ASX metals and mining IPO capital raisings had their best year for over a decade, defying commodities' broader volatility which is expected to make life tough for another year. However, one analyst believes there are too many mining stocks and more mergers are needed.
The ASX confirmed to S&P Global Market Intelligence that metals and mining IPOs rose slightly to 34 in 2018, while financial data and technology firm Refinitiv's data as reported in The Australian — which excludes deals where no adviser is listed — showing that the exchange's 65 listings overall in 2018 were its lowest since 2013.
According to Refinitiv, 2018 ASX IPOs overall amounted to US$5.4 billion, up from 2017's US$3.7 billion. According to the ASX, nearly A$1.4 billion was raised in metals and mining IPOs in 2018, turbocharged by Nickel Mines Ltd.'s A$200 million float in in August 2018 and Jupiter Mines Ltd.'s A$240 million listing.
That total figure is a substantial increase from A$183 million in 2017 when there were 31 floats, and even back in 2007 when there was just A$876 million raised in 126 floats.
The ASX's head of listings and issuer services Eddie Grieve told S&P Global Market Intelligence that the exchange has had the bulk of money raised in metals and mining IPOs and follow-on raisings more recently compared to London and Toronto.
"We have seen, albeit at a fairly low level, an increase in the number of inquiries not only domestically but internationally, with Canadian companies interested in listing here and from other parts of the world in the mining sector," he said, adding that it could be partly explained by anecdotal evidence of capital going to cannabis instead in North America.
More mergers needed, not IPOs
Resources intelligence firm MineLife founding director Gavin Wendt said there should be more consolidation as markets are still skittish after positive commodity and equity price movements during the first half of 2018 were cancelled out by trade uncertainty tensions between China and the U.S.
He told S&P Global Market Intelligence that there are already dozens of ASX resource stocks across commodities with a cash balance of less than A$1 million that are "just hanging on."
Given that reality, he is surprised that IPOs on the ASX have risen when "I didn't think the quality of projects out there justified the 800 [ASX-listed mining] companies that we've already got." However, he said the ASX has made it harder for backdoor listings whereby directors put new projects into shells, making traditional IPOs more attractive.
Lion Selection Group fund manager Hedley Widdup told S&P Global Market Intelligence that the market as a whole has taken a "turn for the worse and become quite risk averse.
"You'd want to see a fairly unambiguously buoyant market before you launched that process for [a cash flow producing business] and even test the water," he said.
Yet small explorers can still "fly so much under the radar that you might still launch [them] into a market which is only lukewarm."
Bernstein revealed Jan. 3 in its Metals and Mining Outlook that consensus expects a worse 2019 than 2018, with flat expectations for copper and aluminium and lower prices for major industrial commodities on a year-average basis, apart from nickel, for which the consensus expectation is 5% higher prices against the 2018 average.
"Given the recent commodity price rout, however, this does mean that for some commodities, notably nickel, aluminium and copper, consensus does expect a recovery in 2019 from the price levels seen towards the end of 2018," Bernstein said.
The firm said consensus expects a 2019 average price of US$62 per tonne for iron ore against US$66/t in 2018, US$6,559/t for copper against US$6,527/t, US$2,656/t for zinc against US$2,920/t, US$13,915/t for nickel against US$13,115/t, and US$2,127/t for aluminum against US$2,109/t.
Hope amid the darkness
This varies somewhat from what S&P Global Market Intelligence revealed Dec. 13, 2018, that "expectations for nearly all metals are for a meaningful price recovery [in 2019] from the depressed price levels seen in the second half [of 2018]."
Financial services firm Patersons Securities' resources analyst Xavier Braud told S&P Global Market Intelligence that sentiment drives IPOs, and this sentiment will remain negative until global concerns like trade wars, China's economic growth and the U.S. federal government shutdown are cleared up.
However, he believes the market will eventually see the strong fundamentals that still underpin commodities demand.
"Both the world's population and the level of development are growing, so we know the tonnage of commodities needed is increasing," he said. "The way it's going right now everybody's hesitant. There are a few IPOs in the pipeline that are waiting to go, just waiting for better market conditions, and that includes pretty much every commodity."