Preparing for a resource IPO
Written on the 5 March 2010
Recent market movements suggest that the equities market is being sold down. While there are multiple factors at play, this is due in part to proposed changes to the banking industry in the US. When the market comes to the conclusion that this proposal is unlikely to make it through the US Congress it is expected that confidence will return to the market and we will IPO activity reach predicted levels for the first quarter of 2010.
Despite some volatility in the prices for base and precious metals, resource companies appear to be leading the charge for early 2010 listings. Last year resources stocks were buoyed by both direct demand from China and the appetite of Chinese investors to take equity stakes in resource companies, particularly where there was the possibility to also firm up a share in future off-take.
While China’s central bank has tightened policy to stem growth and prevent the swell of asset bubbles, forecast urbanisation rates for China and other Asian countries will continue to push demand in the longer term.
There is also plenty of interest from other quarters, with South Korea gearing up for significant investment in overseas energy and resource assets during 2010.
Resource companies with positive exploration results and production capabilities that are looking to tap the equities market should commence preparations now to ensure they are IPO-ready once confidence returns to the market. Some tips for resource companies to ensure that their IPO runs smoothly and on time are set out below.
The listing process is, in many respects, similar for most entities. However, aside from the usual activities that all companies need to undertake to prepare for an IPO (corporate housekeeping, liaising with ASX, due diligence, prospectus, valuations and road shows), there are a number of specific matters that resource companies should consider when embarking on their IPO journey.
Structuring the board to add maximum value to the business will be integral to the success of an IPO, with the board often finding itself under the spot light during their listing debut. Investors will not only look for the necessary skill sets to ensure that exploration or mining operations run smoothly, but will value directors with a proven track record in corporate deal making, equity raising, investor relations and taking companies from exploration into production.
Of equal importance is the selection of a listing team that has appropriate expertise and contacts to guide you through the listing process. A good business adviser will introduce you to a network of contacts with proven experience to complete the support group you will need.
House keeping aside, the company must also have a well thought-out plan for the future. For resource juniors, evidence of preliminary negotiations or the presence of existing arrangements with joint venture partners and the creation of strong alliances with strategic or cornerstone investors will ensure that investors have confidence in your ability to fund and carry out your plans. For more senior players, negotiations or arrangements with off-take partners, joint venture partners, skilled personnel to build mine infrastructure, government departments and experienced personnel who can take the business to the next level will help to demonstrate to the market that the company has the ability to access the skills and facilities necessary to turn the company’s projects into a producing venture.
With these things in place, or a solid plan to demonstrate how you’ll get there, you are ready to talk to your business advisers about getting the process started.