South Africa Could Become Centre for Mining Finance
Xstrata Chief Executive Mick Davis has called on the Johannesburg Stock Exchange to relax its entry requirements to new companies if South Africa is to become a centre of mining finance for Africa.
Speaking to an audience at the Wits Business School in Johannesburg, Mr Davis recalled that when a small South African company called Gencor listed as Billiton on the London Stock Exchange, it was at a time when the international mining sector on the LSE was quite small with only Rio Tinto as a major player. However, with the advent of Billiton, Anglo American and as other companies from around the world listed on the exchange, the LSE became a major generator of mining finance, both in the equity and debt markets.
"That happened because there was little regulation that we had to fulfill as Gencor to list on the LSE. There were very few barriers to entry. Essentially, they created an environment where any credible company with an appropriate track record could actually list, and they have continued to maintain that situation," Mr Davis said.
South Africa could become a centre of African mining finance as the continent becomes the world's next major copper-and-cobalt producer, however restrictions prevented foreign companies from enjoying a full listing on the Johannesburg Stock Exchange and this, coupled with South Africa’s exchange controls, made a vision of South Africa as an international finance centre impossible to achieve.
"Amendments to these regulations could open up the JSE to the world's major mining companies and aspirant regional players, attracting additional investment flows and encouraging the re-establishment of a centre of mining finance excellence," Mr Davis said.
He suggested that the JSE create a separate indexation for foreign companies that want a separate listing in South Africa as without indexation shares had no liquidity and could not be traded. Without liquidity, South Africa cannot be a finance centre and would not be in a position to generate capital. He added that companies only listed on stock exchanges to access the public finance market.
"If the stock exchange cannot deliver capital to you, it's a waste of time and money to list on it. It's a simple issue that the JSE will have to attend to.
"But the other restriction is exchange control. You have to allow the free flow of funds, both in and out of this country. This country has matured over many years, but no government has had the courage to remove exchange control and ultimately that step has to be taken before South Africa can become a normalised environment.
"If that does happen, I am convinced that, with developments in Africa, you will see the JSE generate significant finance for resource companies," Mr Davis said.
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