Indonesia's Rajawali group pulled the initial public offering for its gold mining assets on Wednesday after failing to generate sufficient demand despite extending the institutional book-building period by an additional nine days.
A Rp3.5 trillion to Rp4.6 trillion ($295 million to $379 million) flotation of Archi Indonesia was initially scheduled to price on November 25 but was extended until December 6. The company then decided to pull it one day ahead of the new pricing date to wait for a better market window.
It might be waiting for some time given the uncertain outlook for gold prices.
The original sales pitch had been directed at investors who believed the current down cycle was bottoming out. However, there are plenty of forecasters who believe gold prices are on the verge of a second leg downwards.
The precious metal is currently trading at $1,204 per troy ounce and witnessed a positive reversal of fortunes on Monday when the price spiked 3.6% on the back of a re-bound in crude oil prices. But the gains were swiftly wiped out on Tuesday and some analysts believe gold will continue to slip below a key technical hurdle around the $1,200 level. At current levels, it is trading at four-year lows, yet is still some way above the $700 levels it touched back in 2008.
It rose sharply during the global financial crisis as a safe-haven asset. However, sentiment is currently weakening in tandem with the growing strength of the US dollar.
Archi Indonesia's fundamentals place the company in the upper quartile of listed gold mining companies. Had market conditions been more favourable, the deal would likely have been a great success.
In particular, the company has extremely low production costs, which makes it much more able to withstand lower gold prices than some of its competitors. Its current cash cost per troy ounce, for example, stands at $675 compared with an average of $778 for mid-market miners.
The key question for the company now is how it deals with the $280 million of debt on its balance sheet since it was going to use its IPO proceeds to pay down much of it.
The 1.879 million share Jakarta Stock Exchange listing was being marketed at a price range of Rp1,895 to Rp2,445, according to a term sheet seen by FinanceAsia. This equates to a 2015 EV/Ebitda valuation of about 6.3 to 8.0 times.
The public freefloat would have constituted 47.5% of the group's enlarged share capital.
Joint global coordinators for its IPO are Bank of America Merrill Lynch, CIMB and Standard Chartered with domestic lead managers comprising CIMB, Danareksa Sekuritas, Mandiri Sekuritas and Valbury.
