and the decision started circulating among environmental groups and opposition MPs over the weekend, but the official document has not been made available online on the Ministry’s website or social media channels.
However, the National Assembly led by Juan Guaidó, who is recognized by the US, the EU and more than 50 other countries as Venezuela’s legitimate president, issued an order of annulment of resolution N° 0010. According to the legislative body, the decision violates Venezuela’s environmental protection norms, which are established in the Constitution, Environment Law, Land-use Planning Law, Biodiversity Law and Water Law.
According to the leaked Gazette, the new resolution allows diamond and gold mining along the basins of the Cuchivero, Caura, Aro, Caroní, Yuruaní and Cuyuní rivers, up to 80 metres from the riverside and without the use of mercury. These rivers are located within the Mining Arc of the Orinoco River National Development Strategic Zone, a 111,843 square-kilometre mining concession area that was created by decree on February 24, 2016.
The rivers, however, are also within the Pemón traditional territory and are their main sources of food and fresh water. The Caroní river is also the source of most of the country’s hydroelectric power, which has been failing for years due to poor maintenance and lack of investments.
Does anything change?
Mining operations in river basins will be carried out by state-owned Venezuelan Mining Corporation and its subsidiaries, or by private entities that partner with them. The Ministry for Ecological Mining Development is tasked with inspection, surveillance and control of “all phases of primary mining activities, linked operations or auxiliary operations taking place in the river basins,” the resolution reads.
The document also states that the Bolivarian National Guard will be in charge of supporting the Ministry when it comes to providing security to the mining operations.
IEA calls for boost to lithium-ion battery, hydrogen technologies
The executive director of the International Energy Agency (IEA), Fatih Birol, said that the turmoil in the oil sector caused by the covid-19 pandemic gives governments the perfect opportunity to embrace green energy as a source of jobs that also serves climate goals.
In an interview with Reuters, Birol said that not only well-established technologies, such as those behind solar and wind generation should receive a boost, but also lithium-ion batteries and the use of electrolysis to produce hydrogen from water should be candidates for subsidies and policy support.
Besides being the backbone of electric vehicles and electronic devices, li-ion batteries are becoming more and more important in solar and wind farms to store energy when nature is not doing its part.
“Lithium-ion batteries are now a technology opportunity for the wider energy sector, well beyond just transport,” a recent report by the IEA states. “There is a need for manufacturing capacity to grow further. Assuming that the global auto industry’s announced targets for electric vehicle production are met despite the covid-19 crisis, around 1,000 GWh of battery manufacturing capacity would be needed in 2025. This output would require the equivalent of 50 plants, each on the scale of a Tesla Gigafactory.”
When it comes to electrolysers, which are devices that split water into hydrogen and oxygen using electrical energy and are considered a way to produce clean hydrogen from low-carbon electricity, research is moving towards making them a viable option for the mass transportation, shipping, aviation, long-haul trucks, the iron and steel and chemical industries.
“The deployment of electrolysers has also picked up in recent years, both in terms of the number and the size of the projects,” the IEA document reads. “Over the last three years, several projects were in the range of 1 MW to 5 MW, with the largest at 6 MW. In Japan, a 10‑MW project just started operating, and a 20‑MW project in Canada is under construction. Larger projects in the hundreds of megawatts have been announced. As a result, the next two years could set new records, with announced projects bringing the global installation of electrolyser capacity from 170 MW in 2019 to 730 MW in 2021.”
Oil sector still important
Globally, there is growing interest in the development of efficient solutions to produce and store renewable energy. So much so that, for the first time ever, green power overtook coal as a source of electricity generation in 2019.
Figures from the IEA itself show that, overall, fossil fuels dropped by 245 TWh last year, while renewables production rose by 119 TWh from 2018 to 2019.
In Birol’s view, however, the oil sector should not be demonized as not only its products are to be used for years to come but also because many of such petrochemical products, such as sanitizers, have proven to be important in the face of the novel coronavirus pandemic.