Lower fees eat into Jiangxi Copper earnings

PUBLISHED : Wednesday, 26 March, 2008, 12:00am
UPDATED : Wednesday, 26 March, 2008, 12:00am

Jiangxi Copper, the mainland's largest integrated copper producer, reported a 12.83 per cent drop in profit last year as lower processing fees and higher costs eroded margins despite surging commodity prices.

Net earnings at the Guixi, Jiangxi-based company fell to 4.2 billion yuan, lagging behind a mean estimate of 4.48 billion yuan from 17 analysts polled by Thomson Financial.

Sales rose 65.17 per cent to 41.4 billion yuan.

The company declared a final dividend of 3 yuan for every 10 shares held.

During the period, gross profit from its non-ferrous metals segment fell 14.15 per cent to 2.59 billion yuan even though operating revenue increased 63.38 per cent. Gross profit in its copper products processing segment declined 18.68 per cent to 1.84 billion yuan due to higher costs, lower processing fees for copper smelting and increased resource taxes.

Processing fees, which can determine the viability of some smelters, usually fall when concentrates are in short supply.

In December, Chinese firms including Jiangxi Copper, Daye Nonferrous, Tongling Nonferrous Metals and Jinlong Copper, agreed to a further 21 per cent cut in processing fees for this year with BHP Billiton, after a 37 per cent cut last year.

Gross profit at Jiangxi Copper's precious metals segment fell 9.6 per cent to 900 million yuan due to higher costs last year. Gross profit from chemical products and other recycled products amounted to 570 million yuan, up 17.99 per cent on higher prices.

Copper price rose 5 per cent and averaged US$3.20 a pound last year, while gold prices jumped 12 per cent to an average of US$674 an ounce, according to Credit Suisse. The firm expects copper prices will rise to US$3.60 a pound and gold will climb to US$950 an ounce this year.

Li Yihuang, Jiangxi Copper's chairman, said the price of copper will remain high this year due to China's rapid economic growth and reconstruction efforts after the country's disastrous winter snow storms.

The company, whose copper concentrate self-sufficiency ratio is about 30 per cent, is increasing efforts to secure resources at home and abroad to feed its expanded smelting capacity and to enhance profitability.

Mr Li said Jiangxi Copper would expedite the capacity expansion of existing mines and proceed with overseas projects 'in an active but prudent manner'.