Southern Alliance Mining seeks listing on SGX, expects to benefit from Asean infrastructure spending

Singapore

MALAYSIA-BASED iron ore producer Southern Alliance Mining (SAM) is looking to list on the Singapore bourse and is expecting to benefit from increased infrastructure spending in South-east Asia.

The company lodged its final prospectus on Tuesday, offering 76 million placement shares at S$0.25 each for placement in its initial public offering (IPO).

The shares, which will be listed on the Catalist board, comprise 56 million new shares and 20 million vendor shares, representing approximately 15.5 per cent of SAM's enlarged post-IPO share capital of 489 million shares.

The IPO is priced at approximately 6.13 times price-to-earnings based on the group's FY19 audited profit before tax, which excludes the tax credit in FY19. Based on its placement price, SAM's market capitalisation will be about S$122.3 million post-placement. The placement will close at noon on June 24, with trading slated to begin at 9am on June 26.

The company also intends to recommend dividends of at least 10 per cent of FY20 net profit, which will increase to at least 15 per cent for FY21 and 20 per cent in FY22.

PrimePartners Corporate Finance is the sponsor, issue manager and placement agent for the IPO.

Currently, the group's mining operations are solely conducted at the Chaah Mine in Johor, Malaysia under its 60 per cent subsidiary Honest Sam Development. It also has three other exploration assets there, which will commence operations upon the listing of the company. Its key customers are steel mills located in Malaysia and China, and trading companies.

SAM was co-founded by chief executive officer Pek Kok Sam and non executive and non-independent chairman Teh Teck Tee as a result of their shared interest in mining, Mr Teh told The Business Times.

Mr Pek was the founder of Honest Sam Development, which was previously a limestone quarry mining sub-contractor while Mr Teh was a managing director at a logistics company.

Mr Teh said that with his business network from his previous position coupled with Mr Pek's over 18 years of experience in quarrying, they were able to anchor Honest Sam as an "established producer of high-grade iron ore products in Malaysia with a reliable track record".

In FY19, SAM made a net profit of RM88.2 million (S$28.8 million), reversing its net loss of RM17.2 million in FY2018. Its revenue rose 92.9 per cent to RM189.1 million in FY19 compared to a year-ago period.

While iron ore prices slumped between 2014 and 2018, which Mr Pek cited to be the "most challenging period" for SAM, iron ore is now showing resilience even as the pandemic rages on.

Iron ore prices have remained relatively stable on the back of an expected increase in demand and production at steel mills following the slowing rate of transmission of Covid-19 in China, said Mr Teh.

China also unveiled a US$500 billion fiscal stimulus in May, which is expected to boost infrastructure construction. Malaysia's steel consumption, on the other hand, is expected to rise as the Malaysian government looks to implement and revive several mega-infrastructure projects to spur construction activity, Mr Teh explained.

Meanwhile, the group also foresees spending on infrastructure in other parts of South-east Asia to remain high in areas such as water, power and transport to fulfil needs arising from urbanisation, he added.

While volatile oil prices may pose short-term pressures on the demand for pipe coating materials from oil field development and exploration , Mr Teh said that SAM is well-positioned to meet the demand for pipe coating materials in the region when the oil industry recovers. (see amendment note)

On listing in Singapore, Mr Teh said that the city-state's position as a global hub for commodities trading, with a broad presence of iron ore producers, large steel mills, and trading and shipping companies will benefit the company. He added that Singapore's iron ore futures and the annual Singapore Iron Ore Week has also gained traction among industry players, further supporting SAM's growth strategy.

This includes using its net proceeds of S$11.9 million from the issuance of new shares for further exploration activities, investment into mining equipment and infrastructure and expansion through acquisitions, joint ventures and strategic alliances.

According to Mr Pek, the group is already in discussions with several parties for the possible acquisition of new mining rights and tenements in Malaysia but "discussions remain preliminary and exploratory in nature".

Separately, SAM's preliminary offer document revealed that Mr Pek and his sister Pek Siew Mei had assisted in investigations conducted by the Malaysian Anti-Corruption Commission between 2009 and 2014, and were subpoenaed as witnesses in the trials against four Malaysian civil servants who had been charged with corruption and allegedly accepting bribes and/or soliciting bribes from Aras Kuasa, the holding company of Honest Sam prior to the group's restructuring exercise.

When asked by BT about the matter, SAM's issue manager and sponsor PrimePartners said that Mr Pek was assisting with the investigation and was not the subject of the investigation. In addition, all charged civil servants were subsequently acquitted.

PrimePartners added that they had exercised due diligence as a sponsor and that the company had been transparent in their operations to get the necessary clearance.

Amendment note: An earlier version of this story incorrectly stated that volatile oil prices will affect the company's investments in oil field development and exploration. The company does not invest in oil field development and exploration, volatile oil prices will in fact impact the upstream oil industry in general and in turn demand for pipe coating materials. The article above has been revised to reflect this.