Thawing investor sentiment fails to boost mining IPOs

By Laura Syrett
Published: Wednesday, 14 May 2014

Last year was one of the worst in history for new mining listings and the performance of mining company stocks on the world’s exchanges. Latest stock market figures suggest that while there has been an increase in available capital for miners, the chances of successfully floating a new company remain slim to none.

Figures from the world’s top mining exchanges have shown tentative signs of a revival in the fortunes of mining stocks, but the patchy presence of newly-listed companies suggests that it remains difficult for miners to float.

Initial public offerings (IPOs) are a key bellwether of investor sentiment towards mining and last year was one of the worst in almost a decade for new listings in the industry, with the number of floats plunging to record lows.

In the UK, the London Stock Exchange (LSE) is still waiting to see any miners float on either its main board or AIM this year, having floated only five in 2013.

“2014 has seen no IPOs of mining companies in London, yet,” Luca Broglio, international associate, equity and capital markets, at the LSE told IM.

Despite the persistent weakness in the IPO market, Broglio suggested that the capital raising environment for its 190 or so listed miners seems to be improving.

“Our mining companies have raised about $460m in further offerings [this year],” he said. This represents more than one tenth of the LSE’s calculated total funds raised for miners across the world in the three months to 31 March, including IPOs.

“In terms of global capital raising activity, in Q1 2014, miners raised about $4.4bn – of which only about 15% was via IPOs – in three deals,” he said.

Broglio also pointed out that, in London, which is characterised by the depth rather than breadth of its liquidity platform for miners, mining stocks are outstripping the wider market while keeping pace with the global industry.

“In terms of the Q1 2014 [index] performance, the FTSE 350 Mining Index has over performed the FTSE 100 consistently during the period, while it has been broadly in line with the aggregate performance of global miners around the world,” he said.

Investors venture back to TSX

On the Toronto Stock Exchange (TSX) and Venture Exchange (TSX-V), which together house more than 1,600 listed miners and make up the world’s largest market for mining stocks, IPOs are making a more convincing recovery.

The TSX’s mining indexes saw 14 new listings in the first three months of this year – ten of which floated on the TSX-V – and raised just over C$4bn ($3.7bn*) in IPOs and further offerings.

While not staggering by the TSX’s historical standards – in both 2010 and 2011, the combined indexes saw more than 200 listings – this number represents a welcome turnaround from the first quarter of 2013, when the Toronto market did not record a single mining IPO – the first time in a decade that had happened, according to a report by PwC.

“Certainly, it seems (...) that the market in the first quarter was a bit firmer than it has been of late,” Graham Dallas, head of business development EMEA at the TSX told IM.

However, of the C$4bn raised on both markets, C$3.5bn came via the TSX with just $0.5bn raised on the TSX-V, indicating that investors are still wary of junior stocks.

ASX poised for recovery

With around 780 listed mining companies, the Australian Securities Exchange (ASX) ranks second in the world for traded mining stocks and is also struggling to make a recovery.

Last year, mining and metals companies accounted for just 14 of the 85 new listings in Australia and in Q1 2014, the ASX saw just two mining related businesses float on the stock market – coal developer U&D Coal Ltd and a graphite junior, Valence Industries Ltd.

ASX manager for listings business development, James Posnett, shrugged off this fragile start to the year by suggesting that the lack of IPOs was a symptom of the ongoing tepidity of investor confidence in mining equities globally.

“I understand both London and Toronto are still feeling the effects of reduced resources prices,” Posnett told IM.

He also dismissed suggestions that a number of ASX-registered miners are looking to dual-list on the LSE owing to the present difficulty of raising capital from Asia-Pacific funding pools.

According to the ASX’s “Upcoming floats and listings” board, five mining companies are due to complete IPOs on the market within the next month. However, most of these are focused on gold, rather than industrial metals and mineral commodities.

IPO market leaves mining behind

Recent figures published by SNL Metals&Mining in its first quarter “State of the Market” report suggest that the dearth of mining company IPOs is a black spot in what is an otherwise healthy business for stock exchanges.

The number of IPOs across all industries globally doubled year-on-year in the first quarter of 2014, to over $40bn, SNL’s analysis found.

“The IPO revival in the general market is a welcome sign of increased risk taking and of financial markets again functioning efficiently after almost seven years of crisis,” the SNL report stated.

In terms of overall fundraising, SNL found that mining is beginning to regain the attention of financiers, although investors continue to avoid backing exploration companies.

According to the report, $7bn was raised globally for the mining sector in the first three months of 2014, of which only $1.6bn was for juniors.

“The combination of investment banks falling out of love with commodities and IPOs not serving the smaller companies is worrying for junior exploration and mining companies,” the SNL report said. “The global economy might have turned the financial corner, but this is not yet true for the mining sector.”

Speaking to IM earlier this year, Investec mining analyst Hunter Hillcoat said that despite the apparent appetite for new company listings generally, he did not foresee the IPO market “catching fire” for miners in 2014.

“The wider IPO market is doing very well, but none of it is mining,” Hillcoat said. “You could probably do a gold IPO in Australia, but it’s pretty tough for most other minerals and metals,” he added.

*Conversion made May 2014

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