The AIM – Attractions & Detractions
The Alternative Investment Market (AIM), bears quite a few likenesses to the Toronto Venture Exchange but never, even its golden days managed to be more than merely a shadow of its Vancouver doppelganger. I shall do a review of the markets and its attractions as a place for miners to have either their primary or a secondary listing.
The AIM has run hot and cold over the years and was the subject of urban myths, in North America in particular. It was common to hear it described as a graveyard in New York and Canadian financial circles. However, with Canadian mining markets resembling a World War One battlefield these days it worth revisiting the AIM to see if it is worth companies heading there to capture the imagination of a different group of investors.
The London Stock Exchange in recent memory used to have scores of companies with market capitalisations of less than GBP 10 mn. Many were hangovers from previous eras or formerly large companies down on their luck. In the 1980s the Unlisted Securities Market (USM) was invented to be a NASDAQ-like generator of new small cap stories. It had a variable history but was not as bad as many painted it. It gave birth to a number of oil & gas stocks and tech stories that went on to greater glory. The USM was never much of a haven for mining stories. It was eventually retired and replaced in 1995 with the AIM and was given the added impetus of having smaller listings almost exclusively pushed its way and not going to the LSE’s main listing.
Some 3,000 companies have listed since its beginnings though many are now gone to greater or lesser fates. As at the end of 2012 there were 145 miners listed with a combined market cap of US$11.8bn. There were 15 new mining listings in 2012, not exactly a vintage year anywhere. It is worth noting that the LSE (with its multi-listed entities) had 40 listed stocks in the same period (with only two IPOs) and yet with a collective market cap of $420bn, just a tad ahead of the TSX/TSXV total of CAD$400.4bn and behind the ASX’s US$440bn.
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The Self-Appointed Gatekeepers
One of the most odious aspects of the AIM is that it entrenches compulsory intermediaries through which corporates must interact with the Exchange and the investing public. This is a carry-over from the long London tradition of companies having a “broker” who carried out this function. This made sense as an institutionalized “shakedown” when brokers owned the Exchange but with demutualization this pin-striped extortion should have been relegated to the ashcan of history.
There was considerable error in the interpretation by both insiders and outsiders of what the officially appointed broker go-betweens (NOMAD – short for Nominated Advisor), were supposed to do. Some saw them as being market-makers while some viewed them as promoters for the fledgling stock. In reality the role is more akin to a cross between go-between with the Exchange and Father Confessor to the company’s management.
The process of listing is straightforward and some Canadian miners have made the jump but more Australians have been tempted by the idea of cross-listing. According to a report by Baker & McKenzie (published in 2012) of the 83 ASX-listed companies with dual listings, there were 9 with AIM listings (compared to 27 on the OTCQX and 26 on the TSX). So neither is the number all that overwhelmingly either.
The conditions for listing are clearly not onerous, they are:
Share price. There is no minimum closing or offering price for shares to be listed.
Distribution. There is no requirement to have a minimum public float at the time of admission or from time to time after admission.
Accounting standards and reports. Financial statements generally must be prepared in accordance with International Financial Reporting Standards. AIM companies are required to produce annual audited accounts and half-yearly financial reports.
Financial statements. The admission document must generally include audited accounts for the last three financial years (or less if the company has been in existence for less than three years) and an audit report in respect of each year.
Market capitalization. There are no minimum size or market capitalization requirements for resources companies. All companies must have sufficient working capital for their present requirements (at least 12 months from the date of admission of the shares).
Operating history. There are no requirements to demonstrate any length of operating history.
Management continuity. No specific period of continuity of management is required.
Corporate governance. There are no corporate governance requirements that a foreign company must meet for its securities to be admitted to trading on AIM, save declaring the extent of its compliance with its country of incorporation’s corporate governance regime in its Admission Document. However, it would certainly help companies for them to be seen to comply with the principles of the UK Corporate Governance Code.
Nomads. All companies applying for admission to AIM must appoint and retain a nominated adviser at all times. Nomads are corporate finance firms, accountants or brokers that are approved by the LSE.
Brokers. A company must also appoint and retain an AIM broker at all times. This broker may be the same entity as the Nomad and is responsible for facilitating dealings in the company’s shares.
Minimum holders or trading price. There is no requirement for foreign companies to have or maintain
a minimum number of security holders or a minimum trading price.
Lock-in. The AIM Rules provide that “where an applicant’s main activity is a business which has not been independent and earning revenue for at least two years, it must ensure that all related parties and applicable employees as at the date of admission agree not to dispose of any interest in its securities for one year from the admission of its securities.
Currency settlement. There are no restrictions on the currency denomination of securities. There is no requirement for securities to be settled within a particular clearing system or registered with a particular share transfer agent. However, all shares (or AIM depositary interests in the case of Australian companies) must be capable of electronic settlement.
Cost is the most important issue for struggling miners these days and the last thing they need is an extra layer of expense and oversight merely to pick up a few investors who collectively only acquire a few percent of the company’s equity.
Looking for more portfolio investors is obviously a reason to do a secondary-listing elsewhere but widened financing opportunities also play a part. The AIM unfortunately developed a bad rap on that score as well. Even many London players would admit that there was a phase where new listings hit the AIM in relatively successful launches and were then cast adrift by their original promoters/sponsors and allowed to float off like spacemen cut loose from the mother-ship, waving their arms in silent and futile agony as weightlessness carried them away. As a result it seems that few foreign-listed entities raised money via AIM secondary listings.
The AIM appears to be an extra stage on which to show one’s wares in the London market. We have not heard comments either for or against from any of the companies listed. The thing that is clear though is that foreign miners do NOT need to AIM-listed to attract London investment or do financings in London. In fact it may even be simpler to do raisings in London without having an AIM listing due to costly prospectus rules.
AIM listings have gained a reputation as expensive, but the London financial scene certainly still has the best spread of institutional followers of mining stocks, but they come at a hefty price. With Germany seemingly reactivating faster as a mining market than London (how is that for irony!) corporates from Canada and Australia will need to add a Frankfurt stop-over to their itinerary.
To stop these miners giving London a wide berth the AIM will need to get its house in order, reducing its fees and removing the class of professional door-openers who have their hand out (or more brazenly in your pocket).
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>