IRC, a Russian iron ore miner that has been listed in Hong Kong since 2010, has agreed a $238 million share sale to two Chinese metals traders. The proceeds will help fund development of IRC’s flagship K&S mine and other projects.
The two investors are General Nice Development, one of China’s biggest iron ore importers, and Minmetals Cheerglory, a wholly owned subsidiary of China Minmetals, one of China’s biggest state-owned metals and mining companies.
They are paying an effective price of HK$0.94 a share, which is a 10% discount to the three-month average of HK$1.04. However, IRC’s price has rallied since December 19 last year, when it announced that it has exceeded its 2012 production targets. Based on the three months of trading before that announcement, the Chinese investors are paying a 9.6% premium.
After the completion of the investment, London-listed Petropavlovsk will own 40.4% and General Nice 31.4%, with an effective free float of 28.2%, including a 4.5% holding by Minmetals Cheerglory.
“[Iron ore] is a commodity that we are passionate about because it is the foundation of industrial growth in China,” said Cai Sui Xin, chairman of General Nice, in a statement. “We have grown to be one of the largest iron ore traders in China. The unique insight we have gained from this position has given us a firm view that ongoing increases in domestic iron ore demand, coupled with global supply constraints, suggest a positive outlook for the iron ore business.”
The investment is structured in two phases, with the first $103.3 million tranche due to complete by April 2013, subject to shareholder approvals. The remaining $134.7 million will close in the second half of 2013.
The Chinese investors are expected to nominate board representatives in due course.
IRC has also entered into a 15-year off-take arrangement with the two companies, ensuring the supply of iron ore for China’s steelmakers and guaranteeing steady cash flow for IRC.
With mines in Russia’s Far East, IRC offers the cheapest supply of iron ore to China’s north-east. “I have long said that IRC benefits from the combined competitive advantages of geology, geography and infrastructure,” said Jay Hambro, executive chairman of IRC.
The company’s production is projected to grow from slightly less than 1 million tonnes of iron ore in 2012, to about 4.2 million tonnes a year when K&S enters production in the first half of 2014.
Deutsche Bank is advising IRC, while Rothschild and CCB International are advising the Chinese investors.
