Stock Exchange called on to reassess merits of two-tiered exchange

30/7/96

Addressing the Diggers' and Dealers' Forum in Kalgoorlie, Resources Development Minister Colin Barnett called on the Australian Stock Exchange to re-examine the merits of creating a two-tiered exchange.

Speaking from Kalgoorlie, Mr Barnett said it would be valuable if a Second Board covering resource companies as well as other stocks was established.

At present all 1,218 companies listed on the Stock Exchange trade on what is known as the 'Main Board', which is divided into two sections:  Industrial Markets and Mining and Oil Markets.

A Second Board for junior stocks was introduced by the Perth Exchange in the mid-80s and other exchanges followed.  The Second Board was dissolved in 1992, when all stocks were transferred on to the Main Board.

Mr Barnett told the 750 delegates from the stockbroking, mining, investing and business community that an ongoing problem in Australian industrial development was access to capital, which particularly applied to mining.

"The existing banking system and the equities market do not offer funding for smaller resource companies on a sustainable basis," he said.

"The share market has tended to follow the boom and bust cycles of many commodities. As a result, whether a mineral deposit is developed or not can often depend more on when the shares are offered to the market than on fundamentals such as grade of the resource, the cost of extraction, and the strength of management.

"This is ironic when you consider the importance of resource stocks to Australia and to the investment community. Some 32 per cent or 394 of the listed companies quoted on the Australian Stock Exchange are mining and resource companies.

"It is now time to look for innovative ways to primarily finance a sector that has proved to be a world leader at extracting value from our resources, but could also provide support for service, high technology and industrial ventures.  

"While the Second Board failed after starting with such promise, I believe it may have been an idea ahead of its time and one that should be seriously considered again.

"The old Second Board failed for two main reasons. Firstly investors, particularly institutional investors, ceased to support it, and secondly there were many examples of unprofessional conduct.  There were also issues of market liquidity.

"The lessons learnt from that failure would be applied today to prevent a similar failure of what is essentially a sound idea."

Media contact: Anabel Gomez 2229699