Listing mining firms
Almost four years after the delisting of the first mineral prospecting company ever traded on the Jakarta Stock Exchange (JSX), the government is again prodding mining ventures to raise funds from the capital market. Director General of General Mining Kuntoro Mangkusubroto confirmed last week that the Capital Market Supervisory Agency had allowed mineral prospecting companies to float shares on the Surabaya Stock Exchange (SSX).
The JSX apparently no longer wants to deal with any mineral prospectors after its bad experience with PT Minindo Perkasasemesta in 1992, a prospector of gold, copper and nickel. Minindo was actually designed to be a test case for other prospectors intending to raise funds from the capital market. But it was delisted a few months later, due to the combination of an internal management dispute and an allegedly questionable financial report.
Though the country is a trove of mineral resources, the JSX and SSX have yet to learn to deal with mineral prospectors. The domestic investing public also must be educated in the prospects and risks of investing in mineral prospecting ventures. That is quite different from the stock exchanges in such countries as Canada and Australia, which have listed thousands of mineral prospectors in special sections called mining boards. There are already three mining companies listed on the JSX, but all of them have made impressive production records and are therefore no longer mineral prospectors in the real sense.
Listing mineral prospecting companies is indeed distinct from most other businesses in that the former is assessed not on the basis of their balance sheets, but on the valuation of their mineral reserves. A mineral prospector does not offer past performances, but future wealth. Since stock exchanges usually require a company intending to go public to have made profits in at least the previous consecutive years, most mineral prospectors are obviously disqualified because they cannot show profit records, but also future wealth potential based on the mineral reserves they find. They are therefore treated specially in most stock exchanges and are listed under the so-called mining board.
That does not, however, mean that investing in mineral prospectors is simply a gamble. True, mining is a risky business. Yet, the high risk also bears a potentially large windfall. In the developed countries, many people who call themselves "the real investors" love the stocks of mineral prospecting companies. There have been many instances where the investors suddenly find that their investment value has skyrocketed after their prospecting companies announce new mineral discoveries.
Given the risks, listing requirements for mineral prospectors are very tough. The most crucial of them is the valuation of mineral reserves by independent geologists. No wonder the prospectus for a share offering by a mineral prospecting company is very bulky, containing hundreds of pages of reports and supplements by independent geologists and other experts and analyses of development costs and future market prospects of the minerals to be produced.
Learning from the JSX's bad experience with Minindo, the SSX therefore should make thorough preparations before approving an initial public offering. An educational campaign for mineral prospectors, securities companies and the investing public is also required to acquaint them with the technicalities as well as the prospects and risks of investing in mineral prospecting companies.
The SSX must do it right this time. Many promising small mining ventures have failed to enter production because of financial problems. The stock exchange can play a very pivotal role in helping mineral prospecting firms, most of them usually small ventures, develop mineral resources.