By Euan Rocha
TORONTO, Jan 22 (Reuters) - Timmins Gold Corp, which owns the San Francisco gold mine in Mexico, said on Wednesday it will sell C$25 million ($22.7 million) in equity to a syndicate of banks, making it the latest in a slew of recent share offerings from Canadian miners.
The Timmins deal, aimed at strengthening its balance sheet, builds on a wave of offerings that potentially signal a thaw in the financing environment for mining companies, which have long been out of favor with investors.
The bank syndicate, led by RBC Capital Markets, will buy the shares at C$1.50 each, a significant discount to Timmins Gold's C$1.73 closing price on the Toronto Stock Exchange on Tuesday.
The offering is being done on a bought deal basis. A bought deal occurs when an underwriter, or a syndicate, buy shares from an issuer at a set price before selling them to the public.
While these deals typically occur at a slight discount to a company's last trading price, the large discount that Timmins agreed to underscores the challenges still facing gold miners.
"New issue discounts are a factor of market sentiment," said Peter Miller, the head of equity capital markets for BMO Capital in Canada.
"If you look at the same deal done today, as it would have been done two years ago, the discounts are larger today and that is not unusual given that it's early days in terms of these mining and development companies being able to access the equity markets again."
The price of spot gold has fallen by nearly 30 percent in the past 12 months and is now trading at around $1,240 an ounce. The drop shook investor confidence in gold miners, whose equity values have tumbled.
Bought deals and equity offerings from gold miners were all the rage between 2009 and 2011, when the price of gold was on a tear, but the pace and size of these deals has plummeted in the past two years, as the gold price has fallen after peaking at more than $1,900 an ounce in 2011.
The market for mining deals, however, is beginning to show signs of a thaw. The world's largest gold producer, Barrick Gold Corp, announced a massive $3 billion equity offering late in 2013 aimed at trimming its debt load and strengthening its balance sheet.
Exploration and development company Torex Gold Resources Inc outlined a C$125 million bought deal late on Tuesday. And Canadian base metals miner HudBay Minerals Inc announced a roughly C$150 million bought deal early in January.
Other miners that have recently announced plans to tap the market include Athabasca Minerals Inc, Platinum Group Metals Ltd and Castle Mountain Mining Co.
The equity offerings come ahead of the spring drilling season for many North American miners and the annual Prospectors and Developers Association of Canada conference in March, which is the biggest gathering in the industry.
Despite the pickup in financing activity, bankers remain cautious, noting that investor sentiment for mining companies is still tepid and warning that some exploration-stage companies will still struggle to raise funds in the near term.
"The floodgates aren't opened, but they are beginning to get unfrozen. So it is still going to be a selective market in terms of who can access the equity markets," said Miller, whose bank led the Torex deal and co-led the HudBay offering along with GMP Securities.
Timmins said proceeds from its offering would be used for general corporate purposes, including repayment of debt and working capital needs.
Shares in Timmins fell 13 percent, closing at C$1.52 on the Toronto Stock Exchange on Wednesday. Shares in Torex also fell sharply on Wednesday, closing down 17 percent at C$1.14.