DEALTALK-M&A-shy mining majors eye junior partnerships to grow reserves

Thu Feb 6, 2014 3:49pm EST
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By Julie Gordon

VANCOUVER Feb 6 (Reuters) - At a time when major miners have turned gun-shy on acquisitions after a rash of value-busting deals, two big players made it clear last week that they are still keen to partner with junior firms on high-quality, early-stage projects.

Under pressure from investors to retreat from large, capital-intensive projects, companies like Canada's Teck Resources Ltd and Poland's KGHM Polska Mied SA are looking to tiny exploration companies to secure future output.

Junior miners are likely to be receptive. Once able to tap retail investors when commodity prices were climbing, many juniors now find themselves locked out of capital markets and struggling to fund exploration programs or even just keep the lights on.

"We have billions of dollars in cash, ready to deploy, and are looking for opportunities," said Teck's chief executive Don Lindsay at an industry conference in Vancouver last week. "We are open for business and we want to partner."

Lindsay's comments echoed those made by the chief executive of KGHM International, KGHM's global mining arm, just hours before, who also urged juniors to bring him their best projects.

"We believe that now is the time to build a portfolio of partnerships with junior exploration and development companies," said Derek White, speaking at the same conference. "The benefits of these kinds of partnerships is that both parties build the business and both can create a synergistic relationship."

These smaller deals are a more attractive option than the mega-deals that in recent years gave buyers access to producing assets, but also resulted in huge writedowns when metal prices soured and projects failed to live up to expectations.

Barrick Gold Corp, which bought Equinox Minerals for C$7.3 billion ($6.6 billion) in 2011, later booked a $3.8 billion charge on the value of the deal's flagship asset, and Kinross Gold Corp has written down some $5.7 billion related to its C$7.1 billion takeover of Red Back Mining in 2010.   Continued...