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Ord River Resources to IPO 2nd largest alumina company on ASX

Proactive Investors
Tuesday, 3 May 2011 (3 days ago)

Ord River Resources (ASX: ORD) and China Non-Ferrous Metal Industry?s Foreign Engineering & Construction Co. Ltd (NFC) are looking to IPO their Lao Bauxite/Alumina Project, which could rank it second to Alumina Ltd (ASX: AWC) in size in Australia.

The potential equity raising involved could be as high as $180-200 million via an initial public offering on the ASX timed for the end of 2011 to early 2012.

ORD and NFC have appointed Royal Bank of Canada Capital Markets (RBC) as financial advisor and sole lead manager to advise on a potential initial IPO of its shares in Sino Australian Resources Co. Ltd (SARCO).

RBC has extensive equity markets experience in the bauxite and alumina sector. Funds will be raised to finance the construction of an alumina refinery in Laos with a minimum annual capacity of 600,000 tonnes.

ORD and NFC own 49% and 51% of SARCO respectively and will continue to hold substantial equity interests in SARCO post IPO.

The Lao Bauxite/Alumina Project is a high quality asset with significant growth prospects. It has a 130 million tonnes (mt) JORC Indicated Resource with 32%+ alumina grade and 2% silica.

SRK Consulting is working with Sinomines Exploration Co., Ltd in China and Laos to produce new JORC Resource statements for both tenements at the project. A Resource upgrade is expected near term.

NFC and Sinomine will produce the feasibility study reports for both the mine and refinery.

Project financing is expected to be sourced from Chinese financial institutions and total construction capital required is estimated at about US$600 million.

SARCO is negotiating attractive financing terms with several Chinese banks with 70% project financing achievable with low interest rates.

With local partner?s support SARCO is also negotiating with Lao central government to secure attractive terms and conditions.

SARCO is reviewing engineering, procurement and construction (EPC) proposals from NFC. It will be fixed price and fixed term, and is estimated to take 2 years to complete construction.

SARCO is negotiating an off-take agreement with Chinese buyers to secure market competitive prices.

SARCO is discussing various supply arrangements with providers in Laos including power, water, road transportation and labour.

The project has open cut low cost mining with a long life and access to essential infrastructure.

A fixed price and term turnkey EPC contract, attractive project financing terms and a long term off-take agreement are currently being negotiated. Future expansion is planned for the project.

As an investment destination Laos has improved its risk profile substantially to provide comfort and familiarity to investors.

The South-East Asian country has stable government and access to power, water and roads. It also has the big advantage of being closer to China than other alumina supplying countries.

China is committed to building a trans-Laos and Cambodia railway network in the foreseeable future.

Alumina supply and demand are following the path of iron ore. Long term growth in global demand for alumina will continue as China?s domestic supply is being exhausted, underpinning a bullish long term alumina price curve.

Institutional investors are hungry for pure exposure to the alumina growth play as there are currently limited choices on the ASX and overseas for investors.

The large size of the refinery guarantees satisfaction of key investment size criteria set by institutional investors.

Australian bauxite and alumina markets are concentrated in the hands of major diversified miners. This severely limits investors? choices for investing directly in the long term growth of alumina.

SARCO will provide investors a real alternative with 100% exposure to bauxite and alumina growth.

Expansion of refinery capacity from 600,000 tonnes a year to 1,200,000 tonnes a year is already in SARCO?s long term plan.

The large size of the refinery should rank SARCO immediately behind Alumina Ltd (ASX: AWC) in size. SARCO plans to close the gap by moving into production, expanding refinery capacity and acquiring new projects.

ORD has upped the ante with this transaction to move SARCO to IPO, enabling it to attract significant capital required for development of the project. This is a potential value building move by ORD and for its shareholders.