Jump to Search Jump to Navigation Jump to Content

Can the Initial Public Offering (IPO) model fund effective minerals exploration in Australia?

Perth, Australia

2012 recorded the some of the lowest numbers of ASX listings and amounts of Australian IPO capital raised in recent years. Although performance was on average positive and IPOs have been shown to outperform the mining sector as a whole in recent years, these positive notes disguise potential problems in the equity funding of minerals exploration in Australia.

An analysis of trends in the 2012 IPOs dataset shows few well performing and viable ideas, with the best (and perhaps only) performing subset being gold exploration in Western Australia. Levels of exploration and IPO performance for key Australian minerals markets, such as iron ore, coal and base metals is weak; whilst there also seems at present to be little interest in longer term potential growth markets, such as uranium, fertiliser commodities and a variety of esoteric* metals and minerals markets, suggesting longer term problems in the industry may be accumulating.

Most offshore focused IPOs in 2012 struggled, raising questions as to how technical and non-technical risk is assessed by early-stage resources companies. Exploration within Australia followed the gold concentrating on the Western Australian and Victorian gold fields. Several Australian states are seeing virtually no new exploration activity funded by minerals IPOs.

There was also a material reduction in both the amount of capital raised in total and the size of individual IPOs, which have now fallen below 2001-2006 (pre-boom) levels. Although the minerals IPO sector is almost certain to pick up in 2013, without a substantial increase in overall funding, average capital raising and a much wider variety of geographic and commodity focus the whole concept of IPOs as an effective and efficient market mechanism to fund grassroots minerals exploration is open to question.

This research project aims to update previous CET studies into the Australian minerals IPO sector, which covered the period 2001 to 2006. The research will draw from a 2012 CET white paper and 2011 CET Quarterly paper to cover the period 2007-2012 and analyse how Australian minerals IPOs have changed, what the implications are for domestic exploration funding and what recommendations can be made to industry and regulators to improve the funding of minerals exploration in Australia.