State-owned miner Shandong Gold plans US$768 million in Hong Kong initial public offering

Shandong Gold Mining, one of China’s largest miners of the precious metal, is seeking to raise as much as US$768 million in a Hong Kong initial public offering (IPO) to fund overseas expansion.

The company is offering 327.7 million H-shares at between HK$14.7 and HK$18.4 (US$1.87-2.34), according to its filing to the Hong Kong stock exchange.

The state-owned domestic holding company of Shandong Gold is also listed in Shanghai with a market capitalisation of 43.6 billion yuan (US$6.3 billion).

The firm controls and operates 12 domestic gold mines, and accounted for 6.6 per cent of China’s gold output in 2016,. The country the world’s largest producer of the yellow metal.

Officials said it plans use the funds to partially repay US$972 million worth of debt it took on to buy a half stake in the Veladero Mine, Argentina’s largest mine and the second-largest in South America, from Canadian miner Barrick Gold in June 2017.

“To achieve our goal of becoming one of the world’s top-10 gold miners by 2020, we have to expand our international assets,” said chairman Li Guohong.

“This can only be done by overseas mergers and acquisitions, so we have to open up to the international capital markets.”

The timing of the listing is tricky as Hong Kong’s benchmark Hang Seng Index dipped into bear territory on Monday amid escalating trade tensions and a strengthening US dollar.

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The market has already been stretched by several mega-sized listings this year, including smartphone maker Xiaomi, telecommunications tower operator China Tower, and food review and delivery giant Meituan Dianping.

The listing also comes as gold prices have become increasingly volatile, and are now in a five-month decline.

The spot gold price has fallen 11 per cent since April, as climbing US interest rates have driven an inflow of capital into the country and into investment in its currency.

But Li said the company was confident that an upwards trend in gold prices will emerge within the next 12 months, with interest rates steadying in the US by the end of next year.

Increasing geopolitical intensions will also fuel the demand for gold as a safe haven, he added.

The company counts the Shanghai Gold Exchange, the world’s largest spot physical gold exchange, as its top client, making up 73 per cent of its sales in 2017.

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Revenue reached 51 million yuan last year, up from 49.1 million in 2016 and 28.8 million in 2015.

The price of the Hong Kong offering will be set on September 20, and shares will start trading eight days later.

CCB International, China Securities International, and ICBC International are joint sponsors of the listing.

Shandong Gold Group, the domestic holding company, will own 46.64 to 47.69 per cent of the firm’s shares after the float, depending on whether an over-allotment option is exercised to increase the IPO’s value.

The company’s gold reserves stand at 339 tonnes.

It has already expanded its operations domestically out of from Shandong, the largest gold producing province in China, to northern regions including Inner Mongolia autonomous region and Gansu province, as well as the southeastern province of Fujian.