Local juniors look to foreign fields

Dual listings on foreign exchanges by Western Australian-based juniors with an international focus are increasing in popularity, according to a recent Geoscience Australia report.

The report, to the Federal Government’s Minerals Exploration Action Agenda (MEAA) Finance Strategy Implementation Group, found that initial public offerings on the Australian Stock Exchange and private placements remain the dominant source of capital for explorers, with capital raisings averaging $300 million a year between 2002 and 2004.

But the trend towards dual listing on overseas exchanges is typified by recent growth in dual listings by WA miners on the Alternative Investment Market (AIM) of the London Stock Exchange, and more recently the Toronto Stock Exchange (TSX).

AIM has become a focal point for investors wishing to take on higher risk, similar to the Pink Sheets market in the US, while the recent popularity of Toronto as an overseas exchange is widely related to the tax treatment of high-risk investments in Canada.

Hartleys resources analyst Jonathan Battershill said the choice of Toronto over other exchanges could come down to the availability of a flow-through shares scheme, allowing investors to write-off investments in high-risk mineral exploration against income.

“The Australian market is not very sophisticated when it comes to taking on foreign risk,” he said.

However, Mr Battershill said the nomads, or nominated advisers, who warrant the appropriateness of companies to the AIM exchange, were known to “charge like a wounded bull when it comes to fees”.

“If you’re a managing director you’ve got to start to weigh up the costs against the potentially cheaper capital,” he said.

While representatives from local companies spoken to by WA Business News say the overseas attraction relates to foreign investors’ familiarity with their overseas operations, the often strict regulatory requirements take a bit of getting used to.

In Australia, the juniors make up more than 70 per cent of companies engaged in mineral exploration in Australia, contributing on average between 30 and 40 per cent of exploration expenditure, according to Geoscience Australia.

Junior companies also dominate capital raising for mineral exploration, comprising 80 to 90 per cent of the total raised in Australia, the report says.

Uranium-focused Paladin Resources, its share price rising from 1 cent to more than $1.10 in the past two years on the back of its plan to develop the Langer Heinrich uranium deposit in Namibia, raised about $C361 million on the TSX in April. This amounts to approximately 30 per cent of the equity in the company, according to managing director John Borshoff.

Trading in the stock has been relatively strong in Toronto, he said, particularly since the company had not listed on the exchange before.

Mr Borshoff said the reasons for listing in Canada over Europe were related to opinions on uranium.

“The North American market is much more attuned to uranium,” he said.

The reporting requirements were much more stringent than the Australian Stock Exchange in terms of frequency, but Mr Borshoff said this was largely the result of corporate scandals in the late 1990s, such as that surrounding Canadian gold miner Bre-X. At one stage the explorer was worth $US5 billion, but it became worthless overnight after revelations it had incorrectly estimated ore reserves at its Busang deposit in Indonesia.

“They are still reeling over there from Bre-X,” Mr Borshoff said.

Central Asia Gold, with operations in Kyrgyzstan, is another to list on the Canadian exchange, having been admitted in February.

Central Asia’s chief financial officer, Justine Magee, said that while shares had traded quite thinly in Toronto, the listing was popular with North American investors familiar with the miner’s operations.

“We found that investors there had an affinity with our operations, and we wanted to capitalise on that,” Ms Magee said.

But the regulatory conditions are much more stringent, she said. “When it comes down to it, it’s just a more complicated framework in terms of regulation.”

In July last year, Eurogold used AIM to raise £2.4 million, about 85 per cent of equity on issue. Chairman Peter Gunzberg said the motivation behind the dual listing was that the European market was more receptive to the company’s operations in Romania and the Ukraine.

Mr Gunzberg said the regulatory requirements on AIM were not a significant issue for Eurogold.

“I think they’re on a par with Australian regulations,” he said, adding that the cost of listing on AIM was not a significant issue.