Introduction
Consolidation amongst stock exchanges is at an unprecedented level in a commodities-fuelled race to become the premium global minerals exchange. Exchanges are merging, forming strategic partnerships, and developing new and tailored listing rules in order to offer more opportunities and sources of finance. What effect will these changes have on miners seeking capital?
Background
2009 was a terrible year for junior miners; while the challenging market conditions led to majors deferring capital expenditure, juniors found their ability to raise funds in an illiquid market severely curtailed.
Fast forward to 2011 and the mining industry is roaring ahead. Global commodity prices are high. Some of the largest recent IPOs and secondary listings have been by mining companies: Glencore, Tahoe Resources, Pretium Resources, Aston Resources and Vale have all dominated the resources sector news. Mining exploration and development activities are penetrating Asian markets, especially in Indonesia and Mongolia. Asian investors are targeting junior mining companies at increasingly earlier stages of exploration. In Indonesia, in particular, the mining industry is considered ripe for development as some of the perceived barriers to foreign investment which have historically dissuaded foreign investors have been tempered by a more stable political environment, a thriving equity market, and a greater commitment from Government to combat corruption and develop infrastructure.
Morphing and changing
As investors demonstrate their enthusiasm for the mining industry, so the resource-heavy stock exchanges have started a round of jockeying for position. Proximity of market to mine is no longer the primary driver for resource companies; access to capital, sophistication of investors, valuation levels and suitability of listing requirements are now as important as geographical considerations.
Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSX-V)
The TSX-V is probably still the most important market for juniors. With thousands of juniors listed on the exchange, a sophisticated pool of analysts, a good supply of experienced bankers, lawyers and accountants supporting the industry and access to North American capital, the TSX and TSX-V have a reputation as the leading global mining exchanges. Valuations by analysts who understand the political risks faced by Asian juniors are typically high, and the flexible two tier system with tailored listing requirements offers straight forward and swift access to capital for early stage exploration companies and smaller financings. The TSX-V offers multiple financing rounds and provides a logical progression to a TSX listing. In 2010, there were 303 mining equity financings on the TSX and 2,110 on the TSX-V, compared to 67 on the ASX, 143 on AIM and four on the HKSE1. Over the last five years, over 80 per cent of all mining equity financings were carried out on the TSX or TSX-V. The average financing was CAN$54.2 million on the TSX and CAN$2.8 million on the TSX-V.
Canada National Stock Exchange (CNSX)
The CNSX is a relatively new, independent electronic exchange in Canada offering a streamlined and less expensive listing process for emerging companies than the TSX-V. CNSX offers a simplified procedure for listing and, unlike the TSX-V, does not require sponsorship for a listing. In addition, CNSX does not require regulatory approval of transactions entered into by listed entities and the fees for listing are substantially less than those of the TSX and TSX-V. The majority of CNSX issuers are in the mining and minerals, gold and precious metals sectors.
London Stock Exchange (LSE)/ Alternative Investment Market (AIM)
The LSE is home to some of the world's largest mining companies – 2010 saw the financings of Rio Tinto and Xstrata – and has much to offer mining majors in terms of profile and access to capital. However, geographical considerations and the LSE/AIM's historical links to Africa and Russia mean that it may not be the first market an Asian miner will look to for finance. There were 17 new issues in the mining sector on AIM in 2010, raising a combined total of £140.94 million2.
In April 2011, the TSX and LSE announced a merger aimed to create a 'global resources powerhouse'. It will be some time before regulators announce their decision. Meanwhile, the LSE has announced a strategic partnership with the Mongolian Stock Exchange (MSE) to restructure and develop its exchange by advising on market rules and procedures and developing a market index. This step potentially gives the LSE access to Asian markets and in particular the Mongolian mining market which, alongside Indonesia, is proving to be one of the most fruitful for mining exploration and development companies.
Australian Securities Exchange (ASX)
Junior miners have historically made up a large proportion of the listings on the ASX, and listed mining companies make up around a third of all ASX listed companies. The ASX has, until recently, had a near-monopoly on Australian-based miners, and has long been attractive to Asian miners due to its geographical proximity and established mining credentials. The development of the JORC code – a practical and effective set of minimum reporting standards and guidelines for the mining industry – is internationally recognised and has become a blueprint for similar initiatives around the world. However, the ASX's traditional position as primary destination for Asian juniors is subject to challenge from Canada and, potentially, Hong Kong, and the board is currently carrying out a review and consultation to establish how it might increase its appeal to resources companies outside the top 200. Options range from establishing a second exchange, to developing listing rules specifically for smaller mining companies, to extending its trading hours and lowering its minimum stakeholder requirement.
Singapore Exchange (SGX)
With over 300 top global traders in the resource and commodities sector space present in Singapore (and 90 globally or regionally headquartered in the city), the SGX currently has 20 companies in the commodities and resources sector with a combined market capitalisation of S$79 billion. Singapore does not have a history of attracting mining companies but the SGX is now going to some efforts to develop its reputation as a destination for mining exploration companies. In February 2011, it introduced the new Catalist rules in an effort to attract early stage mineral, oil and gas companies. Amongst other things, the new rules introduce disclosure and transparency standards in line with international practice and clarify the type of independent evidence required of the presence of resources in the areas in which the listing applicant enjoys exploration rights. As a result of these developments and a perceived greater degree of liquidity and access to capital than the IDX, the SGX is seeing an increasing level of interest from Indonesian juniors in particular.
Hong Kong Stock Exchange (HKEx)
Hong Kong has overtaken London and New York as the primary destination for large scale listings (IRC Ltd's IPO, Vale S.A.'s secondary listing, Glencore's IPO, UC Rusal's listing, Agricultural Bank of China's dual listing, SBI's secondary listing) but it has not historically been an obvious choice for junior mining companies seeking capital. Around 35 per cent of investors in the HKEx are retail investors who may not be best placed to analyse mining stocks, and the market has traditionally undervalued mining companies. In June 2010, the board changed its listing rules to make it easier for mining companies to raise capital for discoveries already made. In April 2011 the HKEx announced the establishment of the Hong Kong Mercantile Exchange, a commodities exchange designed to meet the rising commodities demand from China. These developments, together with its access to Asian capital and proximity to resource markets, may see the HKEx emerge as an increasingly attractive exchange for the junior mining sector.
Indonesia Stock Exchange (IDX)
Indonesia is commonly regarded as the natural resources powerhouse of Asia, with a large percentage of the total coal reserves in Asia. A small number of domestic mining companies have elected to list on the IDX, such as Bumi Resources and Adaro, but to date there has been little precedent for non-Indonesian juniors listing on the IDX. Contributing factors may include the language barrier, the lack of a substantial institutional investor base and consequent level of liquidity when compared to the HKEx, ASX and the SGX.
The future
The continuing evolution of the global exchanges means junior miners have more options than ever before. However, these options also require a greater focus on a comparative analysis of respective listing rules, liquidity, sophistication of investors, and geographical proximity to resources in the context of the particular characteristics of the company seeking capital.
The TSX/TSX-V looks set to continue to lead the field in equity raising for junior miners. The ASX remains an established market and it will be interesting to see whether the outcome of its current consultation has a demonstrable effect on its appeal to juniors. Singapore's Catalist is in the early stages of its development as a mining, oil and minerals hub, and the MSE may be a long-term watch. Developments on the Hong Kong exchange, propelled by investment appetite from the mainland, are likely to increase its attractiveness to juniors seeking capital on the Asian markets.
A detailed comparative analysis of the listing requirements and features of each of the major mining exchanges is available on request.
Norton Rose Group
Norton Rose Group has one of the leading global mining practices and a unique footprint across Canada, Europe, Asia, South Africa and Australia. On 1 June 2011, Canadian law firm Ogilvy Renault and South African law firm Deneys Reitz joined Norton Rose Group enabling us to offer a full service to mining companies looking to list on any of the leading mining exchanges. With major offices in Beijing, Shanghai and Hong Kong we also have one of the leading China practices targeting mining finance.
Footnotes- TMX's Guide to Listing
- AIM Market Statistics
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
