CAA faces hard sell for listing as ore prices slip

CAA Resources, an iron ore miner in Malaysia controlled by mainland businessman Li Yang, aims to raise up to US$88.9 million through an international share offer and Hong Kong market listing this month.

It would not be an easy task to the offering's joint book-runners and lead managers China Everbright Securities and BOC International to sell its shares amid depressed market conditions, unless the selling price was attractive, analysts said.

"Capital-raising in the mining sector is very challenging, particularly for iron ore," said CLSA head of resources research Andrew Driscoll. "The market has concerns about significant seaborne supply growth over the coming years, which will displace high-cost mainland suppliers and result in lower prices in the mid to long term."

This means producers, both in China and overseas, will be seeing thinner profit margins than before, given slower demand growth from China, the world's largest iron ore market.

The mainland's steel output grew 4.8 per cent last year, compared with an average 16.5 per cent between 2002 and 2011. Analysts expect growth until 2020 to be less than 5 per cent as the economy reduces its reliance on investment in favour of consumption for growth.

CAA was founded in 2007 by Li Yang's father Li Dongming, who was active in coal mining investment in Sichuan province. He was invited by a Malaysian mining investment firm to explore opportunities there in 2007, according to CAA's preliminary listing prospectus.