Dig a Gold Mine in Hong Kong

The Hong Kong Stock Exchange is shaping itself as a new hub for international miners. Step by step it has now become the privileged place to look for a deal between mining companies, often owned by a State, and international investors. Minerals’ prices have been progressively hiked over the last years because of the voracity of some emerging countries. Hong Kong proved to be the most desirable place to trade.
At the beginning of 2010 Rusal (a Russian giant for aluminium) launched a controversial 2.2 bn USD IPO. After that, eight companies tapped the market or unveiled selling of shares. They are newcomers on the market: mining companies from South Africa (extracting coal in Zimbabwe), Kazakhstan (copper) and Brazil (iron ore). They choose Hong Kong for different reasons. As a whole, its Stock Exchange has the most numerous and cash-rich IPOs’ in the world. In addition, last June an old rule that forbade listing of non-profitable companies was removed by the HK Stock Exchange. The new move has a deep rationale behind it, since mining companies raise money to start working on infrastructure and logistics well before extracting and selling the minerals, timing is key, so HKSE trusts the future by facilitating the present. Finally, expectations are rosy for the global demand of minerals for the next 15-20 years.
China, as a manufacturing centre, will be its driving force. Its contiguity with the stock exchange is a safeguard, a security clause. Ironically, international investors have been so far penalized by this “China factor”. They were lukewarm with non-Chinese companies not having track records with the Mainland. They show prudence, due to their unfamiliarity, with these transactions. Some IPOs’ have been pulled out or postponed. Two of the three miners listed after the IPOs’ are trading below their initial price.
Mining business requires trust and experience, not only promising perspectives. On the contrary, but on the same reasoning, Chinese companies proved to be successful. They capitalized on continuity with their end-users, in a context promoted by the Government. The only non-Chinese exception is the Mongolia Mining Corporation, now traded above its IPO’s price, because it can count on two lucky factors: it sells coal to Chinese clients and stays only 240 km from the border with China. Proximity pays off.

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