Some recent deals on the Australian stock market underline the big changes the domestic economy with the passing of the mining investment boom.
Tech companies are listing on the ASX through reverse takeovers of resources companies.
There’s been a swing in Australia’s mining sector, with the big players including BHP Billiton and Rio Tinto cutting their exploration budgets and the industry’s nursery, the junior miners and explorers, have been struggling for over 18 months now.
The smaller mining players aren’t as padded against market pressures, so when markets soften – they are often the first to go.
Slashing the exploration budgets of the major miners also has a trickle down affect on the smaller players. In the past when the BHPs and the Rios of the world would uncover deposits that were too small for them they would pass them off to smaller miners. This isn’t happening as much any more.
Juniors are also having trouble securing funding, returns are diminishing and project economics aren’t stacking up so they’re turning away from resources projects to deliver shareholder returns.
Here are three technology companies that have done, or are in the midst of doing, a reverse takeover of mining companies.
The reverse takeover of Latin Gold by a social entertainment tech company
It was the realisation that the resources sector was going to get worse before it got better which sent Latin Gold in search for a better option for its shareholders.
Company director Howard Dawson told Business Insider: “resources looks pretty dead”.
“We had to give a run for our money with our shareholders,” he said. “Resources looks like its going to be pretty flat for a while and its pretty competitive.”
So management went in search of a better deal for its shareholders and through a mutual friend found Project Goth Inc which just happened to be looking for a listed entity to improve its chances of growth.
The deal remains subject to shareholder approval, however all going well Latin Gold would acquire a social entertainment platform called mig33 through a share issuing to the tech company’s stakeholders.
Targeted at emerging markets across Asia and Africa, Mig33 incorporates a miniblog, chat, chatrooms, virtual gifts and games and already has over 3 million users.
Selling this idea to a mining company board took some creative thinking, Dawson said. He likened the tech startup to a mining exploration project.
“Here’s a company that’s been in development for four or five years, all the development work has been done,” he said.
“We’re buying a resources project where a lot of the work’s been done and it’s ready for commercialisation, it’s like an advanced resources project.”
If the deal is approved at a shareholder meeting in June the Mig33 platform will also get a funding boost securing $US9.6 million from handset manufacturer FIH Mobile, which is a subsidiary of Foxconn, a global electronics manufacturer. At which point FIH will also become a shareholder in the new entity which is expected to be renamed Migme when the deal is finalised.
Energy company GRP Corporation has done a reverse takeover deal with Spring.me
Social network Spring.me is gearing up for an ASX listing via a reverse takeover of shell resources company GRP Corporation. There’s more on the deal here.
The social platform is a question and answer network which connects people. Under the deal GRP will acquire US based Helpa Inc, Spring.me’s parent company.
“Acquiring Helpa, and its associated Spring.me social network provides a significant opportunity for the shareholders of both GRP Corporation and Helpa,” GRP director Mark Rowbottam said.
He told Business Insider, “capital markets aren’t favourable for exploration companies. Hence listed vehicles are looking for other projects to recover shareholder money”.
“There’s not a lot of support for early stage projects.”
Cloud company Bulletproof Networks did a reverse take over with Spencer Resources
The founders of cloud computing company Bulletproof Networks Anthony Woodward and Lorenzo Modesto opted for a reverse takeover of mining exploration company Spencer Resources in 2013 because it was an option which allowed them to maintain control over the company’s strategy.
Taking over a publicly listed company also means the private company doesn’t have to go to market to build a share register which is a costly process.
In the transaction Spencer Resources acquired all of Bulletproof and the tech company’s shareholders in turn gained a majority ownership of the newly merged conglomerate and is currently in the process of divesting its mining assets.
Business Insider spoke to David Paterson former Spencer Chairman and now Bulletproof chairman, he said given the state of exploration in Australia a reverse takeover was the company’s best option.
He said when the reverse takeover was first put on the table Spencer was struggling to secure funding for its projects in South Australia and Bulletproof was searching for a “back-door listing”. Paterson said the transaction was “in shareholders’ best interests”.
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