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Junior miners favor ASX

The ASX has certainly been the most active this year for mining IPOs compared to the other major exchanges globally, largely due to a lift in market sentiment but also the sector's preference for the Australian bourse.

Tim Biggs, U.K. sector leader for metals & mining at Deloitte's Energy & Resources division, told S&P Global Market Intelligence that the ASX is often the first preference for mining companies.

"This is helped by the fact that almost all the miners on the ASX have operations in Australia," he said. "Additionally, these juniors, on their home turf, are often more entrepreneurial and indeed speculative, so more likely to make a move into the public company arena at an earlier stage in the cycle, or indeed, to bet against the cycle."

This year there have been eight successful IPOs and listings on the ASX compared to two in 2015, according to SNL Metals & Mining data. There were also several attempts by juniors to get onto the bourse prior to the Christmas break, but due to a backlog of listings and queries raised over some of the prospectuses, a number of these were forced to delay their planned debut until early in 2017.

There are a further 16 companies that were either due to list in the week leading up to Christmas or aiming for an early 2017 listing.

By comparison, according to SNL data, there was just one listing this year on the Shanghai Stock Exchange, but none on the main boards of the Hong Kong Stock Exchange, LSE, NYSE or TSX. In the U.K., however, there were two resource-related listings on the AIM market and one on the International Main Market.

"In contrast, the U.K. has no, or almost no, domestic mining industry," Biggs said. "The miners listed in London have operations overseas and are seeking to tap into London's standing as a hub for global mining finance."

"Consequently, London is often the 'second exchange' for companies listed elsewhere that have been successful in their early stages and are now looking to move to the deeper pool of capital available here."

MinEx Consulting Managing Director Richard Schodde told S&P that there has been a "re-awakening" in IPOs, indicating the resources sector may be past the worst. "It is noted that most of the IPOs are for gold, as the gold price has run up in the last year," he said.

Deloitte's Biggs agrees signs of improvement have emerged, with some commodities seeing a significant uptick.

Since the start of 2016, iron ore has risen from a low of just under US$40 per tonne to nearly US$80 per tonne, while metallurgical coal cracked the US$300-a-tonne mark for the first time in five years.

"The direction of commodity prices has diverged, with some bottomed out, some showing slow increases, and some moving up significantly," Biggs said. "It is therefore not surprising that there has been more positive sentiment around mining stocks. The majors have led the way, with two of them particularly showing very strong share price growth this year."

However, there are some concerns over the quality of the assets being floated.

"Anecdotal evidence from the various brokers and professional investors is that in many cases the asset underpinning the float is fairly mediocre," MinEx's Schodde said.

"This is of concern for the longer term. In Australia's case, there simply haven't been any good/high quality discoveries made in recent years and as such, the IPOs are based on recycled projects which didn't make it in the last boom."

Meanwhile, the general consensus is that IPO activity globally will continue to pick up in 2017.

Patersons Securities head of research Rob Brierley told S&P that markets have been surprisingly buoyant.

"Bond yields are ticking up," he said. "A year ago property trusts and utilities and anything that was interest rate sensitive was doing really well. Now they're in the doghouse and the cyclical stocks of resources and things like that are the ones that are doing better."

Biggs, however, said any pickup in activity next year will depend on whether there is continued improvement in commodity prices, an absence of further uncertainty in the broader capital markets, and the quality of assets available to be floated.

"There have been a number of funds established with the specific aim of purchasing either whole mining companies or mining assets, and most have failed to find what they would see as quality assets at the right price," he noted.

"The same applies with IPOs – in addition to market conditions and the market's view of the commodity cycle, successful IPOs require attractive assets that investors, and particularly institutional investors, will be happy to back."

SNL Metals & Mining is an offering of S&P Global Market Intelligence.