ARE mining companies still deriving benefit from a JSE listing? I suggest a resounding yes, regardless that there have been a number of companies that have delisted from the exchange over the past few years, with AngloGold Ashanti the most recent to signal an intention to move its primary listing to New York.
What should be made clear that while delistings appear to be a negative trend, the reality is most of these were small companies, whereas most of those that remain listed are significantly larger and have also grown substantially in market capitalisation. As such, they are deriving significant benefit in the current climate.
Over the six-year period from 2017 to 2023, the JSE lost 19 metals and mining-related companies with combined market capitalisation of around R61bn, whereas it only gained eight new listings with market capitalisation of roughly R22bn, hence a net loss of R39bn.
However, the 43 organisations that remain listed, have collectively experienced a market capitalisation increase from R2.2 trillion to R7.4tn over the same six-year period – more than a three-fold increase, or compound average growth of 22% per year. In US dollars, this represents an increase from 166bn to 428bn, or compound average growth of 17% per year. The R5tn growth in market capitalisation, therefore, renders the lost R39bn (delisted) market cap almost insignificant.
It must be pointed out though, that fortunes in this sector are intrinsically correlated with the commodity cycle and prices. If we look at years 2017/18, commodity prices were somewhat depressed, resulting in five to six delistings per year. However, commodity prices turned up sharply in 2020/21 when supply constraints manifested as a result of the Covid-19 pandemic impacts, leading to the pace of delistings slowing dramatically to only two per year.
Delistings: who and why?
As mentioned, we estimate the lost market capitalisation through delistings at around R61bn, most of which was due to the withdrawal of Assore in 2020 (~R22bn), Oakbay in 2017 (~R16bn), and Lonmin in 2019 (~R2bn). The majority of delistings occurred on the back of corporate activity, poor business conditions (commodity cycle), and/or failure to comply to listing requirements, with only Assore, and one or two others, claiming they derived no further benefit from a listing.
There appears to be a cascading, interlinked sequence of events, where, particularly, the smaller, early-development companies (eg exploration entities), start losing money when commodity prices are low, likely also suffering a lack of investor interest and funding simultaneously. This inevitably leads to a declining share price and poor financial performance, which then sets in motion one of two events: poor reporting, which results in a listing suspension and subsequent removal from the JSE; or the company is targeted for a takeover/buy-out which also results in a delisting.
It is, in fact, a credit to the JSE, that of the 19 metals and mining companies that delisted, eight did so because of corporate activity; seven because of business/regulatory reasons; and only four claimed they derived no further benefit from their listing.
None went to another bourse, proving the case that it is not the JSE which is a problem, but mostly extraneous factors. A JSE-listing, therefore, still offers significant benefits to companies in the sector, especially when considering the possible exponential rises in market capitalisation and share prices.
Timing
A secondary observation, perhaps, is that the timing of a listing in the resources sector is rather important, due to the vagaries of, and exposure to, the commodity cycle and prices.
While it is easier said than done and also easier in hindsight, it is far better to list early during the rise of a commodity cycle than at its peak or downward slide. No amount of cost-cutting and rule-easing by the JSE will save a company caught unprepared at the bottom of a commodity cycle.
Troye Brady is research consultant for Aprio Strategic Communications.
