Discussions between Business News and leading St Georges Terrace broker Euroz Hartleys offer a telling insight into the inevitable pinch being felt by corporate finance firms in Western Australia.
Executive chair Andrew McKenzie estimated the firm raised about $1.9 billion for the 2022-23 financial year, down from an approximate $2.2 billion in the previous period.
That excludes equity capital market (ECM) transactions where the firm was co-manager.
Despite the dip, Mr McKenzie was upbeat about the quality of the raisings the firm had completed and its place in the market.
“The year just gone I’d classify as a tough year, below average, but you’ve got to look at the context of the whole market,” he said.
One of the biggest WA-related raisings undertaken in the latter half of the financial year was Genesis Minerals at $470 million, jointly led by Canaccord Genuity and Euroz Hartleys.
The cash underpinned the Raleigh Finlayson-led explorer’s long and arduous mission to acquire St Barbara’s Leonora assets.
Mr McKenzie indicated it wasn’t ECM deals for the likes of Genesis that were struggling.
“It’s the smaller, lower-quality raisings in weaker markets that suffer,” he said.
“When you talk about the ECM tap being off, I think that’s true for a lot of the smaller end at the moment.
“If you’re doing a $2 million, or $5 million-type raising for a small resources company … two or three years ago if you just had lithium or cobalt or graphite attached to it, it was five times oversubscribed.
“Right now it’s pretty hard to sell it.”
Mr McKenzie suggested while high-profile raisings would rise above shorter-term market issues, a broader apprehension was still underpinning investor sentiment.
“Retail and institutional buyers …they’re not jumping on every raising,” he said.
“They’re waiting for the hot ones. I would say that the insto [institutional] and the retail markets are both equally cautious at the moment.”
That caution also extends to day-to-day trading, another key revenue driver for the firm.
“Your daily turnover in broking is equally as important. And that’s probably been the biggest drop in the last year. I think all brokers have seen much lower turnover,” Mr McKenzie said.
“The typical high-net-worth investor who might normally trade every day, he’s trading once a week or once a fortnight.”
IPOs
The shortage of WA-related initial public offerings in the past six months also points to a weaker investor appetite.
According to Data & Insights, there were just nine IPOs for the six months to June 2023, raising a total of $69.3 million.
Activity on this front has continued to slow since an especially strong period in 2020-21, which Mr McKenzie said was in part due to the cyclical nature of IPOs.
Generally, he said the smaller end of town was holding off listing for the near future.
“Lower quality, smaller resources ones are definitely on hold, because that same market just isn’t there at the moment,” Mr McKenzie told Business News.
He said a big test of the market would be the listing of Redox, a Sydney-based industrials business that had been working to raise more than $400 million in an IPO led by UBS and Ord Minnett.
Redox’s debut in the days following this interview offered a symbolic break in Australia’s IPO drought.
Nonetheless, it closed its first day on the bourse off about 5 per cent.
“The IPO market has its own cycle. I think that’s hopefully just carefully starting again, there are bigger ones out there,” Mr McKenzie said.
Among them is US-based Metals Acquisition Corp, a blank cheque business that was connected to WA through director Nev Power and a former adviser to the company, Bill Beament.
Its main asset is the CSA copper mine in NSW, acquired from Glencore for $1.5 billion in early 2022. Barrenjoey has been mandated alongside Canaccord Genuity for that raising, which is on track for later this year and likely to fill the void of pure copper plays on the ASX.
Euroz Hartleys is also lining up a potential $100 million IPO – outside of the mining sphere – pencilled in for early next calendar year.
There are also plenty of eyes on explorer Greatland Gold, which touts a heavyweight board and a 30 per cent stake in Newcrest’s promising Havieron gold project in the Pilbara.
Led by former Northern Star Resources chief financial officer Shaun Day, Greatland is believed to be targeting an ASX listing in the September quarter, although it’s not clear who will be tasked with bringing the company to market.
M&A
Despite being a relative newcomer in the WA advisory scene, Barrenjoey has made good ground winning work in what can be a competitive local market.
It runs a small but seemingly dynamic team of six corporate finance staff from its office on St Georges Terrace, led by senior partners Paul Early and Peter Watson.
“We are now an established presence and have been excited to deliver the outcomes to the clients we have done business with,” Mr Early told Business News.
Headquartered in Sydney, the firm was launched in WA in 2021 and swiftly landed ECM work with Tim Goyder’s Liontown Resources.
More recently, Barrenjoey has been working on the defence for nickel miner Mincor Resources, which has been all-but acquired by Andrew Forrest’s Wyloo Metals.
Barrenjoey’s biggest deal of the financial year has been advising BHP on its acquisition of OZ Minerals and its West Musgrave copper and nickel project, a deal that also says a lot about the key themes driving mergers and acquisitions in the current timeline.
Chief among those themes are ‘energy transition’ concerns, largely driven by the minerals or commodities that will be needed to help societies transition away from fossil fuels.
BHP ended up paying $9.6 billion for OZ Minerals and as a result gained control of the West Musgrave copper and nickel project in the eastern Goldfields.
Mr Early observed that bigger resources companies were targeting assets further along in their development.
“Timelines to get from discovery – which in itself is taking longer – to production is taking time,” he said.
“[The] trend we are seeing is big miners would rather look at near-term producing or producing assets.”
Inflationary pressures and environmental approval timelines were also steering bigger companies away from early-stage projects, Mr Early added.
Mr McKenzie’s observations regarding looming copper and nickel shortages also play into this theory.
“We wish we had more of it. We have a couple of copper stocks, but not enough,” he said, citing Wyloo’s Mincor acquisition as an example of consolidation in the space.
“Exploration, too, drives a lot of excitement in the WA market. If you get really significant new exploration success, it does lead to other speculation.”
Macquarie Capital continued to score the lion’s share of deals in WA, with executive director Stuart Owen saying the firm continued to benefit from its presence in the state.
“Despite the ongoing macro concerns around inflation and negative demand signals out of China, we continue to see very strong activity across all commodities and businesses exposed to the clean energy thematic,” Mr Owen told Business News.
“We have seen this play out in a number of larger deals, such as BHP and OZ Minerals, Newmont and Newcrest and Albemarle’s approach to Liontown. We expect this consolidation to continue into FY2024.”
Mr Owen said Macquarie had been involved in several highly contested situations.
“With heightened levels of M&A interest across the critical minerals and energy sectors, we have seen acquirers willing to be more proactive to enhance their chance of success,” he said.
“This includes pre-bid stakes, on-market bids or proposals made direct to shareholders to secure their direct support.”
Despite the interest in future-facing commodities, Mr McKenzie said there was still prospectivity in the oil and gas industry.
“We wish we had more energy companies to research and raise money for. I think the investors want to invest more in it,” he said.
“Despite all the talk of renewables or critical minerals, I think Australia’s energy mix didn’t change last year. So we actually still need more oil and gas in the short term.”
Environmental credentials aside, Mr McKenzie said oil and gas could mirror the trajectory of coal in terms of returns.
“I think oil and gas will be a bit like what coal’s been like for the last two or three years, where it just got kicks and beat-downs at present prices,” he said.
“And then people realised due to cash flow [that] the dividends from these companies are just too good.”
More broadly, Azure Capital managing partner Richie Baston said tougher market conditions warranted a different approach to designing a deal.
“Clearly it’s a much tougher environment,” he said. “Sellers and buyers and taking time to adjust to the conditions. Vendors are slow to review their pricing expectations and buyers are really cautious.
“That makes the sale processes harder to get done. The good news for us is, typically, the transactions where there was an easier pathway to an outcome, there’s now a tougher pathway.
“If what we sell is advice, then hopefully that’s worth more in this environment.”
