Updated: May 17, 2020
Investing in the share market and more specifically investing in the mining and exploration sector can be a rewarding and potentially profitable venture. We are seeing ever increasing interest in the share market because Australians now consider share investment as an essential part of their overall investment plan.
If you are interested in the resources sector and have an appetite to position part of your investment portfolio into a sector with the potential for higher returns, and a bit more risk, then consider investing in the resources sector via the Initial Public Offerings (IPO) process.
An IPO is when a company first issues shares to the public, for the purpose of listing on a stock exchange such as the Australian Securities Exchange. There are many reasons why the directors and shareholders of a company would want to go public, such as raising money for working capital, debt repayments, expansion or expansion through acquisition. In some cases, it may be an established company or partnership where the current owners want to convert some of their equity (ownership) into cash. Resource companies which we will be focusing on in this article usually list on a stock exchange to raise funds to finance exploration of tenements, new project acquisitions, administration costs and working capital.
Australia has a rich and prospective resource base, and is currently one of the world's leading resource nations. The Australian resources sector is made up of Minerals and Energy. In Minerals, we have explorers and producers involved with gold and precious metals, mineral sands, diamonds, iron ore and other steel related ores. In Energy, we have oil and natural gas, steaming and coking coal, coal seam methane gas and uranium.
If you are going to invest in an IPO then find yourself an experienced Investment Advisor that is an Authorised Representative of an Australian Financial Service Licence. You will need a good Advisor with industry contacts because when you invest via an IPO directly without an Advisor you risk being scaled back or not receiving an allocation when applying along with the general public. If you have a relationship with a full-service Investment Advisory firm then you can ask them to arrange a Firm Allocation to secure your place in any individual new share issues. A Firm Allocation is when your Advisor has reserved an allocation for his/her clients from the Lead Manager of the IPO or direct from the company intending to list. Another reason to use a full-service Investment Advisor is because they will want to only be involved in an IPO that they believe will be successful. The minimum subscription is usually a $2,000 AUD investment for a resource IPO, which at a share price of 20 cents equals 10,000 shares, or $100 profit or loss per 1 cent move.
Generally, the corporate advisor or underwriter will price the share issue at a discount to the perceived market value as a way to make the IPO attractive to retail investors, and to potentially ensure that the issue is fully subscribed. Your Investment Advisor will be able to give you their opinion of the company based on the prospectus and his/her own research. If you are purchasing an IPO via a full-service Investment Advisor then you do not pay any fees for their opinion or the firm allocation because they are paid by the company intending to list (usually disclosed in the company's prospectus). Please remember that you generally have to become a full client of the Advisor's firm before you receive their opinion on any individual investments.
A recent example of an IPO that I helped raise money for was Western Manganese Ltd (ASX Code: WMN). The stock listed on the exchange up 25% (up 5 cents) on the first day of trading, which is a very good result. I decided to raise money for this IPO from my clients because the company has a strong board of directors, it is an Australian based company focused in Indonesia, it is close to port infrastructure, and it has the potential for high-grade Manganese extraction to name only a few key points. Other reasons that I believe a Manganese investment is a good move, for my clients, is because ninety percent of all Manganese consumed annually is used in the steel industry as an alloying agent, and it is the fourth most used metal in terms of tonnage after iron, aluminum and copper. I also invested my own money via my personal trading account into the Western Manganese IPO.
I am regularly out and about talking with Perth based resource specific brokers, researchers, managing directors, geologists and corporate advisors to give my clients and myself the best information, IPOs, and investment recommendations possible. Finding the best resource investments takes plenty of leg work and extensive in-house research, which is why you need an Investment Advisor that specialises. I also use and benefit from out-sourced investment recommendations (non-IPO recommendations) from other full-service Investment Advisors, for my own personal account, which I happily pay full service fees to receive. When I give IPO allocations or advice to my clients, I usually only issue one or maybe two recommendations per month because this is about investing longer-term and letting the market do the work for us instead of trying to rapidly trade for short-term high risk results.
If you wish to potentially profit from investing in mining and exploration then this is the best time to start learning and becoming involved with this lucrative sector. If you are interested then read everything you can on the resources sector, and find yourself a specialist Investment Advisor.
We operate an IPO Investor Group for FREE via our website located at http://www.floatregistry.com. Alternatively, if you are interested in receiving our investment recommendations, please feel free to request our new client account forms by e-mailing your name and postal address via our above mentioned website, or free-call us on 1800 228 600.
Matthew Corica is a full-time private investor and managing director of licensed Western Australian based investment firm Titan Securities Pty Ltd AFS Licence: 307040.
This article has been written for educational purposes only. If the reader wishes to invest in any financial market due to this article then to satisfy any unforeseen disclosure obligations of the writer as an Australian Financial Services Licence holder, please link to and read the standard risk disclaimer located at [http://shares.ozforce.net.au/disclaimer]
Article Source: https://EzineArticles.com/expert/Matthew_Corica/283996
DATE: 25th March 2011