Junior miners fighting for funds in risk averse market

While a number of junior miner IPOs have taken place of late, such as Broken Hill-based Silver City Minerals’ A$9.8m raising and WA-based Australasia Consolidated (now Adept Solutions Limited) A$10m raising, lawyers report that capital raising conditions are becoming increasingly difficult for juniors.

“The IPO market in the exploration space and in general is considerably more lacklustre than it has been in the past few years,” said HopgoodGanim partner Michael Hansel. “This can be attributed to a number of factors but in the main, most people's appetite for risk in the pure IPO exploration space and IPOs in general has tightened up somewhat.” Gadens partner Kym Livesley, who acted on the Silver City Minerals IPO, agrees stating that IPOs have come to a “grinding halt” for junior miners. Even in the resource friendly state of WA, not a large number of IPOs are happening at the moment, according to Will Moncrieff, partner at McKenzie Moncrieff Lawyers. “It’s not that they are not looking for funds, it’s just that there is not as much interest in the market,” said Moncrieff who was involved in the Adept Solutions capital raising.

A number of factors are affecting the segment according to the partners. Firstly, the general state of the world economy and the continued instability in Europe and the US is making investors nervous; secondly, the introduction of the carbon tax and thirdly, although less importantly the proposed mining resources rent tax. “The carbon tax and mineral resources rent tax have created the perfect storm,” said Livesley. “The carbon tax itself doesn’t necessarily apply to the junior mining end; it’s more the general effect it will have on the overall economy.” Moncrieff agrees, adding that many junior miners, while not directly affected, will be concerned about how investors will react. “With the two taxation changes announced some overseas investors will be wondering if Australia is still a stable tax regime,” he added.

However, it’s not all bad news. All three partners said junior gold miners and explorers could expect success in the market as a result of the record price of gold and the fact that gold is considered a “safe option” for investors. Livesley and Moncrieff are also seeing activity in the rare earth and mineral sands space as a result of the large amounts of construction occurring in China. “Investors are still very cautious, but they are still interested where there is a strong project that ticks all the right boxes,” said Livesley. Hansel is also seeing significant activity in the coal space, as a result of demand from the steel industry in China.

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