Want liquidity? You have to earn it.
Good morning MINING AIM.
The AIM market - despite the delistings crisis - remains an attractive place to launch IPOs and RTOs. Helix Exploration, Rome Resources, and Georgina Energy have all come to the market in recent weeks; and I know of four more in the pipeline before the end of the year.
If you consider yesterday's blog, it's also clear that there is significant activity going on through the summer (though AIM is more than the junior resource sector, this indicates wider confidence).
But new launches are becoming rarer. There were just 13 listings in 2023, the smallest number since the index was started back in 1995. This represents a circa 97% drop since the listings peak in 2005.
Bowleven is the latest company to announce Game Over. Yes, the company has seen delays with the Etinde Permit, but the reasons the business has given for delisting are starting to sound familiar:
Costs and regulatory burden
Access to appropriate finance
Corporate and strategic flexibility
Limited liquidity and high share price volatility
Let's start with the costs. My view, backed up through conversations with dozens of senior execs, is that it now costs circa £1 million a year to stay listed on AIM. Private companies face self-sustaining costs at maybe a third of this. Admin and adviser costs, insurance, and listing fees are expensive. There's also the corporate effort - directors have to both be more careful with their language with investors, and in general have to invest a not insignificant amount of time in just maintaining regulatory requirements.
Therefore, the benefits of staying listed have to be worth more than £500,000 in cash, and also the time commitment, which is hard to justify for a microcap like Bowleven.
Financing is obvious. Many junior resource companies are on the index primarily to raise capital from London - this is both challenging, and extremely dilutive for many given the discounts and warrants demanded by most brokers.
I'm not blaming the brokers here, they themselves can only provide capital to companies through their own network of HNWs, family offices and similar. The other problem is that even when placees get the discount, they don't hold. Many flip for 10% and walk into the sunset with what feels very much like ill-gotten gains. The reality is that private companies can get access to better finance via specialist investors, as the business has alluded to today.
These are all interlinked factors. Corporate and strategic flexibility essentially means 'private companies can tell potential investors everything, whereas while listed we have to retain inside information.' It's kind of hard to convince a HNW to invest £1 million into your business when you can only explain half an investment case.
Then there's the liquidity issue, making the company's true market valuation impossible to discern. It also makes it hard for shareholders to buy or sell in size at a fair price, and contributes to the inability to raise finance on decent terms.
What can be done?
I have considered market reform in depth before, and do think that there needs to be substantial change. I also think that the government as part of its 'growth' agenda, might want to consider some kind of additional tax break for AIM to attract better investment. If they do seriously intend to increase Capital Gains Tax to match Income Tax levels (a mad, mad increase from 20% to 45% for HNWs), then the least they could do would be to exclude AIM or AQSE-listed stocks from this grab.
But really, there needs to be some kind of scheme along the lines of the EIS, dedicated and tweaked to small caps.
However, we have the market and fiscal rules that we have, so for any CEO wondering how to boost liquidity, and therefore price stability, and by extension, your ability to raise capital on fair terms, here's what you can do now:
Copy the successes. If another company's share price keeps rising, and it's not because of a fundamental change, think about why. Plenty of companies are trading at a huge discount to their fair NAV; some are closing that gap and others aren't.
The first, and most critical thing you can do, is to be as open and communicative as possible. Yes, there are some things you can't say - we all get that. But if an investor has a concern or a query, and pings over an email, they expect an answer. If you can't say anything, just say that. Literally:
'I'm sorry Joe, but I have been advised to stay quiet at present. We will update the market via RNS as soon as we can.'
This is much better than radio silence. And if you can give out some breadcrumbs, then do that too.
But it's not enough to just be reactive. You have to be proactive.
Yes, you can and should be engaging a couple of PR services. But you can also do work in your own time. Consider Oliver Friesen at GMET, who publishes regular videos covering the technicals in language simple enough for a non-specialist. In the most recent one, you can tell the man is fried. But he still got it out.
Look at David Minchin at Helix. Or the videos being posted out by Amaroq.
When an investor is considering where to send their capital, the management team putting in the effort is going to earn brownie points.
Okay, there are time constraints. I get that. But getting your geo to put together something brief to send out to the market helps shows your investors (particularly ones in the red since the IPO) that you care about them.
Now onto another serious point. You need a compelling story. Whether grant funding, major interest, quick-to-market production, strategic asset value, near-term funded drilling...it's not good enough to simply have a decent asset anymore. If you come to the market expecting London to shower you with capital, it's not going to happen. There's maybe a couple of hundred junior resource plays on AIM - what is it about your company that means an investor should pick yours for their portfolio over another?
I ask this question in every interview; and it's surprising how many management figures have never considered that while their opportunity may be sound, they are in competition for investor cash.
You have to compete.
You have to able to explain in simple terms: THIS IS WHY WE ARE UNIQUE; THIS IS WHY WE DESERVE YOUR MONEY.
Building on this, don't bury your head in the sand. Don't ignore problems. Don't lay out ridiculous timelines that will never be met in a million years. If things go wrong, then admit it, and then explain the plan to fix it. We are all investing with risk capital here - and not every asset is going to work out.
Exploration risk exists! If you go drilling and come up empty, that's fine.
Getting a JV, or an earn-in, or a term sheet, can take more time that you initially thought.
No mine in the world has been built without delays or unexpected problems.
Just be honest.
Unless you're raising capital - keep that quiet, even if obviously needed.
Then there's taking advantage of natural buoyancy in the market. I talked about the 'sexy mineral of the year' a few days ago - right now, helium for example, is very in vogue. But more broadly, the small cap market has peaks and troughs. Right now, we're in a trough, but the bull market will come back.
In 2021, when all that pandemic money was sloshing about, I was telling anyone who would listen to raise a couple of million and stick it in the piggy bank for a rainy day. CEOs didn't do this, fearing some backlash - but now you can't raise easily. Learn the lesson; next time the market gets hot, just save a bit for a rainy day.
It's prudent.
Yes, we should complain about the market failings, and yes, we should campaign for change.
But if you want liquidity, new investors, and interest - you have to go out and make it happen.
- Charles Archer, 9/8/2024