Opportunities and Challenges of the Public Market October 2018
Introduction to the markets 2
London Equity Markets There are several different markets in the UK which trading companies can apply for admission on. These have different regulators and regulatory status. This will impact on the tax position and trading costs for shareholders. Some of the markets are outlined below FCA Regulated Exchange Regulated Exchange Regulated The Main Market of the London Stock Exchange The Official List The AIM Market Unlisted* Growth Market Unlisted* Premium Segment Standard Segment AIM NEX Exchange Growth Market Issuers with a Premium Listing are required to meet the FCA Listing Rules for the Premium Segment, which are higher than the EU minimum requirements. This means they have the highest safeguards for investors. The Standard segment is open to issuers who are required to comply with EU minimum requirements. A Standard Listing allows issuers to access the Main Market of the LSE by meeting EU harmonised standards. AIM is the LSE s international market for smaller growing companies. The AIM Market is regulated by the LSE. The NEX Exchange Growth Market is a platform for earlier stage companies. The NEX Exchange Growth Market is regulated by NEX. * Unlisted means the shares are quoted on a multi-lateral trading facility (MTF) for regulatory purposes. Listed equity status is given only to the Official List. 3
Where are mining companies trading? Exchange Number of companies Average market capitalization m LSE (Main board) 51 5,186 LSE (AIM) 114 39 ASX 602 391 TSX 218 665 TSX-V 980 12 NASDAQ 1 st North 8 21 JSE 29 803 Data: Factset on 14/08/2018, TMX 31 August statistics and LSE market statistics for September 2018 4
Mining Companies on the LSE 39 Larger companies 28 Main Market / 11 AIM Standard Premium AIM 57 smaller companies 7 Main Market / 50 AIM 100 90 Market Capitalisation ( m) 80 70 60 50 40 30 20 10 0 Data: LSE market statistics as at September 2018 5 Source: LSE (1 March 2017)
Market performance 6
IPO activity IPOs on the different exchanges over 2018 (YTD) Total number of IPOs Mining company IPOs TSX 162 LSE 60 TSX 40 LSE 5 ASX 51 ASX 18 1 st North 12 1 st North 0 JSE 5 JSE 0 Data taken from Factset on 9 October 2018, TMX statistics and LSE statistics 7
Recent London Admissions AIM Main market Re-admissions Dual listings Source: London Stock Exchange 8
Location of mining IPO s Source: London Stock Exchange 9
Equity fundraising activity on LSE Funding activity has been primarily on secondary issues with IPO and new admissions being a significantly smaller proportion of activity. IPO activity was concentrated in a few large issues: Polyus on the Main Market in 2017 ( 432m) Yellow Cake PLC on AIM in July 2018 ( 152m) AIM has seen limited IPO activity in the last few years: 4 mining new admission to date in 2018 of these only 1 was an IPO (Yellow Cake) with others being dual listings (from ASX and TSX). There were 4 new AIM admissions in 2017, of which 3 were IPOs with average money raised of 3.2 million. There has been 1 IPO in each of 2017 and 2018 on the Standard Segment. 3,000 2,500 GBP millions 2,000 1,500 1,000 500 0 2012 2013 2014 2015 2016 2017 2018 Source: London Stock Exchange New Issue Secondary fundraises 10
Admission requirements 11
Eligibility requirements Premium Listing Standard Listing AIM NEX Exchange Growth Market Minimum market capitalisation 700,000 n/a n/a Minimum Free Float 25% Assessment of suitability 10% Minimum trading history Control over assets 75% of business supported by revenue earning track record of 3 years (3) Control over majority of assets at least over 3 year historic period n/a n/a n/a n/a n/a n/a Lock-in periods n/a n/a 1 year for start-up companies for directors, applicable employees and shareholders >10% 1 year for start-up companies for PDMRs Admission Documentation Prospectus (vetted by UKLA) Eligibility letter to UKLA Prospectus (vetted by UKLA) AIM Admission Document (1) (2) Nomad declaration of suitability NEX Admission Document(1) (2) Designated Adviser(s) Sponsor (at admission and for key transactions) Not required (but typically engage a broker) Nominated Adviser and Broker (at all times) NEX Corporate Adviser (at all times) Corporate Governance UK Corporate Governance Code Relationship Agreement with 30% shareholder(s) Corporate Governance statement Adoption of a Corporate Governance code and compliance statement Share Dealing Policy Corporate Governance statement and at least 1 non-executive director Working Capital Min. 12 months clean working capital statement Working capital statement required min. 12 months clean working capital statement min. 12 months clean working capital statement Shareholder preemption rights Required Company law Company law NEX typically requires and limits to 15% on non pre-emptive basis (1) Based on admission criteria to market. If there is a public offer of securities, then consideration of whether a prospectus is required. (2) Both the AIM Market and the NEX Exchange Growth Market have provision for fast-track admission for companies which are listed on certain other regulated exchanges (or equivalent). If the criteria is met, companies with a sufficient track record are exempt from having to produce an Admission Document. All other eligibility criteria must still be satisfied. (3) Mineral companies do not have to comply with the financial track record requirement. 12
Continuing Obligations Premium Listing Standard Listing AIM NEX Exchange Periodic financial reporting Related Party Transactions Corporate Transactions Further issue of shares Close periods Insider Lists Disclosure of inside information Disclosure of shareholdings Cancellation of admission Shareholder approval (>50%) required if >5% on class tests Shareholder approval (>50%) for a Reverse Takeover and for Class 1 transactions (>25% on class tests) 10% maximum discount (except with shareholder approval) Prospectus required if issue >20% over 12 months Company law considerations Annual and half year reporting Annual and half year reporting Annual and half year reporting n/a Shareholder approval (>50%) for a Reverse Takeover Prospectus required if issue >20% over 12 months Disclosure and independent director/nomad consent if >5% on class tests Shareholder approval (>50%) for a Reverse Takeover and for Fundamental Disposal Shareholder approval (>50%) required if a disposal to a related party Shareholder approval (>50%) for a Reverse Take-over Company Law (1) Company Law (1) Market Abuse Regulation (MAR) close period for PDMRs is 30 days prior to preliminary results and interim report Required under MAR PDMRs required to disclose (MAR) Shareholders >3% (or 5% for certain holdings) Required under MAR Required under MAR AIM Rule 11 PDMRs required to disclose (MAR) Shareholders >3% 75% shareholder approval n/a 75% shareholder approval required (unless transferring to Main Market or equivalent trading platform) Required under MAR NEX Rule 32 PDMRs required to disclose (MAR) Shareholders >3% 75% shareholder approval (unless transferring to Main Market or equivalent trading platform) (1) If there is a public offer of securities, then consideration of whether a prospectus is required. 13
Roles of the key advisers Nominated adviser Broker(s) Reporting accountant Registrar(s) Lawyers Grooming, preparation and pre-ipo packaging In capacity as Nominated Adviser assessing suitability for AIM Project manage IPO process Advise and guide on the relevant regulatory requirements Liaison with stock exchange and regulators Assist with selection of other advisers Research publication Pre-admission management roadshow Fundraising Managing the secondary market on market Financial due diligence Historical Financial Information and working capital report Review of financial control and reporting environment Maintenance of the company s shareholder register Setting up securities for admission into CREST (UK electronic settlement system) Legal due diligence Verification of AIM admission document UK lawyers required together with local counsel (in other jurisdictions where the group has operations) Nomad and broker appoint a solicitor to review the legal documents and draft the placing agreement Competent Person Preparation of competent persons report(s) on the principle assets Others Financial public relations advisers Security printers 14
Work Flow for an AIM IPO Key company documents Due diligence Marketing documents Placing Documents Admission Business Plan Contents to include title to assets, contracts and litigation Management accounts (if available) Monthly three year track record Audited financial statements (if available) Three year track record for business to an acceptable accounting standard Interim financial statements May be required depending on timing of proposed AIM admission after financial year end Financial model Monthly financial model to support business plan and working capital review. This should have integrated cashflow, balance sheet and income statements. As well, it will need to incorporate sensitivities on material aspects. The forecasts should be prepared for a minimum of 24 months. Financial due diligence report Contents: financial due diligence on the company Historical Financial Information Contents: audited financial track record of the Company (for public document) Working capital review Substantiates public working capital statement Financial Position Prospects Procedure Review of systems and controls for controlling the underlying business and reporting on it to the market. Legal due diligence report Contents: examples include title to assets, review of contracts and litigation Corporate Governance Review Review of the controls and procedures to ensure that the Company meets London corporate governance expectations Pathfinder Admission Document Information about the business Company information inc. strategy Financial information inc. Historical Financial Information Working capital statement Statutory and general information Investor Presentation Contents: a marketing document providing the history of the company and the investment story Equity Research Prepared by broker firm to prepare investors Based on public information and contains broker forecasts and assumptions Placing Agreement Contents: the capital to be raised and price, warranties and indemnities from the Company and directors Admission Document Final document Published and maintained on the Company website Application for Admission Application lodged with the LSE On acceptance, LSE issue a notice of admission to the market. Internal controls A financial systems manual/memo should be prepared Director background checks Private diligence requirement under AIM Rules for Nominated Advisers Competent Person s report Public report on material assets produced by an independent CP 15
Grant Thornton 16
Why Grant Thornton? Experienced in advising growing companies Our mid-market focus means that we are very experienced in advising growing businesses and understand the dynamics, as well as challenges, for these companies. We provide access to a full spectrum of professional advisors and transaction specialists and can quickly engage our teams to support our clients. IPO expertise We are the leading independent Nominated Adviser to AIM companies, having completed over 160 AIM IPOs and reverse takeovers over 22 years. We are experts in advising on public company M&A. Our team of highly experienced and qualified professionals has depth and breadth of expertise providing strategic, commercial, financial, regulatory and operational advice to public companies, their boards of directors and their shareholders. Sector experience We have a strong energy and natural resources team which spans all service offerings. We have geologists and engineers as part of our team This experience means we understand the market dynamics, issues, challenges and potential of real estate businesses, meaning we are able to focus and streamline an efficient client offering. International network Unlike many mid-market London capital markets advisers, we are part of an international network. We can utilise our global network of more than 50,000 people in over 700 offices spread across 135 countries, in order to provide you with the best possible service Breadth of service offering Sitting behind our capital markets team is the full scope of services provided by our Global firm. This includes the most active corporate finance advisory practice in the UK, which completes more deals than any other adviser We work together to provide holistic advice to our clients. Focused on long term relationships Our people are focused on developing long term lasting relationships with our clients. Our down to earth style and flexible approach truly differentiates us from our competitors. 17
We understand natural resources Grant Thornton serves a diverse range of mining, oil and gas clients across all industries and ownership structures, from the world's largest multinational companies to smaller growth-orientated businesses Our UK firm collaborates with our natural resource experts in key economies such as Australia, South Africa, Canada and the emerging mining jurisdictions such as Botswana, Zambia, Namibia and Zimbabwe, providing a deep understanding of the key issues currently facing natural resource companies such as accessing finance, managing costs, changing regulatory environments and sustainability. Grant Thornton works with leading natural resource companies globally 18 21
Key contacts Phillip Secrett Partner Head of Public Company Advisory T: +44 (0) 20 7728 2578 E: philip.j.secrett@uk.gt.com Samantha Harrison Associate Director Public Company Advisory T: +44 (0) 20 7865 2411 E: samantha.bs.harrisont@uk.gt.com Richard Tonthat Head of Natural Resources Public Company Advisory T: +44 (0)20 7728 3402 E: richard.tonthat@uk.gt.com Experience Philip is a Chartered Accountant, and an authorised Nominated Adviser with over eighteen years experience providing advice on a wide range of quoted public company transactions including on AIM and the Official List, acquisitions and disposals, reverse takeovers and public company takeovers. Philip has advised on over 50 transactions with a value of over US$6 billion. He is Chairman of the London Stock Exchange s AIM Advisory Group and advises the Exchange on all matters affecting the operation and regulation of AIM. Experience Samantha is a fellow of the Institute of Chartered Accountants in England and Wales and a member of the Chartered Institute of Securities and Investments She has over 15 years experience of advising on a wide range of corporate finance activities including fund raising, IPOs, M&A and public takeovers Samantha has particular expertise in providing advice for public companies having worked as an authorised Nominated Adviser for over 10 years, as well as full list Sponsor. She has previously been Chairperson of the Quoted Companies Alliance s Corporate Finance Expert Group. Experience A qualified chartered accountant with over 10 years experience in the mining sector, across M&A and equity capital markets Prior to joining Grant Thornton, he managed KPMG s global metals & mining M&A team and focused on crossborder disposals, acquisitions and fundraisings Richard was previously in the equity capital markets team at ING Bank, focused on natural resources In the past 7 years, he has executed over 30 M&A, IPO and fundraising mandates in metals & mining 19
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