Miners look to Hong Kong

Hong Kong’s stock exchange is making a slow but steady push to become a listing venue for global mining companies, even though it is a sector with a rich seam of broken dreams. In the past, mining companies — especially those in the development stage — were restricted to specialist listing venues such as Toronto or Perth, where the exchanges themselves had sophisticated means of assessing the value of the projects being listed.

But as the commodity boom rumbles inexorably on and miners became majors, they have shifted to larger, global exchanges such as London. The recently announced merger between Glencore and Xstrata is the latest move in the maturation of a sector that was once considered extremely high risk.

HKEx is acutely aware of these trends, but its ambitions to become a global venue for mining stocks are clear. It also realises that these stocks can be extremely volatile — and with the Hong Kong government sensitive to retail investors losing money, it has taken a cautious approach to allowing such companies to list.

One such example was IRC, which was spun out of UK-listed but Russian-focused mining company Petropavlosk in September 2010. The stock is up some 40% so far this year, although it is still some 20% off its IPO price.

“The HKEx is extremely good in how it looks after retail investors,” said Peter Hambro, chairman of Petropavlosk, speaking on the sidelines of the Troika Dialog Russia Forum in Moscow last week. “When it took on the listing of mining companies it took a long time.”

Petropavlosk still owns 65.5% of IRC, which is run by Hambro’s son, Jay. Mining companies may be unfamiliar in Asia, but such governance structures are not.

The current trend in listing venues is that they should reflect not only where companies can get the highest valuation, but also where their customers are. Also speaking at the Forum was Ivan Glasenberg, the CEO of Glencore, on the day that the merger with Xstrata was announced. He said that it made sense for the company to have a secondary listing in Hong Kong as China was consuming 50% of the world’s commodities. But on a per capita basis, the Chinese only consume 16% of the world average when it comes to aluminium and 25% of the average consumption of oil. China is already the biggest player in the global commodities market — and it is getting bigger.

Being close to customers clearly makes sense from an operational point of view, but increasingly companies are looking for both customers and shareholders to be close.

“Most of the companies listed in Toronto are operating in that timezone,” said Hambro. “But as we are seeing the Chinese population becoming more financially educated, that means demand for this type of investment [mining stocks] will grow.”

Other global miners such as Vale from Brazil, Kazakhmys from Kazakhstan and South Gobi Resources from Mongolia, have already joined Glencore in taking a secondary listing on HKEx. They join Chinese miners such as Zijin Mining, Zhaojin Mining and Yanzhou Coal, which have primary Hong Kong listings.

Such listings give mining companies the acquisition currency for deals up and down the supply chain. And if Asian investors will buy this stock, the mining companies are only too willing to sell it. “All commodity traders — if they want to buy assets — need to list in order to get permanent capital,” said Glasenberg. “Otherwise they run out of cash when their partners leave. Being public gives you a lot of flexibility and firepower, and I like it.” 

Speaking about Petropavlosk’s gold mine in the Amur region of the Russian Far East, on the border with China, Hambro said: “We are financing the mine from China and we are building it with Chinese labour. We have a symbiotic relationship with China.”

It remains to be seen if Chinese investors are willing to have a similarly symbiotic relationship with the miners.