Miners sell bonds to tap growing demand

By Kim Kyoungwha and David Yong (China Daily)
Updated: 2011-03-10 11:05
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SINGAPORE - China's biggest mining companies are selling the most bonds among the largest emerging economies this year, tapping demand from investors attracted by the highest relative yields since 2009.

Yunnan Copper Industry Co is expected to price 1 billion yuan ($152 million) of one-year bonds on Thursday, after Zhongjin Gold Mining Co sold 600 million yuan of similar-maturity debt last week at a yield of 4.38 percent. Mining companies have raised 16.7 billion yuan this year, up from 2.8 billion yuan a year earlier, data compiled by Bloomberg show.

The industry is luring investors as rising commodity prices boost revenue and notes from top-rated Chinese companies offer yields 163 basis points more than government securities, the most since December 2009, according to Chinabond, the nation's biggest debt clearing house.

In Brazil, resource producers haven't sold debt this year, while United Co Rusal's 15 billion rouble ($531 million) sale on March 3 was the only offering from Russia, according to Bloomberg's data.

"We're thinking about buying miners' bonds for portfolio diversification," said George Weisi Tan, who oversees 300 million yuan as head of bond investments at Fortune SGAM Fund Management Co in Shanghai. "The industry is safer than some other sectors in China, such as real estate."

Mining companies worldwide are raising funds for expansion after gold reached a record $1,444.95 an ounce on March 7, while the London Metal Exchange's index tracking copper, aluminum, lead, tin, zinc and nickel prices reached a four-year high last month. In Australia, Equinox Minerals Ltd, OZ Minerals Ltd and Fortescue Metals Group Ltd said this year they are considering offerings.

Five-year local-currency bonds sold by Zhongjin, Shandong Gold Mining Co, Jiangxi Copper Co and Aluminum Corp of China yielded 167 basis points on average, or 1.67 percentage points, more than government bonds, compared with 158 basis points at the start of the year, according to data compiled by Bloomberg.

Rising demand has pared gains in yields for some miners' debt. The yield on bonds maturing in April 2016 from Zhongjin fell on March 7 to 5.105 percent, the lowest level since Feb 18. The yield dropped from a 14-month high of 5.17 percent on Feb 23.

The yield on notes due in September 2016 sold by Jiangxi Copper reached a seven-week low of 5.59 percent, paring its advance over the past six months to 65 basis points, according to Chinabond prices.

"There are a lot of good mining companies with high credit ratings," said James Xu, a fixed-income manager in Shenzhen at China Southern Asset Management, which manages 200 billion yuan. "The default risk is quite low."

Demand for precious metals as an inflation hedge is rising. Gold purchases in China climbed to 200 tons in the first two months of 2011, more than a third of 2010 consumption, according to UBS AG. Imports through last October rose almost fivefold to 209 tons from the total shipped in the previous year, Shanghai Gold Exchange said.

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"It's a good time to own gold-mining assets," said Helen Lau, a Hong Kong-based analyst with UOB Kay Hian Holdings Ltd. "That's because of strong cash flows and market appetite for upstream resources due to inflationary concern."

Chinese companies have sold 350 billion yuan of bonds so far this year, a 22 percent increase from the same period last year. The sales mark the busiest quarter for local bond issuances since Bloomberg started compiling the data in 1999. Sales of mining company bonds reached 27.8 billion yuan in the first quarter of 2010, their best quarter yet.

China Minmetals Corp sold 5 billion yuan of one-year bonds and nine-month bills on March 4, and Shandong Gold Group Co sold 1.2 billion yuan of five-year bonds on Jan 11. Yinfu Gold Corp said in December it plans to sell shares in Hong Kong to fund acquisitions and new projects.

"Because the industry's prospects are very attractive, they (the companies) want to expand more of their mines," said Huy Hoang, Singapore-based fund manager with HDH Capital Management Pte, who declined to disclose the size of his investments.

Bloomberg News