Distressed TSXV-listed Companies Provide M&A Opportunities

Junior mineral exploration companies listed on the TSX Venture Exchange are strapped for cash and have curtailed activity in an effort to sustain themselves. Funding for exploration has all but disappeared and many juniors are in survival mode. Without funding, projects with real potential will sit on the shelf indefinitely. Juniors with late-exploration and advanced projects have hope of survival if stronger, cashed-up companies seize the opportunities for M&A transactions. The downturn in the junior exploration markets may make this an optimum time to pick up quality assets for a very reasonable cost. There will be ‘fire sale’ deals because the market capitalization of distressed juniors is well below perceived asset value. Consolidation in the junior mining sector is necessary to kick start a return of investment interest.

The benefits of consolidation through a merger or acquisition might include expanding a company’s portfolio by adding properties prospective for the same metals or increasing mineral resources in the portfolio faster and less costly than drilling current properties might achieve. Another intended benefit of a merger might be to ‘inherit’ personnel with needed technical expertise. Projects or companies that own them might be acquired through a share transaction with minimal dilution to the acquiring company due to the current low market values assigned to distressed exploration companies.

There are M&A deal structures that are less costly, simpler and more expeditious than other structures. These structures can include optioning instead of acquiring properties, making an equity investment in the junior target to obtain control, and simple mergers. In addition companies that undertake a well-structured capital reorganization and settlement of debt with equity might also increase their chances of securing funding.

If you’re interested in professional guidance, we welcome your inquiries. Our Securities Practice Group at Boughton Law has the expertise to assist you in planning and implementing your M&A strategies and corporate reorganizations, from due diligence, to negotiation and advice on deal structure, to preparation of deal documents and obtaining regulatory approvals, to closing the deal.

 

Tags: Articles; Claudia L. Losie; Securities