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.
Our popular newsletter for premium subscribers is published twice weekly. On Wednesday we analyse a hot topic from a world financial centre. On Friday we dissect the week’s big themes. Please sign up here.
