Wolf packs a punch on the boards

Delivering big returns for investors was made to look easy this year by tungsten developer, Wolf Minerals.

After a six-month suspension from trade, Wolf’s shares returned to the boards in late 2007, up more than 100 per cent, after Wolf negotiated the purchase of a UK-based tungsten project, which could make it the largest tungsten producer outside of China within three years.

Those investors lucky enough to get on board Wolf’s 20 cents/share float in February ended the year with a return of 975 per cent, making them the biggest winners of the 130 WA companies that floated during 2007.

Wolf investors include Australian Heritage Group’s Tony Barton, whose $100,000 investment in the tungsten play is now worth more than $1 million.

But the tearaway success enjoyed by Wolf Minerals, Centaurus Resources (up 712 per cent), and RMA Energy (up 620 per cent) did not apply to all IPOs.

Only 51 per cent of WA companies that made their market debut last year actually returned money for investors, down from about 64 per cent of the 2006 floats.

And it also became more difficult for punters to double their money in 2007, with less than 15 per cent of new floats delivering a return of more than 100 per cent.

But last year was a record in terms of size.

In total, 130 WA companies listed on the Australian Securities Exchange, eclipsing 2006’s 99 floats.

Yet the amount of cash raised last year was substantially less, with $1.45 billion raised compared with $2.3 billion collected from investors in 2006, a figure largely boosted by the $944 million float of Emeco Holdings.

However, last year’s performance was about $500 million more than the $1.1 billion raised in 2005.

When the share market was in full swing, investors could throw money at just about anything and enjoy the ride to riches.

But the tide is turning.

The warning signs came early in 2007, when analysts told WA Business News that investors would need to be more careful because, as Patersons Securities executive chairman Michael Manford put it: “The market will become more selective about what it will and what it won’t support”.

Of the 130 WA floats last year, 43 per cent left investors nursing losses, while a handful broke even.

Bell Potter Securities state manager Marc Lincoln said the performance of WA initial public offerings last year reflected some players’ determination to make money while they could.

“It reflects the amount of companies that are trying to capitalise on the environment rather than being genuinely ready to list,” Mr Lincoln said.

Many brokers also say they will become increasingly selective of the floats they choose to support this year, with many investors likely to be reluctant about jumping in so readily next time.

“I can’t see there being as many floats as last year,” Mr Lincoln said. “I think people are wising up a bit and realise that it is not as easy now.”

He added that while the credit crunch triggered by the US sub-prime mortgage crisis had minimal impact on WA resources groups – which made up the bulk of WA floats last year – it had affected investor sentiment.

“Twelve months ago, risk had gone out the window, but people now realise that something can come out of left field and ruin the day,” Mr Lincoln said.

Indian Ocean Capital director Gary Castledine said his firm was “turning away a deal a day”, and predicted that the market would become increasingly choosy about the new offers it would support this year.

“People have been raising money for anything going,” he said.

Mr Castledine said his firm had been very selective through 2007, including backing the $12 million Vector Resources float, which was one of the top 20 performing stocks last year, delivering an 85 per cent return.

But this year, Mr Castledine said, his firm would become even more selective and would seek out investments closer to production.

Meanwhile, Wolf Minerals managing director Humphrey Hale will spend the first half of the year proving up the Hemerdon Tungsten project near Plymouth, on which Wolf expects to spend about $100 million developing.

Despite investors making about 10 times their money, Mr Hale believes the share price still needs to rise to better reflect the value of the project it has acquired.

He said the 15-year project contains seven million metric tonne units of tungsten.

Based on the current price of about $US250/mtu, the project could deliver the company revenue of about $1.7 billion.

Over the next three months, Mr Hale said, the company would work to gain JORC compliance for its resources.

Other big winners from Wolf are its co-founders Adrian Byass and Jonathon Downes, who are also involved with Ironbark Gold and Graynic Metals.

Wolf Minerals was one of many mining groups to hit the boards last year, with raising for non-resources companies slowing.

PricewaterhouseCoopers corporate finance partner Angel Barrio said that, relative to the rest of the nation, non-resources activity was dropping.

He said IPO activity in WA accounted for about 21 per cent of non-resource related Australian float activity, compared with 29 per cent during the equivalent period in 2006.

Mr Barrio said growth in the number of relatively smaller sized floats had slowed.

“The lack of growth in small to mid cap WA floats during a boom time suggests that these companies must be finding alternative funding sources or exit strategies,” he said.

“I’m not surprised to see a lack of companies of this size listing in WA given the increasingly high demand for them by both national companies looking for a WA presence and private equity groups looking to invest in the WA economy.

“Certainly our experience, of more and more companies requesting us to explore transactions of this nature before considering an IPO, is consistent with this.”