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Commodities

China Hongqiao close to clinching bauxite deal in Guinea

Investment in Guinea could see 60 per cent of China's second largest aluminium smelter's supply coming from mines it has invested in

PUBLISHED : Monday, 30 March, 2015, 10:44pm
UPDATED : Friday, 17 April, 2015, 3:57pm

China Hongqiao Group is in advanced talks on a mining and port investment deal in Guinea that could help it reach a target to have 60 per cent of its needs for bauxite coming from mines it has invested in.

The Shandong province-based firm, the nation's second largest aluminium smelter, is in talks with a Singapore firm and a firm in Guinea, West Africa to jointly invest in a bauxite mining project with a top annual output capacity of 10 million tonnes, chief executive Zhang Bo said.

It also expects to co-invest with three other firms, including a mainland state-owned firm to build a port. The total cost of the mine and port would be less than US$200 million, he said.

"Guinea has a lot of quality mineral resources but most are not exploited since few dared to invest in needed port and rail," he said. "Instead of finding the mines first, we zeroed in on the simplest logistics channel and then located the nearby mines."

The first shipment was expected to arrive in Shandong by late September, he added.

Chief financial officer Zhang Ruilian told the South China Morning Post they hoped to sign the investment deal before August. Hongqiao has no investment in bauxite mining, but has an alumina refining project in Indonesia with an annual output capacity of one million tonnes due for completion late this year.

Bauxite is refined to produce alumina, which is then smelted to produce aluminium, a lightweight metal of which the mainland accounts for half of global demand.

China imports most of its bauxite needs. Indonesia, a key supplier, last year banned bauxite exports, prompting Hongqiao to invest in a refinery there.

Guinea is estimated by the United States Geological Survey to have the world's largest bauxite reserves, or 26 per cent of the total. China only has 3 per cent.

Beijing has launched the "One Belt, One Road" initiative, which encourages cross-continent co-investments and economic cooperation. Southeast Asia and Africa are key targets for the initiative.

Hongqiao on Sunday posted a 5 per cent fall in net profit to 5.31 billion yuan for last year. Excluding a 163.6 million yuan fair value gain on a derivative instrument in 2013, net profit was almost flat.

A 6 per cent average aluminium price fall partially offset a 4 per cent fall in production cost thanks to greater generation of its own power. Its gross profit margin fell to 25.8 per cent last year from 27.7 per cent in 2013.

The benefit of a 37.5 per cent jump in output last year was offset by a 32 per cent jump in finance costs as the firm borrowed more to fund construction of power and alumina plants. It has budgeted capital expenditure of 10 billion yuan this year, down from 11 billion yuan last year.

Meanwhile, Sinopec Engineering, the refineries and chemical plants construction unit of Sinopec Group, also expects to get more business from the Middle East and Central Asia. President Yan Shaochun expects US$2.5 billion of overseas orders to be signed this year, up from US$1.8 billion last year. Some 40 billion yuan of domestic orders are expected, down from 49 billion yuan last year and 59 billion in 2013 amid refinery and chemical plants over-capacity.

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