The global mining industry continues to look on Hong Kong as a good place to raise capital, thanks to China’s demand for natural resources and the army of Chinese investors keen to buy stocks that offer exposure to this trend.
A recent report published by PricewaterhouseCoopers (PwC) predicts that between 10 and 15 mining and natural resource companies will list in Hong Kong during 2012, and that this trend will gather momentum when confidence returns to the global economy.
“The trend is clear,” said Benson Wong, an assurance partner in PwC’s Hong Kong office. “Over the past few years, the Hong Kong stock exchange has attracted several large, high-profile mining company listings, and the pipeline for future listings is very healthy.”
The firm made a similar prediction around the same time last year, when it also said 10 to 15 mining and natural resources-related companies would sell shares in Hong Kong in 2011. So far, there have been only eight IPOs this year, which is a sharp decrease from the 22 deals in 2010 — a result of the difficult market conditions, particularly during the second half of the year.
Even so, there is clearly strong underlying demand. Despite the tough markets, mining and natural resource companies have raised HK$94 billion ($12 billion) this year, up from HK$68 billion in 2010.
The poster child for natural resource IPOs was Swiss commodity trader and miner Glencore’s £6.19 billion ($10 billion) dual listing in London and Hong Kong, which was the biggest IPO in the world this year.
China’s demand for commodities is unlikely to be much affected by the current financial crisis in Europe and the US, with the country tipped to grow at a rate of 7% to 8% next year, PwC said.
China’s fixed-asset investments, which generate most of the nation’s commodity demand, jumped nearly 25% in the first 10 months this year to Rmb24 trillion ($3.8 trillion), according to the National Bureau of Statistics. Investment in the nation’s property sector rose 31% year-on-year to reach Rmb4.99 trillion in the 10-month period.
This staggering growth rate even amid global economic turmoil is creating continued growth in demand for commodities, and the lack of new finds coupled with rising costs means that long-term commodity prices can only really go up, according to Wong.
PwC expects Hong Kong will continue to attract more foreign mining and natural resource companies for dual primary or secondary listings.
But Hong Kong is not an attractive spot for everyone. Chinese coal miner Shaanxi Coal is planning a Rmb17.3 billion IPO in Shanghai. The miner will issue up to 2 billion shares in the offering, according to a draft prospectus posted on the China Securities Regulatory Commission’s website.
Shaanxi’s bigger domestic rivals, China Shenhua Energy and China Coal Energy, both have their shares listed in Hong Kong.
Meanwhile, in the first six months of 2011, Chinese entities announced 75 acquisitions in the global mining sector worth a total of $4.7 billion, according to the PwC report.
“China is expected to continue acquiring gold and other precious metals, as well as quality industrial resource assets like iron ore, metallurgical coal, fertilizer minerals and base metals,” Ken Su, an advisory partner at PwC China, said in a statement. “We also anticipate China will continue to look at traditional developed investment destinations as well as expanding into frontier markets, such as Mongolia and Africa, and further consolidate its fragmented domestic mining sector.”