LSE, TSX, ASX or the JSE - Which market for mines?

It's a real shame when the best investments in a sector are all based abroad. It makes them difficult to buy, means that one may have to deal with multiple currencies (one is enough!), tax on dividends can become a nightmare, and may even mean reading annual reports in French and German (life certainly seems too short to read a Geshaefstbericht!). But sometimes there's no choice. For instance in the mining sector, although London has a good handful of mining majors and loads of smaller explorers, many of the most interesting companies have their quotes in the markets closer to where their operations are based - be that Australia, South Africa, or Canada. Which, thank goodness, you'll have noticed are all English-speaking markets. And intriguingly enough, they are also all participating in the Cricket World Cup! 

Despite the multitude of recent floats on AIM, London isn't the first market a mining exploration company will look at for finance. In particular, TSX and its Venture market represent a common first choice; mining is much more mainstream in Canada, and it can be easier for a company to attract both finance and the attention of press and analysts. Each market has different strengths and weaknesses - and different stocks represented. 

South Africa 

South Africa is a key market for those looking for platinum group metals - the country has 80% of world platinum production and nearly 90% of estimated reserves. Listings include a number of major global mining companies, such as Anglo American, as well as smaller producers and explorers. JSE is resources-heavy, with 40% of the market represented by resource stocks. There are no restrictions on foreign shareholders, and foreign companies can list on JSE. Besides the main market, there is now an Alternative Exchange (AltX) along the lines of AIM, with more flexible reporting requirements for junior companies.

Mining companies are required to report according to SAMREC (the South African Code for Reporting of Mineral Resources and Reserves), which was modelled on the Australasian JORC code. (Investors who are really interested can find a report on the different accounting codes, admittedly somewhat dated)

But is South Africa the mining powerhouse it once was? Possibly not. Platinum majors Anglo American and Impala Platinum are quoted on London, while even brewer Sabmiller (LON:SAB) has transferred its main listing to London, leaving Johannesburg as a secondary quotation. Jo'burg apparently still has relatively high costs compared to some other exchanges, which may include having to pay for a local depository.

Australia

Australia is another resource-heavy exchange, with over a third of ASX listed companies being resources based - metals and mining accounting for 22% of total market capitalisation. It's seen high levels of IPOs in the mining sector from 2003 onwards, as commodities prices made companies highly profitable (or, in the case of explorers, highly prospective) and attracted investors to the sector. One advantage for UK based investors is that there's no stamp duty payable in Australia,  even if you deal through a UK broker (though it's worth checking that your broker knows that!). Australia is a highly transparent market; there's a continuous disclosure regime, with quarterly operations reports required dealing with all production, exploration, and development activities, and compliance with the Australasian JORC code is required. It's also a highly liquid market - the Australian Stock Exchange is the eighth largest equity market in the world according to the ASX, with over A$ 5 bn a day secondary trading. Foreign investors are welcome, too - they make up 40% of investors on ASX [ref] http://www.asxgroup.com.au/the-australian-market.htm [/ref] .

The largest stocks on the market include BHP Billiton (ASX:BHP), Rio Tinto (ASX:RIO), and iron ore major Fortescue Metals Group (ASX:FMG). But with 2,200 listed companies, the big appeal of the Australian market for the private investor is that it offers access to smaller mining companies such as junior uranium explorers.  

It's also possible that the ASX will become a focus for Far Eastern resources stocks, particularly if the merger with Singapore Stock Exchange goes ahead. For instance,  Mongolia has been making advances [ref] Sydney Morning Herald, 21 Feb 2011, http://www.smh.com.au/business/mongolia-seeks-help-sharing-wealth-of-its-mining-boom-20110220-1b110.html [/ref] - its newly emerging resources sector needs finance, and ASX looks like the best place. Whether anything will come of this, who knows? 

Canada

Recent years have seen the various Canadian bourses merge into a common ownership under TMX Group; there are now two exchanges, the TSX (senior market) and the TSX Venture Exchange (previously the Canadian Venture Exchange), created by a merger of the Vancouver and Alberta exchanges. TSX claims to have be "first in mining listings", with 55% of the world's mining companies [ref] Corporate presentation, p 6, http://www.tmx.com/en/investor_relations/corporate_info/index.html [/ref] . TSX listing requires a technical report (NI 43-101, based on the JORC code), showing stated resources and reserves; Venture Exchange listing is more flexible in its requirements.  Canada has a strong exploration focus, and it's a good place for junior miners to raise finance. So besides a number of major gold companies like Barrick, it has thousands of smaller miners quoted - there are around 100 just in uranium exploration alone! 

Toronto has a huge infrastructure to support the sector, with specialised finance houses, , legal practices, geologists, consultants and accountants. Not least important is its community of mining analysts, which make it easier for a company to get an analyst following in Canada - even for international companies - than in other markets. That's certainly a huge advantage over London, where some mining companies are hardly covered at all. TSX's strengths have attracted a number of foreign companies, even from markets where you'd think the needs of mining companies would be well met. Equinox Minerals (TSE:EQN) and First Quantum Minerals (TSE:FM) are both Australian headquartered, and operate in Africa [ref] Financial Post, http://www.financialpost.com/news/London+calling/4269081/story.html [/ref] , but chose TSX for a listing.

So, where to go?

For instance, with a dual listed share, should I buy it in London or head for its domestic exchange? Dealing in London may not get the best price if the primary listing is abroad. The spread will be wider when the other listing is closed, and it may not be possible to deal in such large volume. While that's not going to be a problem for shares such as Anglo American and BHP Billiton - at least, not for a private investor - it can be a real hurdle with AIM stocks. You'll also end up paying stamp duty, which could be avoided by buying the overseas shares instead. (But on the other hand, for purchases in the overseas market, one has to keep an eye on currency costs, and custody may also be a cost that has to be considered.) The decision may come down to whether you're looking for a single mining share for your portfolio - if I simply want exposure to the sector, I'm perhaps better buying Anglo on the London  exchange - or whether you're going to be dealing regularly in smaller company stocks on the relevant stock exchange, in which case maybe it's worth going through the hoops to deal abroad.

However, it's worth noting that times are a-changing. The past few years have seen increasing merger activity between stock exchanges, with consolidation driven by the need for cost reduction. The bourses are involved in a battle to increase scale - and now, London and Toronto have announced plans to merge. Mining is obviously key to this deal - and the merger would create a major natural resources exchange, with ASX (whether or not merged with Singapore) sharing the spoils, and potentially leaving South Africa a long way behind. (In that context, it's intriguing that when Barrick Gold floated 25% of its African assets, it chose not TSX nor Johannesburg, but London, for the float. Still, the M&A deal will probably not lead to a one-stop-shop for private investors in the short term.

I'd welcome any comments from readers on which markets they prefer.