As central banks have hiked interest rates to combat inflation most companies have found it harder to raise capital, and equity issuance has waned.

However, securing equity funding through primary offerings has been particularly tough for listed exploration and development companies in the mining sector. These companies are focused on finding and developing new mineral deposits. Typically they don’t generate any revenue, as they don’t have any mines in production. To fund their activities they usually rely on several rounds of equity issuance in the years after listing on an exchange (so-called primary deals). Recently, many have come to learn that this market isn’t there for them.

Critical resources

This is partly due to previous investors in the space becoming disenchanted. The share prices of the companies in the mining sector have, by and large, fallen over the last three years (the FTSE Gold Mines Index has lost more than 30% over the last three years). The dearth of investors willing to provide equity finance to listed exploration and development mining companies also has much to do with mining being blanket-excluded from the investment universes of many investment firms, on sustainability grounds. This has occurred despite the fact that the discovery and extraction of metals including copper, silver and nickel are necessary for batteries, solar panels and electrification. These metals are critical resources for achieving net zero. There are of course mining companies focused on commodities which are not consistent with sustainability or are otherwise operating in a way that is undesirable, but an active manager can do the work to identify those companies and choose not to invest in them.

ETFs don’t participate

Perhaps the main reason it has become so much harder for listed exploration companies in the mining sector to secure equity financing is the rise of the Exchange-Traded Funds (ETFs). Like all listed equity sectors in recent years, the popularity of passive investing has seen a migration of money from the actively managed funds that invest in the mining space to ETFs that track an index of mining companies. More than half of the AUM in gold mining sector is now held in ETFs. Whilst the ETFs have their merits, they only buy shares in the so-called secondary market, and only on the back of index weightings changing or to deploy inflows. When their investee companies raise equity capital by selling new shares through primary deals, the ETFs do not participate.

Essentially, the biggest investors in the mining sector (the ETFs) do not follow their money, not adding to their existing holdings when those companies raise money by selling new shares, regardless of how attractive the new shares are. Several CEOs of exploration and development focused mining companies have told me of their frustration with lack of support from their ETF shareholders when it comes to raising additional equity capital.

Bargaining power

The difficult primary market for exploration and development miners, exacerbated by the dominance of mining ETFs, is providing great opportunities for active fund managers. These companies have only a handful of investors to turn to when it comes to raising equity capital. It follows that we have enjoyed considerable bargaining power, and we have been able to command favourable terms.

Not only has it been frequently possible to buy the new shares at a >10% discount to the prevailing market price, and often with warrants attached, but we have also been able to demand a say over the investee company’s strategy. We have seized on these opportunities and participated in 11 primary deals in H1 alone, providing more than $40m directly to listed exploration and development focused mining companies.

Sustainable approach

It is satisfying to see our investment land directly on the investee company’s balance sheet, as opposed to the funds being collected by a seller in the secondary market. Where needed, we have used the influence arising from our role as a capital provider to steer an investee company’s strategy towards longer-term, more sustainable approaches. This has included seeking changes to: improve corporate governance, ensure that local people are treated equitably, elicit the retirement of debt and encourage prioritisation of certain projects. Indeed, our investment has often been conditional on certain changes, or that the money being invested in a certain way.

Exploration and development companies are working to find and develop the mineral deposits that will be so important for our society going forward, many of which are in short supply. We will continue to be active in finding and supporting those companies that represent the best opportunities.

The value of active minds: independent thinking


A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

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This document is intended for investment professionals and is not for the use or benefit of other persons. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK. 431