Aluminum Corp. of China Ltd., or Chalco, plans to buy back HK$2.53 billion worth of shares in its Hong Kong-listed unit Chinalco Mining Corp. International as it moves the take the division private.
The company is offering HK$1.39 cash for each share held in the unit, representing a 32.4% premium on unit's closing price of HK$1.05 per share on Sept. 14, or about 33.7% on the average price of the last 30 trading days as of the same date. The repurchase will be funded with existing cash reserves of the parent.
The transaction will make it easier for the unit to raise funds for its Toromocho copper mine in Peru, which has been plagued by falling copper prices and operational challenges, as well as lower recovery rates due to the high rate of oxidation of ore mined since its commissioning in December 2013.
Chinalco Mining shares have been suspended since Sept. 15 and will resume trading Sept. 26.
Since the IPO of the unit in January 2013, copper prices have dropped 43% on the London Metal Exchange to US$2.15 per pound on the last trading day.
"This has had a negative impact on the trading prices of [Chinalco Mining] shares ... and has also decreased the ability of [Chinalco Mining] to raise equity funding for operations," the company noted.
In June 2013, Chinalco approved a US$1.32 billion expansion for the Toromocho project in Peru, aimed at improving operational efficiency. However, a considerable portion of the planned CapEx remains unfunded.
The unit has been financing its operations and expansion using shareholder loans and other borrowing, which total US$4.3 billion as of June-end.
In addition, the privatization of Chinalco Mining will provide current shareholders an exit of their investment given ongoing market conditions.
Morgan Stanley is acting as a financial adviser for the offer.