Zinc producer to gain rival's assets

PUBLISHED : Thursday, 19 July, 2007, 12:00am
UPDATED : Thursday, 19 July, 2007, 12:00am

Hong Kong-listed Hunan Nonferrous Metals, the mainland's largest zinc producer, is expected to buy a rival operation from its parent company, bolstering its production capacity and market share.

The Hunan provincial government would transfer its entire 83.74 per cent stake in Shuikoushan Nonferrous Metals, the mainland's second-largest lead producer, to parent Hunan Nonferrous Metals Holding Group (HNG) at no cost, the company said yesterday.

The publicly traded company is then expected to buy Shuikoushan. Mainland mining companies are increasingly injecting key assets into their listed arms to streamline operations.

'It is certain that we'll buy Shuikoushan but when and how much has not been discussed,' said Chen Zhixin, Hunan Nonferrous executive director and chief financial officer.

Shuikoushan can produce 40,000 tonnes of lead and zinc concentrates each year.

The company also has a smelting capacity of 180,000 tonnes of lead, 90,000 tonnes of zinc and about 10,000 tonnes of copper. It is capable of producing about one tonne of gold, 500 tonnes of silver and 200,000 tonnes of sulphite.

Goldman Sachs said Shuikoushan would eventually be injected into Hunan Nonferrous because of the parent company's non-competition agreement with the listed firm.

Goldman analysts Song Shen and David Pow said they had become more positive about the listed company's prospects because of the expected acquisition.

'Shuikoushan is a large mine, which could boost the firm's zinc-mining volume by 42 per cent, zinc smelting by 21 per cent and lead smelting by 213 per cent,' they said in a research report yesterday.

They also expect the parent will inject the Yaogangxian tungsten mine in Hunan province into the listed firm this year and the Duddar lead and zinc mine in Pakistan next year.

The tungsten mine is the fourth-largest in the mainland, with reserves of 25.96 million tonnes. It is capable of producing 3,000 tonnes of tungsten concentrates a year.

The Duddar zinc and lead mine, in which HNG has a 49 per cent stake, is 200km north of Karachi and has reserves of 50 million tonnes. The project, which involves an investment of US$72.6 million and is led by China Metallurgical Construction Group, is scheduled to start production at the end of this year.

Once completed, it will be able to produce 100,354 tonnes of zinc concentrate and 32,584 tonnes of lead concentrate each year.

Hunan Nonferrous, which went public in March last year, posted a 5.1 per cent increase in net profit to 451 million yuan last year on turnover of 17.77 billion yuan.

Last week, the company raised HK$1.22 billion through a share placement, which it said would be used for the development of nonferrous metals projects and acquisition of mining rights on the mainland and overseas.