Chinalco’s Peru unit starts pre-marketing $1 billion IPO

Chinalco Mining, a unit of state-owned Aluminum Corp of China (Chinalco), has started pre-marketing for a Hong Kong initial public offering that it hopes will raise about $1 billion.

The Toromocho copper-polymetallic deposit in Peru, which is Chinalco Mining’s principal asset, is the core overseas platform for Chinalco’s non-aluminium, non-ferrous resources developments, according to a source.

Bankers will continue the pre-marketing, which started yesterday, until at least Friday. Depending on market conditions, they will then either extend it for another week or launch a formal management roadshow, another source said. They are trying to launch the deal next week, but nothing is firm, given the choppy state of the markets, the person said. The listing is targeted for mid- to late-June.

The deal comes as global financial markets remain volatile due to worries about the deepening debt crisis in Europe and weaker growth in China. This has been hurting stock and commodity prices, including copper, and Hong Kong’s benchmark Hang Seng Index has fallen about 13% from its 2012 high in late February.

Copper miner China Nonferrous Mining Corp (CNMC), which launched a Hong Kong IPO of between $235 million and $314 million last week, is said to be struggling to gain traction with investors, prompting some to doubt whether that deal will be able to get done. CNMC currently has three producing mines as well as one copper smelter, all of which are located in Zambia.

Despite the challenging markets, many issuers remain optimistic about the ability to attract investors. One of them is Graff Diamonds, which sees growth opportunities in Asia as the region’s population becomes wealthier. The company started the institutional bookbuilding for a $1 billion Hong Kong IPO yesterday.

With regard to Chinalco Mining, parties involved in the deal are confident that it is a strong enough company to get the deal done. It benefits from good name recognition in the region. Sister company Chalco is the biggest alumina and primary aluminium producer in China and is already listed in Hong Kong.

To tap overseas resources, Chalco announced last month that it plans to buy between 56% and 60% of SouthGobi Resources, a Canadian company with coal mining operations in Mongolia’s South Gobi region and listings in Toronto and Hong Kong.

According to the US Geological Survey (USGS), Peru produced 1.1 million metric tonnes of copper in 2010, almost unchanged from 2009. This means it accounted for almost 8% of global copper production and was the world’s second-ranked producer behind Chile.

Owing to China’s increased demand for copper, Chinalco plans to develop the Toromocho deposit to produce 275,000 tonnes of copper metal a year by 2013, according to the USGS. Toromocho is estimated to contain 1.4 billion tonnes of proven and probable reserves at a grade of 0.71% copper equivalent.

BNP Paribas and Morgan Stanley are global coordinators for the IPO, as well as joint sponsors together with CICC and Standard Chartered. CCB International and HSBC join the four sponsors as bookrunners.

Among other major commodity sector IPOs, Glencore International, a Switzerland-based producer and trader of commodities, last year raised $10 billion from a high-profile IPO ahead of a dual-listing in London and Hong Kong. But its Hong Kong-listed stock has fallen since the debut and currently trades at around HK$44 per share — more than 30% below the IPO price of HK$66.53.