London Calling asks: who's taking AIM - and why has no-one been fired?
The London Stock Exchange's Alternative Investment Market (AIM), set up in 1995, has provided a highly significant boost to London's emerging role as the global centre for mining-related finance.
Companies listed on AIM have contributed measurably to the number of abuses committed, or threatened, against mining-impacted communities and the environment over the last few years. We only have to think of Monterrico Metals (Peru) or Asia-Energy-GCM Resources (Bangladesh) among others.
Go to the LSE's website and you'll still find the boast that AIM is "the largest growth market in the world". Hasn't anyone yet told them that this assertion is grotesquely outdated - and by several months?
Until 2007, mining companies comprised the single most successful sector on AIM. But, according to a new report from Ernst & Young, by the fourth quarter of 2008 stock prices for almost half these mining companies had fallen by over 80%.
Of course such a downfall was inevitable, given the spectacular collapse in commodity prices - with the exception of gold which has proved to be the most buoyant of all traded commodities in past weeks. Ernst & Young claims that some companies are now intending to cancel trading on AIM altogether - while retaining a primary listing elsewhere. It says that the costs of listing on AIM, its supposed "regulatory burden", and the difficulty of raising capital "far outweigh the benefits of maintaining a listing on AIM in the current market conditions".
We shouldn't, however, interpret this as meaning that requirements for listing on AIM' - whether primary or secondary - are now more stringent than they were two years ago. (The significant innovation is that all companies must now appoint a NOMAD, or Nominated Advisor, to oversee their capital raising).
What can be reasonably assumed is that Canada's venture capital exchanges (and to a lesser extent those in Australia and South Africa) will take up any "slack". The Canadian government's "flow through shares" facility enables junior mining companies to benefit from a virtually risk-free, taxpayer-funded, arrangement whereby they can embark on exploration and recoup their losses. At least we don't have that perfidy in the UK - yet.
Nor should we be at all sanguine that the potentially damaging projects embraced by these failing miners are dead in the water. Ernst & Young note recent interest by private equity firms (such as London's Pallinghurst Resources) in acquiring "distressed" mining assets - though whether this is to strip them, salt them away for the future, or short the stock (effectively acting as a hedge fund) isn't clear.
Heavy fire - but noone shot
It's appropriate - if coincidental - that this report should be published just as the recent operations of the UK government's Financial Services Authority (FSA) have come under heavy fire from the head of the FSA himself, Lord Turner.
The FSA was set up to regulate financial markets, under New Labour prime minister, Tony Bliar, with the full backing of his then-chancller of the exchequer Gordon Brown.
Although aimed primarily at detecting "risks" posed by financial services' firms, the FSA is also supposed to develop and "supervise" rules for the listing of companies on the London Stock Exchange, and therefore AIM.
Last week's furore was sparked by Turner's claim that Bliar and Brown deliberately allowed the FSA to exercise a "light" touch on banks, thus inevitably contributing to the unprecedented present disaster whereby formerly respected financial institutions went to the wall, and UK taxpayers have been dragged by the exchequer to bail them out.
How far the FSA's abdication of oversight extended to non-financial services' companies remains to be seen. What we do know, however, is that an extraordinary number of dubious (if not actively corrupt) mining outfits have passed muster with the LSE since the year 2000.
For instance, how could anyone remotely concerned about secure financial provenance and good corporate governance have allowed Vedanta Resources to list on the main London stock exchange in December 2003 (a move which one financial journalist at the time declared happened only because of a "private word" in a good many ears)?
Just last month, police in Orissa started investigating allegations that the company corruptly mis-spent a loan provided by India's biggest commercial bank, ICICI.-And, a few days later, a non-executive director of Vedanta, SK Timotai, was sentenced to three years in jail for having a bunch of unexplainedbank notes under his bed.
Now we're being told - or may reasonably assume - that New Labour's obscene rush to attract foreign businesses and banks to Britain lies at the heart of the malaise which is affecting almost every child, woman and man in the country.
If UK citizens really want to plumb the depths of the process by which this happened, they could do worse than demand full disclosure of how a brace of resource extraction companies was allowed to fly so high, and bring many people so low, within such a short space of time.
They could start with the Russian mining oligarchs who've made London their tax-free home, while visiting significant pollution on their home country and gaining ready backing from British banks.
All this was done with solid support from those two big B's - Bliar and Brown - who, so far, remain virtually unscathed, and go unpunished for their hubris.
Sources: Ernest & Young report: "Private equity bids emerge for junior miners as AIM listings struggle", Mineweb 25/2/09; " Gordon Brown helped fuel banking crisis - FSA head Chairman of the FSA Lord Turner", Daily Telegraph, 26/2/09; Corruption charge against Vedanta: Times of India, 28/2/09;Jail for Timotia, Times of India, 27/2/09.
[London Calling is published by Nostromo Research, London. Views expressed in this column do not necessarily represent those of any other individual or group, including the editors of this website. Reproduction is welcomed, provided full acknowledgment is given to Nosromo Research and to any sources quoted.]-