The Philippines-based miner, which was aiming to raise up to $180 million, had been hoping to ride on the global shortage of nickel which has sent prices of the metal to record high levels. However, a slide in other commodity prices, including oil and gold, in recent weeks has made investors hesitant about buying into nickel-linked assets on the basis that it may be the next to fall.
ôThere was a high degree of sensitivity because of where commodity prices are heading at the moment," says a source familiar with the offering, adding that the deal was pulled off the market early Thursday Asia time, around the time it had been scheduled to fix a price.
Chemoil Energy, an integrated supplier of marine fuel, cancelled its IPO on Tuesday after investors got spooked about declining oil prices. The company, which was seeking to raise up to $373.6 million on the Singpore stock exchange with the help of JPMorgan, Morgan Stanley and UBS, also suffered because of a lack of comparables in the region, sources said.
In the three weeks since Nickel Asia launched its roadshow, gold and copper prices are both down more than 10%. Nickel, however, has held fairly steady and was trading at about $13.40/lb on Wednesday û only 2% below its record high in August.
There are also no signs that the shortage of nickel will be filled any time soon as China continues to scoop up vast quantities of the metal, which is used in the production of stainless steel to prevent corrosion. There are also no major new mining projects expected to start production in the next year, which will keep the level of supply low.
Data out on Wednesday showed that over-ground stock piles of nickel fell to their lowest since August and now correspond to only about 4-5 hours worth of supply. Normally, inventory for the metal is measured in number of days.
In its listing document, however, Nickel Asia said it plans to boost its annual production of contained nickel to 48,000 tonnes by the end of 2007 from 31,500 tonnes in 2005 û an improvement of 52% that would make it well positioned to benefit from any further price increases.
The fact that the company, which focuses solely on nickel, has all its assets in Philippines, but was seeking a listing on the Toronto Stock Exchange alongside other global metals and mining companies, may also have made it a less obvious buy for both Asian and Canadian investors.
In the end though, it is likely that poor pricing was the cause of the cancellation. According to one source, the bookbuilding showed that the C$12 to C$14 per share that the company was seeking was not going to fly with investors. At the bottom of that range, the company would essentially be valued at 11-12 times its 2006 earnings, compared with only 9-10 times for larger competitor Inco.
Analysts earlier noted that the average forward PE for miners in developing countries, which are regarded as riskier investments, are typically no more than 10-12 times.
There were some suggestions that there would have been sufficient demand at about C$10, but according to the source, the company was unwilling to bring the deal below its original target as it is happy with the operating performance and didnÆt want to undersell the story.
CIBC World Markets acted as global coordinator for the offering with CLSA as senior co-lead manager. The chairman of CLSAÆs investment banking joint venture partner in the Philippines is a co-founder of Nickel Asia.
The IPO comprised 15 million class-A shares, of which 12.2 million were new. The shares represented about 35.7% of the enlarged share capital and were non-voting to comply with regulations in the Philippines which state that at least 60% of any mining interest must be owned by Filipino nationals.
The company owns and operates six nickel laterite mines in the southern Philippines with proven and probable reserves of approximately 668,000 tonnes of contained nickel and measured and indicated resources of 1.57 million tonnes. Most of its nickel ore is sold to customers in Australia and Japan, although the company also started to export some of its contained nickel to China in 2005.
It also holds an indirect 6% stake in a high-pressure acid leach (HPAL) nickel processing facility, which is buying all of its raw ore from one of Nickel AsiaÆs mines. This facility is planning to double its capacity within the next three years at a total cost of $285 million and Nickel Asia was to have used part of the proceeds to fund its portion of that expansion.
The company has been operating since 1975 and claims to be the largest nickel miner in the Philippines. It was set up in its present holding company form early this year to acquire and hold the nickel mining and processing interests of members of the Zamora and Virata families.