Jiangxi Copper to raise HK$8.4 billion, reports 76pc drop in profit
Jiangxi Copper unveiled a plan to raise up to HK$8.4 billion from its parent and Chinese private investors to expand two mines and bolster working capital, after reporting a 76 per cent profit drop due to weak metal prices.
Jiangxi Copper Corporation, parent of the Hong Kong and Shanghai-listed firm – China’s largest miner, smelter and producer of downstream products of the industrial metal – has pledged to buy 55 per cent of all the shares to be issued for the fundraising.
“The arrangement is a demonstration of our parent’s confidence in our future,” chairman Li Baomin told reporters on Wednesday.
The company reported a net profit of 689.6 million yuan for last year, much lower than the 1.59 billion yuan average estimate of 13 analysts polled by Thomson Reuters, and 2.9 billion yuan posted in 2014.
This was mainly due to lower metal prices. The average three-month futures price of copper fell 13 per cent on the London Metals Exchange last year from 2014.
For every 1,000 yuan of decline in copper price, the firm estimates it loses around 200 million yuan of profit on copper produced from its own mines.
Li said the firm needs to raise funds to expand its mining capacity despite the dismal results because it is confident that raw copper ore will be short in supply due to the lack of new mines coming on stream in the next few years, leading to a price rebound. It buys over 80 per cent of its ore needs from abroad.
Vice-president Wu Yuneng cited forecasts by commodities consultancy CRU and the International Copper Study Group that the 22 million tonne-a-year global copper market will see a supply deficit of 127,000 to 145,000 tonnes this year.
The parent company has committed to buy 10 per cent of up to 3.5 billion yuan worth of its Shanghai-listed shares to be sold at a minimum of 11.73 yuan each, with the rest to be sold to up to 9 other private mainland investors.
The parent has also pledged to buy all of the Hong Kong-listed shares of up to HK$4.15 billion, to be issued for at least HK$7.87 apiece.
The price can be raised to a maximum of HK$8.45, if the closing price on the day before a shareholders’ meeting to approve the deal is higher than that on Tuesday’s board meeting approving the proposed shares issue.
The parent has agreed not to sell the shares it will purchase within three years of their issue.
Some 2.5 billion yuan to be raised in China will be used for the expansion of the Chengmenshan copper mine and the Yinshan copper mine in Jiangxi province, as well as enlarging the capacity of a post-mining waste reservoir.
The remaining HK$5.4 billion has been earmarked for working capital.
Jiangxi Copper plans to produce 1.17 million tonnes of refined copper this year, down from 1.25 million tonnes last year, as it and five of its rivals have pledged to cut 0.35 million tonnes of output this year to help shore up prices.
It also plans to produce 207,000 tonnes of intermediate product copper concentrate, 1 per cent less than last year. When the two mines’ expansion is complete, they would add 30,000 tonnes of annual concentrate output capacity.
Jiangxi Copper’s shares gained 1.2 per cent to HK$9.86 in Hong Kong.