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Boutiques stepping in as mid-tier Canadian investment banks withdraw from mining

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Boutiques stepping in as mid-tier Canadian investment banks withdraw from mining

Canadian miners are seeing a shift in their fundraising landscape as mining specialists are leaving mid-tier investment banks, which are refocusing on trendier investment themes around cryptocurrency and cannabis, to fill the ranks of and in some cases start new boutique corporate advisories.

Perth-raised, now London-based investment banker Simon Catt told S&P Global Market Intelligence there has been a "structural shift" post-mining boom whereby the mid-tier investment banks were "hollowed out" while the boutiques and the "Bulge Bracket" maintained their metals and mining presence, and in some cases grew.

The Bulge Bracket includes JP Morgan, Goldman Sachs & Co. LLC, Bank of America Merrill Lynch, Citigroup Inc., Barclays PLC, Deutsche Bank AG, Credit Suisse Group AG and UBS Inc..

Catt — who joined Arlington Group Asset Management Ltd. from GMP Securities Europe, which he founded in 2006 after working for Royal Bank of Canada — believes he and Doug Bell, who left GMP Capital Inc. where he was vice-chairman in November 2017 to start Trinity Capital, are good examples of investment bankers who left the mid-tiers to offer miners different options at boutique advisories.

GMP also wound down its Houston and Australian branches in 2016, and Catt took his mandates from that firm and advised what Arlington believes is the number one battery metal/electric vehicle "proxy" in the world, Cobalt 27 Capital Corp., the number being cobalt's atomic number on the periodic table.

Bank of Montreal, historically one of the top Canadian mining banks, also lost its two senior bankers to the industry in February.

Egizio Bianchini left BMO Nesbitt Burns Inc. to be Ivanhoe Mines Ltd. deputy chairman, while Jason Neal, global co-head of BMO Capital Markets' Metals & Mining Group, left to become TMAC Resources Inc. president and CEO.

Catt said that while fundraising for the electric vehicle market is currently being led by retail, eventually the institutions "have to pay attention".

"Some mid-tier investment banks have not replaced that talent as there is such poor liquidity in the sub-A$500 million market. Yet all of a sudden there are 300 new lithium developers, 50 or 100 new cobalt developers, and very little liquidity, and it's difficult for investment banks to harness that," Catt said.

He said battery metals juniors like Australian Mines Ltd. and Piedmont Lithium Ltd. are the exception as they have "very capable" capital markets promotion able to generate a retail following and liquidity which enables institutions to buy shares.

"Institutions won't buy a company if it's worth A$10 million with no liquidity, but if it's A$300 million trading at A$10 million a day because it's captured the retail imagination then the institutions can follow in, which is exactly what happened with Australian Mines," Catt said.

David Davidson, metals and fertilizers senior analyst at Paradigm Capital U.S. Inc., which deals mostly with institutions, told S&P Global Market Intelligence there had "absolutely" been a change from a decade ago in the source of cash available for juniors.

He agreed that retail in mining stocks has disappeared, at least relatively speaking to a decade or so ago, while crypto and marijuana stocks in Canada have grabbed investor attention.

That being the case, Davidson said initial public offering action, equity volumes and valuations were better in Australia for mining stocks than in North America, as evidenced by many gold stocks in Canada trading below net asset value, "in line with the base metal guys," a trend which "hasn't happened for the last four or five decades."

He noted that while some bigger firms like Canaccord Genuity Corp. have jumped on crypto and marijuana stocks, a smaller shop like Paradigm deals mostly with institutions that may be less interested in those non-mining sectors.

Meanwhile, private equity has come to play and compete, replacing some demand from retail like Orion Energy Partners L.P., Resource Capital funds, and some Sprott Inc. companies.

Mongolia-focused Erdene Resource Development Corp. CEO Peter Akerley had also noted a "shift away" from traditional dealer brokers, meaning the industry has fewer conduits to find institutional money, which he said has also shrunk in Canada.

"We find ourselves in Asia more and that works well because that's where our projects are. We also spend more time in Europe," he told S&P Global Market Intelligence.

"Weed and battery metals and crypto-currency have sucked a lot of the life out of the speculative investors interest in precious metals; and until that changes, you probably won't see that somewhat limited amount of money come back into precious metals."