Citic Resources Holdings, the energy and metals arm of state-owned conglomerate Citic Group, will continue to look for acquisition opportunities but will pursue them in a "cautious" manner, its chief executive said yesterday.
The company would not buy aluminium smelting assets because of a global oversupply of the metal and would only consider bauxite and alumina assets, chief executive Zeng Chen said.
"The decline in the international aluminium price in recent years was due to over-expansion by Chinese smelters, whose output accounted for 40 per cent of the global total," Zeng said. "But aluminium demand is expected to continue to rise, with demand from automobiles being one of the driving forces."
Zeng was speaking a day after Citic Resources announced a 38.8 per cent fall in operating profit to HK$801.2 million for last year, which excluded taxes, non-recurring assets as well as goodwill impairments and gains on investment disposals.
He said he believed the room for aluminium prices to fall further would be limited since it was already close to the cost of production. The three-month aluminium futures price on the London Metal Exchange has dropped 19.1 per cent in the past two years and is now around US$2,048 a tonne.
Zeng's comments came just over a week after Citic Resources announced it would pay A$271 million (HK$2.17 billion) for a 7.83 per cent stake in Australia-listed Alumina, which has a joint venture with US aluminium giant Alcoa. Citic Resources' parent, Citic Group, will buy 5.22 per cent for A$181 million.
The joint venture has aluminium smelters, alumina refineries and bauxite mines in Australia, Jamaica, Guinea in West Africa, as well as Brazil and Surinam in South America.
The main reasons for the decline in Citic Resources' operating profit were a 12.3 per cent fall in profit from crude production to HK$879 million due to higher production costs; a 94 per cent drop in profit from coal production to HK$15 million due to lower coal prices and the disposal of a stake in a coal firm; and a HK$182 million loss in its manganese mining and smelting unit.
These were partly offset by a 59.5 per cent jump in profit at its commodities import and export operation to HK$563 million.