Resourcehouse Ltd., the mining company seeking to raise $3.6 billion in a Hong Kong share sale, may deliver A$1.1 billion to owner billionaire Clive Palmer’s closely held companies.
The payments include as much as A$310 million ($332 million) annually for at least three years to Mineralogy Pty., owned and chaired by Palmer, to help fund development of an iron ore mine, the company’s initial public offering prospectus shows. That includes A$250 million a year towards the construction of a port that will be owned by Citic Pacific Ltd.
Palmer, a 57-year-old law school dropout who made his fortune in real estate, is seeking to take advantage of near-record prices for iron ore and coal driven by demand from China. The Brisbane, Australia-based company won’t turn a profit until output at its coal and iron ore projects begins in 2014 or 2015.
“I personally don’t like a company without profits,” Li Kwok-suen, a fund manager at Phillip Capital Management (HK) Ltd., said by phone. “I don’t really like companies going for an IPO at such an early stage. For those companies without profit you may see the performance in the stock market will be very disappointing.”
The company plans to sell at least 5.7 billion shares at HK$4.48 (57.6 cents) to HK$4.93 each and may sell 857 million more shares through an over-allotment option. Pricing is scheduled to be determined by June 3, the prospectus said.
Palmer will retain a 53.67 percent stake in Resourcehouse if the over allotment option isn’t exercised. The shares are expected to start trading June 10. Andrew Crook, an outside spokesman for Palmer, didn’t return a call to his mobile.
Once Resourcehouse’s mines start production, Palmer will receive annual payments of A$25 million in coal royalties and A$15 million a year in iron ore royalties. Mineralogy and Waratah Coal Inc., another company owned by Palmer, remain the owners of the mines and Resourcehouse has an agreement to extract specific quantities.
Palmer, ranked as Australia’s fifth-richest man with a fortune of A$5.05 billion according to BRW magazine’s rich list published last month, has pulled the IPO at least three times since first announcing plans in 2009. The IPO values Resourcehouse at as much as $7.8 billion based on the share price range
“A lot of retail investors would be hesitant about applying for the IPO because they have to put their cash in, or draw on their margin in order to put in for shares,” Andrew Sullivan, director of institutional sales trading at OSK Securities Hong Kong Ltd. said by phone.
Global IPOs Rising
The number of basic material companies worldwide conducting IPOs this year has risen by 30 percent, according to data compiled by Bloomberg. There has been $17.19 billion raised so far this year, up 78 percent on last year. Commodity trader Glencore International Plc’s $9.8 billion raising is the biggest in the sector so far.
Commodities posted the biggest monthly drop in a year last month as the sovereign-debt crisis in Europe and accelerating inflation in China fanned speculation the global economic growth will slow. Still, commodity prices are at historically high levels with the Standard & Poor’s GSCI Spot Index of 24 raw materials averaging 29 percent higher this year compared with 2010.
“The good news is that commodity prices remain elevated,” Royal Bank of Scotland Group Plc analysts led by Nick Moore said in a report dated May 27.
China Railway Group Ltd. and Metallurgical Corp. of China Ltd. have both agreed to invest about $200 million in Resourcehouse. The company said the IPO may be followed by a A$1.9 billion debt sale to a Chinese company.
Resourcehouse wants at least one Chinese company to provide or arrange debt to fund about 70 percent of the cost of the building the initial stage of the China First iron ore project, the Brisbane, Australia-based company said in the prospectus. Any financing deal needs the approval of Mineralogy.
The first stage of the iron ore project in Western Australia may cost A$2.7 billion to develop, according to the prospectus.
About $2.4 billion of the IPO proceeds will be put toward its $8.6 billion China First coal project in Queensland state on the opposite side of Australia. It has received a non-binding letter of intent from Export-Import Bank of China to provide credit for up to 85 percent of the construction contract cost, Resourcehouse said.