By the end of this year there could be 20 Australian companies listed on the OTCQX, a new form of stock exchange in the US. At least, that is if OTCQX international director of business development Andrew Kyzyk has his way.
At the time of writing, six Australian companies had joined the US-based market since it started in March 2007, the latest being mineral processing technologist Intec. There were several others waiting in the wings.
Anecdotal evidence indicates that American investors are more open to technologically based companies than straight mining plays. This bodes well for small mine supply companies seeking capital to further their technologies. However, it does not rule out straight mining plays getting much needed capital, given the size of the US market.
OTCQX is an offshoot of the over-the-counter trading regime. That trading regime was started by OTCQX’s creator, Pink Sheets, 104 years ago. The over-the-counter market is a broker driven one that has grown to more than 5000 companies. OTCQX has taken that market into a live electronic format. Trading and disclosure information is available “live”, much as it is on the Australian Securities Exchange.
It offers the benefits of getting access to US capital without having to go through the expense of a New York Stock Exchange or Nasdaq listing. Australian Securities Exchange listed companies do not need to comply with the onerous Sarbanes-Oxley regulations or Securities and Exchange Commission requirements.
It is not just for small players. According to the exchange’s website, listed companies include Adidas, BASF, Akzo Nobel and Air France-KLM.
Besides Intec, the other Australian resources players on the OTCQX are Oxiana, Linc Energy and Pryme Oil and Gas. Pharmaceutical players Starpharma and Phosphagenics have also taken the over-the-counter option.
Kyzyk said there were six Australian companies on the OTCQX. “I would like to see two to three times that from a year today,” he said, adding that he included New Zealand companies in that too.
“It’s reasonable to assume we’ll have 20 Australian companies listed by that point.”
Mining is one of the sectors the OTCQX is targeting. “We’ve talked to several mining companies,” Kyzyk said.
Getting onto the OTCQX is a fairly simple 11-step procedure. Key steps include getting a Principal American Liaison and creating Level 1 American Depositary Receipts.
The PAL can be an American Depositary Receipts Bank, a qualified merchant bank or a qualified attorney.
The ADRs basically “Americanise” foreign securities. They are created by ADR Banks such as Bank of New York Mellon, Citigroup and JP Morgan.
Bank of New York Mellon vice-president of issuer services Australia and New Zealand Barry Driscoll said an ADR was “nothing more than a receipt for a home company share”
“It allows US investors to buy foreign stock in an American format. However, it is not subject to Sarbanes-Oxley,” he said.
Driscoll said the Bank of New York Mellon had about 90% of the ADR business in Australia.
Australian shares are usually bundled together into each ADR. This is more to satisfy US sensibilities. Kyzyk said US investors preferred to buy shares at higher prices.
One drawback of the OTCQX regime is that companies using it cannot go directly to retail shareholders with capital raisings unless they meet certain SEC requirements. But there is nothing to stop an Australian OTCQX-listed company shaking the tin in front of sophisticated US investors. This is where the PALs come in. It is their job to put their clients in touch with the most suitable sophisticated investors.
Oxiana has led the way for the Australian mining sector on the OTCQX. It is by far the largest Australian company listed there. When its merger with Zinifex is completed it will be an even larger player.
It has bundled five of its shares together to form an ADR that trades under the code OXFLY.
Oxiana public affairs manager Natalie Worley said the ADRs gave Oxiana access to a larger pool of investors including US retail investors and domestic funds.
“The ADRs facilitate trading in Oxiana shares being simpler and less expensive for these US investors than trading directly on international exchanges,” she said.
“Having US Level 1 ADRs can also be advantageous as some US funds can only invest in international stocks which are deemed to be compliant with US listing rules.
“The listing process is relatively straightforward for an ASX-listed company as the listing rules are similar.”
For Linc Energy the story is similar. It went onto the OTCQX in December.
Manager of investor relations and corporate services Janelle van de Velde said its listing had given Linc opportunities to broaden its information dissemination efforts in the US.
“For us a Nasdaq listing was too onerous,” she said. “We have quite a few US shareholders already.”
Van de Velde said it had been becoming complex for some of those shareholders to remain involved with Linc but the OTCQX listing solved that.
“We’re starting to get consistent trades through the ADRs now,” she said. “We probably listed at the worst time given the sub-prime crisis though.”
Any lethargy due to the sub-prime crisis seems to have passed.
“When we listed we were something like 55 cents a share,” van de Velde said. “Now we’re sitting at $1.90. How much of that is due to the OTCQX it’s hard to say.”
Getting access to the much bigger capital market was the key driver for gas-to-liquids player Linc.
Being in the technology sphere certainly has not hurt its US push either. Kyzyk agreed that US investors seemed to have a stronger appetite for technology based companies.
“Linc has performed extremely well,” he said. “They’ve doubled their market cap in the past few months. The US has a huge appetite for clean energy. I think we’re going to see a lot more companies with clean coal-related technology.”
While it is not in the clean energy space, Intec decided to put its technology offering in front of US investors. As of May 6, Intec’s ADRs started to be traded on the OTCQX.
The mineral processing player opted to bundle 20 of its shares into an ADR. That prices its ADRs at $1.74, based on its May 7 share price of 8.7c. Its ADRs will trade under the symbol ICLJY.
Intec managing director Philip Wood said the OTCQX offered most of the benefits of a US listing without the huge compliance costs of joining the New York Stock Exchange. There are no SEC filings or Sarbanes-Oxley compliance to contend with.
Indeed, Wood asserts that the OTCQX listing beats other overseas listing options such as London’s AIM and the Toronto Stock Exchange.
He said it cost £750,000 to list on AIM and then there were a range of other hurdles such as needing British-based directors and a need to visit London regularly.
“Effectively OTCQX is a zero cost compliance regime,” Wood said. “All the OTCQX is saying is if you, Intec, comply with the ASX then you can trade your shares in the US.
“Why wouldn’t you access the deepest capital market in the world if you don’t have to pay any compliance costs?”
Wood said Intec would be playing up the technology side of its business to US investors.
“Americans love technology. They don’t know that much about mining but they are comfortable investing in technology,” he said.
Intec has a proprietary hydrometallurgical process that allows it to recover metals from concentrates of sulphide and oxide ore, tailings and industrial wastes. It operates a “traditional” operation processing tailings at the old Hellyer mine in Tasmania.
The company is also working on a plant at Hellyer to treat 35,000 tonnes per annum of electric arc furnace dust to recover zinc. That plant is due to be in operation in the 2008-09 financial year.
