Gold bugs support Chinese gold IPO

Zhongjin Gold Co., China’s first-ever gold producer, recently bowed on the Shanghai Stock Exchange, and by the end of its first day of trading, its A shares had closed at 8.82 yuan — more than double their initial public offering of 4.05 yuan. The debut was one of the most successful on the exchange this year.

Zhongjin had offered 100 million A shares at 4.05 yuan, representing 35.7% of the firm’s equity.

Banking on the traditional Chinese affinity for gold, several analysts had predicted an opening-day close of between 7 and 8 yuan for Zhongjin, which is 88.5%-owned by China’s largest gold miner, China Gold Group.

In China, IPOs are usually successful, and in the past the price of a stock often doubled or tripled on the first day of trading. However, during the past two months, with the growing number of IPOs, the gains have been more modest.

Zhongjin Gold’s listing is another step in the liberalization of an industry long controlled by the government. Last year, the central bank relinquished its control over gold to the Shanghai Gold Exchange, where spot gold is traded.

Before that, the central bank controlled the sector by fixing prices and acting as the sole intermediary between domestic buyers and sellers.

Launched in October 2002, the Shanhai Stock Exchange signaled the opening of one of the largest gold markets: China is the world’s third-largest gold consumer and the fourth-largest gold producer.

The A shares of another major gold producer, Shandong Gold Mining Co., will have their first listing in late August. In mid-August the company was offering 60 million A shares, representing 37.5% of its total equity, at 4.78 yuan per share, or almost 18 times its 2002 earnings per share.