Backdoor listings grow in popularity as mining IPO market weakens
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While there has been a noticeable drop-off in resources IPOs this year, there seems to be a renewed fascination with reverse takeovers (RTOs) as a means of breaking onto the ASX.
Private Colombian gold hunter Andes Resources has cosied up to ASX-listed Metminco (ASX:MNC) in its ambitions to break onto the local bourse.
The pair revealed today that their planned merger, which was initially announced in March, was now binding with an agreement reached on the terms of the deal.
Stockhead revealed in February last year that Andes was eyeing an ASX-listing and had launched a $2m seed capital raising to fund drilling on its 80,000-hectare gold and copper-prospective landholding in Colombia.
But rather than an outright IPO, Andes has gone down the path of a backdoor listing.
It is the third private junior explorer to attempt a backdoor listing this year.
Gold explorer Carnaby Resources had also been planning an IPO, but changed tack and in March this year announced it would instead be tying the knot with already listed Berkut Minerals (ASX:BMT).
Private manganese explorer Rolek Resources also attempted a backdoor listing last year and this year through the shell of Shaw River Manganese (ASX:SRR), but in late March revealed it couldn’t raise the $5m it needed to get back onto the ASX.
Hedley Widdup, executive director at fund manager Lion Selection Group, said funding for junior resources companies had become more difficult to lock in.
“IPOs have just got a bit harder to do and that’s because liquidity has tightened up in the market this year,” he told Stockhead.
“We’ve seen an increasing number of junior IPOs occurring in the space over the 16/17/18 years … but it just looks as if the last six to 12 months that window has maybe not closed but certainly got a lot harder to get through, which makes the RTO route much more appealing.
“I can’t tell you the reason why really other than that the risk appetite of investors which are needed to buoy that space really just have been only very selectively coming down in the last three or four years into that junior space.
“We’ve gone from on to off.”
There is a strategic benefit to the Metminco and Andes union: synergies from the merging of projects in the same richly endowed gold-copper Mid-Cauca belt in Colombia.
The pair say the tie-up will create a leading Colombian gold explorer and developer with a dominant position in the region.
They already have the backing of Andes’ largest shareholders Sandfire Resources (ASX:SFR), which has agreed to commit $1.2m to become a 15 per cent shareholder in the larger company.
Colombia is becoming a more attractive jurisdiction for junior Australian explorers, particularly gold players, following a peace deal between guerrilla forces and the government.
Exploration in the Latin American country has not progressed in line with its neighbours due to the armed conflict between the Revolutionary Armed Forces of Colombia (FARC) and the government that started in 1964.
A ceasefire deal was reached in June 2016 and Colombia is becoming a much better place to do business.
Despite its past woes, Colombia is actually very rich in gold. This has attracted bigger players such as Continental Gold, Newmont Mining, AngloGold Ashanti (ASX:AGG) and Fortescue Metals Group (ASX:FMG) to the region.