Riding the wave of today’s liquid market

Capital markets have been on a tear over the last 12 months as 2021 makes a splash with a record number of IPOs, mergers and acquisitions, and equity and debt raises. The Canadian IPO market in this year alone has raised over $4.3 billion – compared to approximately $7 billion in 2020 and $1.6 billion in 2019 – and the TSX has set new deal records in the first half of 2021 not seen in over 15 years.

While it’s no surprise that the technology sector has been leading the way, we’re starting to see mining companies come to the forefront – including recent news of Triple Flag, the largest mining IPO on the TSX in the last nine years. It goes to show, while mining and metals may have been on the backseat, the re-emergence of commodity prices is spurring a lot more activity in the pipeline. And we can expect the current strong momentum in IPOs and equity financings to continue through the summer, fuelled by low interest rates and increasingly frothy markets.

In fact, there are a number of mining companies, at various states of readiness, that the market is expecting to come through in the second half of the year – especially on the base metal side. Even more juniors and mid-tiers, which have been quieter in recent years, are getting involved.

It’s not just about the IPO market; mining companies are raising a lot more capital in general. The British Columbia Securities Commission just recently listed mining as the largest capital-raising sector among B.C. companies, raising $8.1 billion in capital in 2020 – up 125% from the previous year.

However, much of the capital flowing into Canadian mining companies has been from institutional and special investors. While it’s great to see increasing interest come from this group, there’s certainly room to grow in the retail space. The challenge is that sentiment remains fragile among generalists. There’s fear of a market correction on the horizon, with uncertainties over possible new waves of the pandemic stalling the economy recovery, the speediness of the vaccination program roll-out and potential disruptions to the financial system.

Retail participation is going to take more of an investment from companies as investors look for more prudence from the industry in terms of spending and return of capital. With limited profits from newly public issuers, investors will be paying more attention to additional indicators of future profitability, such as revenue growth, leadership teams, innovation and unique competitive advantages.

Mining and metals companies looking to capitalize on the liquid environment will have to go to market with the right story. Although limited standardization in place, developing a solid environmental, social and governance (ESG) strategy will be crucial to securing capital. While having a strong narrative – that covers employees, communities, the environment and shareholders – will not only be a key differentiator against other companies across industries that are competing for the same investor attention, but help to generate greater shareholder returns and deliver long-term value.

DEAN BRAUNSTEINER is the EY Canada Mining and Metals Assurance Leader, based in Toronto. For more insights, visit www.ey.com/ca_en/mining-metals.