Chris Lee & Partners Ltd

Taking Stock 16 October 2025

IF men had the ability to give birth to goats the former UK Chancellor of the Exchequer, Gordon Brown, would have a fair show of cloning himself.

Brown, who served for 10 years under Tony Blair, rose to become the leader of the UK Labour Party for three years. It was he who sold half of the UK’s 790 tonne gold reserves in 1999 (395 tonnes) for a sum of US$3.5 billion between 1999 and 2002.

Brown would today be pondering the desire for foresight.

A sale of 395 tonnes today would fetch a figure closer to $50 billion (NZD), a difference of $46.5 billion that would be immensely important, even in a large economy like Britain’s. He sold the gold for political purposes. Britain’s gold was supposed to be key reserves, not an asset to trade when politicians were fudging problems.

The value of gold today astonishes everyone, as the big buyers of gold have been central governments, China effectively buying an amount equal to every ounce produced in recent years. Other big buyers have been pension funds, using ETFs as their medium.

Production, plus sales of stored gold, have helped Asian and Russian central banks to build up a supply that is interpreted by many as being their preparation for a new credible global currency, with at least a part-base of gold.

This seems to be a response to the irresponsible spending by many governments, principally the USA, where tax rates are set well below the amount needed to match the annual spend of governments, even if one separates out spending on warfare and weaponry.

Here in NZ, the gold price was around NZ$1500 in 2016, crept up to $2000 plus in 2020, reached NZ$3000 in early 2023, and has since soared. At the time of writing, the NZD price exceeds $7200. In part this explains NZ’s newly-energised enthusiasm to develop new gold mines at a time when NZ is also spending on social services money that taxes do not match.

The world’s best bank JP Morgan and the “giant squid” (Goldman Sachs) believe gold by the end of next year will have increased by a further 25%. If that proved to be true, an ounce of gold by 2027 might be close to $9000.

Note: that sentence began with the word “if”.

Such a rise would not improve NZ’s balance sheet as NZ’s central bank does not buy gold, but it would vastly improve our revenue statements, if gold mining is accepted as a logical source of wealth.

Like Australia, South Africa, Canada and other producers of gold, NZ sees little need to store gold. The central banks that do store gold are headed by the USA, where Fort Knox stores thousands of tonnes of gold.

I am unsure if the available statistics are comprehensive as China seldom signals its strategies. I guess the Chinese storage is much greater than these figures show. But the best available information suggests the storage of gold, in tonnes, is in the following countries:

USA 8,133

Germany 3,350

Italy 2,452

France 2,437

Russia 2,330

China 2,299

Switzerland 1,040

India 880

A notable absence from the list of large holders is the United Kingdom. Thank Gordon Brown and Tony Blair, the then Prime Minister of Britain, for this absence. They sold their reserves to cover budget shortfalls.

Today a tonne of gold at US$4100 (NZ$7200) can be sold any day for US$128m, or NZ $225m.

The planned Santana mine at Bendigo expects to mine at least three tonnes of gold, every year, for more than a decade, quite possibly several decades, given the continuing exploration successes.

OceanaGold, through its mines operating near Palmerston (Macraes) and in Waihi, produces even more gold per year than Santana would, though Macraes’ cost of production would be much higher, as its gold is encased in carbon which must be burnt, using much energy, adding greatly to extraction costs.

New Zealand exports its gold almost entirely to the Perth Mint in Australia. Sales would quickly have a major influence on our current account.

Does this explain why the Government, and very likely the major party in Opposition, will be hoping the country embraces gold mining by Macraes and Santana?

Last week I recorded a range of mining projects that hope to be underway in the next year or two. (I mis-spelt the site of the New Talisman project at Karangahake Gorge, instead using the name of the colourful Karangahape area of Auckland.)

The response to my Taking Stock was unexpectedly vocal in favour of hastening the development of the mine at Bendigo, near Cromwell. This project has yet to apply for consent. During this lull, various newspaper reporters and some activists will be noisy, seeking to build opposition to the level where one might have to consider a democratic vote. Currently the opposition level is well below double figures.

My guess is that Santana will seek consent when its case for a mine is in an order that makes consent straightforward, after an adult consideration of any conditions that prevent undesired outcomes.

Further, I guess that the whole issue of whether New Zealand puts more faith in mining will be heavily influenced by the Bendigo project. When it is consented (or if it is) there is likely to be new respect for NZ’s claim to be serious about balancing its economy.

International investors, now buying into the company, note that if NZ rejects this project, any other planned mine would find it very difficult to present an easier case for a mine.

New Zealanders own around 42% of Santana Minerals.

The Government would earn tax of around $200m every year from the project, if gold prices hold.

I expect the filing of the Santana application to be imminent, as the company has promised.

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THE ANZ Bank in Australia was last month fined $A240m for “unconscionable” behaviour, wrongly charging customers and behaving in other inept and unethical ways.

The Australian insurer IAG, prominent in NZ, was fined nearly NZ$20m for equally sloppy and unprofessional behaviour in New Zealand.

ASB agreed to pay NZ$136m for blatant errors that breached the Credit Contracts and Consumer Finance Act, misdescribing interest rate charges and failing to meet legal obligations to its clients. (ASB settled but did not accept guilt.)

Who, in these institutions, I ask, will be footing the bill for such examples of executive management incompetence, for governance failure, and for staffing sloppiness?

Should the company just pay, effectively meaning the shareholders pay for the errors of others?

I think there is a much fairer outcome.

The second question I ask is why did the errors occur?

I conferred with long-time banking people and with a successful, now retired, chairman of an institution. Executive greed may be at the root of the behaviour.

So to answer the second question first, I suggest the errors stem from the short-term bonus rewards of short-term (faux) profits, the inane pressure to forecast and meet quarterly results, and the relatively recent practice of over-indulging staff with silly bonuses, as Macquarie Bank has done for decades. Cutting corners often has the short-term effect of saving costs, raising the pool from profits that go into bonuses.

To answer the first question, the cost of dreadful behaviour is predominantly met by shareholders, not by the management and staff who win bonuses, often calculated on profits that are inflated by short cuts and false cost-savings; hence the subsequent hefty fines.

To resort to brevity, short-termism encourages sloppy behaviour. There is no obvious accountability when such behaviour leads to huge fines.

My suggestion is that the whole of the fine should be deducted from the bonus pool and from previous bonuses paid to the offenders.

Bonus pools would need to be escrowed to make my suggestion effective.

The retired chairman to whom I spoke confirmed that many privately-owned financial market companies as a matter of course deduct costly errors from bonus pools. Such a response is written into management contracts.

If the errors were forgivable – fat thumbs, for example – then half the error might be deducted from the potential bonus pool for the staff member with clumsy keyboard skills.

If the error was not forgivable – blatant stupidity – the whole error would be deducted. If the error was to boost a personal bonus, then dismissal would be automatic.

To me, this all sounds logical.

To ensure these solutions become standard practice in public companies, the shareholders need to instruct the directors they select to implement such policy. They should instruct, not debate!

Escrow all bonuses for an appropriate number of years and make the cost of poor practice a cost borne by managers and staff, not by shareholders.

Finally, disclose the error and the outcome. Exposure discourages knaves.

If IAG’s errors, costing $19m, were a mix of accidents, stupidity, and greed, the company should confess that and confirm the costs will be borne by the culprits.

Is that too hard?

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THE acrid stink of the years leading up to the 2008 Global Financial Crisis is re-entering nostrils, as the build-up of corporate collapses in the US grows.

In recent months, a corporate borrower with an AA credit rating borrowed some billions from private credit and from retail investors. It made its first promised quarterly interest payments, defaulted on its second, and is now in liquidation. It did not survive for long. The credit rating agency endures no penalty.

Another huge company borrowed more than ten billion from private credit and banks, defaulted, and now leaves behind a list of assets that were effectively double-pledged, creating losses for the lenders expected to exceed US$10 billion. I will discuss this in Taking Stock next week.

It was this second disaster that raised the aroma from smell to stench, reminding me of the period between 2006 and 2008 when double-pledging of an asset reached almost an art form, creating havoc for investors.

Prior to the collapse of finance companies and property funds, many such companies had sought to pledge a single asset as security for a loan, when the asset was already securing an earlier loan.

Think South Canterbury Finance, when empty-headed parties pretended that they could transfer assets into the company’s ownership when those assets already were fully in hock to secure a loan to SCF. (Those parties disqualified themselves as credible financial market participants, in my opinion.)

Unbelievably, the auditors, Ernst Young, allowed the advisers and the contracted CEO to pretend that this injection improved the strength of SCF. In effect the transaction created a certain bad debt, exactly equal to the value of the asset injected into SCF as “new capital”.

This was a shameful era in NZ, with so many partners, including Key’s government, complicit.

In the US today, companies which have borrowed heavily from private credit firms are then offering to factor their debtors’ ledger to raise immediate cash. (That means, sell at a discount debts owed to the company, effectively undermining the company’s published balance sheet.)

The lenders are now discovering “multi-billion-dollar” holes in balance sheets, the alleged debtors ledger emptied, not available when receivers seek to recover money for bankers and investors.

Long-term market participants are talking of an imminent corporate bond crisis growing from this practice alone. Yet at the same time absurdly over-stated credit ratings are being acquired to justify new borrowings.

We will all recall the errors of the liar loan era in 2006-08 when the likes of Standard and Poors gave an AAA credit rating to pools of liar loans, blithely ignoring the inevitable failure of the liar borrower to service the loan.

When house loans collapsed in the US, the lenders got back the house and nothing more. AAA house mortgages often found a market at 10% of their “AAA valuation”, leading to devastating losses.

We will also recall that, in NZ, Fitchs calculated Hanover Finance was just a pip below investment grade, offering its rating eight weeks before Hanover went broke, the investors ultimately receiving barely a few cents in recoveries.

Sniff, and keep sniffing, now. The smoke is visible.

Stressed times always lead to inventive but idiotic lending and other business practices. Deception is often the first response to problems.

Many believe the US is about to re-learn what every long-term market participant should never have forgotten.

Deception never solves anything.

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Travel

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee

24 October – Nelson – Edward Lee (Full)

27 October (Labour Day) morning – Arrowtown – Chris Lee

28 October (morning) – Arrowtown – Chris Lee

29 October – Auckland (Ellerslie) – Edward Lee (Full)

30 October – Auckland (Albany) – Edward Lee

31 October – Auckland (CBD) – Edward Lee

Chris Lee

Chris Lee & Partners

Taking Stock 9 October 2025

IF READERS of Taking Stock are investors in a listed mining company, such as OceanaGold or an aspiring mining company like Santana Minerals, Manuka Resources or Chatham Rock Phosphate, this newsletter should be relevant.

Towards the end of the newsletter there will be discussion of Santana, in which many clients have an interest.

Metaphorically, we as a nation are watching two teams build for a tug-of-war that will be visible over the next few months, as two groups seek to control the debate. 

The debate will be whether NZ wants to return to the status quo that presided in the recent past or wants to re-energise our economy to create a new status quo that can provide for those whose circumstances need a hand-up. Effectively the debate is whether to mine, or not.

Pulling in one direction is a group of passionate, sincere environmentalists who work quietly to be effective.  Alongside them are a number of less worthy activists who believe that any misinformation will help their cause. Both groups are assisted by many, perhaps almost all, of the media, which fail to fact-check nonsense. They love the clickbait.

On the other end of the rope is a mix of the private sector, aspirational people, investors and the current government.

Fairly clearly the “other end” is the majority, as illustrated, for example, by radio stations’ admittedly unscientific polls, and by the responses we collect.

The first group want our buried mineral wealth to be left alone, enabling the contours of nature to be preserved.

As a generalisation they want to accommodate the needy and rebuild our nation by introducing super taxes on those who have grown their wealth. They foresee job creation as having no reliance on buried wealth. They do not accept that the mining of minerals that occurs in most countries will be necessary to NZ’s planning.

Those on that side of the tug-of-war also contains a small number of effective people who seek to influence the country with science, believing that demand for careful mining is best effected quietly, by reasonable discussion behind the doors of the powerful.

Those people know that the worst way to influence a vastly bigger crowd is to shout out what are demonstrably untruths, to glue their hands to highways, to barricade roads, in effect to be the streakers at the rugby ground.

Unlike the respected “anti”, this other component of the opposition harms its cause by making obviously ridiculous claims, perhaps understandably reacting to their realisation that passion and emotion will not be comparable with quiet, cold science, or simple economics, and will not be offered a seat at the table.

Fish and Game, Forest and Bird, and the Environmental Defence Society will be far smarter than the attention seekers, who mix nonsense with platitudes, and bombard infantile social forums.

Their sane views should not be mixed up with slogans such as you might read on the latter pages of Animal Farm.

The debate cannot be decided solely by the promise of more taxes.

Obviously the largely new vineyards in the hills five kilometres away from the proposed Santana mine protest on the basis of fear of any environmental accident that cannot be remedied.

Wisely they do not speak of their very modest economic contribution, collectively far less than a million per year of taxes (compared to $200 million) and a handful of jobs (compared to several hundred).

You would expect careful science will demonstrate that their fears are unnecessary.

No consent would be forthcoming if the mining plan was reckless, poured acid into rivers or poison into vineyards, farms or orchards. The fear will be addressed by the consenting process.

The activists who fill the social media with slogans seek to persuade their followers that a well-run mine is similar to an open, uncontrolled sewer.

I will record some of these mistruths later in this newsletter, but it needs to be said that use of unedited media or social forums, with what is clearly nonsense, gets traction only with those who will never be effective; that is other unthinking protesters.

This topic has grown in significance following the last election when the three parties now in a coalition built their case to be elected on reforms that included making mining an accepted, even desirable activity. The current coalition craves the new revenue and jobs, preferring more corporate tax sources, to higher tax rates.

I list below the following projects seeking a licence to begin mining with the combined objective of contributing at least a billion dollars of new tax revenue each year, and of providing thousands of well-paid regional jobs, many to iwi, if statistics are an indication.

Various miners now seek a consent from a new process where an application is first seen by the Environmental Protection Agency. It judges whether the application is complete and then passes it on to be arbitrated by a small group of experts randomly selected from a large panel of balanced, competent, independent people, appointed by the Crown to measure economic benefit against any environmental risks or cost, without heed to emotion or hyperbole.

The consent process is underway, as I write. Projects will include:

a) The development of underground mining by OceanaGold at Palmerston and Waihi.

b) Mining of rare metals by Manuka Resources in the seabed 22 kilometres off the Taranaki coast.

c) Alluvial gold mining at Waikaka, on private land.

d) Rock mining at Reefton by the ASX-listed company, Federation.

e) Mining for phosphate pebbles in the seabed between Chatham Island and New Zealand, by Chatham Rock Phosphate.

f) Potentially, rock mining near the Karangahake Gorge near Waihi by New Talisman Mining (NZX-listed). 

g) Open-pit and tunnel mining for gold by the NZX and ASX-listed company Santana Minerals, on privately owned land near Cromwell.

Note, the Waikaka application may not need to reach the Fast-track process, perhaps decided by an appointed commissioner, and the New Talisman project is not yet on the formal fast-track list.

The OceanaGold projects have been producing gold for decades. In both cases OceanaGold needs permission to extend its operations for many years to come.

Some years ago, as part of my due diligence before buying into the Bendigo project, I visited Waihi, and in the early evening sought out the locals by entering a hotel bar/dining room which was clearly heavily patronised.

I joined different tables for three hours, kindly allowed to divert the conversation to the impact of mining in the small town.

The response was loud praise for the mine, from men and women, and acknowledgment that it had greatly enhanced life in Waihi, providing jobs and other economic benefits which had enriched the town.

I have no doubt that the vote in Waihi would heavily favour more mining. There will be sincere environmental objection, but the local supporters are adamant.

The Manuka Resources project is more controversial. It wants to hoover up rare metals from the sea floor 22 kilometres off the Taranaki coast, outside NZ’s territorial waters but inside the country’s economic zone.

The issue is the degree of effect of the plume created by the process, and the effect, if any, on fishing rights, on the normal passage of sea life - perhaps dolphins, whales etc - and on a claim that it might affect the coastal environment.

These will be measured against a 20-year project that would produce many billions of dollars-worth of rare metals needed to support modern applications and modern life.

Manuka’s project was once in the name of Trans Tasman Resources. Manuka has spent $85 million on developing the application. That is not a chickenfeed sum. Arguably, Manuka’s project is the biggest decision of Fast-track.

Waikaka is a relatively vanilla alluvial gold project, led by many of the same people who have previously mined and then restored privately owned farm paddocks, extracting gold by the sifting of shingles.

It involves no toxic materials and appears to have communicated effectively with all interested groups.

A Commissioner will hold a hearing in coming months. It seems an unlikely project to cause genuine controversy.

It does need to temporarily alter the direction of a stream, but as it has shown at Waikaia and Millers Flat, it is highly competent at remediating any groundwork. Indeed, its previous mining has left behind paddocks that the farmer owners would applaud as being in better condition than ever. Coincidentally, the expert miner responsible for Waikaka, Waikaia and Millers Flat was Warren Batt, the joint discoverer with Kim Bunting, of the project at Bendigo.

The rock mining planned at Reefton by Federation seeks to use modern methods to extract more gold from the underground passages from which vast amounts of gold were mined more than 100 years ago. It should not be controversial.

This plan seems unobtrusive and would give a mighty hand-up to locals in the quirky West Coast town, where local cafes still serve fabulous vegetable soup in the winter, the dining tables circling a coal fireplace.

The Chatham Rock Phosphate project seeks to hoover up phosphate pebbles from the seabed somewhere between the Chathams and NZ.

The phosphate pebbles there are non-carcinogenic, unlike the phosphates imported from Morrocco or Russia. They are slow-releasing, close to home (much lesser carbon footprint), and they are much cheaper to deliver to NZ farmers. They are abundant and sitting idle on the sea floor.

Chatham Rock Phosphate plans to deliver a large hand-up (new wharf etc.) to the Chatham Island people. This project has previously been declined by an Environmental Protection hearing which made inadequate effort to measure perceived environmental risk with projected economic benefits, in my opinion.

The Karangahake Gorge was long ago the centre of mining activity. The gorge runs between Waihi and Paeroa.

The project seeks to perform rock mining. Gold deposits are accessible by tunnels. Gold levels are rich. Mining that rock would be expensive but New Talisman is confident there would be a significant economic benefit in both jobs and taxes paid.

The current elephant in the room is the Santana project at Bendigo, near Cromwell, and some twenty kilometres from Tarras where there is a tiny settlement of farms and bachs owned by out-of-town enthusiasts, with a love of tramping, hiking and possibly fishing, total population perhaps 250.

Many there support the project and have applied for jobs at Bendigo. Others bang drums through the night, protesting.

The Tarras town years ago made an effective case against a plan to build an international airport on farmland near the village. I suspect most towns in New Zealand would have opposed an airport in the centre of a peaceful rural hamlet.

Tarras is at least twenty kilometres from Santana’s proposed mine, which in every respect will be irrelevant to the Tarras cows, sheep, petrol station and coffee bar, unlike an airport right in the midst of life there.

As far as I can discern the Tarras objectors should have no bearing on the Fast-Track decision, and will not be asked for their opinion.

Its drummers have produced objections related to the virtual invisibility of the mine, its ugliness if seen from an aircraft on route to Queenstown, and have made the untrue claim in a press release that “all” New Zealanders oppose the desecration of a distant, barren, rabbit-infested valley in the Dunstan ranges.

Any of the media that has acted as cheerleaders for this group reveal the lack of depth of fact checking.

Equally, the strategy of bombing kindergarten-standard social media platforms is hardly likely to persuade even a late-night public bar audience.

As an aside, these social media forums desperately need fact checkers to counter remarks so patently untrue, such as the dishonest chant that Santana’s people have no experience of mining or have not engaged with the local community.

If the combined experience of executives and directors does not exceed two centuries of such work I would be surprised. Such false claims undermine any credibility.

I do wonder how social media forums printing juvenile contributions can earn enough respect to attract informed debate.

My belief is that if every person with a device had to open their account by proving they were a genuine person with a real name, then the forum could refuse to publish anything from anyone whose real name and hometown was not on display alongside the comments submitted.

Anonymity allows the crass and the empty-headed to declare whatever nonsense they choose. The forums publish it, debasing whatever value there might be in such forums.

(How much pain for teenage victims of social media garbage might be avoided if the crass comments came under a real name from a real address.)

Occasionally a concerned client sends me screenshots of garbage written about me on such platforms.

The nonsense equates with children pulling faces at the window on Halloween night. They inspire derision, maybe laughter but certainly not respect.

I expect Santana to file its consent application this month, judging by the words of its Chairman Peter Cook in Santana Minerals’ annual report, who stated that the application is at the “threshold of submission”.

Will it publish its 1000-page (plus) of detailed information, or will it restrict its audience to the formal panels and only those who could be described as an adult audience?

I guess we will find out. Santana would be extraordinarily generous and inclusive if it shared its plans with those who have displayed ignorance and rudeness, constantly misrepresenting any information that had been provided out of courtesy, not obligation.

The tug-of-war should be decided by science and economics, in each of the seven applications referred to above.

Every responsible New Zealander will want an outcome that is responsible, measuring environmental cost, if any, against economic benefit.

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THE Crown now guarantees retail depositors for up to $100,000 per person, per deposit-taker, including those who deposit in grossly undercapitalised, privately-owned finance companies. 

It is now considering allowing such high-risk deposit-takers to describe themselves as a bank.

Imagine it. Hanover Bank. Money Managers Bank. Lombard Bank. Bridgecorp Bank.

I wonder who imports straitjackets to constrain people with barmy ideas.

It seems we may need a decent supply in The Terrace in Wellington.

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Travel

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee

24 October – Nelson – Edward Lee (Full)

29 October – Auckland (Ellerslie) – Edward Lee (Full)

30 October – Auckland (Albany) – Edward Lee

31 October – Auckland (CBD) – Edward Lee

Chris Lee

Chris Lee & Partners

Taking Stock 2 October 2025

James Lee writes:

‘James, there are things happening in this company that you don’t understand.’

Giving unpopular advice was part of the territory during an initial public offering (IPO), and in this instance I had said we were making a mistake in our pricing decision, perhaps a little forcibly. But when you are paid to give advice it’s important to not couch your advice with ifs, buts and maybes.

On day one the stock we had been debating traded above the initial issue price. I drew a deep breath and called the company, asked them how many employees they had, drew another deep breath when they told me and ordered enough Christmas mince pies to be sent to their offices as my “humble pie”.

While ultimately the IPO was a poor outcome for investors, it did trade higher on day one.

Poor-performing  IPOs are often quoted as a core reason why there are not many new listings, and local exchanges often get held responsible for not doing more. This problem is real and is global, it has been over a decade since the NZX went through a period of rapid IPOs, and Napier Ports was the last “Successful” scale IPO in 2019. Today we are seeing a combined effort from regulators, exchanges and governments to address this, and not the fault of the local exchange.

The problem is far more nuanced and one that talks to the structure of capital markets, the purpose of the exchange and ultimately a question as to why these things matter.

Firstly, the IPO market

Since 2000 there has been more than one new company listed every business day somewhere around the world. These IPOs generally can be broken into two segments.

1) Large deals designed to give previous investors liquidity;

2) Newer companies looking for growth capital.

Globally it is normal practice for young businesses (generally five to seven years old) to raise small amounts of capital (70% of IPOs this year raised less than $100m) from listed markets. Often revenue on average is below $100m. Last year 75% of companies that listed were still not profitable.

These IPOs don’t always work but there is a risk when they are trying to grow. The ones that work become your Xeros, Teslas, etc. They start with small amounts of capital, meaning the existing owners are aligned to the success of the business. Their governance model and executive team are likely still in “founder” mode, but if it goes wrong they are destroying only a small amount of capital.  They seek to prove their business model can take in more capital. Sometimes when it doesn’t they get taken private.

At the other end of the spectrum, mature, stable companies can list to transfer ownership to new investors who value imputed dividends, providing these investors with a healthy income for their life savings.  This pool of capital is enormous. Mighty River Power (now Mercury), Genesis, Meridian were relatively straightforward IPOs and have been successful investments.

For large, stable sensibly priced businesses, IPO markets work. In the US there are lots of private companies who want access to capital to grow, but unfortunately for New Zealand there aren’t as many here. Should Fulton Hogan, Datacom, Bayleys, Kiwibank or the councils look to list, they would find good demand.

Mid-sized exits will have a healthy private equity market if the IPO market cannot accommodate them, but Scales, Summerset, Gentrack show us that good companies will find a home on the NZX.

What’s the problem then?

If 30% of mid-sized listings fit these two definitions, then it’s in the NZX’s control to set the rules to make listing attractive. The actual problem to me is how one supports the growth market. The reality is that every exchange in the world is fighting the same theme. Seventy per cent of IPOs will be small growth companies. How does an economy support that?

The US is the deepest market in the world. Between 60% and 70% of the world’s capital markets are now in the US, depending how you define them. The percentage has almost doubled over 30 years, so every Western market is effectively competing with the US.

Every exchange has a strength, whether it is London with its strong small cap active management base, Toronto with its deep retail market, Singapore having strong government support, or Australia having a great balance to ensure competition for new companies.

For the NZX to be a healthy commercial entity that achieves its purpose of being a viable place for New Zealanders to invest, it needs good companies to use the NZX to raise growth capital, coming to the market with a growth mindset.

Before we talk about what we can do to fix it, why do we care?

Why does it matter?

Capital formation is the idea that you take savings (paper money) and turn that into an asset like a factory or software. That investment as an asset is the fuel that can drive economic growth. Companies growing, hiring, investing, and entering new markets is what creates jobs.

Job growth creates retail demand, which creates new jobs, which in turn increase migration, increasing demand for homes, which in turn create new jobs. All of this increases taxes and reduces reliance on the state. Capital formation is the mechanism that transfers the giant pool of savings into economic activity.

While cheap debt is available to larger companies, new companies or new ideas rely on venture capital (VC) and IPOs.

Private investment through venture capital and private equity play a very important role, particularly in life sciences and technology.

They, however, suit different investors. Traditionally, venture capital funds slightly more than public markets do, but over the past few years we have been seeing venture capital funding materially more of this demand than IPOS, as technology and AI investment has surged. The broader economy has struggled to raise new funds.  Small and medium enterprises are the companies that rely on IPO markets to grow, as cheap debt is not available to them like it is to Spark, as an example.

In an economy like New Zealand that relies on small and medium enterprises for job growth, the IPO market matters. The formation of growth companies which hire, invest and build is a key to job growth, which is why a frozen IPO market fundamentally matters to our economy.

Job growth

I would argue that the single most important role of an economy is job creation and stability (education is part of job creation) and that is a prerequisite to everything else including safety, security and even health.

Employment is part of the core fabric of society. It is part of the social network, it provides meaning, financial flexibility and security and, for most, the promise of a better tomorrow.  You can reduce your standard of living under periods of inflation but I promise you the many thousands of New Zealanders who can’t find enough work to meet their needs today are feeling a stress that outweighs the cost of having to trade down on the variety of cheese one buys!

To me, improving the attractiveness and ability to be listed, with incentives for companies to grow, is the reason that we need to focus on how we channel our savings into productive investments in New Zealand, including infrastructure and IPOs of small and medium enterprises.

Complaining about a problem without proposing a solution is called whining

Solving this a two-stage problem - demand for growth IPOs, supply of growth IPOs.

Demand First

1) The government actively intervened in the VC market through the establishment of NZVIF in 2002 and Elevate in 2020.  It has allocated $300m to support new ventures. Given the success Ice House has had in raising capital I would suggest the VC market in New Zealand is now on the road to being healthy.

Singapore recently announced it would allocate capital to support the small companies market in Singapore. My view is that our government should do the same for small capital companies, appointing perhaps six managers with a grant of $25m each.  Default KiwiSaver providers should have a requirement to support the New Zealand capital markets. NZ Super and ACC should seed smaller strategies in the medium term.

2) Increase the access to advice by rebuilding the advice industry, using the $600m of fees that are paid to KiwiSaver providers to do so. Make it compulsory for KiwiSaver investors to get independent advice, paid for from their fee. Insurance has separated the advice and manufacture of its products. The model works. There are many more Insurance advisors than wealth advisors in the market.

3) Make it easy for platform players, such as Hatch and others, to give some form of simplified information. Carving out the witch hunt on the wholesale exemption should be simple.  Some people are capable and want to take a risk - they gamble, they buy crypto or buy US meme stocks. Don’t make it hard for people to get access to product. Perhaps financial literacy will need more emphasis.

4) Reduce the burden on directors. Both the media and exchanges have made being a director of a listed company a role most competent people don’t want. Encourage risk and growth in equal measure. Make it clear a director’s role is for all stakeholders (creditors, banks, staff, shareholders).

Supply Side

1) Change the competition rules in New Zealand to encourage competition, rather than focus on what seems like consumer welfare.  Competition law globally is in two forms.  In US-based areas, as long as the consumer is better off, most things go.  In Europe, fairness, competition and potential job losses are more relevant. So in the US the big get bigger, and jobs go overseas.

New Zealand has seen enough good companies get taken over and disappear.  That is not to say some shouldn’t go. I commend Fonterra for selling Mainland. Selling is not a sign of failure.   When Weta Digital sold Unity, why was that so easy vs the alternative to take capital, list and invest into New Zealand?

2) Government contracts should require a minimum staffing level for any procurement so an international firm has to set up in New Zealand. This would allow New Zealand companies to form in key areas and list to fund those contracts, if necessary.

3) Make the costs and rules simple for smaller companies to raise $10m-20m in an IPO. Credit to the NZX/FMA here. They are trying.

4) Set up a partnership with larger exchanges so that, as companies grow, they have access to more investors.  Mutual recognition and global listings across Toronto/ London/ Singapore and New Zealand would give every company a really clear path to build a global register as they grow and stay listed.

In summary

IPOs and keeping companies listed really matter when they are growing and investing. We need to create 35k jobs to help our country recover.

Blaming the NZX for it not working isn’t fair. It’s an industry problem that requires a full structural response.  I would happily suggest that corporate tax rates are 1% lower for every company that increases their employees year on year, and 1% higher for those which reduce, and 1% lower if the company is listed, and 1% higher for those that remain private. But that is Luxon’s job not mine. In my view, listing can generate growth, jobs and tax revenue.  We need all of these.

All we can do is try to understand and help support the younger companies that are trying to grow, whether that is a gold mine or young technology company.

The effort to grow our revenues and jobs will impact everyone.

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Travel Dates

7 October – PalmerstonNorth – David Colman

8 October – Christchurch – Johnny Lee (full)

21 October – LowerHutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee24 October – Nelson – Edward Lee29 October – Auckland (Ellerslie) – Edward Lee30 October – Auckland (Albany) – Edward Lee31 October – Auckland (CBD) – Edward Lee

James Lee

Chris Lee & Partners Ltd