Golden period for IPOs

St Georges Terrace has been paved with gold for Perth’s corporate dealmakers as the market continues to emerge from COVID-19.

Business News’s Data & Insights shows 32 initial public offerings related to gold and connected to Western Australia in the past 12 months, worth $233 million.

That’s been supported by a strong gold price during the uncertainty of the pandemic, and investors’ growing willingness to put cash towards exploration.

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The gold price has been consistently close to $US1,800 an ounce in recent months, after peaking at more than $US2,000/oz last year.

To put that in context, gold had been as low as $US1,100/oz in late 2015, and below $US500/oz at the turn of the century.

The three quarters to March 2021 were the highest-spending quarters for gold exploration in WA of all time, unadjusted for inflation, according to Australian Bureau of Statistics data.

The total spent was $776 million across those nine months.

In June, analysts S&P said there had been more copper and gold projects drilled internationally in the first quarter of 2021 than for any comparable period since they began tracking drilling data in 2012.

“Gold and copper projects drilled increased by 34 per cent and 91 per cent respectively from [December quarter 2020],” S&P said.

“Overall, the sector has started 2021 with very encouraging signs in exploration.”

Some of the WA listings were new companies, while others were spinouts of existing businesses, like Western Gold Resources from GWR.

Many were focused on gold in combination with other commodities, including copper.

Among the biggest deals linked to WA were Iceni Gold, raising $20 million, Lunnon Metals ($15 million), and Barton Gold ($15 million).

Those first two deals alone were set to earn underwriters Morgans and EurozHartley nearly $1.9 million combined.

Assuming a similar fee structure for other lead managers, the IPO gold rush would be expected to reap about $11 million for Perth’s corporate financiers.

Iceni shares lifted almost 50 per cent up from their 20-cent issue price when they started trading in April, although they had fallen to 15 cents at the time of writing.

The company’s main target is the 14 Mile Well project near Laverton.

Lunnon has lifted from 30 cents when it hit the bourse in June to be 48 cents at the time of writing; it has interests near Kambalda.

Golden days

HLB Mann Judd partner Marcus Ohm said there had been 61 IPOs on the ASX in the company’s tracking database in the six months to the end of June 2021, raising $2.8 billion.

Resources businesses were a big part of that, with gold dominating.

Growth in IPO volumes had been partly driven by gold floats, Mr Ohm said, with macro factors contributing.

“The gold price benefited from the pandemic and being a safe-haven asset,” he said.

However, new supply had since come online, while the economic rebound and reduction in COVID-19 uncertainty would mean demand could soften a little.

“They [economists] are forecasting the gold price to come down five per cent per annum over the next few years,” Mr Ohm said.

“A lot of the [exchange traded] funds in the past three to six months have been getting out of gold as the market settles.

“If you take a broader time horizon on the gold price …. it’s levelled off a bit.

“But if you go back a few years, it was around the $US1,000 to $US1,100 an ounce mark.

“We’re still up around $US1,800 an ounce now.”

It’s been an easy time for gold hopefuls to raise capital.

However, the cash injection to drilling will lead to challenges with equipment, labs, and workers.

Getting digging

Morgans research analyst Mat Collings said explorers had been successful in raising money.

“There have been a lot of small gold explorers popping up with their hand out,” Mr Collings told Business News.

“The gold price [is very helpful] … the enthusiasm for gold as a hedge against inflation, with the uncertainty since the start of 2020.

“And the Australian dollar has strengthened, but not as much as we saw during the GFC.

“There’s general interest in the sector.

“Gold outperformed … in my view.”

The exchange rate is an important factor, because it determines how much local producers earn from selling into international markets.

A lower Australian dollar will help exporters earn more revenue in local terms and enable them to be more competitive.

While the exchange rate has lifted a little, the impact has not been substantial enough to counteract the benefit of the higher US dollar gold price.

During the previous resources boom, the Australian dollar rose above parity with the US dollar, which reduced some of the competitive benefit for exporters from high prices.

Mr Collings said investors were trying to assess where the gold price would eventually settle, but that expectations of further rises had cooled somewhat.

“It feels like it’s stabilised,” he said.

Consequently, gold IPOs might start to slow down, with the peak of listings potentially having passed. Exploration and spending could be yet to peak, however.

“There’s been some companies with good ground, good prospects, they need to get their skates on.” Mr Collings said.

Attention will turn to how the dozens of hopefuls that have secured funding will get their projects off the ground in an extremely competitive market.

“There have undeniably been a lot of IPOs, the challenge now seems to be delivering results,” Mr Collings said.

“The challenge for all of them is to keep the market interested, there are so many of them.”

Some were struggling to get drill results processed through labs rapidly, because of high demand.

Experienced drillers are also in high demand, with Mr Collings saying there was an emerging shortage of skilled operators for the most difficult drilling projects.

Data from the federal government shows 309 job vacancies for drillers and shotfirers in WA in June, down from more than 330 in March and up about 20 per cent from mid-2020.

Similarly, there were 168 vacancies for geologists and geophysicists in June, up from 64 a year earlier.