Small mining companies shun London market after IPO flops (updated)
26/10/2017 16:08
* Small cap mining listings struggle on London market
* Bankers say firms looking for other ways to raise capital
* GRAPHIC-Performance of newly listed miners: http://reut.rs/2y39eFr
* GRAPHIC-FTSE small cap miners vs majors http://reut.rs/2ldb015
(Updates with statement on timing of Fosun deal)
By Clara Denina and Barbara Lewis
LONDON, Oct 26 (Reuters) - Lacklustre performances by small
mining companies on the London Stock Exchange are driving rivals
in need of cash to find alternative ways to raise capital,
either by merging or turning to other markets such as Toronto.
Six small miners have listed in London this year, up from
two last year, but four of those are now trading below their
offer price despite a rally in metals, led by a 27 percent jump
in copper and aluminium prices and a 10 percent rise for gold.
London hosts the world's biggest mining companies, including
Rio Tinto RIO.L RIO.AX and BHP Billiton BLT.L BHP.AX ,
but the poor performance of newly listed miners and other small
miners trading in London is pushing some to change their plans.
On Tuesday, Condor Gold CNDR.L , a Nicaraguan gold miner
whose share price is down 10 percent this year, said it had
received conditional approval for a secondary listing in
Toronto, where it hopes valuations will be higher. urn:newsml:reuters.com:*:nFWN1MZ016
"London is not a great place to be listed as a junior
explorer. There is not a clear understanding of what we do,"
said Mark Child, the company's chairman and chief executive.
Metal development company Phoenix Global Mining PGMH.L ,
which listed in London at the end of June, will also consider
North American listings at a future date, its CEO Dennis Thomas
said.
Toro Gold, which operates in Africa, started preparing for a
London listing with the help of Bank of Montreal (BMO) and
corporate advisor Numis Securities earlier this year but has
shelved its plans, sources said.
Toro Gold, Numis and BMO were not immediately available for
a comment.
"It is still a difficult time to raise money through IPOs
for the mining sector ... because the price recovery is in its
reasonably early stages," said Lee Downham, head of EY's global
mining & metals transaction advisory services.
Small mining companies, which are often betting on
exploiting valuable resources in a few concessions, can
eventually enjoy far bigger stock market price increases than
major firms with sometimes limited opportunities for growth.
But in the early years, they may struggle to balance the
heavy spending needed to get mines up and running with a lack of
revenue, meaning some need regular capital injections.
London's big institutional investors, however, are seen as
more risk averse than those in major mining centres such as
Canada and Australia, particularly when it comes to relatively
illiquid shares they cannot get out of quickly, bankers say.
Besides Russia's Polyus PLZLq.L , which has agreed to sell
a 10 percent stake to a consortium led by China's Fosun
International 0656.HK , and Rainbow Rare Earths RBWR.L , which
mines rare earth materials, the other four miners that listed in
London this year are down.
Polyus on Thursday issued a statement saying the Fosun stake
sale had a completion deadline of February 2018, versus a
previous target of the end of the year, and would be completed
"as soon as the Chinese government gives its approval".
L8N1N18G2
M&A INSTEAD
Condor Gold's Child says figures from RBC Capital Markets
show some emerging gold producers listed in Toronto can be
valued at roughly three times as much as in London, based on
their estimated gold reserves.
Canada, like Australia, has a strong base of retail and
institutional investors interested in resources companies.
The Toronto stock exchange, which is home to more than half
the world's public mining companies, has seen a flurry of
listings this year, with many taking advantage of a doubling in
zinc prices since late 2015. urn:newsml:reuters.com:*:nL2N1MM1D6
Brazil-based zinc producer Nexa Resources and at least three
other zinc miners are planning listings on the Toronto Stock
Exchange or the TSX Venture Exchange (TSX-V) market for
start-ups, according to company filings, on top of six other
small mining companies that have listed already this year.
In London, the FTSE AIM Basic Resources Index .FTAXX1700S
is up less than 10 percent since the start of the year, compared
with a near 20 percent rise for larger firms in the FTSE 350
Mining Index .FTNMX1770 , as investors opt for established,
diversified players over riskier, smaller firms.
"They want to have some exposure but then why invest in
something small which is hard to trade out of?" said Raj Khatri,
senior managing director at Macquarie Capital.
Some bankers say they are now advising companies to avoid
London listings, saying there are better ways to expand. Some
are turning their back on equity markets and are instead looking
for mergers and acquisitions (M&A).
Last month, Bermuda-based zinc and lead miner Lynx Resources
agreed to a $402.5 million reverse-takeover deal with
Kazakhstan-focused copper miner Central Asia Metals CAML.L
after ruling out a listing, industry sources said. urn:newsml:reuters.com:*:nL4N1M33RR
"Although we have started to see an increase in mining
companies considering IPOs in London, there isn't yet a strong
conviction that another sustained cycle upwards is on the way
and so we caution clients who want to list to explore M&A
options in parallel, or to hold off," said Macquarie's Khatri.
($1 = 0.7584 pounds)
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GRAPHIC-FTSE Small Cap Miners vs Majors http://reut.rs/2ldb015
Performance of newly listed mining/resources companies http://reut.rs/2y39eFr
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Graphics by Alistair Smout and Ritvik Carvalho; editing by
David Clarke)
((Clara.Denina@thomsonreuters.com;)(+44 207 542 9420)(Reuters
Messaging: clara.denina.thomsonreuters.com@reuters.net)(Twitter:
@claradenina))
Keywords: MINING IPO/