Zijin Mining Shares Jump on Debut in Shanghai Trading (Update2)

Zijin Mining Shares Jump on Debut in Shanghai Trading (Update2)

By Theresa Tang

April 25 (Bloomberg) -- Zijin Mining Group Co., China's largest gold producer, rose as much as 46 percent on its Shanghai debut, poised to become the best-performing new issue on the city's stock exchange this year.

Zijin Mining rose to as high as 10.38 yuan from its sale price of 7.13 yuan, and traded at 10.15 yuan at the 11:30 a.m. break. The benchmark CSI 300 Index, down 28 percent this year, climbed 1.5 percent, gaining for a second day after the government cut taxes on stock trading to support the market.

The Fujian-based company sold the shares at 41 times 2007 diluted earnings, a lower valuation than other China-listed gold miners, to lure investors. Shandong Gold Mining Co. and Zhongjin Gold Co. are trading at 101 times and 114 times earnings, after bullion soared to a record last month.

``A cheaper valuation makes Zijin more attractive than its peers,'' Tony Zheng, who helps manage $790 million including Zijin shares at Bank of Communications Schroder Fund Management Co., said in Shanghai,. ``Better market sentiment after the government cut equity-trading taxes also gave Zijin a leg up.''

China lowered the stamp duty charged on stock trades starting April 24 after the CSI 300 Index declined more than 40 percent since its Oct. 16 peak. The benchmark rose 9.3 percent yesterday, the most on record.

Gold Prices

Zijin, which owns the nation's largest bullion producer, Zijinshan Gold Mine, sold 1.4 billion new shares to raise 10 billion yuan. ($1.4 billion). Half the proceeds will be used to fund acquisitions and new projects. Investors ordered 215 times the stock available for sale.

China's demand for gold jumped 23 percent in 2007, making it the world's second-largest consumer. Bullion, which soared to a record $1,032.70 an ounce on March 17, gained 6.6 percent this year.

Wayne Fung, a Hong Kong-based analyst at Everbright Securities Co., predicts average gold prices of around $850 an ounce this year, a fifth more than the average $697 in 2007, as a weak U.S. dollar prompts investors to seek alternative assets.

Zijin, which also produces zinc and copper, plans to lift gold output 9.6 percent to 57.3 metric tons this year.

The company last year agreed to buy a 20 percent stake in a Philippine gold project and a controlling stake in Tajikistan's biggest producer of the precious metal. Zijin Chairman Chen Jinghe said earlier this month the company wants to acquire a gold mine overseas, and buy other assets.

South Africa

``Zijin's output and sales are expected to be boosted in next three years by its latest acquisitions,'' Fung said.

China overtook South Africa as the largest gold producer in 2007, with output gaining by 13 percent to 280.5 metric tons, London-based researcher GFMS Ltd. said April 9.

Zijin's Hong Kong-listed shares dropped as much as 7.1 percent, or HK$0.56, on the city's bourse today, and traded at HK$7.56 at 12:06 p.m.

``The discrepancy between Zijin's yuan-denominated and Hong Kong-traded shares is because the performance of A-shares is highly influenced by local factors,'' said Bank of Communications' Zheng. ``The drop in Zijin's Hong Kong shares is probably reflecting the recent corrections in gold prices.''

Other than state-approved so-called Qualified Foreign Institutional Investors, China's yuan-denominated A-share market is reserved for mainland Chinese buyers.

Gold traded little changed near a three-week low in Asia as oil's decline and the dollar's gain versus the euro reduced the appeal of the precious metal as a hedge against inflation. Bullion for immediate delivery traded at $889.75 an ounce at 11:34 a.m. Hong Kong time.