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4-Traders Homepage  >  Equities  >  Stock Exchange of Hong Kong  >  Fosun International Limited    0656   HK0656038673

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Small mining companies shun London market after IPO flops

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10/25/2017 | 04:57pm CET
FILE PHOTO:Pedestrians leave and enter the London Stock Exchange in London

Lacklustre performances by small mining companies on the London Stock Exchange are driving rivals in need of cash to find alternative ways to raise capital, either by merging or turning to other markets such as Toronto.

Six small miners have listed in London this year, up from two last year, but four of those are now trading below their offer price despite a rally in metals, led by a 27 percent jump in copper and aluminium prices and a 10 percent rise for gold.

London hosts the world's biggest mining companies, including Rio Tinto (>> Rio Tinto) (>> Rio Tinto Limited) and BHP Billiton (>> BHP Billiton Plc) (>> BHP Billiton Limited), but the poor performance of newly listed miners and other small miners trading in London is pushing some to change their plans.

On Tuesday, Condor Gold <CNDR.L>, a Nicaraguan gold miner whose share price is down 10 percent this year, said it had received conditional approval for a secondary listing in Toronto, where it hopes valuations will be higher.

"London is not a great place to be listed as a junior explorer. There is not a clear understanding of what we do," said Mark Child, the company's chairman and chief executive.

Metal development company Phoenix Global Mining (>> Phoenix Global Mining Ltd), which listed in London at the end of June, will also consider North American listings at a future date, its CEO Dennis Thomas said.

Toro Gold, which operates in Africa, started preparing for a London listing with the help of Bank of Montreal (BMO) and corporate advisor Numis Securities earlier this year but has shelved its plans, sources said.

Toro Gold, Numis and BMO were not immediately available for a comment. "It is still a difficult time to raise money through IPOs for the mining sector ... because the price recovery is in its reasonably early stages," said Lee Downham, head of EY's global mining & metals transaction advisory services.

Small mining companies, which are often betting on exploiting valuable resources in a few concessions, can eventually enjoy far bigger stock market price increases than major firms with sometimes limited opportunities for growth.

But in the early years, they may struggle to balance the heavy spending needed to get mines up and running with a lack of revenue, meaning some need regular capital injections.

London's big institutional investors, however, are seen as more risk averse than those in major mining centres such as Canada and Australia, particularly when it comes to relatively illiquid shares they cannot get out of quickly, bankers say.

Besides Russia's Polyus <PLZLq.L>, which has China's Fosun International (>> Fosun International Limited) as its cornerstone investor, and Rainbow Rare Earths (>> Rainbow Rare Earths Ltd), which mines rare earth materials needed for renewable energy storage, the miners that listed in London this year are down 13 percent on average. Precious metals specialist Jangada Mines (>> Jangada Mines PLC) is down more than 20 percent.

M&A INSTEAD

Condor Gold's Child says figures from RBC Capital Markets show some emerging gold producers listed in Toronto can be valued at roughly three times as much as in London, based on their estimated gold reserves.

Canada, like Australia, has a strong base of retail and institutional investors interested in resources companies.

The Toronto stock exchange, which is home to more than half the world's public mining companies, has seen a flurry of listings this year, with many taking advantage of a doubling in zinc prices since late 2015.

Brazil-based zinc producer Nexa Resources and at least three other zinc miners are planning listings on the Toronto Stock Exchange or the TSX Venture Exchange (TSX-V) market for start-ups, according to company filings, on top of six other small mining companies that have listed already this year.

In London, the FTSE AIM Basic Resources Index <.FTAXX1700S> is up less than 10 percent since the start of the year, compared with a near 20 percent rise for larger firms in the FTSE 350 Mining Index <.FTNMX1770>, as investors opt for established, diversified players over riskier, smaller firms.

"They want to have some exposure but then why invest in something small which is hard to trade out of?" said Raj Khatri, senior managing director at Macquarie Capital.

GRAPHIC - FTSE small cap miners vs majors: http://reut.rs/2ldb015

GRAPHIC - Performance of newly listed miners: http://reut.rs/2y39eFr

Some bankers say they are now advising companies to avoid London listings, saying there are better ways to expand. Some are turning their back on equity markets and are instead looking for mergers and acquisitions (M&A).

Last month, Bermuda-based zinc and lead miner Lynx Resources agreed to a $402.5 million (£303.8 million) reverse-takeover deal with Kazakhstan-focused copper miner Central Asia Metals (>> Central Asia Metals Ltd) after ruling out a listing, industry sources said.

"Although we have started to see an increase in mining companies considering IPOs in London, there isn't yet a strong conviction that another sustained cycle upwards is on the way and so we caution clients who want to list to explore M&A options in parallel, or to hold off," said Macquarie's Khatri.

(Graphics by Alistair Smout and Ritvik Carvalho; editing by David Clarke)

By Clara Denina and Barbara Lewis

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Financials ( CNY)
Sales 2017 76 815 M
EBIT 2017 -
Net income 2017 12 248 M
Debt 2017 68 142 M
Yield 2017 1,51%
P/E ratio 2017 9,90
P/E ratio 2018 8,79
EV / Sales 2017 2,50x
EV / Sales 2018 2,27x
Capitalization 124 B
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Technical analysis trends FOSUN INTERNATIONAL LIMITE
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Mean consensus BUY
Number of Analysts 6
Average target price 19,0  CNY
Spread / Average Target 32%
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Managers
NameTitle
Qun Bin Wang Chief Executive Officer & Director
Qi Yu Chen Co-President & Executive Director
Xiao Liang Xu Co-President & Executive Director
Guang Chang Guo Chairman
Can Wang Chief Financial Officer, Executive Director & SVP
Sector and Competitors
1st jan.Capitalization (M$)
FOSUN INTERNATIONAL LIMITED55.66%18 758
ARCELORMITTAL12.84%28 617
POSCO--.--%24 610
NIPPON STEEL & SUMITOMO METAL CORP-2.83%21 582
NUCOR CORPORATION-7.69%17 419
THYSSENKRUPP-1.86%16 332