The Australian Securities Exchange (ASX) is unquestionably one of the world’s premier stock markets with a total market capitalisation of around AUS$1.8 trillion, putting it into the top 10 of listed exchange groups globally. However, in terms of capital raised from IPOs and follow-ons in the mining sector, ASX regularly finds itself in the top three international stock markets since the year 2000, along with the London (LSE/AIM) and Toronto (TMX) markets. ASX is comprised of several sectors, the largest of which are financials and resources, particularly the mining sector which contributes 21% to the total market capitalisation and 46% of its listed companies.
The Sydney-based exchange has been with the mining industry throughout all of its historical fluctuations, most recently in 2015 when a commodities price crash onset a difficult period for the sector. Yet as prices steadily recover the exchange has witnessed a flurry of activity amongst investors and issuers alike.
With nearly half of its listed entities originating from the mining industry, listing and capital raising on ASX is highly correlated with commodity prices, therefore when prices across the sector grinded to a new nadir in 2016, the exchange had its quietest year for new mining listings in a decade, according to ASX’s head of listings and issuer services Eddie Grieve.
“In 2015, we had just three mining IPOs but immediately bounced back to 13 in 2016 and in this year to date we’ve had 26, so you can see the improvement,” says Grieve. “It’s also evident in the capital raising stakes where in 2016 we had $2.8 billion raised and this year we have raised $5.4 billion already.”
Although the mining industry remains the largest listed sector on ASX, there has been increased movement towards sector diversification in recent years, which is something that executive general manager of listings, issuer services and investment products Max Cunningham is quick to point towards.
“Whilst we’ve probably been hit with the worst mining recession for the last 20-30 years, the listing franchise part of our business concurrent to that period was probably having its best period in a decade, which was due to other sectors, most notably tech.”
The exchange has also had plenty of success with regards to geographic diversification, attracting companies from countries like New Zealand, Israel and the US.
Steeped in mining history
However, ASX will always be closely associated with the mining industry, owing to Australia’s long history of mining stretching back to the 19th century when the great gold rush and mineral boom coincided with the first formation of stock exchanges in Australia.
“We have a long history and a unique combination of mining expertise. It’s a great mining centre but it’s also a very strong equity capital market,” says Grieve.
A key factor underpinning ASX’s strength as an equity market is Australia’s compulsory superannuation system, which has significantly contributed to it having the largest pool of funds under management in the Asia Pacific region, in excess of $2.2 trillion.
This massive pool of investable funds in Australia is expected to further increase to more than $6 trillion by 2030, giving ASX an incredibly strong basis on which to grow in the next decade or so and solidify its position as a premier hub for mining listings.
“We have a very knowledgeable investor base, a strong community of analysts and an ecosystem of professionals across several spheres such as accounting and law, all of whom have mining expertise,” proclaims Grieve.
“We have found that ASX is often a centre for projects based in Western Australia, but people come to tap into this expertise not only for projects in Australia, but projects globally as well such as those in Africa and Latin America.”
Another string to ASX’s bow is its long term affiliation with the Australasian Joint Ore Reserves Committee (JORC) Code, which was developed in the 1970s to provide a mandatory system for the reporting of resources and reserves within the ASX listing rules.
The JORC Code has since developed into an international blueprint for mining disclosure standards, after being adopted into Canada’s NI 43-101 mineral projects framework, along with other leading exchanges in countries like the US, South Africa, the UK/Europe, Chile and Peru.
Furthermore, while the corporate governance requirements of ASX go towards engendering investor confidence, the Australian mining industry and regulators have worked together over the years to ensure that the regulatory environment is robust but not overly prescriptive, another attractive element of listing on ASX.
Unlike several major global exchanges where separate boards have been created catering to the junior market (such as London’s AIM and the TSXV of Toronto), ASX is comprised of just one primary board. Cunningham views this key differentiator in an overwhelmingly positive light.
“One of the things where we are very favourable compared to most major exchanges is that we have only one single board and that means you get universal connectivity with every investor in the market,” he says.
“I think it’s a key competitive advantage for us in the resource-mining sector and other international sectors where we are competing for listings.”
Cunningham reveals that ASX did have a second board back in the 1980s, but it proved unpopular with investors and junior companies felt the arrangement created a sense of being a second class listing among those on the second board.
Now instead of having a second board, ASX has minimum listing criteria which is set at an appropriate level for junior and early stage mining companies, whilst also protecting from the risk of having companies enter at too early a stage.
With this in mind, ASX claims to have nurtured a long list of mining companies from budding juniors into mid and large cap players, and in some cases into international mining giants.
“We say cheekily that the mining community is the home of the start-up. All these big companies like BHP and Rio Tinto to some extent were start-ups that were funded on the ASX in the very early stages.”
A more recent example is the meteoric rise of Fortescue Metals Group (FMG), which was formed in the mid-2000s but has quickly risen to become the 13th largest mining company in the world after listing on ASX.
ASX continues to vie with rival exchanges for international supremacy in the public listing space, particularly in the global mining sector. In fact, during the 2016/17 period to date ASX is currently the number one exchange in terms of number of IPOs ahead of LSE and TSX, which Grieve and Cunningham attribute to its unique structure and the wealth of mining expertise across the exchange.
“I think for a long time to come ASX will be a global home for the mining sector, both for issuers and investors,” predicts Cunningham. “I think it will be a dominant sector for us in the small, mid and large cap space.”