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China Molybdenum to lift spending

Carol Chan

China Molybdenum, the mainland's second-largest producer of the material used to toughen steel, will boost capital spending this year by 50 per cent to expand production capacity and buy more mines.

Capital spending for the Henan-based miner would increase to 1.5 billion yuan (HK$1.66 billion), from one billion yuan last year, chief financial officer Gu Meifeng said yesterday. The company reported late on Sunday a 47.9 per cent increase in last year's profit.

Chairman Duan Yuxian said China Molybdenum would continue to expand its resource base, pursuing talks to buy molybdenum mines in Luanchuan and Songshan counties in Henan province. He did not provide further details.

The company in January signed a legally binding framework agreement to buy a 51 per cent stake in three gold mines in Luoning county, Henan, for 350 million yuan. The three mines had combined gold reserves of 8.91 tonnes at the end of last year.

The acquisition was the company's first since it completed a HK$8.5 billion Hong Kong initial public offering in April last year.

Mr Duan said the company would have total gold reserves of 20 tonnes and silver reserves of 500 tonnes after the acquisitions were completed.

Analysts said the miner had been asked by the Henan government to consolidate the region's molybdenum mines for efficiency and safety reasons. This may provide further acquisition opportunities. The company controls less than 50 per cent of Henan's molybdenum reserves.

However, rising asset prices and management's track record on completing acquisitions - which had been slower than expected - were cause for concern, analysts said.

Shares of China Molybdenum fell 5.19 per cent to close at HK$8.59 yesterday after the firm posted lower than expected earnings for last year. It reported 2.24 billion yuan profit for the year to December. The average estimate in a Thomson Financial analyst poll was for 2.37 billion yuan.