The View from England: Brexit menace to London’s monetary sector

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Almost all mining funds raised in London have been senior debt financings. With interest rates so low, the current focus of fundraising is on debt, which fortunately is a British specialty

We have a long history of tense politics in this dark time of year. For example, the end of January marks the 360th anniversary of the beheading of Oliver Cromwell, leader of the English Commonwealth after the execution of King Charles I. Cromwell’s fate was in the face of the Royalists’ return to power in 1660 (under King Charles II), but Cromwell had actually died (of natural causes) in 1658. Despite this, Cromwell’s body was dug up, beheaded and his head stuck on a spike above Westminster Hall (where it remained for 30 years).

Adding to our brand new Brexit and Covid-19 woes, the third week of January is widely regarded as the most depressing time of the year in England. It combines the end of the Christmas season, bad weather and the widespread breaking of New Year’s resolutions.

Fairy tales are a way to ease the gloom. Charles Perrault was the first of the great known authors of fairy tales. His romantic stories, written in the 18th century, included Cinderella, The Sleeping Beauty and Beauty and the Beast. The Brothers Grimm collected folk tales in the 19th century, including “The Elves and the Shoemaker” and “Hansel and Gretel”. Hans Christian Andersen made fun of vanity with The Little Mermaid, The Emperor’s New Clothes and The Ugly Duckling.

Such stories have kept us Europeans sane for millennia. Academics have linked “Rumpelstiltskin” to stories told 4,000 years ago in the Bronze Age, while “John and the Beanstalk” can be traced back 5,000 years, and “The Blacksmith and the Devil” is said to be at least 6,000 years old.

Mining companies seeking financial services in the UK may need the comfort of these stories as we navigate our changing circumstances. Yet it is still a sector that employs over a million people, generates 7% of the UK’s economic output and accounts for almost 11% of government tax revenue. London is not only Europe’s financial center but has caught up with New York according to the latest Global Financial Centers Index.

According to S&P Global, the London Stock Exchange (LSE) and Junior Alternative Investment Market accounted for over 25% of the $12.9 billion in total mining industry funding for the three months to the end of September (TSX accounted for 23%). . market intelligence.

Although more companies in the commodities sector are listed on the TSX and far more in Vancouver, only New York can outperform London’s commodities sector

Almost all mining funds raised in London have been senior debt financings. With interest rates this low, the focus of fundraising is currently on debt, which fortunately is a British specialty. The Mining Intelligence database calculates total equity funds raised during the third quarter to be just $2.5 billion worldwide.

London-listed companies include over 360 in the resource sector (a group that includes 128 in the mining category, plus energy and industrial minerals companies). This sector has a combined market cap of over $1.6 trillion, which is 18% of the world’s total capitalization. Although more companies in the commodities sector are listed on the TSX and far more in Vancouver, only New York can outperform London’s commodities sector.

However, since the Brexit vote in June 2016, financial firms in London have set up new offices in the EU and an estimated 7,500 financial services jobs have been lost to members of the bloc.

Our financial companies have now lost full EU access. They had hoped to keep so-called ‘passporting’ rights (the basis of the EU’s single market for financial services), but this benefit is only available to companies based in member countries.

The EU’s ‘equivalence’ regime is a sorry shadow of passporting as it covers only a narrow range of services, can be withdrawn at short notice and means the UK has to accept rules over which it has no control. To maintain ties like the pre-Brexit deal, the UK relies on the EU to grant lasting regulatory equivalence.

Still, London has a huge lead over rivals Frankfurt, Milan and Paris when it comes to trading equities, currencies and derivatives, and when it comes to hosting wealth managers (only a third of institutional investors on the LSE are actually British) . While London will almost certainly become less important, it will not become meaningless. There are few other cities in the world that have the infrastructure, talent pool and networks to sustain a vibrant financial services hub.

In classic fairy tales, frogs are kissed by princesses, wolves huff and puff, and gingerbread men run away. The analogies to mining companies seeking finance aren’t hard to find; at least it’s something to smile about in these dark times.

(This article first appeared in The Northern Miner)

— dr Chris Hinde is a Mining Engineer and Director of Pick and Pen Ltd., a UK based consultancy he founded in 2018 specializing in trends in the mining industry. He previously worked for the metals and mining division of S&P Global Market Intelligence.