The Henan-based gold miner, which kicked off its roadshow Thursday, is offering 258.5 million shares, or 35.17 percent of its enlarged share capital, at an indicative price range of HK$2.55 to HK$3.33, sources said.

It initially tested investor reaction in the range of HK$2.30 to HK$2.90 a share. BOC International and Celestial Capital are jointly arranging the share sale. Zijin Mining, China's largest overseas-listed gold miner, will - through its unit Gold Mountains (HK) International - purchase 12.7 million shares, or 4.9 percent of Lingbao Gold's proposed offering.

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Baker Steel Capital, an investment manager specializing in natural resources and gold, agreed to buy about 18.1 million shares worth US$6 million (HK$46.8 million). Both companies pledged to hold onto their stakes for at least six months after the stock begins trading.

Zhou Zhongyuan, chief financial officer of Zijin, confirmed that the company will invest in Lingbao Gold, but declined to reveal details, saying only that Lingbao Gold is a good company and that the two firms have cooperated on technology in the past.

Lingbao Gold has four operating gold mines, another two under construction and 18 exploration projects in Henan, Xinjiang and Jiangxi provinces. It also runs six processing plants and one smelter.

As at June 30, its aggregate gold reserves and resources were 44.9 tons and 63.3 tons, respectively, according to its preliminary sale document.

Last year, the state-owned company produced 8,197 kilograms of gold bullion, its main product, up 28 percent from 2003. It also sells by-products including silver, copper and sulfuric acid.

Last year, Lingbao Gold's net profit jumped 57 percent to 119 million yuan (HK$114.24 million), from 76 million yuan in 2003. For the first six months this year, net profit surged 34 percent to 75 million yuan on the back of surging gold prices. It expects this year's earnings be at least 150 million yuan, according to the sale document.

The company plans to use half the proceeds from the share sale for exploration and development, with the remainder going for the acquisition of additional mines and mining rights, expansion of its smelting operations, and general working capital.

The first listing of the new year, Lingbao Gold will take orders from retail investors beginning December 30 and running until January 5, with pricing expected January 6. Trading is expected to begin January 12. Prospects for the sale rest heavily on the direction of gold prices. If they remain at or near current levels, just off a 25-year high, market observers expect the offering will be priced at the top of the range, adding that the valuation is much lower than that of Zijin, which trades at 28 times forecast earnings.

"We have revised up our average gold price forecast to US$536 per ounce in 2006 and US$500 in 2007 recently, on the back of stronger-than-expected global demand for the next two years," said Core Pacific-Yamaichi analyst Steven Liu. "For the longer term, we expect the gold price to stay above US$450 supported by stagnant supply growth," he added.