$8 million IPO for Coast’s latest ASX company

Written on the 1 December 2010

JULY 2010

The Gold Coast will have its 19th ASX-listed company following the lodgment of a prospectus with ASIC for an $8 million initial public offer (IPO) by China Magnesium Corporation Limited (CMC).

CMC is in a race to raise the funds prior to a July 13 listing. The vertically integrated magnesium company will base its processing facility in the Shanxi province of northern China where the capital will be used to upgrade and expand the existing Pinyao Magnesium Project.

Phase one of the Shanxi province plant is spread across 180,000sqm with the capacity to produce 20,000 tonnes of magnesium by next February.

CMC aims to be one of the largest producers in the world of pure magnesium and magnesium alloy, supplying domestic Chinese and international customers with long term, reliable supply. Core demand is expected to come from the burgeoning electric car market.

Chief executive Tom Blackhurst, says the IPO represents more than five years of planning, negotiation, securing of regulatory approvals and permits and building local relationships.

“All industry in China has a shotgun start, it gets industry going and then rationalises,”  he says.

“I have been in China for six years, it’s all about patience. It’s a rapidly developing country, with an abundance of opportunities available to those who know how to operate in China.

“I believe that the really outstanding business opportunities, such as the Pinyao Magnesium Project, are found not only in the major developed cities, but in the less developed areas and provinces in China where foreign companies rarely set foot.

“We were just outside Mongolia about 100km from where Genghis Khan is buried and we had to divert around the natural course of the road to go up to the top, because Mr Li’s (majority shareholder) feng shui master suggested that he do so. We don’t ask questions we just go along for the ride.”

Magnesium is a light-weight structural metal, used in motor vehicles (improving fuel efficiency) and mobile electronic devices.

China controls 90 per cent of the world’s magnesium using the pidgeon process – a simple, cheap, robust and technically low risk thermal process, compared with the higher cost, capital intensive electrolytic processes used in the few remaining western operations.

Existing alloyers generally buy pure magnesium from magnesium producers, then re-melt the magnesium to add the alloying ingredients, with additional metal loss, energy costs, plant infrastructure and overheads.

“By cutting out the alloy middle man, the company will look to double its margins,” says Blackhurst.

There are 16 million shares available from the 112 million on issue. Shares will start trading at 25c.

CMC’s board includes significant public and private company senior management or director experience in China, Australasia and the United States, which includes companies such as Anzon Australia, Billabong, Chase Securities and Macquarie Harbour Mining.

Non-executive chairman Bill Bass, says that the group is backed by the China government and guided by a management team with significant experience.

“CMC operates in a country that is actively encouraging resources industry and investment – so the project is not exposed to the current uncertainty created by Australia’s proposed resource super profits tax, and the expansion project has been classified by the local provincial government as a ‘preferred project’,” he says.

“Importantly, the key personnel have a significant shareholdings in CMC, which ensures they have a vested interest in CMC’s success. We look forward to welcoming new shareholders with an appetite for the development of a leading magnesium operation in China.”

Blackhurst says the long-term goal is to expand magnesium production to 105,000tpa over three major phases by 2013.

“We have already received a non-binding letter of intent from the China Construction Bank, one of the world’s largest banks, to debt fund US$14.6 million of the total expansion capital expenditure to 105,000tpa,”
says Blackhurst.

Australia is considered a mini market in comparison using small quantities for the tops of aluminium cans.


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