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The prolonged boom in the Chinese economy has had obvious effects in Australia, where the massive Asian demand for natural resources has pushed mineral prices to record highs and unemployment to record lows.
Stuart Cameron of BDO Kendalls says the mining boom promotes what was previously thought not to be viable.
"What typically happens is that when there is a mining boom, a lot of tenements that may not have been economic to pursue, or where there mightn’t have been enough investor interest, will now be available, and so a number of managements will now seek to raise capital for those mining tenements," Stuart says.
Barry Dawes of Martin Place Securities says capital raising has certainly been much easier.
"The growth in Asian infrastructure has really led to much higher commodity prices. So yes, higher prices means it’s more attractive for people to raise money and it has been easier.
"The other side of the coin means that the amount of money that is being raised is not very much, compared to the capitalization of the BHP’s and Rios and other large companies," Barry says.
"So, total dollars, it’s not a lot of money and its nowhere near the amount of money that Australia needs to get its exploration and development underway."
It’s not only the investment dollars that are being stretched across the rapidly expanding resources sector; top personnel too are becoming an increasingly sought-after commodity.
"For the companies themselves, they’ve got to make sure that they have good management," Barry says.
"That’s one of the problems that we have at the moment; not enough geologists or mining engineers. The big companies don’t have enough, so the small companies will find it difficult as well, and having about a thousand companies listed on ASX in the resource sector, that’s management spread very thinly."
Strong and confident management is key, Stuart Cameron agrees.
"Typically, if you have a management that is willing to put their name to a product, so to speak, then that gives it a lot more gravitas or credibility in the market, and hence may allow you to raise either extra funds, or just raise enough funds in order to get your company on the boards," he says.
"I guess if the mineral were not so China or India-focused, then management would be more important than the mineral."
For those companies that are already backed by a solid management, Barry Dawes emphasises that, a well prepared prospectus, and a knowledgeable advisor are also key factors in attracting solid investment.
"Just be very wary about what you’re asking for – make sure that you know what you want," Barry says.
"Make sure that you’re advisor knows the market. Make sure that they know where the funds will come from.
"It’s also not a good idea to go to someone who doesn’t understand the business even though they might be able to get the funds, because the investors who come into the company should be long term investors and not trading investors.
"If they’re not long term investors your company won’t have a strong shareholding base and will always be subject to people who are trading and who can negatively affect the value of your company.
"It will take, depending on the company and depending on how well prepared the managers and project are, anywhere from three to nine months, before you could list.
"It’s not a good idea to walk off the street into an advisors office and say, ‘Yes, we’re ready to go’ because for the most part you’re not – preparation of your prospectus is difficult and the obligations under that are significant.
"But again if you’ve got the right advisors, that should not be too much of a problem. It’s a matter of knowing the ropes, and that good managers will know the ropes!"
Stuart Cameron returns to the importance of good management.
"You must have mining tenements which are near established tenements so that you can have success by association," he says.
"Or alternatively, you have a mineral which will run regardless of where its placed, for example, petrol, oil or gas, because they can be in quite remote locations. So I guess it’s a combination of mineral ... location as well as management – they’re the three cornerstones to success at the moment."
Stuart Cameron of BDO Kendalls says the mining boom promotes what was previously thought not to be viable.
"What typically happens is that when there is a mining boom, a lot of tenements that may not have been economic to pursue, or where there mightn’t have been enough investor interest, will now be available, and so a number of managements will now seek to raise capital for those mining tenements," Stuart says.
Barry Dawes of Martin Place Securities says capital raising has certainly been much easier.
"The growth in Asian infrastructure has really led to much higher commodity prices. So yes, higher prices means it’s more attractive for people to raise money and it has been easier.
"The other side of the coin means that the amount of money that is being raised is not very much, compared to the capitalization of the BHP’s and Rios and other large companies," Barry says.
"So, total dollars, it’s not a lot of money and its nowhere near the amount of money that Australia needs to get its exploration and development underway."
It’s not only the investment dollars that are being stretched across the rapidly expanding resources sector; top personnel too are becoming an increasingly sought-after commodity.
"For the companies themselves, they’ve got to make sure that they have good management," Barry says.
"That’s one of the problems that we have at the moment; not enough geologists or mining engineers. The big companies don’t have enough, so the small companies will find it difficult as well, and having about a thousand companies listed on ASX in the resource sector, that’s management spread very thinly."
Strong and confident management is key, Stuart Cameron agrees.
"Typically, if you have a management that is willing to put their name to a product, so to speak, then that gives it a lot more gravitas or credibility in the market, and hence may allow you to raise either extra funds, or just raise enough funds in order to get your company on the boards," he says.
"I guess if the mineral were not so China or India-focused, then management would be more important than the mineral."
For those companies that are already backed by a solid management, Barry Dawes emphasises that, a well prepared prospectus, and a knowledgeable advisor are also key factors in attracting solid investment.
"Just be very wary about what you’re asking for – make sure that you know what you want," Barry says.
"Make sure that you’re advisor knows the market. Make sure that they know where the funds will come from.
"It’s also not a good idea to go to someone who doesn’t understand the business even though they might be able to get the funds, because the investors who come into the company should be long term investors and not trading investors.
"If they’re not long term investors your company won’t have a strong shareholding base and will always be subject to people who are trading and who can negatively affect the value of your company.
"It will take, depending on the company and depending on how well prepared the managers and project are, anywhere from three to nine months, before you could list.
"It’s not a good idea to walk off the street into an advisors office and say, ‘Yes, we’re ready to go’ because for the most part you’re not – preparation of your prospectus is difficult and the obligations under that are significant.
"But again if you’ve got the right advisors, that should not be too much of a problem. It’s a matter of knowing the ropes, and that good managers will know the ropes!"
Stuart Cameron returns to the importance of good management.
"You must have mining tenements which are near established tenements so that you can have success by association," he says.
"Or alternatively, you have a mineral which will run regardless of where its placed, for example, petrol, oil or gas, because they can be in quite remote locations. So I guess it’s a combination of mineral ... location as well as management – they’re the three cornerstones to success at the moment."
