Mining personality and resource speculator Rick Rule harbours little hope that the pace of junior resource sector mergers and acquisitions activity will quicken in the coming 12 months as he believes quality companies are scarce.
On Sunday, he told the Vancouver Resources Investment Conference that what gets in the way of junior M&A is what he calls ‘real yield’ – the salary and bonuses to officers and directors.
“If they think that their listing will fail and they’re not going to get paid next year, they’ll do a transaction. If they think they can get paid, they won’t do a transaction,” he told a well-attended audience at the Vancouver Convention Centre.
Rule said the financing window for juniors was currently open and would serve to hinder M&A activity.
He expects much more robust deal activity among the mid-tiers since the market has shown that as companies get bigger, their trade liquidity increases, bringing other benefits. The share price also increases, and the cost of capital decreases, which, according to Rule, makes for a durable competitive advantage in a capital-intensive business.
Rule also suggests the mining industry has been kept on a short leash by the shareholders in terms of M&A, particularly the gold majors, “given all the incredibly stupid transactions that took place in the prior decade.”
“And I think the restraint, the institutional restraint, the adult supervision is gradually coming away from the sector,” Rule said.
“I think, too, that the sector has perhaps been too conservative in capital deployments for the last 10 years, which is to say that among the majors and the mid-tiers, the exploration pipelines are empty. The development pipelines are empty, and the assets generating cash sort of look like me, you know, past their prime,” he said.