Chalco shares soar as parent wins nod for rare earth firm

PUBLISHED : Wednesday, 06 August, 2014, 7:16pm
UPDATED : Wednesday, 06 August, 2014, 7:16pm

Shares of Aluminum Corp of China (Chalco), the mainland’s largest smelter of the industrial metal, surged yesterday on speculation that its parent, Chinalco, has received approval from Beijing to set up a large rare earth firm and industry consolidation might lead to asset injections into Chalco.

State-backed Chalco soared 9.4 per cent to close at HK$3.74 in Hong Kong and jumped the daily limit of 10 per cent in the early afternoon in Shanghai to 4.07 yuan (HK$5.12) before trading was halted for the day.

Chinalco has received written approval from the Ministry of Industry and Information Technology to use subsidiary China Rare Metals and Rare Earth as a foundation to form a large-scale rare earth firm that will consolidate mining and smelting rivals in Guangxi autonomous region and the provinces of Jiangsu, Shandong and Sichuan.

“This implies Chinalco will become a large rare earth group with operations from north to south, and from east to west,” Chinalco said in a statement on its website issued today. “This will lay the foundation for Chinalco to create an integrated firm with operations in light, medium and heavy rare earths.”

Chinalco said it formed in 2010 a Guangxi rare earth subsidiary to consolidate the autonomous region’s rare earth industry. It has merged four rare earth processing firms in Jiangsu, and also merged its operation in Sichuan with five other companies there.

Chinalco will become a large rare earth group with operations from north to south, and from east to west

In addition, it has reached preliminary co-operation agreements with two of the three remaining rare earth enterprises in Jiangsu that are foreign-owned.

But CLSA head of resources research Andrew Driscoll said investors should beware that the asset injection into Chalco might not necessarily materialise, given that Chinalco chose to separately list in Hong Kong early last year its copper assets in Peru, instead of injecting it into Chalco.

There was also very little publicly available information about Chinalco’s rare earth assets that can be used to assess their potential attractiveness, he added.

Chalco’s spokesman could not be reached.

Given an oversupplied market and depressed aluminium prices, the firm posted billions of yuan of losses in its core operations in the past two years when gains from asset swaps with its parent are excluded.