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Global initial public offerings (IPOs) by mining and basic material companies may reach a record next year, after the biggest gain of any industry in 2010, as China and India drive up metal prices and attract investors.
Mining, chemical,[link widoczny dla zalogowanych], and heavy industry IPOs jumped to $30.3 billion this year,[link widoczny dla zalogowanych],[link widoczny dla zalogowanych], according to data compiled by Bloomberg. Miners made up 13 of the top 20 issues in the sector as IPOs across all groups more than doubled to $280 billion.
Demand for the three biggest basic material IPOs in 2010 - Petronas Chemicals Group Bhd, Oleg Deripaska's United Co Rusal Ltd and Coal India Ltd - outstripped supply by more than $70 billion on optimism about demand for raw materials in China and India.
"There's a lot of money searching for a home," said Goldsmith, whose team advises mining companies. "It's all about those who believe in the growth story in China and India."
Potential mining IPOs in 2011 include Glencore International AG,[link widoczny dla zalogowanych], the world's largest commodities trader. It's studying a share sale in the second quarter to raise about $10 billion,[link widoczny dla zalogowanych], three people with knowledge of the matter said last month. An offering by the company,[link widoczny dla zalogowanych], would end more than three decades of the company operating as a closely held partnership.
"There has been an opening of the floodgates in IPOs after a prolonged period of high commodity prices," said Prasad Patkar,[link widoczny dla zalogowanych], who helps manage about $1.8 billion at Platypus Asset Management Ltd in Sydney, and studies IPOs. "We look at the quality of the asset,[link widoczny dla zalogowanych], what commodity it is,[link widoczny dla zalogowanych], where does it sit on the cost curve,[link widoczny dla zalogowanych], what is the execution risk and the valuation."
Morgan Stanley kept its spot from 2009 as number one underwriter across all IPOs this year,[link widoczny dla zalogowanych], with 11.2 percent of the market and 101 issues. JPMorgan Chase &Co moved to second from fifth last year.
Citigroup Inc raised its metal price forecasts by as much as 20 percent for 2011 and 2012. Copper, coking coal and iron ore will be the "big winners" because of supply constraints, Citigroup analyst Alan Heap said in a Nov 8 report.
That's on the back of a more-than-doubling in the London Metal Exchange Index, a measure of six metals including copper and nickel,[link widoczny dla zalogowanych], to 4134 from 1614 in December 2008, the lowest since June 2004.
Still,[link widoczny dla zalogowanych], mining IPOs "are high risk,[link widoczny dla zalogowanych], high reward. Some are not for the faint-hearted and people should invest in them understanding the high risk,[link widoczny dla zalogowanych]," Goldsmith said.
Aphrodite Gold Ltd, a Perth-based explorer, is the worst performing mining IPO this year,[link widoczny dla zalogowanych], falling 45 percent from its offer price. It raised $6.9 million in July. The second worst is Solid Gold Resources Corp,[link widoczny dla zalogowanych], based in Thornhill,[link widoczny dla zalogowanych], Ontario. The mineral exploration company has declined 43 percent.
Emerging markets in the Asia-Pacific region had the strongest growth in basic materials IPOs in 2010, with $16.56 billion raised, compared with $809.91 million last year.
China's demand for some metals,[link widoczny dla zalogowanych], including iron ore, may double by 2020, Rio Tinto's Chief Executive Tom Albanese told his investors in London on Nov 29. China will build 10 cities larger than New York by 2025 and needs to import more steel, iron ore,[link widoczny dla zalogowanych], coal, aluminum and copper,[link widoczny dla zalogowanych], according to Rio forecasts.
"Investors believe that commodity prices are going to go higher, demand is going to remain strong and as a result they are prepared to back new players in the sector,[link widoczny dla zalogowanych]," said Gavin Wendt,[link widoczny dla zalogowanych], a senior resources analyst at Mine Life Pty in Sydney.