Australia’s IPO activity for the first six months of 2024 has been frankly underwhelming relative to previous years, few people are surprised.
Just 13 companies made their ASX debut between the start of this year and the end of June. While that’s only one less than the same period in 2023, it’s a symptom of a broader economic environment characterized by high interest rates and high inflation, according to a report by advisory and accounting firm HLB Mann Judd.
But there’s another, perhaps more salient factor at play: the current state of commodity prices.
“If we go back to the materials listings we had over the last 12 months, a lot of them have been in those battery metals areas,” Marcus Ohm, author of the ‘IPO Watch Australia Mid-Year Report’, tells Mining.com.au.
“It’s been lithium and rare earths. A couple of rare earths listings have happened or are about to happen. But it’s a situation we probably could have predicted two years ago, with perhaps excess supply relative to the demand we thought was going to be there. I think that’s definitely been a big part of it, commodity prices.”
The price of lithium, for example, is sitting near a three-year low, while rare earths have labored under sluggish demand from green energy companies and electric carmakers, even as global supply continues to rise.
Likewise, copper has hit a three-month low of US$9,166 ($13,931) per ton, according to the London Metal Exchange, and the price of cobalt has dropped more than 20% over the last 12 months.
“We had a real record year in 2021. That was, I suppose, affected by coming out of the COVID period,” Ohm adds.
“Unfortunately, the last 18 months to two years have been very challenging for the IPO market. Normally, it’s the materials sector that contributes most of the listings, but it’s been really quiet. It’s been a mixed market, but the volumes are very, very low indeed.”
The Numbers
Immediately interesting is the amount of money raised through IPOs across the full ASX spectrum so far this year, from materials to consumer services to capital goods.
The 14 listings in the first half of 2023 raised a total of $149.9 million. By comparison, the 13 listings this year have raised a whopping $809.5 million a 440% increase.
The difference, however, comes down to two specific listings which together generated more than $660 million Metals Acquisition (ASX:MAC), which raised $325 million in February, and Guzman y Gomez (ASX:GYG), which raised $335 million in June.
At the other end of the spectrum, the 10 small cap listings those companies with a market capitalization less than $100 million raised $90.5 million this year, or just 11% of the $809.5 million total. By comparison, small cap companies accounted for 67% of the funds raised in the first half of 2023.
On average, new listings this year recorded a first-day gain of 32%, compared to just 3% in 2023. However, by the end of June, those share price gains had been wound back to 13%, which was nevertheless an improvement over last year’s period-end figure of nil.
Still, investor engagement has dropped. Only 10 of the 13 listings in 2024 just 77% achieved their targeted subscription amount, compared to 13 out of 14 in the first half of 2023.
All three companies that failed to reach their subscription targets sit within the materials sector with market capitalisations of less than $25 million. Infini Resources (ASX:I88), for example, fell $200,000 short of its $5.5 million goal back in January. The share price enjoyed a 68% gain on its first day of trading, but by the end of June had sunk 23% below the issue price.
The Outliers
In addition to the impact of Metals Acquisition and Guzman Gomez, there are a number of other outliers worth paying attention to.
The first is the “conundrum” that is gold. Not quite at its all-time high, gold is currently sitting at just under US$2,400 per ounce an increase of more than 22% over the last 12 months.
“Obviously, the price is at an historic high, but there’s been a decline in gold exploration over the last couple of years,” OHM says.
“We haven’t seen a lot of gold floats come through this year or last year. It’s a bit of a conundrum because normally you’d expect high gold prices to be a higher incentive for projects and exploration expenditure. I think the only thing I can put it down to is general sentiment. The capital markets for commodity listings in general are pretty difficult.”
The other outlier was Sun Silver (ASX:SS1), which is developing the Maverick Springs Silver Project in Nevada. After joining the ASX in mid-May, the company’s shares recorded a first-day gain of 113%, and were up 160% by the end of June.
And while silver-dominant floats aren’t unheard of, OHM acknowledges that “it’s certainly unusual for us to talk about silver listings”.
“There has been some stuff in the media about Sun Silver. I think the Managing Director has been talking the project up, but there seems to be an underlying price thing that’s going on with silver as well,” he adds.
At the end of May, silver hit a 12-year high of US$32.42 per ounce. And while it’s since dropped below US$30, the precious metal seems to be keeping its strength.
“I’m not saying we’re going to see a flood of silver listings. We won’t. But I thought that was really quite interesting, the performance there, because it’s silver, and it was the strongest IPO of the year.”
The Push for Higher Prices
Indeed, depressed commodity prices seem to be the factor compounding the existing issues of interest rates and inflation. So much so, in fact, that some industry players are calling for a two-tier pricing system that puts a premium on sustainably produced metals.
According to a report by Reuters, western miners claim their competitors have inherent cost advantages that allow for rapid production expansion, even in spite of falling commodity prices. Some Chinese-linked companies in particular are accused of using coal-generated electricity, child labour, and other practices that fail to meet the standards set out by many governments and manufacturers.
As a result, operational costs for some western companies have been exceeding what market prices will cover.
“Western miners simply can’t compete with China, and China has shown the willingness to drive market prices way, way down,” Morgan Bazilian, director of the Payne Institute for Public Policy at the Colorado School of Mines, says.
The solution could be to charge more for sustainably produced metals, whether through direct transactions or through multiple prices for metals. Such a scheme could radically change the centuries-old methods of buying and selling metals, but could also reduce transparency should miners bypass metals exchanges to deal directly with customers. It could also lead to multiple definitions of what, exactly, constitutes a ‘green metal’.
“You will not be able to guarantee, by any stretch of the imagination, a non-China supply of certain metals unless you’re willing to pay some degree of a premium for that product,” Benchmark’s Daniel Fletcher-Manuel tells Reuters.
The Outlook
In any case, the prevailing consensus seems to be that Australia’s IPO activity will remain suppressed for some time.
“I think we probably will see a little bit of an uptick towards the end of the year,” Ohm says.
“The only reason I say that is because in the final quarter of the calendar year, traditionally, we see more IPOs. If you go back over the last 10 or 20 years, that’s usually the biggest quarter for IPOs. That’s just because people are listing off June numbers and things like that, so it makes sense.”
But to look at the number of IPOs proposed for the rest of the year is to be presented with a different picture.
According to the ASX’s list of upcoming floats, there are applications from just three companies. One is Alcoa Corporation (NYSE:AA), which is not looking to raise cash, only to issue CHESS Depositary Interests related to its $3.4 billion acquisition of Alumina.
The others are Brazil-focused Axel REE (ASX:AXL), which listed on Tuesday after raising $13.3 million, and Perth-based Bhagwan Marine (ASX:BWN), which is seeking $80 million ahead of its scheduled debut on 30 July.
But if commodity prices are refusing to play ball, Ohm cautiously suggests the next RBA meeting in early August could provide at least some measure of clarity.
“That can help from a wider perspective because it can trigger a bit of a further uptick in the equity markets, generally, if interest rates are lowered,” he says.
“That also helps valuations, industrial demand, commodity prices, things like that. But I do think we’ll have a bit of an improvement next year, which is not too hard to predict, really, off such a low base.
