Gold, copper trends spark optimism after 'washout' 2022 for ASX mining IPOs

Rising gold and copper prices and China's reopening signal a potentially stronger 2023 for Australian metals and mining investments after a washout year for initial public offerings on the Australian Securities Exchange.

The sector's ASX listings in 2022 nearly halved on year, falling to 55 new metals and mining listings that raised a combined A$519.3 million compared with the record-high 104 new listings in 2021 that raised A$1.97 billion, according to an updated analysis of S&P Global Market Intelligence data.

Australia's metals and mining investments were at "the height of exuberance" in 2021, while 2022 was a "washout," said Ben Crossing, Euroz Hartleys' head of corporate finance. "We certainly saw investors pulling away ... last year."

Global metals and mining IPOs fell 29% to 85 listings in 2022 from 119 in 2021, which was "heavily weighed down" by muted IPO activity at the ASX, S&P Global Commodity Insights research analyst Paul Manalo said.

"The cost of borrowing money is definitely higher now [and] may have pushed investors towards a risk-off attitude and [being] more selective in capital raisings," Manalo said. "Companies tend to postpone their IPOs in 'down' years to maximize the valuation of their companies."

Strong gold, copper prices

Crossing pointed to the gold and copper markets as reasons for optimism in 2023. Gold prices climbed 17% from Nov. 3, 2022, to Jan. 13, according to Market Intelligence data. Copper prices have jumped US$800/tonne since Jan. 3 to about US$9,200/t, with $600/t of that move happening over the week to Jan. 17, according to a same-day note from Citi Research.

Western Australian financial advisory Euroz Hartleys sees "a good year for the sector" ahead, given "the underinvestment in the commodities needed for electrification and militarization," senior analyst Trent Barnett told Commodity Insights, as critical minerals like rare earths are used in defense applications and rechargeable batteries, among others.

"Relative to other sectors, major mining equities still did well in 2022, particularly given the economic growth risk," Barnett said. "We continue to be in a turning point out of unprofitable growth stocks and into mining, which is new growth."

Tech crash hits hard

Dirk Treasure, CEO of Chrysos Corp. Ltd., which made the ASX's biggest IPO for 2022, said the U.S. technology sector crash in early May 2022 impacted broader equity markets, including IPOs, for the rest of the year. Chrysos raised A$183.5 million in May after it commercialized new gold assaying technology developed by the Australian government's chief science agency.

"As interest rates started going up and inflation was the talk of the town, some of the big companies lost half their value overnight, and the entire market moved to risk-off in May," Treasure said of the rout that hit between Chrysos closing its IPO bookbuild and listing May 6.

"This had a huge impact on the equity market in general because people were completely reassessing the time value of money when it comes to inflation, and anything growth-related with future income as opposed to immediate profitability got smashed," Treasure said.

Chrysos' IPO was oversubscribed, and its bookbuild was filled mainly by Australian institutional investors, according to Treasure.

KPMG Australia's national mining leader, Nick Harridge, said the 2022 IPO slowdown was a consequence of "a backlog of IPOs [in 2021], with lots of people who had projects looking ... to get their IPO off the ground in 2021 because the sky was falling in during 2020," leaving a smaller batch of companies going public in 2022.

ANZ Research said in a Jan. 19 note that the 2023 investment outlook should be clearer by the second quarter, after China moves through the peak of COVID-19 infections and Beijing's stimulus policies gain traction. "A vigorous demand-led recovery is likely to be clearer from March in China, providing some insurance against the already low probability of a global recession."

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