Jiangxi Copper plans output rise to capture high prices

PUBLISHED : Friday, 20 April, 2007, 12:00am
UPDATED : Friday, 20 April, 2007, 12:00am

Jiangxi Copper, the mainland's largest Hong Kong-listed producer of the metal, aims to generate 25 per cent more refined copper this year as it expects global prices to remain relatively high.

'With the fourth phase of the Guixi smelter expansion starting operation gradually, this year's refined copper output will grow to 550,000 tonnes, bigger than in 2005,' chairman Li Yihuang said a day after the company reported a lower than expected 147 per cent jump in profit for last year.

The 3.64 billion yuan smelter, which will have an annual capacity of 300,000 tonnes of refined copper when it becomes fully operational by the end of the year, is expected to begin partial production by June.

On completion of the plant, Jiangxi Copper's capacity would reach 700,000 tonnes a year, said Mr Li, who was promoted to chairman in January.

The firm produced 440,000 tonnes of refined copper last year, a 5.2 per cent increase from 2005.

Mr Li said the production of gold and silver this year should remain stable at about 13 tonnes and 350 tonnes, respectively.

He said the company would focus on developing its own resources and acquiring external resources in the mainland and overseas to increase the ratio of self-supplied raw materials and increase the use of scrap copper for production.

The company has budgeted 3.4 billion yuan for capital spending this year, an increase of 70 per cent from two billion yuan last year. A large part of the amount will be used for the Guixi expansion project.

Copper hit a high of US$8,790 per tonne in May last year. During the year, the average three-month copper futures and copper spot closing prices on the London Metal Exchange were US$6,665 and US$ 6,721 per tonne, an increase of 90.2 per cent and 82.7 per cent, respectively.

Meanwhile, analysts were disappointed at the firm's earnings and worried about its growing net debt.

'We see a mismatch in Jiangxi Copper's strong earnings and ballooning net debt, as record prices of copper have stretched the balance sheet of players in the supply chain,' said Christine Pu, a Deutsche Bank analyst.

She noted that the almost doubling of the firm's net debt of 3.6 billion yuan was largely due to its inventories surging 87 per cent to 6.1 billion yuan and trade receivables soaring 229 per cent to 3.8 billion yuan, squeezing its cash flow.

Another concern was that its 4.62 billion yuan net profit last year failed to match the mean estimate of 4.82 billion yuan by 17 analysts polled by Thomas First Call, and was 4 per cent lower than Ms Pu's forecast, partly due to hedging losses rising 805 million yuan to 1.35 billion yuan.

Shares of Jiangxi Copper fell 6.45 per cent yesterday, closing at HK$11.32, as copper futures in Shanghai dropped their daily limit of 4 per cent due to high level of inventory.

Ms Pu, who has a 'hold' rating on Jiangxi Copper, cut her forecast of this year's earnings by 2 per cent to factor in larger than expected net debt and finance costs. She now expects the company to report flattish earnings this year.

Jiangxi Copper's planned 290 million new A-share issue was expected to dilute the company's earnings per share this year by 5 per cent, Ms Pu added.