Zijin Mining surges on 4.8 billion yuan share placement

Ten investors lined up, as company looks to capitalise on rising price of gold to invest in Congo copper project

PUBLISHED : Monday, 11 July, 2016, 2:14pm
UPDATED : Monday, 11 July, 2016, 2:14pm

Shares in Zijin Mining Group surged on Monday after it unveiled a plan to raise up to 4.8 billion yuan via a private placement to help fund a copper project in Congo, taking advantage of buoyant investment sentiment toward gold and gold mining shares.

The Fujian province-based company, one of China’s largest gold producers, plans to sell up to 1.55 billion Shanghai-listed A-shares to not more than 10 investors, including its largest shareholder Minxi Xinghang and a vehicle that operates the listed firm’s employee shares options scheme.

“The company expects to obtain support from the capital market through the non-public issuance of A-shares to push forward and implement its development strategies proactively,” Zijin said in a filing to Hong Kong’s bourse.

Zijin took advantage of lower gold prices last year to buy a 49.5 per cent stake in the Kamoa copper project in the Democratic Republic of Congo in western Africa from Canada’s Ivanhoe Mines for US$412 million.

Together with the acquisition of another gold mine that Papua New Guinea announced at the same time, the company’s gold reserves have increased 11.7 per cent and its copper reserve by 68.5 per cent.

The firm bought its initial 51 per cent stake in the Kolwezi mine for US$ 77.9 million announced in late 2014.

The Zambia-Congo copper mining belt is the world’s third largest, according to Zijin.

Around 3.4 billion yuan of the share-sale proceeds have been earmarked for further developing the Kolwezi project with the rest will be used as working capital.

The Fujian province state-owned firm Minxi has agreed to buy 900 million yuan worth of Zijin’s shares, while 401.7 million yuan will come from the exercising of employees’ options to buy the firm’s shares.”

The remainder will be sold to other institutional investors.

The issue price of the shares will not be less than 3.09 yuan, which is 90 per cent of the average trading price of its A-shares in the 20 trading days prior to the date when the board approved the shares issuance plan.

The price will be determined based on factors including investor demand after approval is obtained from China Securities Regulatory Commission.

Zijin’s A-shares surged 8.7 per cent to 4 yuan in Shanghai by 11:30am, while its Hong Kong-traded H-shares rose 5.2 per cent to HK$3.06 near midday.

Zijin’s Hong Kong-traded shares have risen around 52 per cent since the start of the year.

Minxi’s stake could be diluted to 25.82 per cent from 26.33 per cent after the shares sale if 1.55 billion shares are issued and sold.

Minxi and its employees’ shares option vehicle will be subject to a three-year ban from selling any shares they buy, while other shares subscribers will be subject to a one-year lock-up.

Argonaut Securities metals and mining analyst Helen Lau told the Post the gold price and gold stocks’ recent rally favoured the shares sale exercise, although whether the opportunity can be fully exploited will depend on when the plan is approved by regulators and sustainability of the gold rally.

Gold has surged around 29 per cent so far this year, on the back of uncertainties in the global economy and investors’ aversion to risky assets.

The uncertainties created by Britain’s vote to leave the European Union is believed to be the main driver for gold’s price rise.

“There are still many questions regarding the United Kingdom’s exit from the EU,” ANZ analysts wrote in a note on June 30.

“The ensuing political crisis in the UK and concern about the very future of the EU should keep investors on edge.”

The investment bank raised its three-month target for gold to US$1,375 an ounce, and expected further upside in gold price next year.

The spot market price of gold fetched around US$1,368.4 an ounce in morning Asian trading.

SG analyst Robin Bhar has also raised his forecast on this year’s average gold price to US$1,280 an ounce from US$1,200, and changed its projection for next year from US$1,050 to US$1,300 following the UK referendum.