Iron ore firm eyes HK$197m in HK IPO
China Zhongsheng Resources, the largest privately owned iron ore producer in Shandong province, plans to raise as much as HK$197 million from an initial public offering in Hong Kong.
'The stock market remains low recently,' said Li Yunde, the firm's chairman. 'But after operating for more than a decade our firm has grown and our business is stable.'
However, Kenny Tang Sing-hing, general manager of AMTD Financial Planning, said investors might not have much interest in the share offering. That's because investors would have concerns about whether the reserves and the quality of the company's mines are as good as the firm claims, Tang said. 'The amount of money this firm is looking for is not much, I think they will be able to raise the funds through institutional investors who understand their business,' Tang said.
The price of iron ore on the mainland has risen in recent years, bolstered by the strong economic growth.
But growth is now slowing, and Premier Wen Jiabao said last month that the mainland's gross domestic product was expected to expand only 7.5 per cent this year, compared with 9.2 per cent last year.
According to the firm's listing prospectus, the average selling price of its iron concentrates with iron content of 65 per cent fell 13.6 per cent to 1,024 yuan (HK$1,250) per tonne in the first two months of this year from the same period last year.
Li said the iron ore industry was not as robust as it was in 2008, but it was still doing fine. 'In Shandong, Zhongsheng has the largest iron ore reserves and in this market the demand is strong,' he said.
Geng Guohua, the firm's chief operating officer, said the total output of iron ore in Shandong was 18 million tonnes last year, while the output of crude steel was 56.2 million tonnes.
Zhongsheng has only one mine, the Yangzhuang iron mine, in operation. Less than 60 per cent of the listing proceeds will be spent on expanding the mining capacity of Yangzhuang, according to the firm.
It plans to increase the annual mining capacity of Yangzhuang to 3.5 million tonnes in the final quarter of next year from 2.3 million tonnes.
The rest of the proceeds will be used to fund the first stage of the Zhuge Shangyu ilmenite mine, a project the firm plans to begin this year.
The target is to realise mining capacity of two million tonnes by the fourth quarter of next year, and subsequently increase that to eight million tonnes by the second quarter of 2016.
Zhongsheng will offer shares at HK$1.01 to HK$1.52 each. The share offering starts today and the shares are expected to list in Hong Kong on April 27.
Last year, the firm's revenue more than doubled to one billion yuan from 485 million in 2010.
Net profit rose to 130 million yuan from 109 million in 2010.
The mainland's imported this much iron-ore last month, in tonne, a fall of 3 per cent