Chinalco Mining offers investors exposure to Peru
Up to HK$3.4 billion to be raised by mainland firm for a venture that offers rich resources but faces higher political and operational risks
The initial public offering of Chinalco Mining Corp International will give investors an opportunity to gain exposure to the highly prospective but also risky business of mining in Peru.
Metals mining investors are facing the dilemma of having to pay a premium for assets in more stable nations such as Canada and Australia, compared with "new frontier" nations Peru and Mongolia, where rich resources are less exploited but political and operational risks are higher.
The only mining asset of Chinalco Mining, the overseas non-aluminium and non-ferrous metals arm of aluminium giant Chinalco, is the Toromocho copper mine in Peru, about 140 kilometres from the capital Lima. It aims to raise HK$2.67 billion to HK$3.36 billion by selling shares at HK$1.52 to HK$1.91 each.
About US$2 billion has been spent on the mine's construction by September last year, with a further US$1.5 billion expected by the time it starts production in the fourth quarter of this year. Full production is expected by the third quarter next year.
Based on projections by independent mining consultant Behre Dolbear, the mine may see a net profit of US$367 million next year. This translates into earnings per share of 24.17 HK cents and implies a price-earnings ratio of 6.3 to 7.9 times.
China Merchants Securities analyst Li Xiang said the stock's asking price was reasonable given global copper miners were valued at about eight times forecast earnings for next year.