Miners See Gold In London Market
Publisher: Reuters
Author: Rex Merrifield
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The glory days of mining in Britain may have passed, but there is no
shortage of mining companies joining the London stock market, increasing
their profile among large-scale institutional investors.
More than two dozen mining and minerals-related firms have raised funds on
the London Stock Exchange in recent years to pay for exploration and
production from Uzbekistan to Liberia, Sardinia to Saskatchewan.
Part of London's attraction is its global outlook -- partially a result of
British colonial history -- but its well-polished market credentials can
also give weight to firms that might otherwise battle to win investor
confidence.
The effort to reach investors wary of exposure to listings in emerging
markets drove Anglo American Plc (LSE: AAL.L - news) to make the transition
from Johannesburg to London in 1999.
At the time, it cited improved access to international capital as key. That
also made London a logical home for Billiton Plc (LSE: BLT.L - news) to
list as it demerged from South Africa's Gencor two years earlier.
Australian miners have also found footholds in London, putting themselves
squarely in the sights of big investment houses and ensuring liquidity for
their shares in hard currency through the trading day.
Rio Tinto (LSE: RIO.L - news) Ltd/Plc maintains stock market quotes in
Sydney and London. A dual listing and increased profile were also part of
the motivation for BHP Ltd's recent agreement to merge with Billiton.
The big miners have given the sector critical mass -- nearly three percent
of the blue-chip FTSE 100's overall market value -- ahead of food and drug
retailers and electricity utilities and onto the radar screens of fund
managers.
That in turn has attracted smaller firms to the Alternative Investment
Market (AIM), the junior market where listing rules are not as tough and
investors are prepared for bigger risks.
Most recently Canadian-based First Quantum Minerals Ltd took the plunge,
adding a London listing last week to its existing Toronto listing. It
joined more than 20 others in AIM's mining and related sectors.
GETTING ON THE RADAR
A decade ago, many start-up mining firms saw exchanges in Canada as the
ideal place to raise capital.
Investors watching Canadian exchanges at the time had an apparently
insatiable appetite for risk, ploughing money into junior explorers. But
the fallout from the Bre-X gold mining scandal and weaker commodity prices
in recent years have tamed North American appetites for mining.
Bre-X, the darling of the Canadian stock market in the mid-1990s, rocked
the investment community in 1997, when its gold property in Indonesia,
touted as incredibly rich by the company and mining analysts alike, was
found to contain no gold.
And while technology and other growth stocks boomed, mining interests fell
out of favour, with many companies too small to win the attention of
large-scale investors and fund managers.
First Quantum President Clive Newall said London was now the centre of the
rush, and that many institutions, which had in the past shunned AIM stocks,
were now prepared to invest in them.
"For us it provides a more knowledgeable capital and shareholder base in
Europe," he said.
The company, which mainly has interests in southern Africa, found North
American investors were more inclined to lump all African countries
together. Problems in one quickly affected perceptions of investments in
others.
Gordon Bogden, managing director of Canadian advisers Beacon Group, said
several other operators are set to follow First Quantum in the next few
months.
"I think appetite for risk just happens to be there. A lot of these
projects have been in Africa, some in Australia, and countries where a lot
of European investors have not been scared off," he said.
"They know (the firms) have been vetted and scrutinised by the local
regulatory body, and can take some comfort in that."
BRE-X STILL HAUNTS
First Quantum's Newall said Bre-X still haunted North America, keeping
investors away from speculative exploration stocks.
At the height of its brief life, Bre-X had a market value of more than C$6
billion ($3.8 billion), which turned to dust as its supposed gold resources
were found to be worthless.
"It was on such a huge scale that a lot of people (in North America) are
still very gun-shy of mining stocks," Newall said. "The problem is that
venture capital markets by their nature attract some adventurers."
Many mining companies listing on AIM keep their home bases and still must
meet tough conditions, he said.
"We are not escaping anything by moving to AIM. The Canadian controls and
restrictions are very strict indeed now, and companies have to comply with
those regulations."
The Canadian Venture Exchange, CDNX, which was formed by the merger of the
old Vancouver and Alberta stock exchanges is still home to scores of small
miners. It is set to be bought out by the Toronto exchange, which lists
several major mining stocks.
But until there is a sea change in the turbulent markets, Canada is
unlikely to attract many new players, Bogden said.
"We probably won't see investors come back in (the near term), and when
they do, we probably won't see the interest at the levels we saw in
1994-96, when Toronto was the global mining Mecca for capital raising." |
