Prospectors Find Rich Finance Seam In London's MotherlodePublished by MAC on 2004-08-19
Source: Financial Times
By Rebecca Bream, Bernard Simon and Henry Tricks, Financial Times
August 19 2004
When the world's miners go prospecting these days, one of the first places they dig is London.
That may sound odd for a country whose own mining industry has been dwindling for decades. But the City of London has witnessed a boom in mining listings and financings over the past 12 months, and now rivals Toronto as the industry's main source of capital.
Mining's links to London run deep, dating back to the colonial era. In the early 20th century, the City's bankers and investors financed the construction of the South African gold industry - and the sector prospered there until a fallow period in the 1970s.
"The 1990s was the nadir, with only Rio Tinto listed in London," said Michael Coulson, chairman of the Association of Mining Analysts. "But London has retained its place as a centre for the financing of mining projects. Bankers here understand mining, it is in the blood."
According to Dealogic, since 2000 the London equity markets have seen almost €4.5bn (£3bn) in new issues from 53 mining companies - led by Xstrata, which raised €1.35bn last year.
This year, the deal sizes have shrunk - £315m has been raised from 22 share offerings, mostly on Aim, the junior London market. But mining has easily become the biggest sector on Aim in the past two years, with 100 such companies listed.
Things picked up in the late 1990s, when mining groups such as Billiton and Anglo American of South Africa moved their primary listings to London in an attempt to access a wider pool of investors and shake off fears of political risk.
At the time, Brian Gilbertson was head of Billiton, and he was in two minds about whether to list in London or New York. "We found after some inquiry that the London market appeared to be more user-friendly," he told the FT.
"The market was familiar with South African assets, the time zone was friendly, the listing requirements in the US were very complicated and the Companies Act in South Africa was based on that in the UK."
At the other end of the scale, five years ago Canada was still considered the main market for mining entrepreneurs to raise seedcorn capital, despite the damage caused by the C$6bn (£2.5bn) Bre-X scandal in the mid-1990s.
But in 1999 the successful move to London of Aquarius Platinum, which managed to fund its Kroondal mine in the City, having failed to get backing from its native South Africa, introduced the idea of Aim to junior companies.
Many observers agree that London investors are keen on junior miners because of the City's historical links with the sector, and because they are more comfortable with projects in far-flung parts of the world.
"Institutional investors here are a bit more adventurous than they are in Canada and Australia," said Mr Coulson of the AMA.
"Canadian investors are much more myopic than those in the UK," said Stephen Foss of RBC Capital Markets, himself a Canadian. However, he disputes the idea that London has overtaken Toronto as the most important city in the mining business. "London has more fundraisings but they are smaller. There is a constant competition between Toronto and London."
The Toronto Stock Exchange also insists it is holding its ground against London. According to Robert Fabes, senior vice-president, mining companies raised $1.96bn (£1.1bn) in Toronto in the first half of this year, compared with $900m on the Australian exchange and $315m in London, including Aim.
A total of 42 companies have listed on the Toronto exchange and its venture- capital subsidiary so far this year. The biggest was Centerra Gold, which was spun off by Cameco, the Saskatchewan-based uranium producer and raised more than C$200m. Eight of the 42 have market values of more than C$100m.
But much of the trading in Toronto's biggest mining companies, including Barrick Gold, Inco and Alcan, is channelled through New York, where they are also listed.
Egizio Bianchini, managing director for mining finance at Bank of Montreal, says the relative merits of London and Canada differ for integrated base metal groups and precious metal producers. "If you're trying to build a new integrated group like Xstrata or Vedanta, you have to go to Europe to raise money", Mr Bianchini says. "UK investors in general have a better perspective on the African, Asian and eastern European spheres. A lot of the large deposits that those companies own are in those spheres."
On the other hand, he notes that no leading precious metal producer still has its primary listing in London, with trading now concentrated in New York and Toronto.
Mr Gilbertson, who brought Vendanta to the London Stock Market before his controversial move to Russia's Sual Holdings this year, says tougher listing requirements in the UK mean you have to "sit down and have a few glasses of wine" before you decide to list on any big market these days.
He also resents the focus on executive pay in London. Then again, he acknowledges, that's not surprising, given the focus on the huge pay offer that wooed him to Sual.