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A grim economic climate has not stopped the prospect of Fresnillo and New World Resources stepping up to the main market

by Dan Coatsworth

Two flotations are set to join the London main market, silencing critics who have been saying mega-bucks IPOs were impossible in current economic climates. Of course, the floats could still be pulled but the prospect of two gigantic precious metal and coal companies – Fresnillo and New World Resources, respectively – triggered enough excitement to momentarily ignore the real risks of both failing to list.

Fresnillo is seeking to raise $1.8 billion from placing new and existing shares with a primary listing in London and secondary in Mexico. The anticipated $900 million raised from the new shares will help to repay debt and finance expansion. The business will be worth an estimated $8 billion upon flotation in May. It is being spun out of Peñoles, a Mexican-listed group which will retain interests in base metals and chemicals production and an estimated 75% stake in Fresnillo.

Not only will Fresnillo displace Hochschild Mining as the biggest primary silver producer on the London market, but it becomes the largest in the world. In 2007, it produced 34.4 million ounces of silver and 280,000 ounces of gold from three operating mines, generating $647.9 million revenue.

The Mexican company certainly looks attractive but analysts believe coal producer New World Resources will be a bigger success on the stock market. They see investors eager to trade on the recent surge in coal prices from supply shortages and increased demand from steel makers. New World Resources is expected to raise ?1 billion to fund new mines and should command a market valuation of at least ?4 billion. It will list during Q2 in London, Prague and Warsaw.

The company is part owned by Zdenek Bakala, a billionaire Czech financier whose RPG business bought a portfolio of coal mines in 2004 as an opportunity to dispose of non-core assets including hotels and hospitals. Two non-mining businesses remain. An energy arm, which owns power generating and transmission assets, is likely to be sold to a utility or power company in exchange for a long-term energy offtake agreement, says New World Resources chief financial officer Marek Jelinek.

Coking coal, a high quality commodity used in steel production, makes up 60% of New World Resources’s output. It is hoping to take this contribution to 80% of group output.

‘The Czech Republic is a land-locked region, so we are protected against outside competition as it doesn’t make sense for our customers to pay high transportation costs for imports,’ says Jelinek. ‘Our only real rival is the state-owned Polish mining company and they are less efficient than us.’

Growth will be supported by two mines in Poland. New World Resources has applied for the mining rights to reopen the Debiensko deposit, which was mothballed ten years ago. It is also negotiating a joint venture on the Morcinek mine in southern Poland.

Including Debiensko, New World Resources has reserves of around 419 million tonnes of coal, enough for 32 years of mining based on 13.1 million tonnes annual production rate. New World Resources and Fresnillo will be the latest in a string of foreign-owned companies to qualify for the FTSE 100. Recent additions to the headline index include two Kazakhstan mining groups, Eurasian Natural Resources and Kazakhmys.