Hong Kong company reporting season

Jiangxi Copper’s 1H profit falls as weak metal prices crimp earnings

Full-year net income may jump 36.4 per cent as copper prices recover, according to estimates

PUBLISHED : Tuesday, 23 August, 2016, 8:23pm
UPDATED : Tuesday, 23 August, 2016, 10:55pm

Jiangxi Copper Co’s interim net income declined 37.8 per cent, topping analysts’ estimates, as lower prices for the industrial metal eroded the producer’s profit margin.

Net profit fell to 643 million yuan in the first six months, or 0.19 yuan a share, from last year’s 1.03 billion yuan, or 0.3 yuan a share.

First-half revenue rose 19.4 per cent year-on-year to 90.2 billion yuan on the back of a substantial rise in trading volume of metals mined by other firms, which attracts lower profit margins than output from Jiangxi Copper’s own mines.

The increase in trading volume masked the impact of lower copper price that crimped profit. The first-half London Metal Exchange average copper price dropped 21 per cent year-on-year to US$4,701 a tonne.

In the second quarter, net profit tumbled to 272 million yuan, 67.4 per cent decline from a year ago. Compared with the first three months, second-quarter income jumped 35 per cent because of a quarter-on-quarter rebound in copper prices.

No interim dividend was declared, consistent with last year and 2014.

“While copper price is trading at close to a 10-year low, various nations have adopted loose monetary policies to stimulate economic growth, which is expected to provide support to copper price in the short term,” chairman Li Baomin said in a filing to Shanghai’s bourse on Wednesday.

The company will strengthen cost control and financial risk management, besides scouting out for overseas acquisitions, he added.

Jiangxi Copper’s venture with CCB International Asset management is aiming to raise US$300 million from investors for a mining investment fund. Half of the amount as already been received, Li said.

The company’s results today surpassed the figure expected by JPMorgan’s head of regional metals and mining equities research Daniel Kang.

Jiangxi Copper’s performance may improve in the third quarter, Kang said, citing a 4 per cent rise in average copper prices so far in the third quarter, compared with the second quarter.

The company’s full-year profit is likely to rise 36.4 per cent to 940.8 million yuan, according to the average forecast of nine analysts polled by Thomson Reuters.

Last year’s profit was pulled down by a second-half net loss of 345 million yuan, due to lower copper prices and a 530 million yuan year-on-year jump in finance costs largely from losses on the yuan’s devaluation, according to Changjiang Securities’ analysts.

However, SWS Research’s analysts have forecast in a note that copper traded in Shanghai would fall to 35,000 yuan a tonne next year from 37,000 yuan this year, before rebounding to 39,000 yuan in 2018.

They said supply surplus will persist this year due to moderate demand growth, as well as a 6.3 per cent increase in global output capacity as projected by the International Copper Study Group, the fastest in five years.

Jiangxi Copper’s shareholders last month approved the board’s plan to raise not more than 7.06 billion yuan by issuing new shares in mainland China and Hong Kong, to bolster working capital and fund expansion of two mines in Jiangxi province.

Parent Jiangxi Copper Corp has pledged to buy just over half the shares to be offered. Jiangxi Copper, which imports 80 per cent of its ore needs to feed its smelting plants, said the expansion would help reduce its reliance on foreign ore, but has yet to say when it will complete the expansion of its mines.

Changjiang Securities’ analysts estimated that the expansion would raise its self-mined copper metal contained in ore to 225,000 tonnes from 210,000 tonnes currently.

Jiangxi Copper shares were unchanged at HK$8.99 on Tuesday. They have declined 2.2 per cent so far this year, compared to a 4.9 per cent gain of the Hang Seng Index.