How the Sydney Stock Exchange is shaping up as a better alternative for junior miners
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The stringent regulations and difficulties faced by junior resources companies to remain listed on Australia’s main bourse has sent some of them in search of a more favourable exchange to list on.
As an alternative to the ASX there is already the National Stock Exchange (NSX), which dubs itself the “new home for resources” and has done a fair bit of work in promoting itself to the sector.
But now the Sydney Stock Exchange (SSX), which has been around for over two decades, is coming into the spotlight.
Like the ASX, the SSX is an ASIC-regulated tier one stock exchange. The exchange first opened in 1997 as the Australian property exempt market before receiving a stock exchange licence in August 2004.
Private gold explorer Torque Metals will be the first resources player to list on the SSX. The company previously tried to list on the ASX in late 2018 but was unsuccessful.
China Magnesium Corporation (ASX:CMC), meanwhile, is dumping the ASX in favour of the SSX.
The company has been suspended from the ASX under listing rule 17.3 since July last year.
Under ASX listing rules, the bourse can suspend a company from trading for a number of reasons including if it is “unable or unwilling to comply with, or breaks, a listing rule” or “to prevent a disorderly or uninformed market”.
China Magnesium has been in the process of divesting its offshore operations and focusing on its commodities trading business. At the same time the company needed to cut costs.
One of the SSX’s drawcards for both Torque and China Magnesium was its much lower compliance costs.
“The costs associated with maintaining quotation on the SSX are in the order of 30 per cent less than those associated with a listing on the ASX,” China Magnesium said in May.
The requirements to list on the ASX are a lot harder to meet for companies not generating any revenue like explorers.
The ASX requires net tangible assets, including cash, of at least $4m for companies with no cash generation or a market cap of $15m.
Torque Metals managing director Ian Finch has been in the mining game since the 1970s working for majors like Anglo American and Rio Tinto (ASX:RIO).
He also has experience listing small companies, and says it has become a lot harder to float.
“Having to raise basically $4.5m on the ASX was a big ask for us and for a lot of juniors,” he told Stockhead.
The ASX also sets a minimum IPO issue price of 20c per share and requires a spread of at least 300 non-affiliated security holders who each hold shares with a value (based on the issue price) of at least $2,000.
“We tried to list on the ASX last year and the spread was insurmountable,” Finch explained.
“There just weren’t that many people putting their hands in their pockets and wanting to invest. That coupled with the fact the ASX was actually vetting all of the investors to make sure there wasn’t any double dipping and you weren’t a shareholder in another company that was investing.”
Meanwhile, the key issue with a minimum 20c issue price is the ability of junior explorers and miners to continue trading at around that level or higher, with many having to conduct capital raisings at substantial discounts to entice new and existing investors.
According to Bloomberg data, of the 537 small-cap (sub-$500m market cap) resources players on the ASX, over half (272) are trading at less than 5c. Nearly 20 per cent are trading at less than 1c.
“There’s a lot of well-meaning companies who are flailing around below a cent or below 3 or 4c,” Finch noted.
“All they can do is raise capital at discounted rates because the brokers won’t do it any other way, and that means ASX fees go up because they are related to the number of shares on issue.
“So eventually they’re being burnt off. They’re eventually raising capital just to pay the listing fees.”
In the past year, 42 resources companies have been delisted from the ASX, 57 per cent (24) of which were kicked off for reasons including failing to meet listing requirements and failing to pay listing fees.
The SSX, however, only requires a minimum IPO issue price of 5c, net tangible assets of $2m or a market cap of $2m, and a spread of 50 security holders each having a holding of at least $2,000 – with 25 per cent of those shareholders being unaffiliated.
Torque Metals has spent the past three months investigating a listing on an alternative exchange and has now launched a $2-2.5m IPO priced at 10c per share to list on the SSX.
The company is scheduled to make its debut on July 16 under the ticker 8TM, while China Magnesium — which plans to rebrand as Sovran White International — is still waiting on a potential listing date.
“We’ve been working together for two to three months now in order to get this meaningfully away so that the juniors, the ones over my shoulder that are lined up to do IPOs … can see there is a way through instead of battering your head against the ASX brick wall,” Finch said.
Torque Metals only released its prospectus last week but has already achieved the minimum spread.
Finch says there also isn’t the issue of lack of liquidity (a high volume of activity in the market) that you would typically find with a smaller exchange.
The SSX is affiliated with London-headquartered CMC Markets, the second biggest trading platform in the world.
The exchange also utilises the ANZ Share Trading platform, including E*TRADE.
“The SSX actually has some 550,000 investors that will be looking at and trading your stock,” Finch noted.
There is also greater leverage to the upside for investors because of the lower entry price.
“You can list on the Sydney Stock Exchange for as little as a 5c stock value,” Finch said.
“For instance, we’re actually listing at 10c, not the insistent 20c that the ASX would force you to do, which means there is more leverage for the investor.
“It’s easy for them to make 10 per cent to go up to 11c than it is to go from 20c to 22c on the ASX. The 20c minimum has been a real problem for the last five years for juniors to get onto the market, whether it be a backdoor listing or whatever.
“I believe this is the beginning of a new era particularly for junior resource companies who want to get capital.”