Listing mining firms

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.