SA junior ventures not yet firing

[] — THE AltX – the JSE’s alternative market – recently celebrated its third birthday in fine style.

No doubt the AltX has not only “altered expectations” (as its pay off line suggested at the October 2003 launch) but beaten expectations – remembering that initially more than a few observers (me included) felt the new market would battle to create an appropriately vibrant platform to grow local entrepreneurship.

Without detracting from the massive achievement by the JSE’s business development head Noah Greenhill, there is room for some criticism. Hopefully my criticism is construed as constructive – it certainly is meant as such.

One area of the AltX that is conspicuously lacking critical mass is the junior mining segment, which was pinpointed at the launch of the alternative market as a key focus area.

There are currently just three mining listings – Wescoal, Chrometco and Yomhlaba (which has been suspended for quite some time now).

Classic junior miners far and few between

Many companies listed on the AltX service or operate within the mining sector – like IPSA, ADC Corporation, Onelogix and PSV. But the classic junior mining operations are far and few between…

Excluding the in-limbo Yomhlaba, the collective market capitalisation of mining listings on the AltX is around R150m.

Compared to the AltX’s collective market capitalisation of nearly R6bn mining represents a smidgen of the new market. Mining is a core economic activity in South Africa, and one might reasonably expect the AltX to be hosting far more junior mining contenders.

With a number of new mining listings settling on the JSE’s main board it is somewhat disappointing that the AltX has not benefited from this corporate activity. Do junior miners prefer the main board?

To be frank the mining listings on the AltX have not been great ambassadors for the alternative market. Yomhlaba was listed for only a few months before its major mining contract fell into dispute and the company’s shares were suspended.

Luring new contenders

Exploration company Chrometco could not muster its envisaged funding ahead of listing and its current projects look iffy; while coal distributor Wescoal’s efforts to shift into full scale mining activity were hampered when the acquisition of Anker was called off.

Greenhill tells me AltX is very aware of the paucity of mining listings and that the listings committee is working hard at attracting new contenders to the market.

He reckons that the dual listing of energy specialist IPSA (also listed on the London Stock Exchange’s AIM) on AltX last month could be the trigger to set off additional mining or mining related listings in the near future.

“IPSA’s been a great listing, and in many respects the share trades on AltX are setting the prices for the group in London.”

Indeed there are many junior mining contenders with assets and projects in South Africa that have opted for a primary listing on London’s AIM. Whether these fledgling mining companies reckon it?s feasible and beneficial to have dual listing in South Africa remains to be seen. But current trading in IPSA does certainly offer them food for thought.

Aussie firm heading for AltX?

Greenhill adds that there is a possibility that an Australian listed company with mining assets in southern Africa could also wend its way to AltX within the next few months.

Another possibility – in my opinion – would be the transferring of revamped Lonrho Africa’s listing from the venture capital board to the AltX. Lonrho, which has a primary listing in London, holds diamond and uranium interests in South Africa as well as some other promising Africa investments.

From a trading point of view the AltX does offer any junior mining contenders a vibrant platform with the alternative market boasting surprisingly high value, volumes and number of trades.

Greenhill discloses that during the third quarter of 2006 the JSE compared the 25 companies listed on AltX with 93 companies with a market cap of R100m or under on the Main Board.

He says AltX liquidity is considerably outperforming the bottom end of the Main Board.

Beating Main Board

“AltX is a quarter of the size, in terms of number of companies listed, however the number of shares traded was almost the same. In terms of the rand value of the trades, AltX was more than double (R101m Main Board versus R234m for AltX).

“The number of trades for the 25 companies on AltX was almost three times as many as for the 93 companies on the Main Board. (4 222 for Main Board versus 11 434 for AltX).”

Indeed, the vibrant AltX has a lot to offer junior miners, and there’s no excuse why the alternative market should not be hosting an array of junior mining talent.

Hopefully a few exciting junior mining listings in the next few months could start a steady stream of applications to the AltX, and see a vestige of critical mass (and increased investor attention) on the resources side of the alternative bourse.