Chinese aluminium major Chalco makes surprise gold leasing foray
Aluminum Corp of China (Chalco), the nation’s second largest smelter of the metal, has made an unusual and intriguing foray into the gold leasing business as a means to cut its cost of funding.
The state-backed firm, which booked a modest profit last year thanks to assets restructuring with its parent despite underlying losses at its core operations, said the leasing arrangement would help cut financing costs without subjecting it to the price risk of gold.
“[Our] directors are of the view that the quick acquisition of capital by the company by way of gold leasing and the business of purchasing and selling of gold with the same price through Bocom is free from the risks of gold price fluctuations, and broadens financing channels for the [company’s] production and operation and lowers the financing cost,” Chalco said in a filing to Hong Kong’s bourse on Wednesday.
Chalco said it has struck various gold leasing and hedging agreements with the Beijing branch of Bank of Communications (Bocom), under which the bank will provide Chalco with “standard gold in Au99.99 fineness” which is traded on the Shanghai Gold Exchange.
The market value of the “leased” gold is three billion yuan based on an undisclosed settlement price agreed between the two parties.
I have followed Chalco for over a decade, I have never heard that it has produced or hedged any gold
Chalco said it will pay the bank a leasing fee, certain charges for futures contracts and other transaction expenses, the total of which would not exceed the benchmark interest rate for one-year loans as set by the central bank, the People’s Bank of China.
