Brazil’s Ferrous on track for London flotation

Ferrous Resources, the Brazilian iron ore developer, is on track for a London stock market flotation next month that could value the company at roughly $4bn (£2.7bn), say people involved in the transaction.

Bankers are putting the final touches to the group’s initial public offering amid volatile markets that have shelved or dampened other IPOs in recent weeks.

But sentiment for iron ore – the raw ingredient of steel – is bullish. High spot prices for iron ore, reflecting supply constraints set to last through to 2013, underpin the rationale for floating Ferrous. The company is relatively advanced in bringing its 4.5bn tonnes of measured and inferred iron ore resources into production.

Ferrous holds $500m in cash, and is understood to need approximately $400m more to bring its projects into production.

Its move to list, however, is not motivated primarily by project finance requirements, say people involved in the IPO. Rather, a listing would provide liquidity to some of the company’s largest shareholders, which include New York-based hedge fund Harbinger Capital.

In 2007 and 2008, Ferrous raised more than $1bn through private placements. This was used to buy five iron ore properties in Brazil’s Minas Gerais state near mines owned by Vale, the world’s biggest iron ore producer.

The company intended to float in 2008 but the plan was shelved when markets collapsed. Ferrous is one of several IPOs coming back to the London market amid improved conditions, partly as a way to provide exits to investors who were locked in during the downturn.

The company is run by Gordon Toll, former chairman of Fortescue, the Australian iron ore producer. Other top executives are former executives of Vale and CSN, the large Brazilian iron ore producers.

An announcement of an intention to float could come as early as this week, with pricing in June. One banker involved in the IPO, however, cautioned that markets are uneasy and the company has several funding options, so nothing is certain.

Uralchem, the Russian fertiliser company, blamed difficult market conditions when it postponed its planned $600m London listing last month.

Ferrous’s promoters say the company is well-capitalised and has access to good-quality iron ore. But the key attraction, said two people familiar with the company, is its slurry pipeline to the coast that it could charge other companies to use.

Ferrous is understood to have attracted interest from several Chinese companies. Chinese miners are scouring the world for undeveloped iron ore deposits, focusing on countries such as Guinea, Brazil, and Mongolia.