The story of TSX-listed miners being neglected by North American investors due to capital being sucked up by cannabis and crypto investments is something we are hearing more and more this side of the Atlantic.
While this may just be a passing trend, TSX-listed miners are not taking the development lightly and are looking for alternative means to compensate for the lack of capital and liquidity in the North American markets.
One option is an additional listing on the London Stock Exchange (LSE), which is the pre-eminent international exchange.
In many ways the LSE is a natural fit for miners: it offers deep pools of capital, high liquidity, sophisticated and long-term investors, and it is renowned for its principles-based approach to capital. Last, but certainly not least, UK and European investors continue to selectively invest in the mining sector.
However, the UK and European capital markets are not for everyone. There are certain boxes a TSX-listed company needs to tick before seriously considering a listing. Below are the top three criteria to keep in mind.
Canadian investors take a longer-term approach to mining companies and appreciate the value of an asset that may still be five or ten years away from the commencement of production. This is not frequently the case with the UK and European capital markets. Investors here want a company to be in production or, at the very least, in the development phase.
Of course, not all is lost if the company is not already in production. Consider that Pure Gold, with a project in Red Lake, Ontario, recently dual-listed on the LSE. It will not be in production until late 2020however it has a feasibility study that lays out a specific plan, capex estimates, and a construction timeline – all of which give investors the necessary peace of mind.
With production often comes a dividend. Yield is a key investment criterium for UK and European investors and while dividends are not a “must-have” before listing on the LSE, a policy for future dividends is a minimum.
UK and European investors require confidence that management has the discipline to stay on track and follow through with what it says it will achieve.
How do you prove this? First, it’s by communicating management’s past successes. Management must also show it has learned from past mistakes and knows how not to repeat them.
Then there also has to be a willingness to engage regularly. A miner cannot expect that listing on the LSE will be enough to entice UK and European investors to purchase and hold shares. Senior Management must make the trip to the UK and Europe two to four times a year to meet with their investors and, in between those visits, ensure they are apprised of its developments.
Lastly, discipline also relates to M&A opportunities, especially when it comes to longer-dated projects. As mentioned earlier, UK and European capital markets prefer companies that are in production or near to it. They may also consider companies with a large portfolio of early-stage development or exploration projects to be distracted and not sufficiently focused on the short-term goal of production. This does not necessarily mean a company needs to sell its long-term projects ahead of listing on the LSE but it does mean it will need solid messaging around why it acquired them and what it plans to do with them.
Of course, with the recent wave of consolidation among the large-and mid-cap mining companies, particularly in the gold sector, we expect them to start divesting their non-core assets. This is an excellent opportunity for the small- and mid-cap companies to build out their portfolios, however, if there’s a desire to tap into the UK and European capital markets, they will need careful messaging around any acquisitions they make.
It goes without saying that ESG affects all companies regardless of what exchange they trade on. However, in the UK and Europe it is essential to communicate clearly and consistently so that the capital markets can see the big investment picture.
Consider that, as the LSE reports, almost all major UK institutional investors are signatories to the United-Nations-supported Principles for Responsible Investment (which in 2018 represented US$60 trillion in assets under management, up from US$22 trillion in 2010). As such, investors will need to know how a prospective investment is handling its ESG responsibilities so that they can integrate that information into their investment considerations.
Beyond the capital markets, ESG is a major focus for UK financial media. Journalists will take companies to task if they believe they are not adhering to their ESG framework to the extent they are expected.
London still calling?
The above are the three main considerations TSX-listed companies will need to have in mind before starting the process to list on the London Stock Exchange – there are many more. For more insight on what it will take for a successful listing on the LSE please message Mining@buchanan.uk.com.