Bumi Resources floats minerals unit

Bumi Resources Minerals has raised Rp2.01 trillion ($232 million) after pricing its initial public offering at the top of the offering range and upsizing the deal compared with earlier indications.

The company holds a portfolio of resources and mining assets, primarily gold, copper and iron ore, and the listing seems to be timed to take advantage of the strong run-up in gold and copper prices. That is, before the recent correction. However, with global demand for copper still strong and inflation expectations on the rise, prices for both metals can be expected to find renewed support.

As the name implies, Bumi Resources Minerals is owned by Indonesian coal miner Bumi Resources, which in turn is part of the Bakrie family’s group of companies. The latter is of interest since the Bakries on Tuesday announced that they have struck a $3 billion deal with Nathaniel Rothschild that will effectively result in a backdoor listing of Bumi Resources and fellow Indonesian coal miner Berau Coal in London.

The deal was announced after Bumi Resources Mining had already closed the order books for its IPO and hence did not have an impact on the offering or the demand. Whether it will eventually have implications for the subsidiary remains to be seen, but sources said yesterday that, if anything, it should be a small net positive as a London listing may ease the concerns about corporate governance that tend to follow the Bakrie group of companies. Indeed, investors had no objections to stick with their orders after the deal with Rothschild was announced on Tuesday.

Bumi Resources owns 81.8% of Bumi Resources Minerals after the IPO.

Investors also didn’t seem bothered about the fact that the six-day roadshow coincided with a correction in regional equity markets. As one source noted: because the stock doesn’t start trading for another two weeks, there is always price risk, and therefore investors have to buy for the long term. Bumi Resources’s debut is scheduled for December 2.

The company initially targeted a deal size of about $200 million. However, that was increased to $232 million after it received more than $1 billion worth of orders. This translated into a deal size of 3.3 billion new shares, or 18.2% of the share capital. The company had approval to sell up to 4.3 billion shares.

The shares were offered at a price between Rp625 and Rp635 and given the narrow range there wasn’t really any price sensitivity, allowing the price to be fixed at the top without much discussion.

Unusually for an IPO, the shares came with warrants – every three shares bought will give the investors two warrants. And each warrant gives them the right to buy one share, which means that if exercised in full, the company will have to issue another 2.2 billion shares. The warrants can be exercised during a two-year period beginning six months after the listing at Rp700 per share, or at a 10.2% premium to the IPO price.

While Bumi Resources Minerals’ different asset types make it a hard stock to value, the warrants do add to whatever value investors attach to the shares. Hence they worked as a sweetener for investors, while at the same time the company gets to raise an additional $700 million at a premium to the initial share sale.

Warrants have been used on four other Indonesian IPOs in the past, including Benakat Petroleum Energy’s $175 million listing in February this year. The other three were smaller transactions below $60 million.

Indonesia has attracted a lot of attention among international investors this year, as the country’s stockmarket is the best performing market in Asia year-to-date. Yesterday, when most other markets tumbled due to increasing concerns about inflation, rate hikes in China and a new round of debt problems in Europe, the Jakarta Composite Index gained 0.5% and is now up 45% so far this year.

However, perhaps because of its relatively small size, more than 50% of the demand for Bumi Resources Minerals came from domestic investors. Among the international demand, about 80% to 85% came from Asia, sources estimated. Long-only investors were said to like the equity theme, and some hedge funds also came into the deal. Allocations were skewed about 80:20 in favour of domestic accounts.

Most of Bumi Resources Minerals’ assets are still at the development phase, although it does own an effective 18% stake in the Batu Hijau mine, an open-pit gold and comer mine that is operated by Newmont, one of the largest gold producers in the world. The mine is the second largest gold and copper mine in Indonesia and Asia-Pacific in terms of estimated production and last year produced 220,000 tonnes of copper and 560,000 ounces of gold. Current reserves is expected to support production until 2023, but according to a preliminary listing document there is “significant” potential for new mines within Newmont’s concession area, subject to relevant approvals and permits.

It also owns 80% of a zink and lead mining concession in North Sumatra, the Dairi project, which is expected to begin production in 2012. The project has 5.4 million tonnes of estimated reserves. Its third largest asset is a 60% stake in an iron ore mining project in Mauritania in Africa, which comprises four iron ore concession areas, two phosphate concession areas and six exploration licenses. Production is expected to begin on a small scale in the fourth quarter 2011.

Credit Suisse, J.P. Morgan and Nomura were joint bookrunners, while Nomura also acted as global coordinator and lead managing underwriter together with domestic bank Danatama Makmur.