Fresh from a marketing coup in Australia, representatives of the London Stock Exchange’s Alternative Investment Market (AIM) are wooing Canadian juniors that might benefit from a London listing.
AIM is benefitting from interest generated at the recent convention of the Prospectors & Developers Assoication of Canada and during a Canadian junket late last year, says Charlotte Croswell, manager of North American business development for AIM.
“It’s always promising when you talk to advisors on one trip, and on the next trip they’re actually presenting their clients,” she says between meetings with Vancouver juniors. “It suggests there is real, rather than superficial, demand.”
AIM has a less stringent regulatory regime and much easier listing requirements than the main market of the London Stock Exchange (LSE). Since it’s launch in early 1995, more than 1,000 companies have listed and, in total, raised about US$10 billion.
International recruiting in traditional mining hubs such as Toronto and Vancouver is crucial to AIM’s success, as mining is one of the market’s fastest-growing sectors. Of the 31 mining companies listed on AIM, 15 are based outside the United Kingdom.
So far, most of AIM’s offshore recruiting has focused on Australia. The effort has paid off. Several Australian miners, among them Aquarius Platinum, AuIron Energy, Centamin Egypt, Dwyka Diamonds, Gold Mines of Sardinia, Gympie Gold, Murchison United, New Millennium Resources and Portman Mining, have listed on AIM in order to tap the large pool of European capital available to exploration and mining projects.
Some have been remarkably successful. The market capitalization of Aquarius Platinum, which intends to become the world’s fourth-largest producer of that metal, has increased about tenfold to $450 million since the junior listed in late 1999. Others, such as New Millennium, have failed to attract European investors.
Only two Canadian juniors,
“Their marketing efforts in Australia have been very effective, but they haven’t given that attention to Canada yet,” says Gordon Bogden of Beacon Group Advisors in Toronto. Once they do, the awareness and the understanding of how AIM works will increase.”
But critics say the London junior market is too expensive for most Canadian juniors, and even once they are listed, there is no guarantee they’ll be able to raise significant capital.
“I tell my clients to stay away from it,” says Steve Vaughan, a mining lawyer at McMillan Binch. “It’s prohibitive for what you get.”
What you get is access to European and British capital looking for exposure to international mineral exploration and development. Total listing and initial financing costs range from $500,000 to $1 million, including fees for lawyers, nominated advisors, brokers and accountants. Listing on the TSE or CDNX costs less than half that amount.
The cost can vary even more depending on which nominated advisor oversees the listing, says Matthew Sutcliffe of investment bank Beeson Gregory Group in London. “Some of them will do more due diligence and make more effort on the listing document than others.”
The pricey upfront investment did not buy satisfactory market support for First Quantum, which debuted on AIM one year ago. In March, the junior traded just a few times on miserly volumes while its TSE-listed shares traded daily at volumes of 20,000-400,000.
Still, First Quantum’s dual listing makes sense because the company’s main project is in Africa, a continent better understood by Europeans than by North Americans, and because both the president and vice-president of exploration reside in London, says William Iversen at the company’s Vancouver headquarters.
Dangerous combo
Another reason to approach AIM with caution is the dangerous combination of lax regulations and lack of mining depth in the London brokerage community, say some industry representatives. They worry that the market is another Bre-X waiting to happen.
Although the AIM rules are few indeed, the LSE requires all companies to appoint a nominated advisor, or “nomad,” to sponsor the listing. The onus is on the nomad to ensure the junior’s integrity through due diligence. If the company turns out to be crooked, the nomad loses its LSE status.
But the message coming from both London and Toronto is that unless the junior is committed to growing internationally, it would be better off staying home.
“If you’re a mining company that aspires to an full LSE listing, then the AIM market is a good stepping stone,” says Sutcliffe. “If you’re a small explorer who only wants to raise a couple hundred thousand dollars, it’s inappropriate.”
Lately, the availability of capital on domestic markets has improved, causing AIM to be become less attractive to Canadian juniors. “It is an expensive venture,” states Bogden. “If the capital is flowing here, you should go here first. As you try to build your business, go to AIM.”
Besides, Toronto remains the undisputed capital of mine finance. More than 1,128 mining-related companies are listed on the Toronto Stock Exchange and the Canadian Venture Exchange combined, compared with just 75 on the London markets. In 2001, almost $1.2 billion was raised in the Canadian city for mining, compared with $300 million in London.
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