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In a recent post-budget address to the Australian Business Economists, Treasury Secretary Martin Parkinson, who succeeded Dr. Ken Henry to that post in March, emphasised his concerns with Australia’s two-speed economy. Parkinson described Australia as “an economy in transition.” Looking ahead, he said, “a growing middle class will boost demand for our commodities, and for our services exports – education, tourism, and professional services – and for niche, high-end, manufactures.” Parkinson spoke about the transformation that would need to take place if Australia did not intend to become “nothing more than a quarry,” saying, “today we are swapping a non-renewable capital asset – mineral and energy reserves – for an income stream. If we don’t receive an appropriate return, and invest that wisely to build human and physical capital, and to boost national savings, including through superannuation, we could find ourselves having consumed our assets and be faced with lower future incomes.”

Portfolio manager John Campbell of Avoca Investment Management echoed Parkinson’s concerns, noting a lack of micro-economic reform as the economy’s capacity is diverted into resources. “When life is easy, politicians tend to not make the hard decisions, so there has been no productivity growth given the absence of microeconomic reform,” Campbell said. “Consequently, the impacts of high interest rates and inflation only magnify.”

Thus, in Australia’s “rich getting richer” economy, initial investment is still heavily weighted toward the resources sector. Of the 23 floats currently selling shares in anticipation of listing on the ASX, just one is a non-resource company – and that company has been offering shares for eight months, extending the offer period multiple times. Another non-resource float, IT services company RXP Services, recently withdrew its IPO.

Last month we focused on gold floats, which represent a substantial majority of IPOs. This month, we’ll take a broader view, looking at the lone non-resource IPO, as well as recent offerings in gold, coal, methane and rare earths.

Messina Resources

Messina has entered into an agreement with Golden State Resources Ltd (GDN) to acquire 100% of the mineral rights for the three tenements of the Leonora Project, located east of Leonora, about 260 km north of Kalgoorlie in the Eastern Goldfields of Western Australia. The Leonora Project totals 54 km2 and included the Crawford Prospect, which yielded 1.0 mT @ 1.0 g/t Au. The project also contains felsic rocks that are encouraging for base metal exploration.

Messina has planned a two year exploration programme that will include diamond drilling and extensional RC drilling at the Crawford Prospect.

Independent geologist GJ Miles stated that “The mineral property is generally considered to be sufficiently prospective, subject to varying degrees of exploration risk, warranting further exploration and assessment of their economic potential.” Miles added that “sufficient exploration has been undertaken within the last 2 years and where this is not the case the relevant areas have sufficient technical merit, to justify the proposed programs and associated expenditure.”

Messina offered 15,000,000 shares at 20 cents per share and may accept oversubscriptions of a further 5,000,000. A priority offer was made to GDN shareholders, which closed 24 June 2011. The general offer will close on 5 July 2011, and the shares are expected to list on 18 July 2011.

Kinetiko Energy

Kinetiko has entered into a joint venture with Badimo Gas to participate in the commercialisation of the Coal Bed Methane (CBM) exploration rights in the Amersfoort Area of the Eastern Transvaal coalfields of South Africa (RSA). Although coal mining is well established in South Africa, CBM exploration and evaluation is in its infancy in the RSA. Kinetiko states that the Amersfoort project is located in the heart of South African energy infrastructure, and that the RSA is “a growing and energy hungry economy.”

Registered Petroleum Engineer Letha Lencioni, reporting for independent evaluator Gustavson Associates, stated that “although no wells have been drilled specifically for CBM in the area, there is ample evidence of free gas associated with many of the boreholes used in the analysis.” Thus, Lencioni noted, “Although the coals in the Amersfoort license area are known accumulations that have been drilled and logged, with positive indications of CBM, results cannot yet be deemed to have proven the commerciality of future stgelopment, or to have clearly defined the quantities of CBM likely to be produced from any of the existing wells.” 

Kinetiko has offered 40,000,000 shares at 20 cents per share. The offer will close on 1 July 2011, and the shares are expected to list on 8 July 2011.

Orpheus Energy

Orpheus has signed a strategic alliance with PT Mega Coal for the stgelopment of thermal coal projects in Queensland and East Kalimantan, Indonesia, as well as limestone and bentonite mines in New South Wales. The Australian tenements are being acquired by Orpheus from Coalworks for shares and options.

The Hodgson Vale project in Queensland is an open pit target of 5 Mt to 20 Mt of thermal coal. Tests for the coal by the Joint Coal board place it amongst Australia’s best for conversion to liquid products such as petroleum and diesel fuel. In addition, a sales agreement has been signed for 25,000 tonnes of coal from the Kalimantan target.

Craig Allison, on behalf of independent geologist Ravensgate, described the Block 2 project in Indonesia, saying that “A coal quality Calorific Value (CV) range of 5,950 to 7,250 kcal/kg has been defined for the Exploration Target and is based on exploration results to date. However, Allison noted, “there has been insufficient exploration and work to define a formal JORC Mineral Resource.” 

Orpheus has offered 50,000,000 shares at 25 cents each and may accept oversubscriptions of a further 10,000,000. A priority offer was made to Coalworks shareholders, which closed 21 June 2011. The public offer will close on 27 July 2011, and the shares are expected to list on 8 July 2011.

Strickland Resources

Strickland invests in the exploration of rare earths and rare metals, and is currently exploring in New Zealand and Australia. Chairman Seng Yap stated, “The term ‘rare earths’ refers to a group of obscurely-named elements found in the Earth. We use them in everything from hybrid cars to low-energy light bulbs, electronics, cell phones, batteries, and many advanced medical and defence systems.”

Yap explained, “China controls most of the world’s rare earths, however, an industry-changing decision by China to restrict supply to the rest of the world has led to an upsurge in the importance (and potential value) of non-Chinese rare earths projects.

Independent John Allen described the company’s French Creek and Rangitoto projects in New Zealand as “highly prospective.” Allen stated that French Creek, in the Hohonu Range, “is considered to be a highly prospective target for [rare earth element] mineralisation, indicated by stream sediment and rock chip samples with anomalous lanthanum, yttrium and cerium.” Nearby Rangitoto, Allen said, “is highly prospective for tantalum-niobium-tungsten-(tin).”

Strickland has offered 5,000,000 shares at 20 cents each and may accept oversubscriptions of a further 15,000,000 shares. The offer will close on 29 June 2011, and the shares are expected to list on 15 July 2011.

Dynamic Agri Tech

Dynamic Agri Tech – the only currently open non-resource IPO planning to list on ASX – is an agricultural technology company specialising in fodder production through hydroponics. It is also stgeloping systems to produce food suitable for human consumption.

Independent expert Hugh Macintosh stated, “During the last decade, grain output growth could not keep up with the increase in population, and at the same time arable area has been reduced.” He also noted, “Livestock production is growing faster than any other agricultural subsector and it is predicted that by 2020, livestock will produce more than half of the total global agricultural output in value terms.”

Elizabeth Owens, Sales and Marketing Manager for the Symbio Alliance, also prepared an independent report, in which she stated that hydroponically produced fodder is potentially a cost effective tool where: land for grazing or hay production is in short supply; water is scarce and/or expensive; labour is cheap; and animals have limited or no access to fresh green forage. “South East Asia and the United Arab Emirates have many areas of livestock production where some, if not all, of these criteria exist,” Owens said. She added, “Hydroponic fodder may also be more cost effective than irrigated lucerne in many parts of Australia during periods of prolonged drought.”

Dynamic Agri Tech has offered 24,000,000 shares at 50 cents each. The company recently extended the closing date of the offer to 15 July 2011 via the Ninth Supplemental Prospectus. The offer initially opened on 25 October 2010 and has been extended multiple times. The shares are now expected to list on 1 August 2011.

Another major non-resource IPO may be on the horizon. Sources have indicated that Australian fast-food group Collins Foods intends an initial share offering of about A$250 million. There have been few initial public offerings this year because of weak equity markets; however, Collins is seen as a defensive business that can do well in a weaker economy and would be one of the largest floats in the country this year. Although the announcement of the float has not been made public, analysts have begun premarketing the deal to investors.

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