World No.1 silver miner, Penoles, plans to spin off precious metals assets in London IPO
The world's biggest primary silver producer and Mexico's second largest gold producer, Industrias Penoles, is planning to spin off its Fresnillo precious metals unit and float it in London to raise US$900 million.
Posted: Friday , 11 Apr 2008
LONDON/MEXICO CITY (Reuters) -
Mexico's Penoles, the world's largest refined silver producer, is splitting its precious metals assets from its base metals business and plans a $2 billion float of the gold and silver miner in London, sources close to the deal said on Friday.
Fresnillo Ltd, the precious metals business, plans to offer about $900 million in new shares and around $1 billion of shares owned by parent firm Penoles (PENOLES.MX), the sources said.
Penoles said it was separating the two operations to maximize efficiencies. Investors often prefer pure gold and silver plays over polymetalic companies.
"This is the most important move Penoles has made in its history," said Mario Arreguin, Fresnillo's CFO told Reuters in an interview.
Shares of Penoles, which was founded 120 years ago, soared more than 12 percent to a record high on the news as the wider Mexican stock exchange declined.
"The market rewards these types of companies that are more focused -- it takes away the contamination effect of the chemical and base metal part of the business," said Carlos Hermosillo, analyst at Vector brokerage.
Penoles will retain its Met-Mex refinery and smelter, one of the largest metallurgical complexes in the world, and also its chemical division, one of the world's largest makers of sodium sulfate, used to make soap and detergents.
Penoles will retain a stake of 75 percent to 77.3 percent of Fresnillo after the initial public offering.
The deal, underwritten by JPMorgan Cazenove, will start book-building in the last week of April and be priced in the second week of May, one source said.
The company is talking with investors in Europe and the United States and possibly Canada this month, presenting its plan to double silver output over the next decade, Arreguin said.
Penoles will keep the Francisco I. Madero zinc pit, lead mine Naica, zinc producer Bismark, polymetalic mine Sabinas, copper mine Milpillas and zinc mine Tizapa. Penoles also keeps 1.2 million hectares of mining concessions.
Fresnillo Ltd owns its Fresnillo silver mine and gold mines at Cienaga and Herradura. It also has two development projects at Fresnillo II and Soledad-Dipolos and three exploration projects at San Juan, San Julian and Orysivo.
Fresnillo is vying for investor interest with Czech coal producer New World Resources' $2.2 billion IPO, another deal handled by JPMorgan Cazenove.
The two IPOs come as equity markets become less volatile. The Britain's top index FTSE 100 has gained 3.6 percent over the last two weeks.
rise as spot silver prices
Silver is expect to remain strong over the next few months, but could peak as the seasonally weaker summer period approaches.
Russia mining firm Polymetal (PMTLq.L), the world's second largest silver producer, has seen its shares trade up as much as 18 percent since its $604.5 million listing on the London Stock Exchange and Russian bourse RTS in February 2007, at $7.75 each. It closed at $8.00 on Friday.
Fresnillo, which will be admitted to the FTSE 100 index and according to Arreguin would be debt free after the float, produced 34.4 million ounces of silver and 280,000 ounces of gold in 2007. Fresnillo had revenue of $647.9 million in 2007.
Sales at Penoles, controlled by the Bailleres family, last year totaled $4.43 billion, according to Reuters data.
U.S.-listed Pan American Silver Corp (PAAS.O), which is to produce 23 million ounces of silver in 2009, has risen 10 percent to trade at 1.9 times net asset value (NAV) of $20 apiece so far this year.
However, Coeur d'Alene Mines (CDE.N), the world's third biggest silver producer, has fallen 25 percent to trade at 1.1 times its NAV of $3.30 per share since it announced on March 12 of a $200 million convertible debentures raising to get through capital-intensive period of mine building. (Additional reporting by Mark Potter and Jonathan Saul in London and Chris Aspin in Mexico City; Editing by Tim Dobbyn)
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