An IPO is the process of offering shares of a private corporation to the public in a new issuance or “offering”. This allows companies to raise significant sums of capital from the public market and takes a private company to a public company accountable to shareholders beyond founders and initial investors.
It is also a time for those initial investors to realize the gains from their investment. An IPO often includes a share premium for current private investors. This is a great way for mining companies that meet listing requirements and that have a plan for their public debut in place to raise capital and use it for operations or expansion.
For miners, this is an important step in any expansion and allows founders and shareholders of the private company to get a public valuation of their shares on the open market. Unfortunately, the IPO process is quite closed and exclusive, and for most investors, pre-IPO options are off the table.
Companies start with a round of fundraising in which they pitch to investment banks, market makers, and brokers serving high net-worth clients. This allows them to privately price their IPO ahead of the public offering and allows exclusive access to the shares before they start trading. This can be extremely profitable for this lucky bunch as according to Dealogic, “The average first-day trading pop on U.S. listings of businesses in 2020 was 36%.”
Now, Robinhood, the popular trading app, is looking to allow its users to buy directly into initial public offerings (including its own) before the first day of trading, alongside those institutional investors and high net-worth clients that are usually the only ones to have access. This ‘democratization’ of the IPO could be huge for companies that want to sell as much as possible, and for the Robinhood users that stand to benefit from that first-day pop instead of having to wait for the opening price on the day the stock begins trading.
There are quite a few steps to go until the app can provide this service and implement it with the help of brokers, the companies they represent, and regulators. However, if it does, it will open a significant window for mining companies to access a huge share of the retail investors before they go public, raising capital beforehand and allowing everyone to benefit.
The typical mining company goes public for a few reasons, one of them to allow for expansion of operations whether that be discovery, mining, or refining. By having access to capital sooner, it will help them deploy it faster, and initial investors can benefit from the first-day pop alongside everyone else. The second is to give original investors and founders the opportunity to sell some of their shares and realize the gains of their work while the company was private.
This democratization of the process potentially coming down the pipeline may be the first step in an expansion of the mining industry’s public offerings, as more capital is available for pre-IPO pricing. More access to the industry’s IPOs would mean more money in mining stocks, and an overall boost for the sector where financing is concerned.
The recent events surrounding the GameStop stock and the group on Reddit ‘wallstreetbets’ have shown that the democratization of trading and investing isn’t going anywhere. As technology continues to ramp up its offerings for retail investors, the online communities driving investment and trading ideas will have the tools at their disposal to contribute significantly to pre-IPO investing and allow mining companies to benefit from the added attention and funding.
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|Lincoln Minerals Limited