To steal a phrase from supermodel Linda Evangelista, who wouldn’t wake up for photo shoots that paid less than $10,000 a day, investment bankers at global platforms such as RBC Capital Markets and Goldman Sachs Group Inc. don’t typically get out of bed to split a $1-million fee.
Yet RBC RY-T and Goldman GS-N – firms built for billion-dollar financings – put their muscle and brands behind a $23-million stock sale last month for junior miner Frontier Lithium Inc FL-X. The bought deal, initially pitched as a $20-million offering then upsized because of investor demand, earned the two lead dealers and four other banks just $1.1-million.
The Frontier financing highlights how the biggest banks are jockeying for position in critical minerals and the emerging supply chain for electric vehicle batteries. RBC and Goldman won lead roles last month raising money for a company that previously worked with small-cap mining specialists Canaccord Genuity Group Inc. and BMO Capital Markets, which co-led a $12-million Frontier stock sale last December.
The paperwork behind the TSX Venture Exchange-listed company’s latest deal also shows the staggering costs that come with developing a world-class lithium mine. By going down market last month to win Frontier’s business, RBC and Goldman are trying to set the stage for future paydays.
Frontier is developing the PAK project on what miners call “Electric Avenue,” a lithium-rich region 175 kilometres north of Red Lake, Ont. Frontier chief executive Trevor Walker, whose family owns mining contractor Consbec Group, projects PAK’s open-pit mines will have a 26-year life span and generate US$8.5-billion in revenues. If all goes according to plan, PAK goes into production in 2027.
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The promise of a major Canadian lithium mine ticks all sorts of boxes for governments and industrial customers, who currently rely largely on Chinese-owned companies for lithium. In a report, analyst Alexander Jackson at RBC Capital Markets said: “The project location in Northern Ontario is strategically important to the North American battery supply chain as [automakers] and battery makers look to secure domestic sources for raw materials to produce electric vehicles in North America.”
Frontier is already tapping the Ontario government for development financing. Looking ahead, Mr. Jackson said the miner is a strong candidate for further provincial and federal support, and can potentially raise capital from automakers in return for a portion of its future production. Tesla, Ford, General Motors and Mercedes-Benz have all struck alliances with critical-mineral miners. The promise of advising on these partnerships is part of the reason RBC and Goldman built a relationship with Frontier.
Developing the PAK project over the next five years means Frontier will make repeated trips to the capital markets, potentially raising more than $1-billion in loans and stock sales. That flurry of financing would wake up any investment banker – it equates to tens of millions of dollars in fees.
Frontier’s projected spending offers a window into the complexity and risks that come with electrifying the economy. For example, there is currently no road to the PAK mine site. Frontier trucks supply across frozen rivers and lakes two or three months a year. Otherwise, everything must be flown in.
The company is counting on the Ontario government to approve and build gravel roads and bridges that would link its mine to a processing plant in Thunder Bay. Indigenous groups must also sign off on the project. Mr. Jackson projects the initial phase of the mine will cost $325-million, including a $40-million contribution from Frontier to offset road construction costs. He said the second phase of the project, building the processing facility, will cost $778-million. “Execution risk is always a key factor when considering greenfield projects, and PAK is no different,” Mr. Jackson said.
A generation back, a junior mining CEO like Frontier’s Mr. Walker would stand a better chance of scoring dinner with Linda Evangelista than having his company’s $20-million stock sale led by RBC and Goldman. The environment has shifted. Now, global investment banks are putting their resources into finding and financing the companies that will green the economy.