Brazil’s mining institute wants to take junior miners to equity markets

Brazil’s powerful mining institute Ibram has begun working to create a stock exchange model in the country exclusively for junior mining companies to enable funding of projects in the sector across the whole of Latin America.

“This will open up room for small companies to obtain fresh cash here in Brazil. Currently, we have Australian, Canadian companies operating here with financing obtained from abroad. We can change that picture,” Ibram president Flavio Penido told BNamericas.

“Without a doubt, a specific format within the stock exchange in Brazil, or even a new stock exchange, would serve as a base for the mining sector across Latin America. Companies operating in Chile and Peru, both with strong mining activity, will be the main beneficiaries,” said Penido, who did not want to mention a specific timetable to conclude technical evaluations regarding the creation of a new exchange for these firms.

In March, Ibram officials will conduct a technical visit to evaluate the structure and modus operandi of the Canadian (TSX) stock exchange, which already operates a specific segment for listed mining juniors.

Along with Canada, Australia is the other country with a significant number of junior mining companies with listed shares. 

The prominence of those two countries on this front is no coincidence, since they are two of the most resource-dependent nations in the developed world, while Brazil intends to assume similar protagonism in the developing world. 

Ibram will also be engaged in technical studies with local stock exchange operator B3, which currently operates with equities and derivatives. One of the options to be considered is a simple format with straightforward rules for junior mining companies to list their shares on the local exchange.

The current investment scenario can be considered positive for companies looking to raise funding via equity markets, because the historic low level of Brazil’s benchmark Selic interest rate is prompting a mass migration of local investors from fixed income assets to equity.

However, some analysts see stumbling blocks to Ibram's plans.

“This task won't be easy, as local investors who opt to invest in the mining sector via equity markets are already very familiar with Vale’s shares. It will be difficult to convince investors to look for small companies in this segment, as it involves high risks,” Pedro Galdi, an analyst at Mirae Asset Management, told BNamericas.

NEW FRONTIERS

Meanwhile, Ibram sees great opportunities for junior mining companies to achieve expansion.

According to Penido, the activities of junior miners will be crucial to explore new frontiers in mining activity in Brazil, developing new areas, such as indigenous lands and even in ultra-deep water in the so-called pre-salt areas offshore.

“Junior firms will be able to lead the exploration campaigns across indigenous lands in Brazil, which are likely to be opened up for these activities as, at first, major companies are likely to avoid such exploration in order to avoid reputational risks,” said Penido.

“In the pre-salt area, where Petrobras has already discovered huge reserves of oil and gas, there is evidence of certain mining assets, but exploration in those places is still too expensive. Junior firms are likely to invest in research and development of new means of exploration in those areas to make them viable in economic terms,” the Ibram president added.