Access to Investors Just One Advantage of Listing for MinersBy Alejandro Ehrenberg | Wed, 10/16/2019 - 17:54
Q: What advantages would mining companies reap from a stock market listing?
A: The mining industry has been a very important sector for the Mexican economy for centuries. Its performance often correlates with the state of the economy as a whole. This is not necessarily reflected in listings in the stock market. It is an interesting sector to invest in with a representation that is still very low. The advantages of listing on the stock market are not necessarily particular to the mining industry but apply to all industries. It is a place where you can gain visibility and broad access to financing options. The amount of access to potential investors is greater than what you get as a private company.
Q: Given these advantages, why are there so few mining companies listed?
A: To be listed on the stock market requires a certain level of transparency. This has a lot of advantages. If you ask for financing and you provide your financial status, with the oversight of an auditor and regulator, investors will have more confidence to invest in you. If the investment comes in capital, the sum will be higher. If it is in debt, the rates will be lower. Transparency implies a certain amount of rectitude. I am not saying private companies necessarily lack this. However, without the requirements for transparency, there can be bad practices. There are many family-owned companies in Mexico that do not like the idea of other independent parties telling them what they should do. In addition, there are operational costs involved in producing compliance reports and audit reports. Generally, this cost is overestimated. On the other side, the benefits of doing this are underestimated. Having access to a series of potential investors, but also clients and other businesses, can lead to many interesting deals. In many ways, it is a guarantee for your survival because many private family businesses often do not survive the second or third generation.
Q: What other benefits do independent stakeholders bring?
A: The counterweight of independent stakeholders can help define a long-term strategy for the company. In some cases, a family member of the director of a company is not necessarily the right person to steer it in the future. The other parties can help find a suitable person for the short and long term. Within the corporate governance model, there is a committee of auditing and committees for social practices. These parties can help define other areas that are increasingly essential for companies, such as climate interest, care for the environment and diversity. Today, investors are no longer looking just to maximize their profits but to have a positive impact on society too.
Q: What are you doing to promote awareness about the stock exchange and the opportunities it provides?
A: In the US, more than half the adult population invests directly in the stock exchange. In Mexico, this is less than 1 percent. Raising awareness about the stock exchange will hopefully lead to more participants. To this end, we contribute in several ways. A few years ago, we started a finance school in collaboration with different universities, government bodies and businesses. In March, we opened a museum of the stock exchange. We are constantly promoting our organization around the country.
Q: How can the stock exchange be made more attractive for companies and investors?
A: One thing that needs to increase is the liquidity of a large portion of the listed companies. Currently, the first 40 companies of the 150 listed on the exchange are responsible for 80 percent of the traded volume. When a company has little liquidity, it is less likely to see positive price action. This vicious cycle has to be broken. We need to develop more investors and a greater retail base of companies. Another factor is that economic growth has been an average of around 2 percent in the last 30 years. Other emerging markets such as India and China have seen significantly higher growth. Greater growth correlates to more opportunities for businesses. In the US, the tech sector has seen a great deal of growth, which is not represented here in Mexico. To develop more investors, we need more medium-sized companies.