Times of Chaos – an opportunity for mining companies to raise finance?
The unleashing of COVID-19 on the world has brought about a catastrophe comparable in scale to the biblical plagues. Its far-reaching economic consequences are already evident. The International Monetary Fund most recent World Economic Outlook Report, suggests that as a direct result of COVID, the global economy will shrink by 3.0 percent in 2020. The impact on financial markets has been even more dramatic with equity markets in many economies falling by as much as 30 percent. Debt markets have also been hit.
The World Bank’s Commodity Market Outlook Report, shows prices for metals and minerals fell by 4.7 percent in the first quarter of 2020. The one bright spot is the precious metals which increased by 5.4 percent mainly because of the contribution of gold which has edged up 14.9 percent.
Although the scale of the current economic chaos is evident, it is less clear how long it will last and, when it goes, how quick the recovery will be. Under the IMF’s base case scenario, the global economy will rebound by 5.8 percent in 2021, reversing virtually the whole of the hit taken in 2020. However, the IMF indicates that there is significant downside risk and that global growth could remain negative during 2021 and beyond.
President Kennedy once said, “In a crisis, be aware of the danger – but recognise the opportunity.” This is a sentiment that true entrepreneurs will embrace.
So, where are the opportunities for the mining sector in the current crisis?
As during the 2008-09 financial crisis, central bankers will ensure there is a sustained supply of cheap money until the danger of inflation is greater than the fear of economic collapse. That is a long way off. As a result, for the foreseeable future, we can expect low returns on debt and with that a pool of adventurous money looking for solid opportunities in equities. At the same time there is likely to be a general shortage of projects coming to market. As soon as prices start to recover, miners will be able to take advantage of this set of circumstances.
In the precious metals sector, in particular gold, prices are already at levels which may justify going to market in the relatively near future. The rest of the mining sector must weather the current contraction in demand and wait for the return to previous levels that will eventually come. When it does imbalances in supply and demand will in all probability create spikes in the market that will create one off opportunities for mining companies with a convincing story to tell. Whether the time comes sooner or later, acting quickly will be the key to capitalising on the opportunity. Doing so relies on preparation in advance.
One of the first decisions a company contemplating a listing must make is where to list. Today there are literally hundreds of possible choices. Decisions must be tailored to your circumstances and consider capital requirements, regulations, geography, and costs. However, it is likely that one of a handful of exchanges specialising in the sector will be the best choice for miners. These exchanges include London, Toronto, Hong Kong, Johannesburg, and the Australian Securities Exchange.
Once an exchange has been selected, it will be possible to start preparations in earnest. This will include an assessment of and, where necessary, action to improve corporate structure, corporate governance, and systems of control. Historical and prospective financial information will have to be prepared and steps taken to appoint the advisers needed during the admission process. Other preparations for due diligence will include a review of legal documentation and obtaining suitable independent geological evidence to support reserves.
With lead times for all of this that can be anything from 4 to 18 months. The time to start preparing is now.
Moore Global has considerable experience of working with companies preparing for and going through the IPO process. Amongst the resources we can deploy to assist you is a tool designed to assess a company’s readiness for IPO. If you are considering an IPO, do not hesitate to contact us.