The pricing of the shares of the public sector Hindustan Copper Ltd (HCL) which has just received the government nod for divestment, may prove to be a tricky issue, even as the company is readying itself to file the draft red herring prospectus by July.

While a price band of Rs. 200-300 a share is being seen as a realistic one, the fact that the shares of the listed company trade at a substantially higher range of over Rs. 400 may just make the task a difficult one.

Asked to comment on this view given by analysts, HCL's chairman Shakeel Ahmed was guarded in his observations saying that normally a mining company was valued on the basis of its reserves and not on parameters such as earnings per share.

In the case of HCL, India's sole copper mining company, apart from the reserves, HCL's expansion plans and the price of the metal on the London Metal Exchange are likely to play a role in fixing the price-band.

Reserves

HCL's reserves, certified by an internationally licensed body, has been estimated at 618 million tonnes which includes reserves and resources (which is reserves proven but not explored).

HCL which has 0.41 per cent of its shares in the market will see a further dilution of the present government holding to 81.44 per cent from 99.59 per cent now. The dilution proposal involves the issue of fresh equity to the extent of 10 per cent of HCL's pre-issue paid-up capital, equivalent to 9.25 crore shares of the face-value of Rs. 5 each. In conjunction with the issue of fresh equity, the government will divest 10 per cent of the pre-issue capital.

The company hopes to complete its process of selection of five lead managers by this month-end.

However, the timing of the issue is also crucial as many PSU issues are slated to hit the market one after the other. Officials connected with the development said that the final date will be fixed after gauging market sentiments. “It will either be before the Bengali festive season commencing with Durga Puja in mid-October or a fortnight later — a substantial gap also needs to be kept between the issues of two mining companies — Coal India and HCL.”, sources said.

The proceeds would be utilised to bring about a four-fold jump in production which Mr Ahmed said was crucial to insulate the company from the price volatility of the commodity which is linked to the LME. He said Rs. 4,250 crore would be required by 2015 to increase production from 3.2 million tonne now to 12 million tonne.

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