Triple Flags scrapped $360-million IPO shows investors still not buying gold rally
The streaming and royalty company Triple Flag Precious Metals Corp. on Wednesday cancelled its initial public offering, the clearest sign yet that financing conditions in the mining and metals sector have not caught up with rising gold prices.
The company had hoped to raise $360 million on the Toronto Stock Exchange by selling 20 million shares at $15 to $18 apiece in one of the biggest offerings in the Canadian mining sector in years, but analysts said the company likely could not hit its desired target.
Founded in 2016 by Shaun Usmar, a former Barrick Gold Corp. executive who received backing from the New York hedge fund Elliot Management, Triple Flag invests in mining projects in exchange for a share of the revenue or production. Such companies generally are considered less risky than actual mining companies because their portfolio is often diversified across regions, metals, and management teams, among other factors.
The cancellation came after a roughly two-week road trip around North America, and London, to promote the offering to potential investors.
In a statement, Triple Flag said, “while the company has been encouraged by investor interest in its proposed initial public offering (IPO), the market environment for share offerings, particularly near year-end, continues to be challenging.”
A spokesperson declined to comment.
The amount of equity raised by the mining sector has declined for several years, but broadly speaking it has also been a difficult time for IPOs.
GFL Environmental Inc., a garbage collection company founded by a former NHL player, in November dropped its plans for an IPO, which was targeted to raise $2.4-billion — likely the most since Manulife Financial Corp.’s raised about $2.4 billion in 1999.
Meanwhile, in the U.S., many so-called unicorns — a private company with a valuation in excess of $1 billion — such as the co-working space company WeWork have delayed IPO plans, and companies that completed offerings such as Uber Inc. and Lyft Inc. have not met all expectations.
The market environment for share offerings, particularly near year-end, continues to be challenging
Triple Flag statement
“I think in the case of Triple Flag specifically this would have been a well-received financing because it’s a good business and they’re generating a lot of cash flow,” said Kerry Smith, a mining analyst at Haywood Securities, who had no connection to the deal.
According to documents filed in connection with its planned IPO, Triple Flag disclosed that it generated $36 million in free cash flows in the twelve months ended in September, and posted a 14 per cent gross profit margin during that time.
The company has a portfolio of 37 assets including streams or royalties on nine producing mines, five under construction, and 23 development or exploration development stage projects.
Triple Flag’s most recent deal was a US$145-million stake in South Africa’s Royal Bafokeng Resources Proprietary Ltd. in October. In exchange, it is entitled to 70 per cent of its gold production, until 261,000 ounces have been delivered, and 42 per cent of its gold production thereafter. Triple Flag would also pay five per cent of the spot gold price for each ounce.
Smith said Triple Flag has the backing of U.S. billionaire Paul Singer’s hedge fund, Elliot Management — which planned to retain an 83 per cent stake in the company post-IPO — and so likely does not need to raise any money.
But even as gold prices have risen 14 per cent since the start of 2019, and the VanEck Vectors Gold Miners ETF, a composite of mid-tier and larger gold mining companies, has risen 29 per cent, it remains difficult for mining companies to raise equity capital, he said.
Through October, mining companies on the TSX and TSX-Venture had raised $3.9 billion, which would put them on track to raise roughly $4.68 billion by the end of the year. That compares to $6.5 billion in 2018 and $8.5 billion in 2017.
“Generally in the industry it is hard to raise capital,” Smith said.
He noted that gold went on two bull runs in 2016, rising above US$1,300, only to crash, and again in late 2017 and early 2018, before sliding. This year, gold rose above US$1,400 for the first time since 2013, and briefly rose above US$1,500 between August and September.
On Wednesday morning, the spot price for gold stood at US$1,470.62, up 0.43 per cent at midday, according to Bloomberg data.
“I just think there’s a lot of capital that’s not committed to this space yet,” said Smith. “The last two times everything rolled over, and people are nervous. People need to see we’re not going to have a big correction like we did the last two times.”