By any standard, 2015 was a horrendous year for metal prices. Yet First Quantum Minerals Ltd. managed to accomplish the largest base metals equity offering in the world since 2007.
It is difficult to overstate the amount of an anomaly this transaction was. First Quantum raised $1.44 billion. Canada’s second-largest base metals equity deal of 2015 belonged to Travali Mining Corp. It had been worth $30.Six million, or about two per cent of what First Quantum raised.
“This was a fantastic deal,” said Luke Gordon, md of investment banking at Goldman Sachs. “It was one our client (First Quantum) was happy about.”
The deal, which closed in early June, was priced at $16.25 per share. Copper prices subsequently fell off a cliff, and First Quantum’s stock may be worth under $3 today. The timing couldn’t happen to be any better.
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The roots of the financing go as far back to 2014. First Quantum was pouring billions of capital into its US$6.4 billion Cobre Panama project while dealing with volatile commodity prices along with a sizable debt load. The organization often see a potential funding gap in the future. A huge equity offering was the logical method to address it.
RBC Capital Markets and Goldman Sachs were tapped to lead the offering. Both were logical choices. RBC’s relationship with First Quantum dates back to the early 2000s, once the miner’s market value was less than $100 million. “We’ve done each of their financing and advisory work since,” said Gordon Bell, RBC’s global head of metals and mining.
Goldman, meanwhile, was one of the advisors on First Quantum’s hostile takeover of Inmet Mining Corp. in 2013, which was worth nearly $5 billion. Which was a complicated deal that remained hostile right to the finish, and Goldman kept a continuing dialogue with the company after it closed.
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Critically, RBC and Goldman both have big global sales forces. For any deal this big, it had been likely to be all hands on deck.
“It’s really important so that you can reach into all corners of the world to find those investors that are looking for opportunities,” said Michelle Khalili, Goldman’s head of equity capital markets for Canada. “Whether they’re in Hong Kong or even the Middle East or in Canada. That is what we bring to the table.”
Throughout the very first half of 2015, First Quantum was watching the marketplace carefully to choose the right moment for the equity offering. The $1.25-billion deal was launched in the late afternoon on May 20. It had been priced at a good 5.8 percent discount to First Quantum’s prevailing stock price.
While most Canadian companies approach bought-deal financings, First Quantum opted for a weekend marketed offering. This made sense because the company has a global shareholder base spread across different timezones. The marketed offering also gave the company a chance to make its pitch to investors.
“The overnight marketed (strategy) arranged well using the company’s shareholder base, the dialogue they’d with shareholders on the long period of time, along with a wish to have them included in the discussion in terms of raising the cash,” said Lance Rishor, a md in RBC’s mining group.
First Quantum President Clive Newall got on the telephone working in london and began calling shareholders. The company held 31 one-on-one conference calls with major shareholders over roughly 15 hours. They spent much of the night speaking with Canadian and American institutions, got a couple of hours sleep, after which were only available in with Asian and European institutions each morning.
The calls were extremely productive, as a lot of those investors supported First Quantum’s vision and bought in to the offering.
“The process was quite effective. We built a powerful order book overnight coupled with tremendous momentum in the morning,” said Ryan Latinovich, md from RBC’s equity capital markets group.
Before long, it was oversubscribed. The bankers went ahead and exercised the full over-allotment, bringing the proceeds to $1.44 billion.
The distribution from the deal reflected First Quantum’s global shareholder base. American and European investors resulted in a third of the deal each, while Canadian and Asian investors bought modest amounts.
Given what is happening to commodity markets recently, the First Quantum offering looks smarter than ever. It might be a long time before anyone pulls off another mining deal such as this.
Khalili said she loves to think good companies can always arrived at market, but she acknowledged that the world looks a great deal different today of computer did last spring.
“Mining is off the table completely,” she said.
pkoven@nationalpost.com
Twitter.com/peterkoven
