What are the determining factors for a mining company to be successful in listing its securities on the Brazilian stock exchange, B3? For Rodrigo Barbosa, CEO of Aura Minerals, the first gold mining company to make a successful IPO on B3, one of the decisive factors is that the company is generating cash and being able to distribute dividends to those who bet on its shares. This was what mattered, in the case of Aura, which made the IPO in a delicate period, when the world was grappling with the Covid-19 pandemic.
He narrates that, at the time when the company - which was already listed on the Toronto Stock Exchange, in Canada - decided to go for dual listing, aiming to obtain funding to finance its growth projects, the Canadian market, where the vast majority of junior mining companies and medium-sized mining companies raise funds, was on a phase of scarcity of capital for mining. "Toronto no longer saw a thriving market for mining as occurred in the first decade of the 2000s, as a large part of the resources were being invested in Fintechs, Cannabis and several other industries. We, at Aura, had been successful through a turn-around, and we wanted to retell this story through an IPO", says the CEO.
At the time, Aura even thought about the New York and London markets as possibilities. However, it was still a small company for these markets. And he decided to return to Brazil. "At that time, Brazil was experiencing a decline in interest rates, which were reduced, and there was a very strong migration from the debt capital market to the equity capital market, with new funds being formed, capturing, and looking for investment alternatives. in Brazil, several IPOs were taking place, but all in sectors (retail and others) that were already raising capital. We then realized that there was a lot of capital in Brazil migrating to Equity and a shortage of companies with different stories on the stock market. There was no one, as we presented ourselves, with a truly countercyclical factor. Therefore, anyone who wanted to be protected in the dollar and even above the dollar (gold) could have an alternative to investing in Aura. Furthermore, we have Brazilian DNA. Based on these reasons, we judged that we would be successful. We also had conversations with some investment funds, which showed interest and even anchored our Deal", says Barbosa.
He adds that, for the IPO to be successful, the company had to carry out "investor education", because gold mining, for Brazilians, is something new as an investment. Investors are more accustomed to investing in gold as an asset, but not in gold mining. Aura Minerals had in its favor the fact that it had a track record of cash generation and had growth projects. The Aranzazu operation, in Mexico, had been resumed and there were other projects in the pipeline, in Brazil. "The fact that we were generating cash and paying dividends was very important to provide the necessary comfort for investors to enter a different segment, which is gold mining. If it werent for this track-record of cash generation and dividend payments, investors wouldn't be prepared to enter."
One of the advantages of gold projects, according to Rodrigo Barbosa, is that, as they do not require investment in logistics, in addition to costing less, they can be implemented more quickly. In the case of Aura, its growth is based on simple-to-execute projects (open pit mine operations, processing by CIL -- Carbon In Leach and medium scale) and on a team and management culture that makes quick decisions, has agility, delivery commitment. "This combination allowed us to carry out the Almas project in 16 months and the ramp up in five months, setting new benchmarks for the industry. It was the first project we did after the IPO", says the executive. Another important point that helped Aura's success was the fact that it is already listed on the Toronto stock exchange (TSX), adopts the highest standards of corporate governance, and submits to 43.101, which is the Canadian standard for certification of resources and reserves. "So, for those who had doubts about how resources and reserves are certified, there was already a versions, bilingual Conference-Cals. We are also required to have an auditor present in Brazil and a local statutory director to sign documents. Therefore, there is an entire regulatory framework in Brazil that ends up increasing costs a little."
Mechanisms for encouraging investments in mining
Rodrigo Barbosa considers that it is very important for Brazil, if it wants to develop mining, to create mechanisms that allow funds to be made available under better conditions.
"In the 2000s, the Canadian market -- and even the Australian one -- was very strong for investments in mining and much of this capital ended up in Brazil. Many important companies on a global scale invested in the country. And these resources, which were accessed mainly in Canada, from 2013/2014/2015, dwindled. So, if Brazil wants this sector to develop, it needs to find alternative solutions so as not to depend excessively on external capital. Making this funding viable locally is a key factor for the sector to develop over the next ten years", he says.
Regarding Brazilian investor appetite for mining assets, Barbosa states that it still takes time for it to mature. He recalls that until ten years ago, the capital market in Brazil raised little for mining, except for Vale and large iron mining companies.
"Brazil had almost nothing, but mining companies began to enter that generate cash (Aura Minerals, CBA, Sigma) and allow investors to begin to understand more about mining and the issue of mineral exploration. However, we are still in the first phase, in which investors do not know as much but have the comfort of generating cash in parallel. Sigma was another company already successfully listed abroad and which had a growth plan outlined. It was not an Exploration Company", says Barbosa, adding that the next phase will be that of companies that are still in the exploration phase. "But I think it's still a little far from that. The market needs to experiment more with this cash-generating mining. And here I'm talking about the Equity market, with listed companies, so that later we can start experimenting more with the issue of exploration. Investment in the exploration phase will happen, but it will be more private, from private equity partners, but not from listed companies. At least for the next five years."
Regarding investment funds, the CEO of Aura says that a "change in mood" can already be seen, remembering that the last ten years were marked by a shortage of capital for mining. "Companies stopped investing, doing M&A, investing in exploration, shares ended up falling a lot, and now the whole issue of ESG has come up, establishing that only companies that have high standards end up being able to capture. Those that don't have it fall by the wayside. There was also a discussion about where mining fits into ESG. There were banks, like BNP Paribas, that stopped financing mining, due to ESG. But on the other hand, it's all about understanding. Mining does have an impact on nature, but the problem can be minimized and then all the nature that was affected can be restored. But during the process, people end up interfering and this has a negative impact. On the other hand, there is already an understanding that there is, for example, no migration of the energy matrix from carbon to electricity if there is no copper and a series of other elements. There are no high-tech products without gold. There is no migration to lithium-free electric batteries. Then the understanding begins that without mining there are no important products because humanity continues to develop and innovate. So, we see the mood changing. But, with the exception perhaps of lithium and other minerals closely linked to batteries, mining companies today have very depressed valuations. And at the same time, commodities are at a good price. Gold is close to the high. Copper, although not close to its maximum, is at a value that allows cash generation. This is the first time I have seen an environment in which there are commodities at attractive prices and company valuations being relatively depressed. Therefore, I think it is a good opportunity for new investors to look closely, because it is a necessary sector. Without investment over decades, there is no way to grow supply in the next three, five, or ten years. Demand is coming with strength, prices tend to become more elastic, and I gradually understand that companies will recover their valuations, which are currently very depressed", concludes Rodrigo Barbosa.