[miningmx.com] — AT ONE EXTREME, on Monday afternoon I had to wait 50 minutes at my local post office to buy stamps, because of the throng of would-be capitalists handing in application forms for Sasol’s (South African petrochemical company’s) massive BEE general issue.
At the other extreme, that morning AngloGold Ashanti announced the response to its rights issue: a total subscription of 468.8 million shares, almost seven times the 69.5 million shares on offer. At R194 a share, that adds up to a massive R90.9bn of application money.
Now it’s true that it’s a no-brainer to apply for extra shares in a rights issue where that is allowed. Given the way share prices react to rights issues, you lose money if you don’t either follow your rights or sell them on the market, as the ex-rights price is normally lower than the rights price.
On the other hand, the ex-rights price will normally be higher than the price you have to pay to take up the new shares, so there’s a virtually risk-free profit assured if you manage to get more shares. It’s a brilliant one-way bet; but you do incur bank charges, so it’s not cost-free.
At one time banks were only too happy to lend clients money to finance this exercise, as it’s also virtually risk-free and guaranteed to be profitable for them, too. The authorities did try to discourage the practice, but I don’t know to what extent this is still the case.
Still, wherever the R90.9bn came from, and even if most of those who put it up knew that most of it will soon come back to them, it’s clear that investment markets are not starved of liquidity.
Even less well-established companies are having no difficulty raising funds.
Also on Monday, Wesizwe Platinum announced that it has raised R202.5m through a share issue. Coal of Africa recently raised £33.15m, or almost R500m, and plans to raise the equivalent of about R235m in Australia; and, as I have written before, Wescoal’s road show was so successful that it increased its fund-raiser from R57.5m to R80m.
We won’t even talk about Sentula’s recent fund-raising exercise, given what’s happened since.
SA Coal Mining Holdings’ R100m rights issue closes on Friday. It will be interesting to see what its reception is.
You will, of course, have noticed that all these instances are in the resources sector, specifically gold, platinum and coal. I don’t imagine that a fund-raising exercise by, say, a furniture retailer or car dealer would be so welcome. But, as I wrote before, the South African economy is undergoing a structural shift.
It may seem a retrograde step that in the 21st century we’re raising our dependence on the extractive industries that drove growth 100 years ago, casting doubt on efforts of the past 50 years to diversify our industrial base.
But the hard truth is that countries, like individuals, do best in the long run by concentrating on the things they’re good at; and what we’re good at right now is providing the still growing markets in the Far East with the raw materials we have in abundance; if, in the process, the textile industry goes bang, so be it.
