Jiangxi Copper to take stake in Afghan mine

PUBLISHED : Thursday, 22 November, 2007, 12:00am
UPDATED : Thursday, 22 November, 2007, 12:00am

Jiangxi Copper, the mainland's largest integrated copper producer, will buy a stake in a US$3 billion project in Afghanistan - a deal that could help cut the company's cost of buying copper concentrate.

The Guixi, Jiangxi-based company won the right to explore the Afghan copper mine, possibly one of the world's largest, with state-owned China Metallurgical Group, the Ministry of Commerce said in a statement on its website yesterday.

The mine, in Aynak, east of the capital Kabul, has estimated copper reserves of 11.3 million tonnes, it said. The consortium plans to mine some 200,000 tonnes of copper a year.

Jiangxi Copper secretary Pan Qifang confirmed the company's winning bid and said it would own at least 20 per cent of the project. He did not give details.

The project, which is the biggest investment in Afghanistan's history, will cost the consortium US$2.89 billion. The mainland companies also need to pay the Afghanistan government US$400 million to operate the mine after the five-year construction is complete, Reuters cited Afghan Mines Minister Ibrahim Adel as saying.

The deal, Jiangxi Copper's first overseas mining project, could improve the company's profit margin by boosting its copper reserves and increasing its copper concentrate self-sufficiency ratio, said Core Pacific-Yamaichi International analyst Cherry Chen.

Last month, Jiangxi Copper said its third-quarter net profit fell 16.1 per cent year on year to 1.25 billion yuan, despite sharply higher turnover, as rising materials costs eroded profitability.

Operating profit margin tumbled to 13.4 per cent from 24.7 per cent as tight global supply of copper concentrate pushed prices up. Jiangxi Copper uses the material to produce refined copper to feed growing demand in the mainland's fast-growing power and construction sectors.

Brokerage CLSA estimated that Jiangxi Copper's self-sufficiency ratio would fall to 24 per cent next year from 30 per cent this year, as the company expands its annual smelting capacity to 700,000 tonnes from 518,000 tonnes.

Jiangxi Copper's Afghanistan investment highlights the eagerness of mainland firms to secure overseas resources amid rising commodities prices. The mainland, the world's biggest copper consumer, imports about 75 per cent of its copper concentrate consumption to produce refined copper.