ASIC calls for better handling of micro-cap mining and exploration IPOs

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ASIC’s report is based on a review of 17 mining IPOs – representing about 23.6% of resources IPOs between 2016 and 2018.

After a review of mining and exploration IPOs, the Australian Securities and Investments Commission has called for better practices in handling of these IPOs in the micro-cap space.

In its report, ASIC noted that companies, directors and lead managers need to take into account the unique characteristics and vulnerabilities of the resources penny stock sector.

According to ASIC, some lead managers have been found to preference a select subset of investors.

The regulatory body claims many retail investors not associated with the lead manager find it difficult to invest in these IPOs.

One impact of this is that it encourages investors looking for a rapid return in their initial outlay rather than those looking for medium-to-longer term returns.

This could then lead to unsustainable market demand in the securities’ short-term trading, at the expense of longer investments more appropriate for the delivery of exploration programs.

ASIC also claims conflict of interest in the space is prevalent and is of “significant concern” – potentially resulting in misconduct or unfair outcomes.

This is because lead managers may be acting both for the company and investing clients as well as holding a direct interest in the company themselves.

ASIC pointed out another fault in the space was that promotional materials like investor presentations were often subject to “substandard compliance controls”, despite the fact they can have a large influence on investors’ perceptions and actions.

Mining sector makes up a third of IPOs

With the junior mining sector, comprising micro-producers and explorers, accounting for about a third of all IPOs over the last two years, ASIC has encouraged companies, directors and lead managers to at least recognise and appropriately manage conflicts of interest.

“Companies and advisors need to conduct themselves in a way that is fair and responsible,” ASIC commissioner John Price said.

“Disclosure has limits and over reliance on disclosure alone can lead to poor investor outcomes and a loss of confidence in the market.”

Mr Price added that moving forward ASIC would look more at the underlying business practices and processes supporting IPO transactions – including the conduct of company directors and advisers.

“ASIC is able to take enforcement action where we identify unlawful conduct or practices that may harm investors,” he warned.

The ASIC report was based on a review of 17 mining IPOs – representing about 23.6% of resources IPOs between 2016 and 2018.

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