Home' Australian Resources and Investment : March 2012 Contents In this edition,
takes a broad
look at last year’s
IPOs, and discusses
what’s in store for
By Tony FeaThersTone
irst, the good news: 88 resource-related companies raised $758 million
through initial public offerings (IPOs) and listed on the Australian Stock
Exchange (ASX) in 2011, despite awful sharemarket conditions. Almost a
quarter rewarded investors with double-digit gains and the resource sector was yet
again the standout spot in a disastrous year for IPOs.
Now, the bad news: the median share price loss against the issue price for
last year’s resource floats was 23 per cent, Australian Resources and Investment’s
analysis shows. Two-thirds of all mining IPOs in 2011 lost investors’ money, and the
share prices of about a third of resource IPOs fell by 40 per cent or more. Big first-
day, or ‘stag’, gains were rare and only three mining IPOs had at least doubled their
issue price by the year’s end, compared to 14 a year earlier (see main table).
It gets worse. The median capital raised in 2011 was a paltry $4.5 million, barely
enough to fund a decent two-year exploration program. Many mining IPOs struggled
to make their minimum subscription or attract enough investors to meet ASX listing
rules. Some will live or die by their ability to raise more capital, when share prices
are sharply lower and dilution risks are high.
At least 16 mining IPOs withdrew their listing applications after failing to raise
their minimum subscription (see small table). Others, such as the $500-million
mining services float Barminco, which would have been among the year’s largest,
were pulled because of poor investor demand. The European debt crisis, high global
sharemarket volatility and weak commodities crushed the 2011 IPO market.
Only $1.56 billion was raised through all IPOs last year – the lowest in a
decade. About $8 billion was raised in 2010 thanks to the $4-billion QR National
and $2-billion Westfield Retail Trust floats. Larger floats, such as Aston Resources,
featured in 2010. The biggest resource-related float in 2011, by capital raised, was
transport mining services group Alliance Aviation Services, with $74 million. Even
its float looked like being withdrawn after fund managers gave it a lukewarm early
These poor IPO trends have carried over into 2012. Twenty-six mining companies
had IPOs in late January, but only a handful had a listing date. The majority were
unable to advise when they expected to list on the ASX, which is usually a sign they
have been forced to extend their offer. Most of these resource IPOs were trying to
raise less than $5 million. Even that is a stretch in this market.
The underperformance of resource stocks last year and concerns about ongoing
commodity price strength are big headwinds for even small mining IPOs. The S&P/
ASX 300 Metals and Mining index fell 26 per cent in 2011, as smaller mining stocks
were hammered in the fourth quarter. Speculative stocks lost favour as investors
became more risk-averse during the European sovereign debt crisis.
At this stage, the odds favour another weak IPO market in 2012, with more
exploration companies struggling to raise their minimum subscription and having
poor aftermarket support upon listing. Certainly, the biggest driver of IPO conditions,
the state of global equity markets, showed only marginal improvement in early 2012,
which is traditionally a stronger time for markets anyway.
Retail investors, so important for small mining floats, do not look like rushing
back to the sharemarket anytime soon, and they need extra encouragement to buy
unproven listed companies at the IPO stage when so many established resource
companies are, arguably, trading below their fair value. And they need strong nerves
given only one in every three resource IPOs last year made investors money.
But beneath the gloom are signs that 2012 could be strong for resource IPOs,
the caveat being that the sharemarket gradually recovers, or at least stabilises. All
bets are off if the European sovereign debt crisis is unresolved, the United States
economic recovery loses momentum, or China’s economy grows less than expected.
some IPo bright spots
There are a lot of ‘ifs’ and no reason to be bullish, but 2012
has plenty of potential for larger mining floats.
2•AustralianResourcesandInvestment•Volume 6Number 1
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