After a short hiatus, junior resource companies are back out rattling the tin, and while most market watchers agree sentiment has again warmed to resource IPOs there is no clear consensus on how long it can last. Jim Hawtin reports.
After a short hiatus, junior resource companies are back out rattling the tin, and while most market watchers agree sentiment has again warmed to resource IPOs there is no clear consensus on how long it can last. Jim Hawtin reports.
As remarkable as the 45 initial public offerings from the resource sector to hit the Australian Stock Exchange in 2003 was, this year is on track to better it.
In calendar 2003, the majority of IPOs flooded the market late in the year as commodities prices soared and investors were sent scrambling.
This year, despite a recent short-felt hiatus has been more consistent.
Already 37 resource stocks have listed on the ASX this year and, of the 30 or more known floats scheduled to list in the next two months, almost half are resource focused.
Analysts and market watchers generally agree that resources are back, albeit in a slightly tougher market than last year.
“From our point of view we are seeing very good demand for the right project, however the market is now very selective in what they are willing to support,” Carmichael Capital Markets manager Tom Loh said.
“Earlier on the market was willing to back just about anything, including very grass-roots projects.
“We are still seeing some of these projects being presented … but they are finding it very difficult to get broker support or even raise their minimum funding requirements.”
Mr Loh said the market currently would support the right project if it had quality management and an attractive pricing structure in most commodities.
More recently there has been a flood of oil and gas stocks looking to float as oil prices soar to near on $US45 a barrel.
However, higher prices for most commodities have been felt in the last year and they have been the principle driver of sentiment in the resources sector.
Driving this has been global growth primarily coming out of China says ABN AMRO Rothschild director Stuart Dettman.
A flood of exploration plays had come to market, he said, capitalising on the very high commodity prices over the past 12 months.
“We are seeing a fair bit of interest in the resources stocks generally, Mr Dettman told WA Business News
“Positive sentiment towards the sector has been a key driver of this.”
Mr Dettman said sentiment really began to improve when the gold price increased in the middle of last year, followed by increases in most commodity prices on the back of improving global economic growth, primarily out of China.
ABN AMRO Rothschild is forecasting China’s GDP to grow at around 8 per cent for the next year, which would bode well for resource stocks, including the juniors.
“It’s more the middle to large size stocks where we are seeing institutional interest. But the smaller ones are definitely attractive to those retail investors that have appetite for the more speculative opportunities offered by the juniors,” Mr Dettman said.
He expects to see positive sentiment continuing to result in resource companies coming to market over the next six months.
Paterson Securities head of research Rob Brierley said the window would remain open for resources stocks over the next three months, at the most.
He said junior resource stocks had resumed their trail to the public market after a short break, albeit at a lesser intensity, but investor appetite appeared to be waning.
“The small floats are generally for the retail investors, the mums and dads, and my view is the mums and dads are reasonably full at the moment,” Mr Brierley said.
He expects commodity prices to remain strong for at least a year if China can manage a soft landing. That time frame would compress, he said, if China continued to “boom away” and the US and Europe didn’t continue to grow.
Hartley’s senior resource analyst Kevin Tomlinson agreed on the three-month time frame, but highlighted the US as a key factor, rather than China.
“It’s is a tough call because the US is the one driving the base metals demand at the moment so I suspect we might have a window for two or three months,” Mr Tomlinson said.
He added that the initial public offerings could start to give way to a period of consolidation in the next six to 12 months, pointing to signs of merger and acquisition activity.
“I think you will find that there are companies out there that are grossly undervalued right now, that are potential takeover targets or merger possibilities,” Mr Tomlinson said.
“For instance, Consolidated Minerals has just taken a position in Austminex [and] there is another bunch of companies that are talking to each other,” he said.
Hampton Hill director Josh Pitt, who has been involved in numerous IPOs during the past 20 years, said the current cycle reminded him of the heady days leading up to the 1987 stock market crash.
But Mr Pitt said today there was more substance among the juniors and demand for new stocks was continuing, particularly into September. Demand also was going to be more selective, he said.
One threatening factor, however, was a dearth of exploration success, which would turn investors away.
“Some of these junior nickel producers have been doing well so there is nice undercurrent,” Mr Pitt said. “What is missing, I think, is a new gold discovery of substance.”
Prospector Mark Creasy, who has been trying to float a large gold and base metals float, Gidgee Resources since last year, is very bullish on the long-term prospects of commodity prices and said non-resource investors “had a mountain of cash that was doing very little”.
But current market conditions appeared very “awkward”.
“There is so much uncertainty with things like oil prices, the US presidential elections the direction of interest rates and I suspect, despite the fundamentals looking brilliant, investors are going to be a little a nervous,” Mr Creasy said.
RESOURCE LISTINGS 2004
Tri Origin Minerals Ltd 9/1
Republic Gold Limited 16/1
Crusader Holdings Ltd 6/2
Liberty Gold NL 10/2
Paramount Mining Corp Ltd 13/2
Sandfire Resources NL 4/3
Planet Gas Ltd 11/3
Great Australian Res Ltd 11/3
Hibernia Gold Ltd 11/3
Oceana Gold Ltd 18/3
Great Western Exp Ltd 19/3
Albidon Ltd 26/3
DiamonEx Ltd 30/3
Zinifex Ltd 5/4
CH4 Gas Ltd 7/4
Polaris Metals NL 16/4
Comet Ridge Ltd 16/4
Gryphon Minerals Ltd 22/4
Rox Resources Ltd 27/4
Ausmet Resources Ltd 30/4
Excel Coal Ltd 3/5
NGM Resources Ltd 3/5
Lefroy Resources Ltd 12/5
Enterprise Energy NL 14/5
Anvil Mining Ltd
