2 Feb, 2022
ASX metals and mining IPOs hit new record in 2021; inflation fears weigh on 2022
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| Tesla's supercharger network. The proliferation and growth of both electric vehicles and renewable energy is proving to be an overpowering topic driving IPO equity markets, analysts say. |
The number of metals and mining IPOs on the ASX reached its highest in over two decades in 2021, but inflation concerns weigh over whether the momentum will continue in 2022.
Investors pumped A$1.6 billion into 104 metals and mining IPOs in 2021, comprising the bulk of the 187 IPOs across all sectors on the ASX. However, the metals and mining sector's IPO capital raisings were only a fraction of the total A$10.8 billion raised on the bourse.
While the metals and mining IPOs more than quadrupled from 24 in 2020, the total IPO capital offered in the sector was less than in 2018, when Coronado Global Resources Inc.'s A$774 million IPO inflated the metals and mining total to A$1.94 billion, according to S&P Global Market Intelligence data.
Before 2018, the sector booked its largest IPO capital offered and the most IPOs in 2007 — just before the financial crisis — when A$2.93 billion was offered for 88 listings.
The ASX also recorded A$10.93 billion in follow-on capital for metals and mining, the most since at least 2000. Only 2009 came close, when there was a considerable consolidation of smaller players and a number of distressed assets being sold, according to a 2009 PricewaterhouseCoopers report.
"The natural number one driver of metals and mining IPOs is commodity prices," Katana Asset Management co-founder and portfolio manager Romano Sala Tenna said in an interview.
Sala Tenna pointed to record tin, iron ore and copper prices in 2021, the lithium carbonate CIF Asia price's 44-month high in November and nickel's strong performance leading up to its 11-year high in January 2022.
The trend was also evident in the S&P Goldman Sachs Commodity Index in 2021, when the commodity index reached levels not seen since 2014, according to Market Intelligence data.
The index tracks futures contracts for 24 raw materials across energy, industrial and precious metals, agricultural and livestock sectors.
Even gold, having come off its 2020 record high, managed to average US$1,800 per ounce in 2021, which is still a very good price for companies Down Under to operate in, Sala Tenna said. October 2021 also marked a record high for Australian projects reporting drilling in 2021, according to Market Intelligence's Metals and Mining Research.
While inflation hit multidecade highs in 2021, battery metals acted "outside of the inflation fears," Canaccord Genuity mining analyst Paul Howard said in an interview, which was reflected in the proliferation of such IPOs.
Battery metals prices hitting record highs in 2021 means "people are not thinking of the current economic situation, but rather about wanting to secure projects now for future [electric vehicle and renewable energy] demand out to 2035," Howard said.
The eagerness to secure the project pipeline to feed future battery metals demand, and the dearth of quality copper and nickel projects around, is also reflected in the proactive acquisition moves by BHP Group Ltd., Wyloo Metals Pty. Ltd. and IGO Ltd., Howard said.
The road ahead
The elevated success rate of the "steady production line" of IPOs since 2020 tends to whet investors' appetites for the next offering, said Gavin Wendt, founding director and senior resource analyst at financial services firm MineLife.
However, the "market exuberance" of 2021 metals and mining IPOs could make investors more cautious going forward, Wendt said. "Perhaps the circumstances at the beginning of 2022 might tend to indicate that we're at the start of a slowing down in IPOs."
Wendt referred to the S&P 500 posting its worst month in January since March 2020, after U.S. Federal Reserve Chair Jerome Powell indicated Jan. 26 that the central bank would begin raising interest rates by March, with no indication that the hikes would be gradual.
The high number of IPOs has also diluted the talent pool for executives in a market already desperately short on staff, as middle managers have left the bigger miners to run new explorers, Howard said.
There will be "less of an appetite for IPO now, after the whole raft of them last year," Howard said, adding that investors might already be feeling tired from assessing so many of them.
Whether 2022 will be a worse year for metals and mining IPOs is a difficult one to call. The mining sector is expected to do well in the longer term as renewables and electric vehicles come into the forefront, Wendt said.
However, the current correction is inevitable, Sala Tenna said. "We need to see some of the hype and largesse taken out of the system."