Aditya Birla returns to investors with new prospectus

The Indian conglomerate revisits the A$299 million listing of its Australian mining company following a slippage at its open cut copper mine.
Two weeks after pricing the A$299 million IPO of its Australian operations, Aditya Birla has re-issued its prospectus with new forecast earnings figures.

The Indian company says output from its Nifty copper mine in the Pilbara region of Western Australia will be adversely affected by a slippage that resulted from weeks of heavy rains.

The new prospectus will show lower earnings forecasts for 2007 resulting from the expected drop in production by 2,000 tonnes, from 106,000 tonnes to 104,000 tonnes.

Arrangers UBS have already been in contact with institutional investors who subscribed to the shares on April 10 to re-confirm their orders.

Says one source close to the deal: ôI canÆt see investors canceling their orders based on the new numbers. Mainly because the prospectus assumes an average copper price of $1.70 per pound and the current price is in fact $3.00, so there is enough of a cushion there.ö

News that the prospectus was being reviewed came as the IPO was opened to retail investors. Though, according to our source, the sensitive timing was not likely to derail the retail offer. ôThe retail component is being sold via broker firm order so the allocations for this have already been confirmed. They too will be given the option to reconsiderö

The revised prospectus is a hiccup in an otherwise textbook IPO.

Investor appetite for resources stocks and high global commodity prices meant that Aditya Birla Minerals priced at the top of its range on April 7 receiving A$1.95 from investors. Both institutions and retail brokers had their orders scaled back.

Following the offer, the Indian parent company retains 51% of the shares.

Aditya Birla entered the Australian market in January 2003 by purchasing the copper deposit at the Nifty Mine in the Pilbara. The mine produces copper cathodes and has a large undeveloped copper sulphide resource.

The company also owns the Mount Gordon Copper Mine in Northwest Queensland which it bought from Western Metals in September 2003. The mine had gone into receivership and Aditya Birla set about reducing staff numbers and increasing output in order to turn it around.

While the Nifty deposit is a proven producer, there are some who believe the Mount Gordon project will be difficult to operate. ôWe didnÆt look at the deal because of the Mount Gordon asset,ö says one specialist mining investor. ôWhen an asset has had more owners since the mid-60s than a Picasso then you can only conclude that it is a dog. Mount Gordon is metallurgically challenging and very tough to make a profit from.ö

The IPO gives Aditya Birla a market capitalisation of A$600 million making it a second-tier player in AustraliaÆs mining sector. Most of the IPOs in the past 12 months have come from the junior or small cap sectors where the average capital raising is between A$5 million and A$10 million.

UBS doesnÆt dabble in the junior end of the market, but has worked for other second tier miners. In April last year, it helped to raise A$960 million for zinc producer, Zinifex. However, this deal didnÆt meet its targeted range of A$2.10 to A$2.70 a share and instead sold for A$1.95. It is now trading at A$11.68.
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