No mines, but lots of cash

The United Kingdom has little mining to speak of, after the demise of its metal mines and coal industry in the past century. However, despite this paucity of mining activity, London remains one of the primary mining financial centres in the world.

London houses the world’s three biggest mining companies — Anglo American, BHP Billiton (soon to be headquartered in Melbourne, Australia), and Rio Tinto — on the main board of its stock exchange. In addition, it has a secondary board, the Alternative Investment Market (AIM), which is attracting an increasing number of smaller companies involved in gold exploration, development and mining companies.

Not only is London an ideal market for such international companies, but the mining companies have traditionally sourced much of their project finance from London institutions. There exists today a large community of investment banks, law firms, and brokerage houses to support an active mining sector.

There are only 12 U.K. mining companies on the main board of the London Stock Exchange (LSE). These include (in descending order of value) Anglo American, BHP Billiton, Xstrata, Antofagasta, and Lonmin. Only three of these are involved in gold mining.

The requirements for a full listing on the LSE include a 3-year trading record, a 700,000 market cap, and a 25% free market float. Maintaining such a listing can prove expensive.

The LSE developed the AIM in 1995 to provide a less costly route to the market than the official list. It has become a popular vehicle for smaller companies and, indeed, grown quite phenomenally.

There are no specific qualification criteria for a listing on AIM, but companies must produce an admission document that makes certain disclosures about directors’ backgrounds, their promoters, business activities, and financial positions. In addition, applicants must appoint a broker who is a member of the LSE, and, most importantly, appoint a nominated advisor, known as a “Nomad,” from a register of such advisors published by the exchange. The Nomad, in effect, acts as a vetting agent on behalf of the exchange.

Most companies involved in gold production or development on the AIM are classified under the “gold mining” and “mining finance” sectors, though some are categorized as “other mineral extractors and mines.”

Since Peter Hambro Mining listed on the AIM in April 2002, there have been 12 companies involved in gold mining that have listed, culminating in the biggest of the lot: the secondary listing of Canada’s Bema Gold Corp., at the end of September 2003. Bema listed with a market capitalization of 700 million, making it the second-largest company on the AIM. At that time, there were six gold mining companies in the top 50 AIM stocks by market cap.

The growth in gold mining floats over the past year is ably demonstrated by the fact that, in September 2002, there was only one gold company, Australian Gympie gold, in the top 50.

— The preceding is an excerpt from World Gold, a monthly publication based in London.