Junior miner Torex closes big league-style financing
Last year was one of the worst in recent memory for junior mining companies, which were decimated as investors pulled capital out of the sector. Yet it was a junior that pulled off the Canadian mining sector’s single largest equity deal of 2012.
Torex Gold Resources Inc. raised a lot of eyebrows when it announced a whopping $350-million bought deal on Oct. 1. Three weeks later, the company closed a $380-million transaction (including over-allotment). It was a game-changing deal that proved Torex is one of the rare juniors capable of financing and building a large gold mine on its own.
“It made the conversation about us completely different,” chief executive Fred Stanford said in an interview. “The financing risk had to get taken off the table.”
While some people on the street were caught off-guard by the size of the financing, it was no surprise for those who have followed Torex from its infancy. The company has been building towards this deal since 2009, when it first acquired a majority stake in the Mexico-based Morelos gold project from Teck Resources Ltd.
BMO Capital Markets, the lead bookrunner on the financing, was familiar with Torex from the beginning. It advised Teck on that original sale, and it has a longstanding business relationship with Torex chairman Terry MacGibbon, who also led Quadra FNX Mining Ltd. “We get involved in pretty much everything he’s involved in,” said Jason Neal, co-head of BMO’s mining group, who led the financing.
As Torex gradually moved through feasibility and permitting, the company telegraphed to the market that it would need US$700-million from investors, roughly half in equity and half in debt. The question was whether it should raise the equity in tranches or do it all at once.
The deciding factor for Mr. Stanford came when Torex made an exciting discovery south of the Morelos project. It looked even more promising than the existing project, but he couldn’t get the street to pay attention because everyone worried about the company’s financing overhang. He decided he needed the $350-million as quickly as possible.
Torex received bought deal pitches from numerous banks, but BMO was the one willing to do the full $350-million as the lead of a syndicate. Mr. Neal said that he wasn’t concerned that the bank was buying more stock than it could sell.
“We decided that if all of it doesn’t get sold immediately and there’s a bit of it that we need to work through, we were confident enough in the quality of the company that we were comfortable taking that risk,” he said. He pointed out that Torex was a relatively easy story to sell: it was a company with a strong management and board and a high-grade, open-pit project that was not complex.
Demand ended up being a non-issue. Many of Torex’s major shareholders stepped up to the plate and bought stock, as did a number of other high-quality institutions spread across Canada, the United States and Europe. Demand was strong enough that more than half of the over-allotment was exercised, bringing the final dollar value to $380-million. “I’d say it was the right-sized deal. It wasn’t hugely over-subscribed,” Mr. Neal said.
Along with the equity, investors in the deal also received a quarter-share purchase warrant, which matures later this year and could bring in another $125-million for Torex. It is capital the company could use to pay down debt or continue its exploration program at the southern discovery.
The proof that the deal was a winner can be seen in the recent performance of the stock, which is trading consistently above the offer price. Torex vaulted into the big leagues of Canadian mining thanks to this transaction, proving that quality junior miners can raise money, no matter how bad market conditions might be.
“The Street has been very supportive of this project all the way along,” Mr. Stanford said. “Whether it’s the brokers or the analysts or the sales folks, they have been very effective at isolating the things that made this project successful.”