African Eagle Resources plc Listing on AIM and PLUS a walk on the dark side or progressive...

African EagleResourcesplc

Listing on AIM and PLUSa walk on the dark side or

progressive enlightenment?

Mark Parker

Managing Director, African Eagle Resources plc

Asa Bridle

Mining Analyst, Seymour Pierce Limited


Disclaimer

• The views expressed in this presentation are those of the authors and do not necessarily reflect those of African Eagle Resources plc or Seymour Pierce.

• The information contained herein is compiled from a number of sources and is believed to be correct, but cannot be guaranteed and should not be relied upon. This document does not constitute, or form any part of, and is not to be construed as an offer, invitation or solicitation to buy or sell any securities of any of the companies referred to herein and any opinions expressed are subject to change without notice. The value of any investments referred to herein and the income derived therefrom may fall or rise against the investors’ interest and past performance is not a guide to the future.

• No representation or warranty, express or implied, is given by African Eagle Resources plc or Seymour Pierce or any of their respective directors, partners, officers, employees or professional advisers as to the accuracy, completeness or fairness of the information or the opinions contained in this document and no responsibility or liability is accepted for any such information or opinions or errors or omissions.


International markets for mining

0

5000

10000

15000

20000

TSX / TSXV LSE / AIM Shanghai /HK

ASX NYSE /Euronext

JSE Other

Funds raised (US$M) and numbers of transactions by mining companies during 2007, by stock exchange

2552 187 2 410 2 1 28


Background: AIM

• Launched in 1995 by the LSE

• 1,638 companies, combined mkt cap £79.1bn

• 962 have mkt caps less than £25m (59%)

• 1,184 have mkt caps less than £50m (73%)


AIM market relative performance

-30% -20% -10% 0%

FTSE 100

FTSE 250

FTSE Small Cap

FT All Share

AIM All Share


AIM evolution – companies

0

200

400

600

800

1000

1200

1400

1600

1800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 toAug

new Cos Total Cos


AIM evolution – funds raised

0

2

4

6

8

10

12

14

16

18

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008to

Aug

£billio

n

IPO funds IIry funds Total funds


AIM by sector

Financials28%Consumer Goods

& Services9%

Industrials15%

Telecom & Technology

9%

Utilities2%

Basic Resources15%

Oil & Gas18%

Chemicals1%

Healthcare3%

% based on market value


Plus Markets• Successor to OFEX

• Started as matched-bargain market operated by stockbrokers John Jenkins.

• Evolved into an FSA-regulated market by 2002

• Lean years after technology bubble

• Refinanced and rebranded as Plus

• Enhanced trading platform, December 2005, multiple market-makers

• Provides primary quotations for smaller companies and a trading platform for companies listed on other markets

• Plus taking significant fraction of trades from AIM


AIM Miners – big and small

16

2825

36

71

1315 16

0

10

20

30

40

50

60

70

80

<£2M £2 to £5M £5 to£10M

£10 to£25M

£25 to£50M

£50 to100M

£100 to200M

>£200M

Market capitalisation (£M)

Nu

mb

er

of

co

mp

an

ies

Plus Markets:biggest £10Mmedian £2.3M

Median£18.6M


East North

Southern

West

Central

NorthSouth

Australasia and Pacific

Europe

Asia

FSU

Middle East

Worldwide

AIM Mining – where on earth?

Africa40%

Americas17.5%

12%

9%

16%


AIM Miners – What are they looking for?

Operations of Aim minerals companies by commodity

Precious metals

38%

Base metals24%

Steel and aluminium

6%

Diamonds and gems11%

Energy minerals

6%

Other6%

Diversified9%


AIM mining IPOs

• Jan 2001 - Aug 2008, 217 Minex companies joined AIM - 10% of all new listings.

• £1.1bn raised at IPOs since 2001 – 4% of total IPO funds

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008(Jan-Aug )

No.

of

com

pani

es

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

Fun

ds r

aise

d (£

m)

Companies Funds raised


AIM mining secondary fundraisings

• £4.7bn raised in secondary placings since 2001 (19% of total secondary business on AIM)

• Over £700m raised in 2008 – 25% of total secondary fundraisings.

0100

200300

400500

600700

2001 2002 2003 2004 2005 2006 2007 2008(Jan-Aug )

No.

of c

ompa

nies

020040060080010001200140016001800

Fun

ds r

aise

d (£

m)

Companies Funds raised


Junior mining: ground to make up

Note: FTSE Fledgling Mining Index consists of companies capitalised at less than £22 million

FTSE Small Cap Mining Index consists of companies capitalised at between £22 million and £89 million

Source: Altus Resource Capital

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

8/29/20088/31/20068/31/20048/30/20028/31/20008/31/1998

FTSE All Mining Index

Copper

FTSE Small Cap Mining Index

Gold

FTSE Fledgling Mining Index

FTSE All Share Index

STRONG

FUNDAMENTALS

VALUE GAP

VALUE GAP


THE DARK SIDE

SHORTCOMINGS OF AIM AND PLUS

FOR JUNIOR MINERS


Liquidity

0.0

5.0

10.0

15.0

20.0

25.0

30.0

<0.3% 0.3% to 1.0% 1% to 3.2% 3.2% to 10% >10%

Liquidity (trades in month as percent of total issued shares)

Perc

en

t o

f co

mp

an

ies

Aim minerals companies by liquidity – July 2008

Median = 1.9%(July 2008)


Transaction costsMinimum gain neededto make a trading profit

Assuming:

£100,000 potDivided equally among 20 shares, all approximately the same price

After trading full amount 10 times

Share price Gain needed

2p 30%

5p 11.5%

10p 11.5%

50p 6.2%

£1 6%


The institutional investment gap

• Fund = £200M• Minimum investment = 0.5% = £1M• Maximum holding = 10% of any company• Hence minimum market cap = £10M

But it’s still easier (and more likely) to make £1M though a 10% improvement in a £10M holding than a 100% improvement in a £1M holding.


AIM shortcomings

• Poor liquidity

• Transaction costs – spreads and tax

• Discrimination against retail investors

• Over-reliance on institutions

• Loss of CGT concessions

• Discrimination against directors


A message to the Regulators

Please ….

• Improve liquidities

• End discrimination against retail investors

• Scrap stamp duty

• Reduce spreads (abolish market makers?)

• Ease restrictions on directors dealings


The future …?

• Difficult to raise finance for exploration and development.

• Metals prices unlikely to fall far– High operating costs and supply side constraints– Supply unlikely to exceed demand for several more years

• Sector likely to offer opportunities

• Mid-sized and large miners, cash-rich from high metals prices, will snap up promising juniors

• Increased role for private equity, backing favoured juniors, perhaps de-listing them or using them as vehicles for further consolidation

• Juniors which survive should thrive


Listing on AIM and PLUSa walk on the dark side or

progressive enlightenment?

Mark Parker

Managing Director, African Eagle Resources plc

Asa Bridle

Mining Analyst, Seymour Pierce Limited

African Eagle Resources plc Listing on AIM and PLUS a walk on the dark side or progressive...

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