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Resources sector - One third of ASX trading
Speaking at the recent Excellence in Exploration and Mining Conference in Sydney, Richard Murphy, Head of Equity Markets at ASX, emphasised the continuing importance of ASX as a global centre for resources equity finance as he outlined several ASX initiatives to ensure that the Australian market continues to provide the support the industry needs.
The resources sector now represents approximately 22% of ASX market capitalisation, a third of all listed companies by number, and a third of all trading value on ASX. This is in stark contrast to the 10% of market capitalisation it fell to in the late 1990s and early 2000s.
And the number and variety of resource stocks continues to grow as the market has shown strong support for new entrants to the market. Float activity has continued unabated since 2003 - the number of floats in 2005/06 (86) was an increase of 18% on 2004/05 and 30% on 2005/06. Resource floats represented close to half of all ASX floats in 2005/06 and the total capital raised was over $831 million.
The market’s support for follow-on capital raisings has also been impressive. In 2005/06 resource companies raised over $5.8 billion in follow-on raisings - a 37% increase on 2004/05 and 47% increase on the previous year.
Noting the contribution the sector continues to make to the wider Australian economy and the important part the capital market has played in the development of the industry since the mid-nineteenth century, Mr Murphy indicated that ASX would continue to build on recent initiatives to ensure that the Australian capital market remained competitive and supportive. "We recognise the unique capital needs of junior mining companies in particular and our particular focus is on how we can reduce impediments to ongoing capital raising, improve market liquidity and stimulate greater institutional investment interest in the sector." Mr Murphy said.
An important step in this strategy was the launch in August of this year of the resource industry specific indices - the S&P/ASX Gold Index and the S&P/ASX Metals and Mining Index. These new real time indices now provide a profile for the sector which reflects its central position in the overall market and, importantly, give investors performance benchmarks that were previously unavailable. The Metals and Mining Index has been structured to be investible from a funds management perspective with the expectation that institutional investors will be able to benchmark funds against it.
The charts below show a re-creation of the indices, as if they had been in existence since 2000, plotted against the S&P/ASX All Ordinaries Index. Not too surprising is the extent to which they have outperformed the rest of the market.
S&P/ASX All Ordinaries Gold vs S&P/ASX All Ordinaries
Price Index Series, Aug 2000 - Sep 2006
S&P/ASX 300 Metals & Mining vs S&P/ASX 300
Price Index Series, Aug 2000 - Sep 2006
Another long-standing key ASX focus is the capital raising settings in the listing rules. Mining companies in the exploration and pre-production stage rely on capital rasing to fund their very existence let alone the funding of their capital intensive operations. Yet current ASX capital raising rules are not as facilitative as they might be. The 15% rule for example can impose undue costs on companies when raising capital. Mr Murphy noted ASX disappointment with progress in this crucial area but assured the audience of continuing efforts by ASX in its negotiations with ASIC to provide for greater flexibility than is currently available under the 15% rule, as well as reviewing the minimum shareholder spread requirement and the minimum issue price requirement for new floats.
ASX also believes the "flow through share" issue continues to be one that deserves urgent government attention. The latest ABS figures continue to show disturbing trends in exploration in Australia on a "metres-drilled" basis and in the brownfields versus greenfields nature of the exploration. ASX recognizes the failure of the tax system in denying investors in exploration companies, deductibility for investment in high risk exploration, and strongly supports the industry in its quest to get a flow through share concept adopted in Australia. ASX joined the industry in advocating this approach by making a substantial submission to government for the last budget. An FTS scheme was not included in last year’s budget. ASX will hold discussions with the relevant industry bodies to assess the industry’s position going forward.
ASX will also continue to promote investor awareness through participation and sponsorship of industry and investor events such the recent Excellence in Mining and Exploration conference in Sydney which was successful in attracting a high level of institutional shareholder interest.
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