InvestorIntel readers on ‘where to list?’ in today’s markets
InvestorIntel readers put their fingers on a problem — so let’s get a debate going…
You can’t go past Investor Intel’s readership. Just this week, three of our regular commentators out among the audience, “Vacuum”, “Veritas Bob” and Bill Keenes, have put their fingers on a real issue — one that affects companies in the sectors we cover (rare earths and critical metals, graphite and graphene, uranium, and potash and — to a lesser degree — phosphate.
The responses came to a Tracy Weslosky posting, “Technology Metal leaders join 3D consumer printing tidal wave“.
The first came from “Vacuum”, referring to some graphite plays but in a comment that really applies to all the sectors we cover here at Investor Intel. He wrote: “Somebody could inform Triton, Hastings, Stellar and a few others that if they want deep U.S. investor participation that they need to offer a US ticker on the OTC or pinksheets. It is astonishing that companies mentioned on this (quasi US audience) website have not availed themselves of US participation.”
Tracy then responded saying she was certain that companies were aware of this problem. Citing the rare earth sector, she noted that “many of the rare earth sector companies were hit by 55% reductions in their market caps in the last 12 months — placing this obvious manoeuvre on hold“. Only too true.
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Veritas Bob weighed in: “Great. When these ASX-listed companies do dilutive rights offerings, which should be expected, U.S.-based investors will be precluded from investing in them, and therefore they will get disproportionately diluted. i.e., U.S. based investors will be transferring their wealth to those who are allowed to participate in the rights offerings. That’s a big headwind to face”.
And then Bill Keenes posted: “I thought Jim Kennedy summed it up best when he nailed the issue with: ‘The total economic value of the entire rare earth market is only about $3 billion (mines to metals). The big money is in the value adding and that is what China is after. Through its monopoly China now controls the future of nearly $5 trillion in rare earth dependent, value added goods and services.’ That’s exactly what control over the rare earth market has been and still is about.”
Yes, there is a problem. The rare earths sector is feeling it acutely because of the fall in valuations, but graphite companies, uranium explorers and potash juniors (the last operating in a sector where capital costs have a “b” for “billion” in them) are feeling it too. And that problem is the very nature of the two systems: China with the government always in the background and able to order changes (think consolidation of rare earth companies, think playing around with export quotas and taxes) and government financial backing available while we in the West have a whole host of junior and medium-sized companies, all to some extent playing to China’s rules, all competing in the market for finance, and all working without a net.
The real problem: no one has come up with an option. (TINA, as Margaret Thatcher put it: there is no alternative — or no “apparent“ alternative, at least in our case.)
Not only do we have these sectors all with so many companies, but they’re listed in different places, mainly Toronto and Sydney, but also in London. The size of many precludes their gaining listing in Hong Kong (just look at the problems facing Dingyi in its proposed takeover of Elemental Minerals) or New York. (And, when one thinks about it, Japan is such an important player as a consumer of rare earths and many of the critical metals — particularly tungsten and graphite, and may soon again be a uranium customer — but Japanese companies have tended to ally themselves with Australian or Canadian companies rather than have anything listed in Tokyo.)
But there must be something that can be done. Last month Tasman Metals (TSX.V:TSM) and Flinders Resources (TSX.V:FDR) showed the way in one respect when they began what they described as preliminary negotiations for a merger, joining Tasman‘s REE and tungsten to Flinders‘ graphite. Of course, such a scheme requires both complementary and geographically close projects.
Look, the problems of small companies raising money is not going away in the foreseeable future. And, as Vacuum points out, they need access to the U.S. capital markets (and Hong Kong/China ones, too).
I think what our sectors need is some critical mass. They have the numbers (in terms of companies and projects) but not enough collective grunt.
Needless to say, the remedy and answers are not readily to hand (or mind).
But I think our correspondents have pointed out issues which we should probably be talking a good deal more about.
This post, I hope, could be a beginning.
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