China’s largest trader and producer of nickel is braving a tough Hong Kong market with a large listing. Lygend Resources can do so because it supplies metal to glamorous electric vehicle makers. But that does not make its shares a good buy.
The company is the largest nickel ore trader by volume in China. That alone would once have been seen as a stable business model. But the previously staid nickel market has become highly volatile. Daily price moves of 20 per cent sometimes occur.
That may explain why Lygend has a financing target of just $600mn at the top of its price range. This compares with $1bn mooted last year. The offering of 232mn shares would value the company at about $4bn.
Nickel nervousness is the result of wavering consumer demand and a short squeeze on nickel futures in March. That tripled the price to $100,000 per ton. Investors that bet on a fall in prices, such as the tycoon behind Chinese metals producer Tsingshan Holding Group, lost a notional $10bn in a matter of days. Since then, trading volumes have declined sharply.
Fortunately, Lygend is not just a trader. It also mines nickel ore and ferronickel, and makes related equipment. That should help attract interest from retail investors in EV-friendly Hong Kong.
Two other EV-related plays have pulled off large cash calls this year. Tianqi Lithium Corp secured $1.7bn in July while battery maker CALB raised $1.3bn in October.
CALB’s shares have fallen 42 per cent since its listing. Tianqi is down 16 per cent and trades at 7 times forward earnings, a more than 30 per cent discount to peers such as US-based Albemarle Corporation and mainland-listed Ganfeng Lithium.
Would-be Lygend investors must be prepared to weather a double dose of volatility — from Hong Kong’s unpredictable market swings as well as from nickel prices. The benchmark Hang Seng index is down 30 per cent in the past year. Medium-term investors convinced by Lygend’s sales pitch should wait for the shares to settle before buying in.
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