Jason Peterson, Director of CPS Securities, which has a marketing office in Mongolia in CPS International, talks to N.Ariuntuya.
As a director of CPS Securities in Australia, I understand you are quite experienced in the capital markets sector, so could you tell us a little more about your experience in this field.CPS was created over two years ago by three owners who had been working in the broking industry for up to 20 years each in international and multinational firms around the world such as Merrill Lynch, Paterson’s and Eyres Reed. In 2009, we did aproximately 90 capital raisings and in 2010about 110 capital raisings. These included IPOs, placements, seed capital raisings, rights issues, as well as major shareholder sell-downs. These capital raisings are generally in the junior resource sector, for small to mid-size companies. So I guess doing these many raisings gives us some experience in the sector.
It hasn’t been long since you’ve opened a marketing office in Mongolia. Tell us why you chose Mongolia to open an office and what are some of the major works and accomplishments you have done since then.
Just over two years ago we invested in our first company in Mongolia, Voyager Resources. We provided the seed capital to get that company going again. Three months after that Voyager listed on the Australian market. That was the initial entry into Mongolia. After Voyager we created Hunnu Coal. As we were creating this company and had Voyager listed, we saw a great opportunity here to create a marketing office for our Perth firm. We did about 3 capital raisings for Voyager since it’s been listed. We did the seed raising, Pre-IPO funding and IPO funding Hunnu. We were the lead broker for the Hunnu IPO. We also did the seed funding, Pre-IPO funding and IPO for Haranga Resources. CPSI has been active in promoting the CPS name in Mongolia, promoting various listed Mongolian companies, as well as offering account services to Mongolian investors to invest in Australia.
In connection with the mining sector development, we are seeing new firms and services coming in to our capital markets sector. How are your services different and what are your advantages over them. For what I know there are no products being offered out there, just a trading platform for local Mongolians to do international trading. As far as I’m aware these investors are not getting any advice and they are not getting offered any corporate products from these various broking firms.
As you briefly mentioned, CPS managed Hunnu Coal and Haranga Resources IPOs and these were interesting and successful IPOs of companies with projects in Mongolia. How would you explain the success behind these listings?I think the main reasons are that we backed the companies with solid and proven management, with assets the were vended in at reasonable prices, which is important so that the value of the assets are reflected in the aftermarket, rather than all the value being taken upfront. These companies are exceptionally well promoted out in the marketplace, so the management is always on the front foot and with the help of CPS are always promoting these companies to new investors, whether they be private investors or institutional investors through Hong Kong, Singapore and rest of Asia.
As an experienced professional in the capital market, what are some of the new IPOs and capital raisings you have lined up in 2011.
Well, I think it probably changed in the last four or five weeks or so, but it really all depends on the international markets. The market has been sold off in the last three or four weeks, so we expect IPOs to be probably a bit soft over the next two or three months. If the international markets strengthen up a bit new listings may come on. There are certainly lots of companies waiting and wanting to do IPOs, but sentiment in the market has got to be right for its successful IPO.
What has caused all these changes you’ve mentioned and how long do you think it will continue?
Hopefully it will sort itself out. The European debt crisis seems to have reared its head again and there are concerns over the general economic recovery around the world. I guess since the GFC on an ongoing basis this has put a fair amount of volatility every so often in the world markets. And then you have the natural disasters like the floods in Australia, earthquake in New Zealand, earthquake and tsunami in Japan, so the market is incredibly volatile at the moment.
As for CPS, what are the projects and IPOs we have lined up for Mongolia in the remainder of the year?
We will continue to back and promote our existing investments up in the country. And we have a couple of Mongolian companies lined up for IPO this year. We also have a small rare earth company called Gobi Lithium and once licenses can be transferred that company will get established and raise funds.
I’m sure you have some understanding of Mongolia’s capital market. As an expert how would you define the sector, what kind of development opportunities obstacles do you see here?
From what I can see and from why Mongolians seem comfortable investing in Australia is the extra regulations and the transparency of the Australian market. I think as Mongolia develops its stock exchange more and more that will lead to more companies IPO-ing up here and I think the first step seems to have been with that with the appointment of the London Stock Exchange to manage the process.
Mongolians see international marketplaces as Hong Kong and now London, as far as mining companies are concerned. What are the differences between Hong Kong’s and Australia’s stock exchange.
I think the great thing with the Australian Exchange and the Hong Kong Exchange is that it’s in the same time zone as Mongolia and that’s great for doing business. If you say why choose Australia over, say the Hong Kong exchange, would be the fact that there are a lot of early stage exploration companies and junior resource companies in Mongolia, these are more suited to the Australian market rather than the Hong Kong market. The Hong Kong market appears to have the next stage of assets, the billion dollar plus companies, whereas below billion dollar companies is ideal for the Australian market. Australia has some 3,000 listed companies and is well versed in listing junior resource companies.
How interested are Australians investors in Mongolia?
I think Australians are very happy to invest in Mongolia. Mongolia is a very similar country to Australia, especially Western Australia and how it was say 30 years ago. I guess when Australians are looking to invest in junior resource companies they want multiple returns. And as Australia matures as a country these multiple returns are less and less available, therefore they’re very happy to go offshore and seek those returns. Australians have a lot in Brazil, West Africa and they are comfortable with the Mongolian framework for investing. Mongolian companies are more and more interested in raising capital overseas. And looking at Mongolian company structures, which exchanges do you see them fare better when looking to list and what do you see are advantages of Mongolian companies?
I think Australia is an ideal place to raise this money because of our experience with investing in junior resource companies, and understanding and accepting the risk profiles and rewards that come with investing in those companies.
Looking at companies in Australia, such as Hunnu and Haranga, I see a trend where there are Mongolians in the board and management team with share ownerships, compared to say Toronto listed companies, such as Prophecy, where there are only foreign executives. But Australian listed companies seems to have more Mongolians on the board, management and ownership. Is there such a policy or a certain trust in Mongolians. I think it’s just a sensible way of doing business. There’s no policy or regulations to say that that is the case. This seems to be the most right and efficient thing to do, looking at it. I guess if you are investing in a foreign country you want local people to be involved with that company to get things done on the ground and make sure it’s successful.
I think you’ll find the companies that don’t have locals involved are probably not very successful.
As you know Erdenes – Tavan Tolgoi is listing and the Mongolian public have expectations from this. So as an expert, what are your personal views and advice on this IPO?
It’s great that the assets get shared amongst the general population and maybe the government should perhaps invest some of this money in infrastructure for the country and on behalf of everybody as well as giving the shares out to the general public to develop the country more. But we haven’t anything to do with the Tavan Tolgoi IPO process so it’s very hard to comment on it.
What do you think about the merger between stock exchanges? How do you see that affecting Mongolian companies raising capital overseas or Australian investors coming to Mongolia?
I don’t think it affects it at all. The Australian Exchange will continue on as it has in the past, and backing international assets listing on the ASX with local management and with Australian compliance.
How do you explain this merging trend of , multi-national exchanges bidding for each other?
I think it is consolidation and rationalization of an industry, just like lots of industries around the world are consolidating. These exchanges are real businesses, businesses and it makes sense for some of them to merge together for cost efficiencies and more profit for the shareholders at the end of the day. We see it happening in the media, banking and mining industries, and the exchange is just another industry like these.
As a clarification on a previous question on Australian investors’ sentiment over Mongolia, especially in the coal industry, Mongolia is viewed as a competition to Australia, in terms of coal exports to China. Perhaps in 3 years, we might even surpass Australian exports to China. But there are still much to be explored in Mongolia, how do you see this trend shaping out?
I think it all makes sense given that Mongolia is China’s next door neighbor and I’d certainly rather be investing in a Mongolian company supplying China than an Australian one with all its transportation costs and shipping into China. I guess at the end of the day, the different coals being produced by different countries and different companies are different products and each consumer wants that product for themselves so maybe there’s space for both countries. I don’t think that will affect the sentiment of the Australian investor into Mongolia, if not it will probably even enhance it.
As you mentioned, ASX is a suitable destination for junior resource exploration companies. And as you know the Mongolian President has stopped new license issuances for a period of time and has that affected the existing Mongolian companies on the ASX or future IPO plans?
Well, I think it obviously affects companies that want to acquire other licenses but it doesn’t really affect existing companies out there that wish to list because you’re listing the company not transferring any licenses. So the company itself should have no problem raising money and getting listed. Because the licenses will stay within that vehicle.