Chinalco Mining raises $400 million from Hong Kong IPO

Chinalco’s Peru unit draws strong demand, leading the retail tranche to be about 25 times covered, while cornerstone investors take up 60% of the deal.
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Chinalco claims about 7.3 million tonnes of copper reserves
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<div style="text-align: left;"> Chinalco claims about 7.3 million tonnes of copper reserves </div>

Chinalco Mining Corporation International, a unit of state-owned Aluminum Corp of China and the owner of a greenfield copper deposit in Peru, has raised HK$3.09 billion ($399 million) from its initial public offering in Hong Kong, after fixing the price above the mid-point of the indicative range.

As the first sizeable deal to hit the city’s IPO market this year, Chinalco Mining attracted robust demand from both retail and institutional investors. The retail tranche was about 25 times covered, which triggered a clawback and boosted the tranche to account for 30% of the deal, from the initial plan for 10%, sources said yesterday. The institutional tranche was multiple-times covered, they said. The remaining 70% is allocated to institutional investors, from 90%.

After poor participation from retail investors in Hong Kong during much of last year, the heightened retail attention given to recent deals reflects the improving markets, one source said.

The Hang Seng Index was down 0.2% yesterday, but it has gained 4.2% since the start of the year, building on a 23% rise in 2012.

Chinalco Mining also benefits from good name recognition in the region. Sister company Chalco, for example, is the biggest alumina and primary aluminium producer in China, and is already listed in Hong Kong.

Chinalco Mining launched its offering with five cornerstone investors, including Trafigura and Rio Tinto, committing a combined $240 million, or about 60% of the deal based on the offering price. It had also enlisted enough demand from anchor investors for the deal to be fully covered at launch.

Only three companies have completed IPOs in Hong Kong since the start of the year, raising a total of $126 million, according to Dealogic. PanAsialum Holdings, a Chinese manufacturer of aluminium products, is currently in the market with an offering of up to $174 million. The order books will remain open until next Monday, with the trading debut scheduled for February 5.

Chinalco Mining sold 1.76 billion shares, or about 15% of the company, at HK$1.75 each, raising $399 million. The final price represented a 2014 price-to-earnings ratio of about 8.9 times, one source said.

The deal was marketed at a price between HK$1.52 and HK$1.91, which would have allowed it to raise between $346 million and $435 million. The price range translated into a 2014 P/E multiple of between 7.7 times and 9.6 times. Other Hong Kong-listed copper mining companies traded at an average 2014 P/E multiple of 8.8 times, the source said when the deal was launched last week.

The cornerstone investors are all commodity-related companies, namely Trafigura ($100 million); Tongling Nonferrous Metals ($50 million); Hongfan ($30 million); Louis Dreyfus ($30 million); and Rio Tinto ($30 million), the term sheet shows. They are subject to a six-month lock-up.

There is a 15% greenshoe option, which could increase the deal size to $458 million. The stock is set to start trading on January 31.

Chinalco Mining was initially aiming for an IPO of up to $1 billion in June of last year, but did not launch the deal despite extensive pre-marketing. At the time, investors were facing volatile global financial markets amid worries about the deepening debt crisis in Europe and weaker growth in China.

Chinalco Mining is the core platform for the Chinalco group’s non-aluminium, non-ferrous resource developments overseas. Its only mining asset at the moment is the Toromocho copper-polymetallic deposit in Peru.

The Toromocho project is the world’s second-biggest pre-production copper project as measured by proved and probable copper ore reserves, according to the company’s draft prospectus. It is estimated to have proved and probable reserves of about 7.3 million tonnes of copper, 290,000 tonnes of molybdenum and 10,500 tonnes of silver.

Chinalco Mining plans to rely on the Toromocho project for substantially all of its revenue and cashflows for the foreseeable future, according to the draft prospectus. Production is expected to begin in the fourth quarter this year and reach full capacity in the third quarter of 2014.

The company noted in the prospectus that it did not have any revenues during the track record period (January 1, 2009 to September 30, 2012), and there can be no assurance that it will generate sufficient cashflow from its operations in the future, it said.

Peru’s mineral exports are expected to reach $30 billion in revenue this year, up from $25 billion in 2012, the country’s Andina news agency reported on Wednesday, citing the ministry of energy and mining.

Guillermo Shinno, vice-minister of mining, was quoted as saying that the decrease in exports by the end of 2012 was driven by lower international prices, but that this will be offset by a rise in production, especially of copper.

“By the end of 2012, we produced 1.3 million tons and this year we expect to have an increase as operations in Antapaccay (Apurimac) and the expansion of Antamina (Ancash) and Toromocho (Junin) have started,” he told Andina.

BNP Paribas and Morgan Stanley were global coordinators for Chinalco Mining’s IPO. CCB International, CICC, HSBC, and Standard Chartered were joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.

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