Jiangxi Copper profit slips as costs increase

PUBLISHED : Wednesday, 29 August, 2007, 12:00am
UPDATED : Wednesday, 29 August, 2007, 12:00am

Earnings fall 1.76pc to 2.07b yuan despite metal's rising prices

Jiangxi Copper, the biggest mainland producer of the industrial metal, suffered a drop in first-half earnings as rising costs reduced the benefit of surging commodity prices.

Growing demand from the mainland, the world's biggest consumer of copper, helped push prices to a record high this year.

That has added pressure to Jiangxi Copper's bottom line as the company needs to buy more than 60 per cent of its copper concentrate from other mining firms such as BHP Billiton to feed the mainland's surging economy.

Net earnings at the Guixi, Jiangxi-based company declined 1.76 per cent to 2.07 billion yuan. Sales rose 82 per cent to 17.29 billion yuan.

No interim dividend was declared.

The result still bettered market expectations, with Cazenove, UBS and Goldman Sachs forecasting the company would report a 4 to 10 per cent decline in earnings.

Analysts said Jiangxi Copper was helped by a 63 million yuan hedging gain compared with a 1.35 billion yuan loss a year ago.

From January to June, Jiangxi Copper sold 146,600 tonnes of refined copper and 74,200 tonnes of copper rods and wires. It did not provide comparison figures.

It also processed 2.51 million tonnes of refined copper and sold 7,900 kilograms of gold and 149,516kg of silver.

Jiangxi Copper, which controls 17 per cent of mainland copper output, said average selling prices for the metal used in construction and manufacturing rose 13.22 per cent to 52,660 yuan per tonne.

During the period, average three-month copper futures on the London Metal Exchange sold at US$6,763 a tonne, a 13.17 per cent increase.

Demand from the world's fastest-growing economy helped push copper to a record US$8,790 a tonne in May. Prices held above US$7,200 a tonne recently.

Jiangxi Copper expects copper prices will remain strong in the second half of the year but processing fees are unlikely to rebound because of increasing smelting capacity.

Processing fees collected from other copper producers declined in the period, squeezing overall operating profit margins 10.72 percentage points to 13.73 per cent. Operating costs jumped 60.12 per cent.

Processing fees, which can determine the viability of some smelters, usually fall when concentrates are in short supply. Fees this year were cut 37 per cent compared with last year, according to Beijing Antaike Information Development.

Nine mainland copper smelters, including Jiangxi Copper, last month said they might cut refined metal output by as much as 15 per cent in the second half because smelting fees did not cover the cost of processing imported concentrates.

Jiangxi Copper's H shares surged as much as 20.33 per cent yesterday before closing up 5.55 per cent at HK$20.35.

The stock has jumped 72 per cent in the past seven trading days and 159 per cent in the past year.

Its Shanghai-traded A shares, which more than tripled in the past year, rose 8.98 per cent yesterday, closing at a record 45.26 yuan.